<PAGE>
                                                                      Exhibit 13
 
PORTIONS OF GA FINANCIAL 1996 ANNUAL REPORT

GA Financial, Inc. is a $634 million unitary savings and loan holding company
headquartered in Pittsburgh, Pennsylvania. Through its principal subsidiary,
Great American Federal Savings and Loan Association, the Company operates 13
banking offices in the greater Pittsburgh metropolitan area. Founded in 1914,
the Association is a federally-chartered FDIC-insured stock savings institution.
 ................................................................................

CORPORATE HEADQUARTERS
GA FINANCIAL, INC.
4750 Clairton Boulevard, Pittsburgh, Pennsylvania 15236-2187
(412) 882-9946 . (412) 882-8580 FAX

ANNUAL MEETING
The annual meeting of shareholders will be held at 10:00 a.m., on Wednesday,
April 30, 1997 at The Bradley House, 5239 Brownsville Road, Pittsburgh, PA
15236. Shareholders are encouraged to attend.

ANNUAL REPORT ON FORM 10-K
A copy of GA Financial, Inc.'s annual report on Form 10-K without exhibits is
available without charge to shareholders upon written request. Requests should
be sent to Mr. Raymond G. Suchta, Chief Financial Officer and Treasurer.

STOCK TRANSFER/REGISTRAR
Questions regarding the transfer of stock, lost certificates, address changes,
account consolidation and cash dividends should be addressed to Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016 (800) 866-1340.
Allow three weeks for a reply.

INQUIRIES
Security analysts, retail brokers and shareholders seeking financial information
should contact Mr. Raymond G. Suchta, Chief Financial Officer and Treasurer.
Requests for written materials can be forwarded to the attention of Ms. Susan
Morris, Investor Relations Department.

DIVIDEND REINVESTMENT PLAN
GA Financial, Inc. 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 Ms. Susan Morris,
Investor Relations Department.

STOCK INFORMATION
GA Financial, Inc. is traded on the American Stock Exchange under the ticker
symbol "GAF."  As of March 4, 1997, GA Financial, Inc. had 8,455,000 shares of
common stock outstanding and approximately 1,905 shareholders of record.

<TABLE>
<CAPTION>
 
                                   ----------------------------------------------
STOCK PRICE                        QUARTER     HIGH         LOW     CASH DIVIDEND
                                   ----------------------------------------------
<S>                                <C>          <C>        <C>      <C> 
The following table illustrates   
GA Financial, Inc.'s high and        QI*        11-3/4     11             --
low closing stock price on the       QII        11-1/2     10-5/8         --
American Stock Exchange and          QIII       13-3/8     10-1/4       $0.05
the cash dividend per share          QIV        15-5/8     12-5/4       $0.08
paid during 1996:                  ----------------------------------------------
                                   *GA Financial common stock began trading      
                                    on March 26, 1996.                            
</TABLE> 
<PAGE>
 
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Dollar amounts in thousands, except share data

<TABLE>
<CAPTION>
                                                                                    AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------
                                                                   1996       1995       1994       1993       1992
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>        <C>        <C>        <C>        <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets                                                   $634,048   $521,398   $467,655   $486,278   $477,133
Investment securities available for sale                        119,347     71,060     20,187         --         --
Investment securities held to maturity                               --         --    104,304    204,757    171,799
Mortgage-related securities available for sale                  244,482    168,779     49,108         --         --
Mortgage-backed and mortgage-related
  securities held to maturity                                        --         --    122,779    110,205    111,457
Loans held for sale                                              15,383         --         --         --      3,331
Loans receivable, net                                           216,376    180,275    153,573    146,023    163,501
Borrowed funds                                                   51,525         --         --         --         --
Total equity/2/                                                $122,404   $ 48,230   $ 40,892   $ 39,196   $ 33,884
 
SELECTED OPERATING DATA:
Interest income                                                $ 40,350   $ 32,833   $ 30,403   $ 32,593   $ 36,321
Interest expense                                                 17,545     16,543     14,769     15,494     20,170
-------------------------------------------------------------------------------------------------------------------
  Net interest income before provision
   for loan losses                                               22,805     16,290     15,634     17,099     16,151
  Provision for loan losses                                         210         --         --        180        426
-------------------------------------------------------------------------------------------------------------------
  Net interest income after provision
   for loan losses                                               22,595     16,290     15,634     16,919     15,725
Other income                                                      3,460        422      1,502      4,122      3,783
Non-interest expense                                             16,972     12,280     11,982     11,896     11,098
-------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes and
  cumulative effect of change in accounting method                9,083      4,432      5,154      9,145      8,410
Provision for income taxes                                        3,481      1,612      1,894      3,519      3,142
Cumulative effect of change in acounting method                      --         --         --        314         --
-------------------------------------------------------------------------------------------------------------------
Net income                                                     $  5,602   $  2,820   $  3,260   $  5,312   $  5,268
===================================================================================================================
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
  Return on average assets                                         1.00%      0.59%      0.67%      1.09%      1.12%
  Return on average equity                                         5.21       6.27       8.00      14.36      16.59
  Average equity to average assets                                19.22       9.49       8.38       7.61       6.75
  Equity to total assets at end of period                         19.31       9.25       8.74       8.06       7.10
  Average interest rate spread                                     3.27       3.08       2.98       3.35       3.20
  Net-interest margin                                              4.20       3.54       3.33       3.64       3.56
  Average interest-earning assets to average
    interest-bearing liabilities                                 129.07     112.88     111.16     109.12     108.05
  Non-interest expense to average assets                           2.54/1/    2.59       2.47       2.45       2.36
  Efficiency ratio                                                58.35      68.21      69.92      56.54      56.89
  Cash dividends paid per share                                    0.18         --         --         --         --
  Dividend payout ratio                                           18.84         --         --         --         --
REGULATORY CAPITAL RATIOS:
  Tangible capital                                                19.13       8.77       9.01       8.05       7.10
  Core capital                                                    19.13       8.77       9.01       8.05       7.10
  Risk-based capital                                              55.88      18.64      23.36      17.09      15.48
ASSET QUALITY RATIOS:
  Non-performing loans as a percent
    of gross loans receivable                                      0.38       0.81       0.81       0.90       1.89
  Non-performing assets as a percent of total assets               0.14       0.28       0.27       0.27       0.65
  Allowance for loan losses as a percent
    of gross loans receivable                                      0.44       0.45       0.55       0.58       0.46
  Allowance for loan losses as a percent
    of non-performing loans                                         115%     56.30%     67.73%     63.70%     24.19%
NUMBER OF FULL-SERVICE CUSTOMER FACILITIES                           13         10         10         10          9
</TABLE>
/1/Excludes one-time SAIF assessment of $2.8 million.
/2/The Company completed its conversion to stock company on March 25, 1996.

4    GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
                                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL
-------

GA Financial, Inc. (the "Company") was incorporated on December 14, 1995, and is
the holding company for Great American Federal Savings and Loan Association (the
"Association").  On March 25, 1996 the Association completed its conversion from
a federally chartered mutual savings and loan association to a stock form of
ownership, while simultaneously, the Company issued 8,900,000 shares of common
stock, utilizing a portion of the net proceeds to acquire all of the outstanding
stock of the Association.  Currently, other than investing in various
securities, the Company does not directly transact any material business other
than through the Association.  Accordingly, the discussion herein addresses the
operations of the Company as they are conducted through the Association.

     The Company conducts business primarily through its ownership of the
Association which operates its administrative/branch office in Whitehall,
Pennsylvania and nine other branch offices in Allegheny County and two offices
in Westmoreland County, both of which are located in southwestern Pennsylvania.
The Company's primary business is attracting retail deposits from the general
public and investing those deposits and other borrowed funds in loans, mortgage
related securities, U.S. government and federal agency securities and other
investments. The Company's revenues are derived principally from interest on
mortgage loans, mortgage-related securities and to a lesser extent, interest and
dividends on its investment portfolio. The Company also generates non-interest
income from service fees and from the sales of data processing services from its
data processing division. The Company's primary sources of funds are retail
deposits, principal and interest repayments on loans, mortgage-related
securities and investments, Federal Home Loan Bank of Pittsburgh (FHLB) advances
and sales of loans and investments.

     The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on interest-
earning assets and the interest expense incurred on interest-bearing
liabilities. Non-interest income is the result of service fees, sales of data
processing services and gains on the sale of loans and investments. The
Company's operating expenses consists primarily of employee compensation,
occupancy expenses, federal deposit insurance premiums, data processing expenses
and other general and administrative expenses. The Company's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory agencies. The Company had no operations prior to March
25, 1996 and accordingly, the results of operations and other data discussed
below occurring prior to that date reflect only those of the Association and its
subsidiaries.

MANAGEMENT OF INTEREST RATE RISK
--------------------------------

The principal objective of the Company's interest rate risk management function
is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with the Board of
Directors approved guidelines.  Through such management, the Company seeks to
reduce the vulnerability of its operations to changes in interest rates.  The
Company monitors its interest rate risk as such risk relates to its operating
strategies.  The Company's Board of Directors has established an Asset/Liability
Management committee, which is responsible for reviewing its asset/liability
policies and interest rate risk position, and which meets on a quarterly basis.
The Asset/Liability Management committee reviews trends in interest rates, the
financial position of the Company, the Company's actual performance to budgeted
performance, the Company's interest rate position as measured by changes in its
net income and net portfolio value under certain interest rate scenarios and the
projected impact of such interest rate scenarios on its earnings and capital.
The extent of the movement of interest rates is an uncertainty that could have a
negative impact on the earnings of the Company.

     In recent years, the Company has utilized the following strategies to
manage interest rate risk: (1) purchasing adjustable interest rate mortgage-
backed and mortgage-related securities; (2) investing in short-term fixed 

                                      GA Financial, Inc. Annual Report 1996    5
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

rate corporate and government agency bonds or in such types of bonds with
adjustable interest rates, and; (3) attempting to reduce the overall interest
rate sensitivity of liabilities by emphasizing longer term deposits. The Company
has not emphasized the origination of adjustable-rate mortgages due to customer
preference for fixed-rate loans in its primary market area and competitive
pricing of such loans by other lenders in its market area. The Company has
attempted to address the lack of demand for adjustable-rate mortgage loans by
emphasizing the purchase of adjustable-rate mortgage-related securities. To
manage the interest rate risk of the Company, the Board of Directors has also
established parameters relating to the types of securities in which the Company
may invest and parameters relating to the types of deposits which may be offered
by the Company and rates which may be paid on such deposits. The primary tool
utilized by the Company for its interest rate risk management is a modeling
program which estimates the effect various market interest rate scenarios will
have on the Company's net portfolio value, interest income, net income and
capital position. Such interest rate scenarios range from an increase in market
interest rate of 400 basis points to a decrease in market interest rates of 400
basis points. In recent years the Company has attempted to shorten the
maturities of its interest-earning assets by increasing its investment in
shorter-term investments and adjustable-rate mortgage-related securities in
order to better position the Company for an increase in market rates.

NET PORTFOLIO VALUE
-------------------

The Company's interest rate sensitivity is monitored by management through the
use of a model which internally generates estimates of the change in the
Company's net portfolio value ("NPV") over a range of interest rate scenarios.
NPV is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts.  The NPV ratio, under any interest rate scenario,
is defined as the NPV in that scenario divided by the market value of assets in
that same scenario.  The Office of Thrift Supervision (OTS) also produces a
similar analysis using its own model, based on data submitted on the Company's
quarterly Thrift Financial Reports, the results of which may vary from the
Company's internal model primarily due to differences in assumptions utilized
between the Company's internal model and the OTS model, including estimated loan
and securities prepayment rates, reinvestment rates, and deposit decay rates.
Management of the Company believes the assumptions utilized do not materially
differ from those utilized by OTS and more closely approximate the historical
experience of the Company.  The Company's NPV analysis assumes that all fixed-
rate mortgage loans and securities will amortize according to the amortization
rates experienced by the Company over the last 33 quarters, consumer loans will
amortize over 43 months, demand deposits will decay in two months, money market
accounts will decay at a rate of 40% per year for two years and 20% in the third
year, and passbook accounts will decay at a rate of 10% per year.  Using these
assumptions, during periods of rising interest rates the value of the monetary
assets and liabilities decreases.  Conversely, during periods of falling
interest rates the value of monetary assets and liabilities increases.  It
should be noted, however, that rising or falling interest rates will have an
impact on the prepayments of mortgage loans and the prepayments of principal
from mortgage-backed or mortgage-related securities and that these changes in
prepayments will affect the Company's disposition to changes in interest rates.
The amount of change in value of specific assets and liabilities in a rising
interest rate environment may not be necessarily the same as the amount of
change experienced in a falling interest rate environment.  The following table
indicated the Company's NPV as of December 31, 1996, as calculated by the
Company, and indicates the structure of the Company's assets and liabilities
would result in a decline in the Company's NPV in a rising interest rate
environment.  Specifically, the table indicates that, as of December 31, 1996,
the Company's NPV was $143.5 million (or 23% of the market value of total
assets) and that, based upon the assumptions utilized by the Company, an
immediate increase in market interest rates of 400 basis points would result in
a $39.0 million, or 27% decrease in the Company's NPV and an immediate decrease
in market rates of 400 basis points would result in a $47.0 million, or 33%
increase in NPV.

6    GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


--------------------------------------------------------------------------------
(Dollars in Thousands)
--------------------------------------------------------------------------------
 
<TABLE> 
<CAPTION> 

 CHANGE IN INTEREST                                            NPV AS A % OF PORTFOLIO        
RATES IN BASIS POINTS               NET PORTFOLIO VALUE             VALUE OF ASSETS                             
    (RATE SHOCK)               AMOUNT    $ CHANGE    % CHANGE     NPV RATIO  % CHANGE
--------------------------------------------------------------------------------------
<S>                          <C>         <C>         <C>       <C>           <C>
      +400 bp                $104,143    ($39,388)     -27%         18.5%      -18%
      +300 bp                 112,115     (31,416)     -22%         19.4%      -14%
      +200 bp                 122,352     (21,179)     -15%         20.5%       -9%
      +100 bp                 129,895     (13,636)     -10%         21.2%       -6%
      Static                  143,531           0        0%         22.6%        0%
      -100 bp                 154,051      10,520        7%         23.5%        4%
      -200 bp                 164,893      21,362       15%         24.4%        8%
      -300 bp                 176,854      33,323       23%         25.3%       12%
      -400 bp                 190,716      47,185       33%         26.4%       17%
</TABLE>

     Certain shortcomings are inherent in the methodology used in the above
interest risk measurements. Modeling changes in the NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Company's interest
rate sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Company's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Company's net interest income and will differ from actual results.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
----------------------------------------------------------------------------

The Company's total assets of $634.0 million at December 31, 1996 are reflective
of an increase of $112.7 million or 21.6% compared to total assets at December
31, 1995. Changes in the components of assets are discussed herein.

     Cash and cash equivalents increased $7.1 million or 41.5% to $24.3 million
at December 31, 1996 from December 31, 1995 due to the purchase of savings
deposits in December, 1996. The increase in assets primarily reflects an
increase in investment and mortgage-related securities and purchased loans which
were primarily funded with net conversion proceeds of $86.4 million and deposit
purchases of $25.4 million.

     Investment securities were $119.3 million at December 31, 1996, an increase
of $48.3 million or 68.0% over the balance at December 31, 1995. This was
primarily a result of an increase in government securities. There were no
security sales made but not yet settled at December 31, 1996. At December 31,
1995 $73.1 million of securities were purchased but not yet settled. All of
those transactions were settled in January, 1996.

    Mortgage-related securities totaled $244.5 million at December 31, 1996, an
increase of $75.7 million or 44.9% over balances at December 31, 1995 due to
purchases of these types of securities. Proceeds from the stock conversion,
deposit purchases and borrowings provided the funds used to purchase securities.
(See Note 4.)

     Net loans receivable at December 31, 1996 were $216.4 million, an increase
of $36.1 million or 20.0% compared to net loan balances at December 31, 1995 due
to origination of mortgage loans and purchases of mortgage loans. Mortgage loan
purchases of $71.2 million were made in 1996 as opposed to $24.2 million in
1995, to offset low mortgage demand in the Company's primary lending areas.

                                      GA Financial, Inc. Annual Report 1996    7
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

The following table presents details of the Company's loan portfolio:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)                   DECEMBER 31, 1996  DECEMBER 31, 1995
--------------------------------------------------------------------------------
<S>                                      <C>                <C>
Mortgages:
   Residential and multi-family                $184,961           $129,717
   Commercial                                     5,053              3,290
   Construction and development                   3,545              5,891
Consumer loans:                               
   Home equity                                   22,153             20,151
   Education loans, not held for sale                --             20,766
Other:                                        
   Loans on savings accounts                      2,062              2,159
   Unsecured personal loans and other             1,698              1,449
--------------------------------------------------------------------------------
      Total                                    $219,472           $183,423
                                              
Less:                                         
   Undisbursed mortgage loans                       684              1,363
   Deferred loan fees                             1,381                963
   Allowance for losses                           1,031                822
--------------------------------------------------------------------------------
      Net loans                                $216,376           $180,275
--------------------------------------------------------------------------------
</TABLE>
 
NON-PERFORMING LOANS. Non-performing loans (all loans 90 days or more overdue)
were $896,000 and $1.5 million at December 31, 1996 and December 31, 1995,
respectively, which represented .38% and .81% of the Company's total loans,
respectively. As a percentage of total assets, the Company's total non-
performing assets amounted to .14% at December 31, 1996 and .28% at December 31,
1995. The foregone interest income on non-performing loans was $37,000 in 1996
and $59,000 in 1995.

     Education loans available for sale at December 31, 1996 totaled $15.4
million, a 100% increase from December 31, 1995 when no education loans were
classified as available for sale. The Company has decided to sell education
loans when those loans reach repayment status.

     Due to the increase in the Company's assets and as a result of borrowings,
the Company was eligible to own more Federal Home Loan Bank stock. At December
31, 1996 the Company owned $2.3 million of FHLB stock, an increase of $444,000
or 23.6% from December 31, 1995.

     Accrued interest receivable at December 31, 1996 was $4.3 million, an
increase of $2.0 million or 92.1% compared to December 31, 1995. This increase
is the result of the increase in loans and investment balances.

     The net change in all other assets (net property and equipment, and prepaid
expenses) was 9.0% or an increase of $627,000 to $7.6 million at December 31,
1996. This increase was due primarily to the premium paid for branch deposits.

     Non-interest bearing deposits were $19.7 million at December 31, 1996, an
increase of $2.2 million or 12.7% over balances at December 31, 1995. Interest
bearing deposits at December 31, 1996 were $429.9 million, an increase of $22.5
million or 5.5% compared to December 31, 1995. This increase was due to the
purchase of deposits of $25.4 million from First Home Savings and Loan
Association. This transaction closed on December 6, 1996. The Company paid a
premium of 5% for the deposits and is amortizing the premium over seven years,
using the straight line method, which is in accordance with generally accepted
accounting principles.


8    GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

     Borrowed funds at December 31, 1996 totaled $51.3 million, a 100% increase
from December 31, 1995. These funds bear interest at various rates and mature at
various dates. Proceeds from these borrowings were used to purchase investment
securities and mortgage-related securities.

     The following schedule presents details of the Company's outstanding debt
at December 31, 1996.

<TABLE>
<CAPTION>
                                          WEIGHTED
(DOLLARS IN THOUSANDS)     AMOUNT       AVERAGE RATE
----------------------------------------------------
<S>                       <C>       <C>
    1997                   $37,525          5.56%
    1999                     5,000          6.25
    2000                     5,000          6.44
    2001                     4,000          6.10
----------------------------------------------------
    Total                  $51,325          5.75%
</TABLE>

     At December 31, 1996 the Company recorded purchases of securities that had
not yet settled of $5.8 million. This was a decrease of $36.1 million or
(86.1%). All securities purchased but not settled at December 31, 1996 were
settled in January, 1997.

     All other liabilities (escrowed funds, accounts payable and accrued
interest payable) totaled $4.7 million, a decrease of $1.6 million, or (25.6%),
from the balances recorded at December 31, 1995. This reduction was due
primarily to a reduction in deferred income taxes.

     Total shareholders' equity increased $74.2 million or 154% to $122.4
million at December 31, 1996. Of that increase, $5.6 million was net income for
the year ended December 31, 1996. Other increases to shareholders' equity
included net proceeds from the stock conversion totaling $86.4 million,
allocated ESOP shares totaling $622,000 and allocated stock compensation awards
totaling $133,000. Reductions to shareholders' equity included purchases of
treasury stock of $6.8 million, purchases of stock compensation plan shares of
$737,000 and the payment of cash dividends of $1.1 million. Unrealized gains net
of deferred taxes on the securities available for sale portfolio decreased from
$3.0 million at December 31, 1995 to $88,000 at December 31, 1996, a decrease of
$2.9 million or (97.0%) due primarily to a decline in market prices of
investments available for sale.

AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Company's average balance sheet and reflects the average yield
on assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods presented. Average balances
are daily averages during the periods.

                                      GA Financial, Inc. Annual Report 1996    9
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


Dollar amounts in thousands, except share data

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                         YEAR ENDED DEC. 31, 1996          YEAR ENDED DEC. 31, 1995        YEAR ENDED DEC. 31, 1994
------------------------------------------------------------------------------------------------------------------------------------
                                      AVERAGE                 YIELD/     AVERAGE                YIELD/   AVERAGE              YIELD/
                                      BALANCE     INTEREST     COST      BALANCE     INTEREST    COST    BALANCE   INTEREST    COST
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>         <C>       <C>          <C>      <C>       <C>        <C>        <C>
Assets:
 Interest-earning assets:
   Interest-earning deposits
      short-term investments         $  13,124    $    810     0.22%    $   7,518    $   471   6.26%    $  5,098    $   327    0.41%
   Investment securities, net/1/       106,622       6,819     6.40       127,915      6,799   5.32      176,729      8,687    4.92
   Loans receivable, net/1//2/         214,317      18,025     8.41       166,414     14,000   8.41      146,469     12,037    8.22
   Mortgage-related
      securities, net/1/               206,377      14,551     7.05       157,060     11,440   7.28      139,718      9,246    6.62
   FHLB stock                            2,237         139     6.21         1,839        123   6.69        1,722        106    6.16
------------------------------------------------------------------------------------------------------------------------------------

      Total interest-earning
         assets                       542,677       40,350     7.44%      460,746     32,833   7.13%     469,736     30,403    6.47%
   Non-interest earning assets         17,077           --       --        13,556         --     --       16,205         --      --
------------------------------------------------------------------------------------------------------------------------------------

      Total assets                  $ 559,754           --       --     $ 474,302         --     --    $ 485,941         --      --
====================================================================================================================================

Liabilities and equity:
   Interest-earning liabilities:
    Money market savings
      accounts                      $  16,397     $    410     2.50%    $  18,496    $   465   2.51%   $  22,721    $   568    2.50%
   Passbook accounts                  162,636        4,893     3.01       170,151      5,104   3.00      199,779      6,000    3.00
   NOW accounts                        24,475          496     2.03        23,414        464   1.98       22,822        503    2.20
   Certificate accounts               201,399       10,880     5.40       193,885     10,460   5.39      173,996      7,565    4.35
 
      Total                           404,907       16,679     4.12       405,946     16,493   4.06      419,318     14,636    3.49
   Borrowings                          13,518          823     6.09           125          8   6.39        1,098         91    4.75
   Other                                2,038           43     2.11         2,187         42   1.92        2,162         42    1.94
 
      Total interest-bearing
         liabilities                  420,463       17,545     4.17       408,258     16,543   4.05      422,578     14,769    3.49
   Non-interest bearing
         liabilities                   31,747           --       --        21,121         --     --       22,624         --      --
   Equity                             107,544           --       --        44,923         --     --       40,739         --      --
------------------------------------------------------------------------------------------------------------------------------------
 
      Total liabilities
         and equity                 $ 559,754           --       --     $ 474,302         --     --    $ 485,941         --      --
====================================================================================================================================
 
Net earning assets                  $ 122,214           --       --     $  52,488         --     --    $  47,158         --      --
Net interest income                        --    $  22,805       --            --   $ 16,290     --           --   $ 15,634      --
Net interest rate spread/3/                --           --     3.27%           --         --   3.08%          --         --    2.98%
Net interest margin/4/                     --           --     4.20%           --         --   3.54%          --         --    3.33%
Ratio of interest-earning
   assets to interest-bearing
   liabilities                             --           --   129.07%           --         -- 112.88%          --         --  111.16%
</TABLE>

/1/ Includes related assets available for sale and unamortized discounts and
    premiums
/2/ Amount is net of deferred loan fees, undisbursed loan funds, discounts and
    premiums and estimated loan loss allowances and includes loans held for sale
    and non-performing loans.
/3/ Net interest rate spread represents the difference between the yield on
    interest-earning assets and the cost of interest-bearing liabilities
/4/ Net interest margin represents net interest income divided by interest-
    earning assets

10   GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

COMPARISON OF THE CONSOLIDATED RESULTS OF OPERATION FOR THE YEARS ENDED
-----------------------------------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------

NET INCOME. Net income for the year ended December 31, 1996 was $5.6 million, an
increase of $2.8 million or 99% from net income recorded for the year ended
December 31, 1995. Changes in the components of net income are discussed herein.

INTEREST INCOME. Interest income totaled $40.4 million for the year ended
December 31, 1996, an increase of $7.5 million or 22.9% over the amount recorded
in 1995. The average balances of interest-earning assets for 1996 was $542.7
million, an increase of $81.9 million or 17.8%, compared to the average balance
of interest-earning assets at December 31, 1995. Total weighted average yield on
interest-earning assets for 1996 was 7.44% as compared to 7.13% for 1995.
Interest on loans for the year ended December 31, 1996 was $18.0 million at a
weighted average yield of 8.41%, an increase of $4.0 million or 28.8%, compared
to $14.0 million at a weighted average yield of 8.41% for 1995. This increase
was the result of an increase in the average balances of loans. The Company
purchased $71.2 million in mortgage loans during 1996 versus $24.2 million in
1995. The yield on loans was the same for 1996 and 1995. Interest on mortgage-
related securities for 1996 was $14.6 million at an average weighted yield of
7.05%. This was an increase of $3.1 million or 27.2% compared to interest income
on mortgage-related securities during 1995 of $11.4 million at a weighted
average yield of 7.28%. The increase was due to an increase in the balances of
the securities since a portion of the conversion proceeds were used to purchase
securities. The average yield on these securities fell from 1995 to 1996.
Interest income on investment securities for 1996 was $6.8 million at an average
yield of 6.40%. This was an increase of $20,000 or .3%. The increase was due to
an increase in the net yield on the portfolio as the average balances fell $21.3
million or (16.6%) from 1995 to 1996. Interest income on interest earning
deposit accounts was $816,000 at an average yield of 6.22% for 1996, an increase
of $345,000 or 73.2% compared to the $471,000 at an average yield of 6.26%
recorded for 1995. The increase was due to an increase in the average balances
on hand during the year. The average yield decreased during the year.

INTEREST EXPENSE. Interest expense for the year ended December 31, 1996 was
$17.5 million at an average cost of funds of 4.17%, an increase of $1.0 million
or 6.1%, compared to the interest expense of $16.5 million at an average cost of
funds of 4.05% for the year ended December 31, 1995. Average balances of
interest-bearing liabilities was $420.5 million for 1996 compared to $408.2
million for 1995. Interest expense on money-market deposits for 1996 was
$410,000 at an average cost of 2.50% compared to interest expense of $465,000 at
an average cost of 2.51% recorded on these deposits for 1995. The decrease in
interest expense was due to a reduction in balances of these accounts. Average
balances of money market accounts for 1996 was $16.4 million compared to average
balances of $18.5 million for 1995. The cost of funds for these deposits was
substantially the same for each year. Interest expense on passbook accounts for
1996 was $4.9 million at an average cost of 3.01%, a decrease of $211,000 or
(4%) compared to interest expense on passbook accounts of $5.1 million at an
average cost of 3% for 1995. Average balances on these types of deposits fell to
$162.6 million for 1996 from $170.2 million for 1995, a decrease of $7.5 million
or (4.4%). For certificates of deposit interest expense was $10.9 million at an
average cost of 5.40% for 1996, an increase of $420,000 or 4.0% compared to
interest expense of $10.5 million at an average cost of 5.39% recorded for 1995.
Average balances in certificates of deposit increased to $201.4 million for 1996
from $193.9 million for 1995, an increase of $7.5 million or 3.9%. Average cost
of funds for these deposits was 5.40% for 1996 as compared to an average cost of
5.39% for 1995. Interest on checking accounts for 1996 was $496,000 at an
average cost of 2.03%, an increase of $32,000 or 6.9%, compared to the interest
expense of $464,000 at an average cost of 1.98% recorded for 1995. The increase
in interest expense on checking accounts was due to an increase in the average
balances of these types of accounts. Average balances for checking accounts was
$24.5 million for 1996, an increase of $1.1 million or 4.5% compared to average
balances of $23.4 million for 1995. Average cost of funds for checking accounts
was approximately the same for both years. There was no significant change in
interest expense paid on escrow accounts from 1995 to 1996. Interest expense on
borrowed funds for 1996 was $823,000 at an average cost of 6.09% on average
balances of $13.4 million, compared to $8,000 or an average cost of borrowings
for 1995 of 6.39%. The increase in interest expense was due to an increase of


                                      GA Financial, Inc. Annual Report 1996   11
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)




$13.3 million in the average balances of borrowings or greater than 100%
compared to average balances of borrowings of $125,000 for 1995. The Company
increased the use of borrowed funds significantly during 1996 to fund the
purchase of securities.

RATE/VOLUME ANALYSIS. The following table presents the extent to which changes
in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
interest expense during the period indicated. Information is provided with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and; (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated to
changes due to rate.


<TABLE>
<CAPTION>
 
                                      YEAR ENDED DEC. 31, 1996
                                          COMPARED TO THE
                                      YEAR ENDED DEC. 31, 1995
------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)                  VOLUME      RATE     NET CHANGE
------------------------------------------------------------------------
<S>                                    <C>         <C>         <C> 
Interest-earning assets:
    Interest-earning deposits and
      short-term investments           $    351    $    (6)    $   345
    Investments securities, net          (1,132)     1,152          20
    Loans receivable, net                 4,030         (5)      4,025
    Mortgage-related securities           3,592       (481)      3,111
    FHLB stock                               27        (11)         16
------------------------------------------------------------------------
     Total interest-earning assets        6,868        649       7,517
========================================================================
 
Interest-bearing liabilities:
    Money market savings accounts           (53)        (2)        (55)
    Passbook savings accounts              (225)        14        (211)
    NOW accounts                             21         11          32
    Certificate accounts                    405         15         420
    Borrowings                              861        (46)        815
    Other                                    (3)         4           1
------------------------------------------------------------------------
     Total interest-bearing liabilities   1,006         (4)      1,002
------------------------------------------------------------------------
Net change in net interest income       $ 5,862     $  653     $ 6,515
========================================================================
</TABLE>

NET INTEREST INCOME. Net interest income after the loan loss provision for 1996
was $22.6 million, an increase of $6.3 million or 39% compared to net interest
income of $16.3 million recorded for 1995.

PROVISION FOR LOAN LOSSES. The Company made no provision for loan losses for
1995. The loan loss reserve for the year ended December 31, 1995 was deemed
adequate. During 1996 the Company provided $210,000 to the loan loss provision
due to the increase in the residential mortgage loan portfolio. The allowance
for loan losses is maintained at an amount management considers adequate to
cover estimated losses on loans receivable which are deemed probable and
estimable based on information currently known to management. While management
believes the Association's allowance for loan losses is sufficient to cover
losses inherent in its loan portfolio at this time, no assurances can be given
that the Company's level of allowance for loan losses will be sufficient to
cover future loan losses incurred by the Company, or that future adjustments to
the allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the 


12   GA Financial, Inc. Annual Report 1996   
<PAGE>
 
                                MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

economic and other conditions analyzed by management to determine the current
level of the allowance for loan losses. The following table sets forth the
breakdown of the allowance for loan losses for the year ended December 31, 1996:


<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)                       AT DECEMBER 31, 1996                  AT DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------------------
                                                                 PERCENT                             PERCENT
                                                                 OF LOANS                            OF LOANS
                                                 PERCENT OF      IN EACH                PERCENT OF   IN EACH
                                                 ALLOWANCE      CATEGORY                ALLOWANCE    CATEGORY
                                                  TO TOTAL      TO TOTAL                 TO TOTAL    TO TOTAL
                                    AMOUNT       ALLOWANCE       LOANS       AMOUNT     ALLOWANCE      LOANS
----------------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>           <C>           <C>         <C>         <C>
Mortgage loans:
  One- to four-family              $   706        68.48%        75.89%        $429        52.19%      66.79%
  Multi-family                         117        11.35          2.87          103        12.53        3.93
  Commercial                            15         1.45          2.15           16         1.95        1.79
  Construction and development          27         2.62          1.51           45         5.47        3.21
Consumer loans:                                                                                   
  Home equity                          145        14.06          9.43          118        14.35       10.99
  Education                             --           --          6.55           89        10.83       11.32
Other loans:                                                                                      
  Unsecured personal loans              21         2.04          0.65           22         2.68        0.68
  Loans on savings accounts             --           --          0.88           --           --        1.18
  Other loans                           --           --          0.07           --           --        0.11
----------------------------------------------------------------------------------------------------------------
  Total valuation allowance        $ 1,031       100.00%       100.00%        $822       100.00%     100.00%
================================================================================================================
</TABLE>

NON-INTEREST INCOME. Non-interest income consists of service fees, gains
(losses) on the sale of loans and investments, fees from the sale of data
processing services and other miscellaneous items. For the year ended December
31, 1996 non-interest income totaled $3.5 million, an increase of $3.0 million
OR greater than 100%, compared to the $422,000 recorded for the same period in
1995. Service fees for 1996 totaled $897,000 an increase of $96,000, or an
increase of 12.0%, compared to the $801,000 recorded for 1995. For 1996 gains on
the sales of securities was $630,000 an increase of $1.9 million or greater than
100% compared to the loss of $1.3 million recorded for 1995. During 1995 the
Company realigned its securities portfolio and incurred losses of $1.7 million.
No such realignment occurred during 1996. The Company sold education loans at a
gain of $311,000 during 1996. No such sales took place during 1995. During 1996
the Company experienced a one-time gain of $769,000 which resulted from the
restructuring of its defined benefit pension plan. Income from the sale of data
processing services totaled $809,000 in 1996. This was an increase of $11,000 or
1.4% over the $798,000 recorded in 1995. Other non-interest income for 1996
totaled $44,000, a decrease of $70,000 or (61.4%) from the $114,000 recorded in
1995.

NON-INTEREST EXPENSE. Total non-interest expense for the year ended December 31,
1996 was $17.0 million, an increase of $4.7 million over the $12.3 million
recorded for 1995. Compensation and benefit costs for 1996 were $6.7 million, an
increase of $578,000 or 9.0% from the $6.1 million recorded for 1995. The
company raised salaries approximately 3% during 1996, incurred additional
increases as a result of the opening of two branch offices and experienced
increases in benefit costs due to the ESOP and stock awards. Occupancy costs for
1996 were $1.6 million, an increase of $19,000 or 1.2% over the $1.5 million
recorded for 1995. Federal deposit insurance premiums for 1996 were $3.7
million, an increase of $2.7 million or greater than 100% over the $970,000
recorded for 1995. This increase was the result of the one-time special
assessment of $2.8 million levied by the FDIC. This recapitalization was
authorized by legislation passed in September, 1996. Future deposit insurance
premiums will be significantly lower because of this one-time assessment. The
approximate future annual cost is estimated at $288,000. Excluding a non-
recurring charge to recapitalize the 


                                      GA Financial, Inc. Annual Report 1996   13
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)



Savings Association Insurance Fund, net income would have been $7.4 million or
$0.92 per share. Data processing expenses for 1996 were $1.5 million, a decrease
of $23,000 or (1.5%) from the $1.5 million recorded during 1995. The Company
operates its own in-house data processing center which also provides data
processing services to other financial institutions. As a result of the stock
conversion the Company is now subject to stock taxes levied by the states of
Pennsylvania and Delaware. These taxes totaled $795,000 for 1996. No such taxes
were due in 1995 when the Company operated as a mutual savings and loan
association. Other non-interest expenses for 1996 were $2.7 million, an increase
of $611,000 or 28.9% over the $2.1 million recorded for 1995, due primarily to
marketing costs, legal and professional fees and other expenses. Operations as a
public company has influenced the increases in these costs.

INCOME TAX EXPENSE. Income taxes of $3.5 million were accrued for the year ended
December 31, 1996. This is an effective tax rate of 38%. Income taxes of $1.6
million were recorded in 1995, an effective tax rate of 36%. The Company is no
longer permitted to use the percentage of income bad debt deduction when filing
federal income tax returns. The mandated use of writing off as bad debts only
those actually incurred has raised the Company's effective tax rate. The repeal
of the special thrift bad debt deduction was signed into law under the Small
Business Job Protection Act of 1996.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-related securities, proceeds from maturing
investment securities, advances from the Federal Home Loan Bank of Pittsburgh
(FHLB), and other borrowed funds.  While scheduled maturities of investments and
amortizations of loans are predictable sources of funds, deposit flows and
prepayments on mortgage loans and mortgage-related securities are greatly
influenced by general interest rates, economic conditions and competition.  The
Association is required to maintain an average daily balance of liquid assets
and short-term borrowings as defined by the OTS regulations.  The liquidity and
short-term liquidity for the month of December, 1996 were 25.32% and 8.68%
respectively.  The high level of liquidity was influenced by the purchase of
deposits from First Home Savings and Loan Association in December, 1996.  The
higher than required levels of liquidity are used to better manage interest rate
risk.

   At December 31, 1996 the Association had commitments to originate loans of
$24.4 million and to purchase mortgage-related securities of $14.0 million.

   At December 31, 1996, the Association had exceeded each of the OTS' capital
requirements for tangible, core, and risk-based capital. The OTS requires the
Association to maintain a minimum regulatory tangible capital of at least 1.50%
of total assets, a minimum 3.0% core capital ratio (expressed as a percentage of
tangible assets) and a minimum risk-based capital of 8.0% (expressed as a
percentage of risk-weighted assets, which includes off-balance sheet items) as
defined by the OTS. The Company is not required by the OTS to maintain minimum
levels of capital for regulatory purposes.

14   GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


COMPARISON OF THE CONSOLIDATED RESULTS OF OPERATION FOR THE YEARS ENDED
-----------------------------------------------------------------------
DECEMBER 31, 1995 AND 1994
--------------------------

NET INCOME. Net income for the year ended December 31, 1995 was $2.8 million, a
decrease of $440,000 or 13.5%, from net income recorded for the year ended
December 31, 1994. Details of the changes in the components of net income are
discussed herein.

INTEREST INCOME.  Interest income totaled $32.8 million for the year ended
December 31, 1995, an increase of $2.4 million or 8.0%, over the amount recorded
in 1994.  The average balances of interest-earning assets for 1995 was $460.7
million, a decrease of $9.0 million or (1.9%), compared to the average balances
of interest-earning assets of $469.7 million at December 31, 1994.  Total
weighted average yield on interest-earning assets for 1995 was 7.13% as compared
to 6.47% for 1994.  Interest on loans for the year ended December 31, 1995 was
$14.0 million at an average yield of 8.41%, an increase of $2.0 million or
16.3%, compared to $12.0 million at 8.22%.  This increase was the result of an
increase in the average balances of loans and an increase in the average yield
on those loans.  Interest on mortgage-related securities for 1995 was $11.4
million at an average yield of 7.28%.  This was an increase of $2.2 million or
23.7% compared to interest income on mortgage-related securities recorded during
1994 of $9.2 million at 6.62%.  The increase was due to an increase in the
balances of the securities and increases in the yields on these securities.
Interest income on investment securities for 1995 was $6.8 million at a yield of
5.32%.  This was a decrease of $1.9 million or (21.7%) from 1994.  The decrease
was due to a decrease in the average balances of investment securities of $48.8
million or (27.6%).  The yield on investment securities increased from 4.92% in
1994 to 5.32% in 1995.  Interest income on interest earning deposit accounts was
$471,000 at a yield of 6.26% for 1995, an increase of $144,000 or 44%, compared
to the $327,000 at 6.41% recorded for 1994.  The increase was due to an increase
in the average balances on hand during the year.  The average yield decreased
during the year.

INTEREST EXPENSE. Interest expense for the year ended December 31, 1995 was
$16.5 million at a cost of funds of 4.05%, an increase of $1.8 million or 12%,,
compared to the interest expense of $14.8 million at a cost of funds of 3.49%
for the year ended December 31, 1994. Average balances of interest-bearing
liabilities were $408.2 million for compared to $422.6 million for 1994.
Interest expense on money-market deposits for 1995 was $465,000 at a rate of
2.51% compared to interest expense of $568,000 at a cost of 2.50% recorded on
these deposits for 1994. The decrease in interest expense was due to a reduction
in balances of these accounts. Average balances of money market accounts for
1995 was $18.5 million compared to average balances of $22.7 million for 1994.
Balances in these types of accounts have been falling steadily for the past
several years. The cost of funds for these deposits was substantially the same
for each year. Interest expense on passbook accounts for 1995 was $5.1 million
at a cost of 3.0%, a decrease of $896,000 or (14.9%), compared to interest
expense on passbook accounts of $6.0 million at 3% for 1994. Average balances on
these types of deposits fell to $170.2 million for 1995 from $199.8 million for
1994, a decrease of $29.6 million or (14.8%). For certificates of deposit,
interest expense was $10.5 million at a cost of 5.39% for 1995, an increases of
$2.9 million or 38.3% compared to interest expense of $7.6 million at a cost of
4.35% recorded for 1994. Average balances in certificates of deposit increased
to $193.9 million for 1995 from $174.0 million for 1994, an increase of $19.9
million or 11%. Cost of funds for these deposits was 5.39% for 1995 compared to
4.35% for 1994. Interest on checking accounts for 1995 was $464,000 at a cost of
1.98%, a decrease of $39,000 or (7.8%), compared to the interest expense of
$503,000 at a cost of 2.20% recorded for 1994. Although average balances in
checking accounts increased from 1994 to 1995, the rate paid on these types of
accounts was reduced resulting in the reduced interest expense for 1995. Average
balances for checking accounts was $23.4 million for 1995, an increase of
$592,000 or 2.6%, compared to average balances of $22.8 million for 1994. There
was no significant change in interest expense paid on escrow accounts from 1994
to 1995. Interest expense on borrowed funds for 1995 was $8,000 at a cost of
6.39% on average balances of $48,000. This was a decrease of $83,000 or (91.2%)
compared to interest expense of $91,000 on average balances of $1.1 million in
1994. Rates on borrowed funds were 6.39% in 1995 and 4.75% in 1994. The Company
did not use borrowed funds to a great extent in 1994 or 1995.


                                     GA  Financial, Inc. Annual Report 1996   15
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


RATE/VOLUME ANALYSIS. The following table presents the extent to which changes
in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
interest expense during the period indicated. Information is provided with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and; (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated to
changes due to rate.

<TABLE>
<CAPTION>
 
 
                                                     YEAR ENDED DEC. 31, 1995
                                                         COMPARED TO THE
                                                     YEAR ENDED DEC. 31, 1994
--------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)                             VOLUME     RATE    NET CHANGE
--------------------------------------------------------------------------------
<S>                                                <C>       <C>      <C>    
Interest-earning assets:
  Interest-earning deposits and
    short-term investments                       $   155   $  (11)     $   144
  Investments securities, net                     (2,399)     511       (1,888)
  Loans receivable, net                            1,639      324        1,963
  Mortgage-backed securities                       1,148    1,046        2,194
  FHLB stock                                           7       10           17
--------------------------------------------------------------------------------
    Total interest-earning assets                    550    1,880        2,430
--------------------------------------------------------------------------------
Interest-bearing liabilities:
  Money market savings accounts                     (106)       3         (103)
  Passbook savings accounts                         (890)      (6)        (896)
  NOW accounts                                        13      (52)         (39)
  Certificate accounts                               865    2,030        2,895
  Borrowings                                         (50)     (33)         (83)
  Other                                               --       --           --
--------------------------------------------------------------------------------
    Total interest-bearing liabilities              (168)   1,942        1,774
--------------------------------------------------------------------------------
Net change in net interest income                $   718     ($62)     $   656
================================================================================
</TABLE>

NET INTEREST INCOME. Net interest income after the loan loss provision for 1995
was $16.3 million, an increase of $656,000 or 4.2%, compared to net interest
income of $15.6 million recorded for 1994.

16 GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


PROVISION FOR LOAN LOSSES. The Company made no provision for loan losses for
1995 or 1994. The loan loss reserve for both years ended December 31 was deemed
adequate. The following table sets forth the changes in the allowance for loan
losses for the year ended December 31, 1995 and 1994.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------- 
(DOLLARS IN THOUSANDS)                  AT DECEMBER 31, 1995                  AT DECEMBER 31, 1994
--------------------------------------------------------------------------------------------------------
                                                             PERCENT                           PERCENT
                                                             OF LOANS                          OF LOANS
                                               PERCENT OF     IN EACH             PERCENT OF   IN EACH
                                               ALLOWANCE     CATEGORY             ALLOWANCE    CATEGORY
                                               TO TOTAL      TO TOTAL             TO TOTAL     TO TOTAL
                                   AMOUNT      ALLOWANCE      LOANS      AMOUNT   ALLOWANCE     LOANS
-------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>         <C>          <C>       <C>          <C>
Mortgage loans:
  One- to four-family               $429         52.19%       66.79%      $324      38.12%      67.15%
  Multi-family                       103         12.53         3.93        107      12.59        5.26
  Commercial                          16          1.95         1.79        171      20.12        1.30
  Construction and development        45          5.47         3.21         27       3.18        3.08
Consumer loans:                                                                              
  Home equity                        118         14.35        10.99        151      17.76       11.34
  Education                           89         10.83        11.32         49       5.76        9.35
Other loans:                                                                                 
  Unsecured personal loans            22          2.68         0.68         21       2.47        0.83
  Loans on savings accounts           --            --         1.18         --         --        1.54
  Other loans                         --            --         0.11         --         --        0.15
-------------------------------------------------------------------------------------------------------
  Total valuation allowance         $822        100.00%      100.00%      $850     100.00%     100.00%
=======================================================================================================
</TABLE>

NON-INTEREST INCOME. Non-interest income consists of service fees, gains
(losses) on the sale of loans and securities, fees from data processing services
sold and other miscellaneous items. For the year ended December 31, 1995 non-
interest income totaled $422,000, a decrease of $1.1 million or 71.9%, compared
to the $1.5 million recorded for 1994. Service fees for 1995 totaled $801,000, a
decrease of $5,000 or (.6%), compared to the $806,000 recorded for 1994. For
1995, losses on the sale of investments were $1.3 million, an increase of $1.2
million or greater than 100% compared to the loss of $102,000 recorded for 1994.
During 1995 the Company realigned its investment portfolio and incurred losses
of $1.7 million. Income from the sale of data processing services totaled
$798,000 in 1995, an increase of $43,000 or 5.7%, compared to the $755,000
recorded in 1994. Other non-interest income for 1995 totaled $114,000, an
increase of $71,000 or greater than 100% from the $43,000 recorded in 1994.

NON-INTEREST EXPENSE. Total non-interest expense for the year ended December 31,
1995 was $12.3 million, an increase of $298,000 or 2.5% over the $12.0 million
recorded for 1994. Compensation and benefit costs for 1995 were $6.1 million, an
increase of $303,000 or 5%, from the $5.8 million recorded for 1994. The
increases are the results of normal increases in salaries, payroll taxes and
benefit costs. Occupancy costs for 1995 were $1.5 million, an increase of
$95,000 or 6.6%, over the $1.5 million recorded for 1994. Federal deposit
insurance premiums for 1995 were $970,000, a decrease of $31,000 or (3.1%), over
the $1.0 million recorded for 1994. The Company paid premiums at the same rate
during 1994 and 1995. The reduction in premium expense is the result of lower
insured deposit balances in 1995 compared to 1994. Data processing expenses for
1995 were $1.5 million, a decrease of $53,000 or (3.4%), from the $1.6 million
recorded during 1994. The Company operates its own in-house data processing
center which also provides data processing services to other financial
institutions. Other non-interest expenses for 1995 were $2.1 million, a decrease
of $16,000 or (0.8)%, over the $2.1 million recorded for 1994. These expenses
include marketing costs, legal and professional fees, and other expenses.


                                       GA Financial, Inc. Annual Report 1996  17
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

INCOME TAX EXPENSE. Income taxes of $1.6 million were accrued for the year ended
December 31, 1995. This is an effective tax rate of 36%. Income taxes of $1.9
million were recorded in 1994, an effective tax rate of 37%.

NEW ACCOUNTING PRONOUNCEMENTS.  (See Note 15.)

IMPACT OF INFLATION AND CHANGING PRICES. The Consolidated Financial Statements
of the Company and Notes thereto, presented elsewhere herein, have been prepared
in accordance with generally accepted accounting principles ("GAAP"), which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the direction or to the same extent as the price of
goods and services.

FORWARD DEVELOPMENTS. The Board of Directors declared a dividend of $.08 per
share to shareholders of record on February 10, 1997, payable on February 21,
1997. The Board of Directors intends on paying quarterly dividends in 1997.

   The Company's data processing division, DataOne Financial Services, provided
data processing services to the Association and two other financial institutions
in 1996.  One of these institutions notified DataOne that it would not renew its
contract when it expired in December 1996.  The revenue from this institution in
1996 was $292,000.  DataOne is attempting to replace this company with new
clients.

   The trustee for the Company's recognition and retention plan completed the
purchase of the Plan's 356,000 shares in February, 1997.  There were 50,000
shares purchased as of December 31, 1996.

   The Company has filed an application to the OTS, dated February 19, 1997, to
repurchase up to 10% of the outstanding stock of the Company.

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. In addition to
historical information, this Annual Report may include certain forward looking
statements based on current management expectations. The Company's actual
results could differ materially from those management expectations. Factors that
could cause future results to vary from current management expectations include,
but are not limited to, general economic conditions, legislative and regulatory
changes, monetary and fiscal policies of the federal government, changes in tax
policies, rates and regulations of federal, state and local tax authorities,
changes in interest rates, deposit flows, the cost of funds, demand for loan
products, demand for financial services, competition, changes in the quality or
composition of the Company's loan and investment portfolios, changes in
accounting principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices. Further description of the risks and
uncertainties to the business are included in detail in Item 1, "Business" of
the Company's 1996 Form 10-K.

18 GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                               REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Directors and Shareholders
of GA Financial, Inc.

   We have audited the accompanying consolidated statements of financial
condition of GA Financial, Inc., as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
GA Financial, Inc., as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

   As discussed in Note 1 to the consolidated financial statements, GA
Financial, Inc., changed its method of accounting for investment securities in
1994 and accounting for loan impairment in 1995.



                                  /s/ Coopers & Lybrand LLP 


Pittsburgh, Pennsylvania
January 28, 1997,
except as to the information
presented in Note 19, for which
the date is February 19, 1997

                                        GA Financial, Inc. Annual Report 1996 19
<PAGE>
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995


Dollar amounts in thousands, except share data

<TABLE>
<CAPTION>
 
--------------------------------------------------------------------------------
                                                   DEC. 31, 1996   DEC. 31, 1995
--------------------------------------------------------------------------------
<S>                                                <C>             <C>
ASSETS
  Cash (including interest-bearing demand
   deposits of $15,592 in 1996 and $9,215 in 1995)      $ 22,349        $ 16,870
  Federal funds sold                                       1,950             300
  Available for sale securities, at fair value
   (Note 4):
   Investment securities                                 119,347          71,060
   Mortgage-related securities                           244,482         168,779
  Loans receivable, net (Note 5)                         216,376         180,275
  Education loans held for sale (Note 5)                  15,383              --
  Accrued interest receivable                              4,252           2,214
  Federal Home Loan Bank stock (Note 3)                    2,326           1,882
  Office, property and equipment (Note 6)                  5,644           5,683
  Securities sold, not settled (Note 4)                       --          73,062
  Prepaid expenses and other assets                        1,939           1,273
--------------------------------------------------------------------------------
    Total Assets                                        $634,048        $521,398
================================================================================
 
LIABILITIES AND SHAREHOLDERS' EQUITY
  Liabilities:
  Noninterest-bearing demand deposits                   $ 19,685        $ 17,464
  Savings accounts (Note 7)                              429,881         407,406
  Borrowed funds (Note 3)                                 51,525              --
  Advances from borrowers for taxes and insurance          1,780           1,920
  Accrued interest payable                                   699             521
  Securities purchased, not settled (Note 4)               5,830          41,953
  Other liabilities                                        2,244           3,904
--------------------------------------------------------------------------------
    Total Liabilities                                    511,644         473,168

  Commitments and contingencies (Notes 9 and 12)

  Shareholders' Equity:
  Preferred stock, (.01 par value); 1,000,000
   shares authorized; 0 shares outstanding                    --              --
  Common stock, (.01 par value); 23,000,000
   shares authorized; 8,900,000 shares issued                 89              --
  Additional paid-in capital                              86,316              --
  Treasury stock, at cost (445,000 shares)                (6,768)             --
  Unearned employee stock ownership plan (ESOP)
   shares                                                 (6,612)             --
  Unearned recognition and retention plan (RRP)
   shares                                                   (523)             --
  Net unrealized holding gains on securities
   (Notes 4 and 8)                                            88           2,954
  Retained earnings (Notes 2 and 11)                      49,814          45,276
--------------------------------------------------------------------------------
    Total Shareholders' Equity                           122,404          48,230
 
    Total Liabilities and Shareholders' Equity          $634,048        $521,398
================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

20 GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                               CONSOLIDATED STATEMENTS OF INCOME
                           FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
                                                FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------         Dollar amounts
                                                   1996       1995       1994            in thousands,
--------------------------------------------------------------------------------         except share data
<S>                                              <C>        <C>        <C> 
Interest income:
  Loans, including fees                          $18,025    $14,000    $12,037
  Mortgage-related securities                     14,551     11,440      9,394
  Investment securities:
    Taxable interest                               4,627      5,420      7,016
    Taxable dividend                               2,112      1,490      1,629
    Nontaxable interest                              219         12         --
    Interest on bank deposits                        816        471        327
--------------------------------------------------------------------------------
  Total interest income                           40,350     32,833     30,403
================================================================================

Interest expense:
  Savings deposits (Note 7)                       16,679     16,493     14,636
  Interest on borrowings                             823          8         91
  Other                                               43         42         42
--------------------------------------------------------------------------------
  Total interest expense                          17,545     16,543     14,769
--------------------------------------------------------------------------------
  Net interest income before provision for
    losses on loans                               22,805     16,290     15,634
Provision for losses on loans (Note 5)               210         --         --
--------------------------------------------------------------------------------
  Net interest income after provision for        
    losses on loans                               22,595     16,290     15,634 
--------------------------------------------------------------------------------
Non-interest income:
  Service fees                                       897        801        806
  Net gain (loss) on sales of securities
   (Notes 4 and 9)                                   630     (1,291)      (102)
  Gain on sale of education loans                    311         --         --
  Gain on settlement/curtailment of
   pension (Note 10)                                 769         --         --
  Data processing service fees                       809        798        755
  Other                                               44        114         43
--------------------------------------------------------------------------------
  Total other income                               3,460        422      1,502
--------------------------------------------------------------------------------
Non-interest expense:
  Compensation and employee benefits               6,711      6,133      5,830
  Occupancy and equipment                          1,564      1,545      1,450
  Deposit insurance premiums (Note 13)             3,682        970      1,001
  Data processing service expenses                 1,501      1,524      1,577
  Capital stock taxes                                795         --         --
  Other                                            2,719      2,108      2,124
--------------------------------------------------------------------------------
  Total non-interest expense                      16,972     12,280     11,982
--------------------------------------------------------------------------------
Income before provision for income taxes           9,083      4,432      5,154
Provision for income taxes (Note 8)                3,481      1,612      1,894
--------------------------------------------------------------------------------
Net income                                       $ 5,602    $ 2,820    $ 3,260
================================================================================
 
Earnings per share (Note 16)                     $   .69         --         --
================================================================================

Average shares outstanding                     8,154,125         --         --
================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                       GA Financial, Inc. Annual Report 1996 21
<PAGE>
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
Dollar amounts in thousands                                                 YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
                                                                          1996        1995       1994
-------------------------------------------------------------------------------------------------------
<S>                                                                    <C>         <C>        <C>
Cash flows from operating activities:           
Net income                                                             $   5,602   $  2,820   $  3,260
Adjustments to reconcile net income to net cash 
  provided by operating activities:             
  Provision for losses on loans and real estate owned                        210         --         --
  Depreciation and amortization on office, property and equipment            865        882        928
  Net premium (discount) amortization (accretion) on securities              (14)       410      1,969
  Amortization of net deferred loan fees                                    (220)      (164)      (168)
  Amortization of intangibles                                                 15         --         --
  Gain on settlement/curtailment of pension plan                            (769)        --         --
  Net realized (gain) loss on sales of securities                           (630)     1,292        102
  Net realized (gain) on sale of education loans                            (311)        --         --
  Net realized (gain) on sale of REO                                          (7)       (26)        --
  Allocation of ESOP plan shares                                             622         --         --
  Allocation of recognition and retention plan shares                        133         --         --
  Deferred income tax provision                                              120         11         21
  (Increase) decrease in accrued interest receivable                      (2,038)     1,160        858
  Decrease (increase) in prepaid expenses and other assets                   615         (5)      (105)
  Increase in accrued interest payable                                       178        143         63
-------------------------------------------------------------------------------------------------------
  Net cash provided by operating activities                                4,371      6,523      6,928
-------------------------------------------------------------------------------------------------------
Cash flows from investing activities:           
  Proceeds from sale of available for sale securities                    161,811     42,812     22,255
  Repayments and maturities of available for sale securities              49,691      8,667      2,906
  Repayments, calls and maturities of held to maturity securities             --     56,453     85,746
  Purchases of available for sale securities                            (302,458)   (15,514)   (38,399)
  Purchases of held to maturity securities                                    --    (61,444)   (58,621)
  Proceeds from sale of education loans                                   12,545         --         --
  Premium paid for deposits                                               (1,296)        --         --
  Purchases of loans                                                     (71,156)   (24,250)    (2,448)
  Net decrease (increase) in loans                                         7,430     (2,288)    (4,934)
  Purchases of office, property and equipment, net                          (826)      (600)      (532)
  Net proceeds from sale of REO                                               25         64         --
  (Purchase) redemption of Federal Home Loan Bank stock                     (444)      (259)       597
-------------------------------------------------------------------------------------------------------
  Net cash (used in) provided by investing activities                   (144,678)     3,641      6,570
-------------------------------------------------------------------------------------------------------
Cash flows from financing activities:           
  Net decrease in demand and savings deposits                               (574)   (18,451)   (20,870)
  Net increase in certificates of deposit                                 25,270     20,559      6,954
  Payments of borrowed funds                                            (539,624)        --         --
  Proceeds from borrowed funds                                           591,149         --         --
  Dividends paid                                                          (1,064)        --         --
  Net increase (decrease) in advances from borrowers for                                  
    taxes and insurance and other liabilities                                718       (344)    (5,602)
  Proceeds from sale of common stock, net of issuance costs               86,372         --         --
  Purchase of unearned employee stock ownership plan shares               (7,120)        --         --
  Purchase of treasury stock                                              (6,768)        --         --
  Purchase of recognition and retention plan shares                         (737)        --         --
  Payments made under capital lease obligations                             (186)      (187)      (171)
-------------------------------------------------------------------------------------------------------
  Net cash provided by (used in) financing activities                    147,436      1,577    (19,689)
-------------------------------------------------------------------------------------------------------
  Net increase (decrease) in cash and cash equivalents                     7,129     11,741     (6,191)
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period                          17,170      5,429     11,620
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                             $  24,299   $ 17,170   $  5,429
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

22  GA Financial, Inc. Annual Report 1996
<PAGE>
 
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                           FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994


Dollar amounts 
and numbers 
of common 
stock shares 
in thousands

<TABLE>
<CAPTION>
                                                                                                        NET 
                                NUMBER                                                               UNREALIZED            TOTAL
                                COMMON               ADDITIONAL               UNEARNED    UNEARNED    HOLDING              SHARE-
                                 STOCK     COMMON       PAID      TREASURY    ESOP PLAN   RRP PLAN    GAINS    RETAINED   HOLDERS'
                                SHARES     STOCK     IN CAPITAL     STOCK      SHARES      SHARES    (LOSSES)  EARNINGS    EQUITY
----------------------------------------------------------------------------------------------------------------------------------- 
<S>                             <C>      <C>         <C>          <C>        <C>          <C>        <C>       <C>        <C>

Balance at December 31, 1993        --     $   --     $    --     $   --     $     --     $   --     $    --    $39,196    $39,196
                                                                                                   
Adjustment to beginning                                                                            
  balance for change in                                                                            
  accounting principle                                                                             
  net of tax                        --         --          --         --           --         --       1,236         --      1,236
Net income                          --         --          --         --           --         --          --      3,260      3,260
Change in net unrealized                                                                           
  holding gains (losses) on                                                                        
  securities, net of tax            --         --          --         --           --         --      (2,800)        --     (2,800)
----------------------------------------------------------------------------------------------------------------------------------- 

Balance at December 31, 1994                   --          --         --           --         --      (1,564)    42,456     40,892
                                                                                                   
Net income                          --         --          --         --           --         --          --      2,820      2,820
Change in net unrealized                                                                           
  holding gains (losses) on                                                                        
  securities, net of tax            --         --          --         --           --         --       4,518         --      4,518
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                   
Balance at December 31, 1995        --         --          --         --           --         --       2,954     45,276     48,230
                                                                                                   
Net income                          --         --          --         --           --         --          --      5,602      5,602
Change in net unrealized                                                                           
  holding gains (losses) on                                                                        
  securities, net of tax            --         --          --         --           --         --      (2,866)        --     (2,866)
Stock issued                     8,900         89      86,283         --           --         --          --         --     86,372
Employee stock ownership                                                                           
  plan purchased                  (712)        --          --         --       (7,120)        --          --         --     (7,120)
Treasury stock purchased          (445)        --          --     (6,768)          --         --          --         --     (6,768)
Recognition and retention                                                                          
  plan purchased                   (50)        --         (81)        --           --       (656)         --         --       (737)
Cash dividends                      --         --          --         --           --         --          --     (1,064)    (1,064)
Shares allocated employee                                                                          
  stock ownership plan              51         --         114         --          508         --          --         --        622
Shares allocated recognition                                                                       
  and retention plan                50         --          --         --           --        133          --         --        133
----------------------------------------------------------------------------------------------------------------------------------- 

Balance at December 31, 1996     7,794        $89     $86,316    ($6,768)     ($6,612)     ($523)    $    88    $49,814   $122,404
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                       GA Financial, Inc. Annual Report 1996  23
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.  ACCOUNTING POLICIES
--------------------------------------------------------------------------------

The significant accounting policies followed by GA Financial, Inc. (the
"Company") and subsidiary (the "Association") are as follows:

BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of GA
Financial, Inc. and its subsidiary, Great American Federal Savings and Loan
Association, and the Association's wholly owned subsidiary, Great American
Financial Services, Inc. at December 31, 1996.  The consolidated financial
statements at December 31, 1995 include only the accounts of the Company and the
Association.  Intercompany accounts and transactions have been eliminated in
consolidation.
   The preparation of consolidated 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
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period.  Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, including interest-bearing demand deposits, and
federal funds sold. Generally, federal funds are sold for one-day periods.

INVESTMENT SECURITIES AND MORTGAGE-RELATED SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." The statement required classification of securities into three
categories: held to maturity, trading securities, and available for sale. The
Company may classify securities as held to maturity when it has both the ability
and positive intent to hold the securities to maturity. Pursuant to SFAS No.
115, securities available for sale are recorded at estimated fair value, with
aggregate unrealized holding gains and losses reported, net of income tax, as a
separate component of equity. Securities held to maturity are stated at cost
adjusted for amortization of premium and accretion of discount, computed on the
interest method. The Company did not have any trading securities at December 31,
1996 or 1995. The fair value of securities is based on quoted market prices or
bid quotations received from security dealers. Gains and losses are recognized
by the specific identification method.
   On a periodic basis, management evaluates each security where amortized cost
exceeds fair value.  If the decline is judged to be other than temporary, the
cost of the security is written down to estimated realizable value with the
writedown included in net securities gains.

ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's evaluation of losses in
the current loan portfolio, which includes an assessment of economic conditions,
changes in the nature of the loan portfolio, loan loss experience and other
relevant factors.  While management uses the best information available to make
such evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluations.  Additions are made to the allowance through periodic provisions
charged to net income and recovery of principal and interest on loans previously
charged-off.  Losses of principal are charged directly to the allowance when a
loss actually occurs or when a determination is made that a loss is probable.
   Effective January 1, 1995, the Company adopted Financial Accounting Standards
Board (FASB) Statement 114, "Accounting by Creditors for Impairment of a Loan"
and Statement 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" an amendment of  Statement 114.  Statement 114
addresses the accounting by creditors for impairment of loans by specifying how
reserves for credit losses 

24  GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



related to certain loans should be measured. Statement 118 rescinds Statement
114 rules to permit a creditor to use existing methods for recognizing interest
income on impaired loans and eliminated the income recognition provisions of
Statement 114. Statement 114 amends FASB Statement 5 "Accounting For
Contingencies" to clarify that a creditor should evaluate the collectibility of
both contractual interest and principal when assessing the need for an overall
allowance for loan losses. The statement requires that impaired loans for which
foreclosure is probable continue to be accounted for as loans. The Company did
not have any loans classified as in-substance foreclosure at December 31, 1994,
thus no additional loss provisions or changes to the overall allowance for loan
losses were required by adopting this statement.
   Within the context of Statement 114 for loan losses, a loan is considered to
be impaired when, based upon current information and events, it is probable that
the Company will be unable to collect all amounts due for principal and interest
according to the contracted terms of the loan agreement. Impairment is measured
based on the present value of expected future cash flows discounted at a loan's
effective interest rate, or as a practical expedient, the observable market
price or, if the loan is collateral dependent, the fair value of the underlying
collateral. When the measurement of an impaired loan is less than the recorded
investment in the loan, the impairment is recorded in a specific valuation
allowance through a charge to provision for loan losses. This specific valuation
allowance is periodically adjusted for significant changes in the amount or
timing of expected future cash flows, observable market price or fair value of
the collateral. The valuation allowance, or allowance for impaired loan losses,
is part of the total allowance for loan losses. Upon disposition of an impaired
loan, any related allowance is reversed through a charge to the impaired
allowance for loan losses. Cash payments received on impaired loans are recorded
as a direct reduction of the recorded investment in the loan. When the recorded
investment has been fully collected, receipts are recorded as recoveries to the
loan loss allowance until the previously charged-off interest is fully
recovered. Subsequent amounts collected are recognized as interest income.
Impaired loans are not returned to accruing status until all amounts due, both
principal and interest, are current and a sustained payment history has been
demonstrated. At December 31, 1996 or 1995, the Company did not have any
recorded investment in loans for which impairment has been recognized in
accordance with Statement 114 and 118. Since the Company had no loans considered
impaired under Statement 114 during the years ended December 31, 1996 or 1995,
there were no recorded investments during these periods. As a result, there was
no interest income recognized on impaired loans during the years ended December
31, 1996 or 1995.
   Generally, management considers all major nonaccrual loans and certain
renegotiated debt, when it exists, for impairment.  The minimum period without
payment that typically can occur before a loan is considered for impairment is
ninety days.  Statement 114 does not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment.  The Company
collectively reviews for impairment consumer, residential and commercial real
estate and commercial loans under $200 thousand.

LOANS
Interest income is recognized on a level yield basis.  Loan origination fees,
net of certain direct origination costs, are deferred and recognized over the
contractual life of the related loan as a yield adjustment using the interest
method.  The accrual of interest is discontinued, when in management's judgment,
it is determined that the collectibility of interest, but not necessarily
principal, is doubtful.  Interest receipts on such nonaccrual loans are fully
applied to principal.  A nonaccrual loan is not returned to accruing status
until all amounts due, both principal and interest, are current and a sustained
payment history has been demonstrated.  Loans held for sale are education loans,
which are recorded at the lower of cost or estimated fair market value.

OFFICE, PROPERTY AND EQUIPMENT
Office property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the assets.  Estimated useful lives range from 20 to 50 years
for buildings, 10 years for site improvements and 3 to 5 years for furniture,
fixtures and equipment.  Maintenance and repairs are charged to expense as
incurred.  Expenditures for renovations and major improvements are capitalized
and depreciated over their estimated useful lives.

                                       GA Financial, Inc. Annual Report 1996  25
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



INTANGIBLE ASSETS
Premiums paid for branch deposits are allocated to core deposit intangibles and
are recorded in other assets. Core deposit intangibles are amortized on a
straight-line basis over seven years.  Core deposit intangibles amounted to $1.3
million in 1996. Management will evaluate annually the carrying value and
remaining amortization period of intangible assets for possible impairment.
Adjustments will be recorded when the purchased branch deposits decay at an
earlier period than the amortization period.

FORECLOSED ASSETS
Foreclosed assets consist of property acquired in settlement of real estate loan
indebtedness.  Such assets are carried at the lower of cost or market value less
estimated costs to sell.  Net costs to maintain the foreclosed assets and
subsequent gains and losses attributable to their disposal are included in other
expense.

TREASURY STOCK
The purchase of the Company's stock is recorded at cost.  If reissue occurs, the
treasury stock account will be reduced by the cost of such stock on the average
cost basis, with any excess proceeds being credited to additional paid-in
capital.

INCOME TAXES
On August 20, 1996, President Clinton signed into law the Small Business Job
Protection Act of 1996 which included the repeal of the special thrift bad debt
provisions.  Although the percentage of taxable income method bad debt deduction
will no longer be available to the Company, the tax requirement to invest in
certain qualifying types of investments and loans has been eliminated, thus
providing greater freedom to the Company in structuring its balance sheet to
maximize returns.  These tax related changes had no significant impact on the
Company's 1996 financial position or results of operations.
   The Company has not provided deferred income taxes for the Company's tax
return reserve for bad debts that arose in tax years beginning before September
30, 1988 because it is not expected that this difference will reverse in the
foreseeable future. The cumulative net amount of temporary differences related
to the reserve for bad debts for which deferred taxes have not been provided was
approximately $13.3 million at December 31, 1996. If the Company does not meet
the remaining income tax requirements of IRC section 593, as amended by The
Small Business Job Protection Act of 1996, the Company could incur a tax
liability for the previously deducted tax return loan losses in the year in
which such requirements are not met. This potential liability for which no
deferred income taxes have been provided was approximately $4.5 million as of
December 31, 1996.

DERIVATIVE FINANCIAL INSTRUMENTS
Gains and losses on unconditional forward commitments (Note 9) to purchase GNMAs
are deferred and incorporated in the carrying amount of the securities
purchased.

RECLASSIFICATIONS
For comparative purposes, reclassifications have been made to certain amounts
previously reported to conform with the current period presentation in the
consolidated financial statements.



26  GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 2.  THE CONVERSION AND THE SUBSCRIPTION AND COMMUNITY OFFERINGS
--------------------------------------------------------------------------------

On March 22, 1996, the members of the Association approved a Plan of Conversion
to convert the Association from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings association, with the
concurrent sale of all of the newly-converted Association's outstanding capital
stock to the Company, and the sale of the Company's common stock to the public.
The Company, on March 25, 1996, sold 8,900,000 shares of common stock at $10.00
per share to depositors, directors, officers and certain employees of the
Company and to certain other eligible subscribers.  The net proceeds from the
sale of the common stock, after conversion expenses of $2.6 million were $86.4
million.  The Company purchased all of the capital stock of the Company in
exchange for 50% of the net proceeds, or $43.3 million and utilized $7.1 million
to fund the Employee Stock Ownership Plans' (the "ESOP") purchase of conversion
stock.
   Funds retained by the Company in excess of the ESOP loan were initially
invested in Treasury securities and other short term investments. The Company
and the Association used such funds to expand operations through the addition of
branch offices and the acquisition of branch deposits of other financial
institutions.
   At the time of Conversion, the Association established a liquidation account
in an amount equal to its capital as of December 31, 1995. The liquidation
account will be maintained for the benefit of eligible account holders who
continue to maintain their accounts at the Association after the Conversion. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. Dividends cannot be paid from retained earnings
allocated to the liquidation account. The liquidation account amounts to $45.3
million.
   The Office of Thrift Supervision ("OTS") imposes limitations upon all capital
distributions by savings institutions, including cash dividends.  An institution
that exceeds all fully phased-in capital requirements before and after a
proposed capital distribution and has not been notified by the OTS that it is in
need of more than normal supervision could, after prior notice but without the
approval of the OTS, make capital distributions during a calendar year up to the
higher of (i) 100% of its net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period.  Any additional capital distributions would require prior regulatory
approval.  As of December 31, 1996, the Association exceeded all fully phased-in
capital requirements and had not been notified by the OTS that it is in need of
more than normal supervision.


NOTE 3.  FEDERAL HOME LOAN BANK STOCK AND ADVANCES AND OTHER BORROWINGS
--------------------------------------------------------------------------------

The Association is a member of the Federal Home Loan Bank system.  As a member,
the Association is required to maintain an investment in the capital stock of
the Federal Home Loan Bank of Pittsburgh (FHLB), which is carried at cost.  The
required investment is based on 1% of its outstanding home loans, to the FHLB,
as calculated at December 31 of each year.
   At December 31, 1996, the Association has a $25.1 million line of credit
available with the FHLB. Advances under the available line bear interest at
7.23% and are payable on demand. Pursuant to collateral agreements with the
FHLB, advances are collateralized by FHLB stock and qualifying first mortgage
loans held by the Association. There were no advances outstanding under the line
of credit at December 31, 1996 and 1995. There were no advances under the line
of credit for the year ended December 31, 1996. Interest expense incurred for
periodic advances under the line of credit amounted to $8,000 and $91,000 in
1995 and 1994, respectively.


                                       GA Financial, Inc. Annual Report 1996  27
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



   The Association also can take short-term and long-term advances with the
FHLB. FHLB of Pittsburgh advances by year of maturity at December 31, 1996 are
summarized as follows:

<TABLE>
<CAPTION>
                                                WEIGHTED
  (DOLLARS IN THOUSANDS)          AMOUNT      AVERAGE RATE
-------------------------------------------------------------
  <S>                            <C>          <C>
    1997                         $37,525          5.56%
    2000                           5,000          6.44
    2001                           4,000          6.10
-------------------------------------------------------------
    Total                        $46,525          5.70%
=============================================================
</TABLE>

   Advances from the FHLB are collateralized by qualifying securities and loans.
Qualifying collateral includes U.S. Treasury, government agency and mortgage-
backed securities and real estate loans based upon the amount of outstanding
advances.  These advances are subject to restrictions or penalties related to
prepayments.
   At December 31, 1996 the Company also maintains securities sold under
agreements to repurchase. Securities sold under agreement to repurchase at
December 31, 1996 are summarized as follows:

<TABLE> 
<CAPTION> 

(DOLLARS IN THOUSANDS)               AMOUNT           RATE
-------------------------------------------------------------
<S>                                  <C>              <C> 
Securities sold under 
   agreements to repurchase          $5,000           6.25%
=============================================================
</TABLE> 

Securities sold under agreements to repurchase are collateralized by investment
securities with an amortized cost and fair value of $5.8 million at December 31,
1996.  The $5 million is comprised of one commitment with a scheduled maturity
of August 26, 1999.  The security underlying the agreement is not under the
Company's control.  During the year ended December 31, 1995, there were no
securities sold under agreements to repurchase.


NOTE 4.  INVESTMENT SECURITIES AND MORTGAGE-RELATED SECURITIES
--------------------------------------------------------------------------------

On December 15, 1995, the Association transferred all its securities included in
the held to maturity portfolio, at the date of transfer, with a carrying value
and fair value of $230.0 million and $230.6 million, respectively, to the
available for sale portfolio.  This reallocation of the Association's investment
portfolio was done in accordance with the FASB special report, "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities."  This special report allowed a one-time transfer of
securities from the held-to-maturity category to other categories during the
period November 15, 1995 through December 31, 1995.  The transfer of securities
from the held-to-maturity category to the available for sale category resulted
in an increase to equity, net of tax, of approximately $435,000 at the date of
transfer.
   At December 31, 1996, there were $5.8 million of securities purchased which
did not settle until January, 1997 and accordingly, have been reflected as
"Securities purchased, not settled" in the accompanying consolidated statements
of financial condition. The settlement date for $73.1 million of securities sold
in December, 1995 did not occur until subsequent to December 31, 1995, and have
been reflected as "Securities sold, not settled" in the accompanying
consolidated statements of financial condition. At December 31, 1995, $42.0
million of securities purchased did not settle until subsequent to December 31,
1995.

   The amortized cost and estimated fair value of investment securities and
mortgage-related securities at December 31, 1996 are as follows:


28  GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------Dollar amounts
                                                                DECEMBER 31, 1996                in thousands,
-------------------------------------------------------------------------------------------------except share data
                                                             GROSS         GROSS              
                                              AMORTIZED    UNREALIZED   UNREALIZED            
AVAILABLE FOR SALE SECURITIES:                   COST        GAINS        LOSSES      FAIR VALUE
-------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>        <C>       
U.S. Treasury                                 $ 14,912      $  037        $    --    $ 14,949 
Mortgage-backed certificates                   171,611       2,536         (1,920)    172,227 
Marketable equity securities                    28,654       1,263           (187)     29,730 
U.S. government agency debt                     48,646          92           (318)     48,420 
Municipal obligations                            8,865          58            (29)      8,894 
Corporate obligations                           17,294          61             (1)     17,354 
Collateralized mortgage obligations             73,706         250         (1,701)     72,255 
-------------------------------------------------------------------------------------------------
    Total                                     $363,688      $4,297        ($4,156)   $363,829
=================================================================================================
</TABLE> 
 
   The amortized cost and estimated fair value of investment securities and
 mortgage-related securities at December 31, 1995 are as follows:
 
<TABLE> 
<CAPTION> 

-------------------------------------------------------------------------------------------------
                                                                DECEMBER 31, 1995
-------------------------------------------------------------------------------------------------
                                                             GROSS         GROSS             
                                              AMORTIZED    UNREALIZED   UNREALIZED           
AVAILABLE FOR SALE SECURITIES:                   COST        GAINS        LOSSES      FAIR VALUE     
-------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>        <C> 
Mortgage-backed certificates                  $113,825      $4,322        $    --    $118,147
Marketable equity securities                    21,804       1,076           (221)     22,659 
U.S. government agency debt                     21,496          99            (12)     21,583
Corporate obligations                           26,565         320            (67)     26,818
Collateralized mortgage obligations             51,460         219         (1,047)     50,632
-------------------------------------------------------------------------------------------------
    Total                                     $235,150      $6,036        ($1,347)   $239,839
=================================================================================================
</TABLE>

   The amortized cost and estimated fair value of available for sale securities
at December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or to prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
 
-------------------------------------------------------------------------------------------------
                                                                     DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------
                                                             AMORTIZED
AVAILABLE FOR SALE SECURITIES:                                 COST                   FAIR VALUE
-------------------------------------------------------------------------------------------------
<S>                                                         <C>                      <C> 
Due in one year or less                                     $ 35,637                 $ 35,514
Due after one year through five years                         55,838                   55,730
Due after five years through ten years                         9,394                    9,414
Due after ten years                                          234,165                  233,441
-------------------------------------------------------------------------------------------------
    Total                                                   $335,034                 $334,099
-------------------------------------------------------------------------------------------------
Marketable equity securities                                  28,654                   29,730
-------------------------------------------------------------------------------------------------
    Total                                                   $363,688                 $363,829 
=================================================================================================
</TABLE>


                                    GA Financial, Inc. Annual Report 1996     29
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


   Proceeds from sales of available for sale securities for the year ended
December 31, 1996 were approximately $88.7 million. Gross gains of approximately
$716,000 were realized on those sales and gross losses of approximately $140,000
were realized for the year ended December 31, 1996.

   Proceeds from sales of available for sale securities for the year ended
December 31, 1995 were approximately $115.9 million of which $73.1 million were
not received until subsequent to December 31, 1995. Gross gains of approximately
$163,000 were realized on those sales and gross losses of approximately $1.7
million were realized for the year ended December 31, 1995.

   Proceeds from sales of available for sale securities for the year ended
December 31, 1994 were approximately $22.3 million. Gross gains of approximately
$930,000 and gross losses of approximately $1.2 million were realized on those
sales. There were no sales of held to maturity securities in 1994.

   The Company's holdings of mortgage-backed certificates and collateralized
mortgage obligations consist primarily of GNMA, FNMA and FHLMC pass-through
certificates which are backed by the full faith and credit of the United States
government or its agencies.


NOTE 5. LOANS RECEIVABLE
 ................................................................................

Loans receivable at December 31, 1996 and 1995 consist of the following:

<TABLE>
<CAPTION>
 
--------------------------------------------------------------------------------
 (Dollars in thousands)                   December 31, 1996  December 31, 1995
<S>                                       <C>                <C>
Mortgages:
 Residential and multi-family                 $184,961           $129,717    
 Commercial                                      5,053              3,290    
 Construction and development                    3,545              5,891    
Consumer loans:                                                              
 Home equity                                    22,153             20,151    
 Educational loans                              15,383             20,766    
Other:                                                                       
 Loans on savings accounts                       2,062              2,159    
 Unsecured personal loans and other              1,698              1,449    
--------------------------------------------------------------------------------
  Total                                        234,855            183,423    
                                                                             
Less:                                                                        
 Undisbursed mortgage loans                        684              1,363    
 Deferred loan fees                              1,381                963    
 Allowance for losses                            1,031                822    
--------------------------------------------------------------------------------
  Net loans                                   $231,759           $180,275    
================================================================================
</TABLE>

   The Company purchased approximately $71.2 million and $24.2 million in 1996
and 1995, respectively, of residential mortgage loans collateralized by single-
family properties located outside its primary market area, such as other regions
of Pennsylvania, Ohio and New York. The sellers have retained the servicing
rights on these purchases.

   In the ordinary course of business, the Company has transactions, including
loans, with the Company's principal officers and directors and their related
interests. Related party loans outstanding were approximately $943,000 and
$504,000 at December 31, 1996 and 1995, respectively.



30    GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



   The following is a summary of activity in the allowance for loan losses:

<TABLE>
<CAPTION>


                                                 YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
 (Dollars in Thousands)                      1996           1995          1994
--------------------------------------------------------------------------------
<S>                                        <C>             <C>           <C>
Balance, beginning of year                 $  822          $ 850         $ 846
Provision charged to operations               210             --            --
Loan charge-offs                              (20)           (35)          (39)
Loan recoveries                                19              7            43
--------------------------------------------------------------------------------
Balance, end of year                       $1,031          $ 822         $ 850
================================================================================
</TABLE>

   At December 31, 1996 and 1995, the Company had approximately $900,000 and
$1.5 million, respectively, in loans which were 90 days or more past due and
were not accruing interest.

   The Company did not have any recorded investment in loans for which
impairment has been recognized in accordance with Statement No. 114 at 
December 31, 1996 or 1995.


NOTE 6.  OFFICE, PROPERTY AND EQUIPMENT
 ................................................................................

   Office, property and equipment at December 31, 1996 and 1995 consist of the
following:

<TABLE>
<CAPTION>
 
--------------------------------------------------------------------------------
 (Dollars in Thousands)                   December 31, 1996  December 31, 1995
--------------------------------------------------------------------------------
<S>                                       <C>                <C>
Office buildings                               $ 7,750            $ 7,292       
Equipment                                        9,467              9,172       
Land and land improvements                         995                995       
--------------------------------------------------------------------------------
  Sub-total                                     18,212             17,459       
Less: accumulated depreciation and                                              
      amortization                              12,568             11,776       
--------------------------------------------------------------------------------
  Net office, property and equipment           $ 5,644            $ 5,683       
================================================================================
</TABLE>

   The Company recognized depreciation and amortization expense of approximately
$865,000, $882,000 and $928,000 for the years ended December 31, 1996, 1995, and
1994, respectively.



                                       GA Financial, Inc. Annual Report 1996  31
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 7.  NON-INTEREST BEARING DEMAND DEPOSITS AND SAVINGS ACCOUNTS
 ................................................................................

Non-interest bearing demand deposits and savings accounts are summarized as
follows:

<TABLE>
<CAPTION>
 
-------------------------------------------------------------------------------------------                
   (DOLLARS IN THOUSANDS)             DECEMBER 31, 1996             DECEMBER 31, 1995                      
-------------------------------------------------------------------------------------------                
                                  AVERAGE                       AVERAGE
                                   RATE    AMOUNT   PERCENT      RATE     AMOUNT   PERCENT
-------------------------------------------------------------------------------------------
<S>                               <C>     <C>       <C>          <C>     <C>       <C>
Noninterest bearing         
  accounts                                $ 19,685     4.38%             $ 17,464     4.11%
-------------------------------------------------------------------------------------------
Interest bearing accounts:                                                                
 Non-certificate accounts:                                                                
  NOW/Super NOW accts.             2.05%    27,652     6.15      2.05%     24,560     5.78
  Money market                     2.25%    17,093     3.80      2.25%     17,253     4.06
  Passbook savings                 3.00%   159,038    35.38      3.00%    164,765    38.78
-------------------------------------------------------------------------------------------                
    Total non-certificate                                                                 
      accounts                             203,783    45.33               206,578    48.62
-------------------------------------------------------------------------------------------                
Certificates of deposit:                                                                  
  0% to 4.00%                      3.54%     1,322     0.29      3.71%      5,771     1.36
  4.00% to 4.99%                   4.64%    87,668    19.50      4.51%     56,479    13.29
  5.00% to 5.99%                   5.47%    68,477    15.23      5.40%     82,580    19.44
  6.00% and above                  6.92%    68,631    15.27      6.67%     55,998    13.18
-------------------------------------------------------------------------------------------                
  Total certificates of                                                                   
    deposit                        5.94%   226,098    50.29      5.55%    200,828    47.27
-------------------------------------------------------------------------------------------                
Total interest bearing                                                                    
  accounts                                 429,881    95.62               407,406    95.89
-------------------------------------------------------------------------------------------                
Total deposits                            $449,566   100.00%             $424,870   100.00%
===========================================================================================
</TABLE>

   The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was $14.1 million and $12.1 million at December 31, 1996 and 1995,
respectively. Deposits in excess of $100,000 are not federally insured.

   The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
 
-----------------------------------------------------------------------------------------------------------------------
  (DOLLARS IN THOUSANDS)   PERIOD TO MATURITY AT DECEMBER 31, 1996         PERIOD TO MATURITY AT DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------------------------
                         WITHIN    ONE TO  TWO TO     OVER               WITHIN     ONE TO  TWO TO     OVER
ACTUAL RATES             ONE YR   TWO YRS   3 YRS    3 YRS     TOTAL     ONE YR    TWO YRS   3 YRS    3 YRS     TOTAL
-----------------------------------------------------------------------------------------------------------------------
<S>                     <C>       <C>      <C>      <C>      <C>        <C>       <C>       <C>      <C>      <C> 
Interest rate:                                                                            
Less than 4%            $  1,317  $     5  $    --  $    --  $  1,322   $  5,771  $     -   $     -  $    --  $  5,771
4.00% to 4.99%            86,393    1,221       54       --    87,668     52,181    3,324       974       --    56,479
5.00% to 5.99%            26,028   19,623   12,410   10,416    68,477     51,499   11,631    11,846    7,604    82,580
6.00% and over             7,764   31,334   12,684   16,849    68,631     19,072    6,479     3,669   26,778    55,998
-----------------------------------------------------------------------------------------------------------------------
 Total                  $121,502  $52,183  $25,148  $27,265  $226,098   $128,523  $21,434   $16,489  $34,382  $200,828
=======================================================================================================================
</TABLE> 


32    GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          Notes to Consolidated Financial Statements (CONTINUED)
<TABLE> 
<CAPTION> 

   Interest expense on savings accounts for the years ended December 31, 1996,    Dollar amounts 
 1995 and 1994 is summarized as follows:                                          in thousands
 
                                            YEARS ENDED DECEMBER 31,                     
-------------------------------------------------------------------------------
                                        1996          1995            1994               
-------------------------------------------------------------------------------          
<S>                                  <C>            <C>            <C>                   
Passbook accounts                    $ 4,893        $ 5,104        $ 6,000               
NOW/Super NOW accounts                   496            464            503               
Money market accounts                    410            465            568               
Certificates of deposit               10,880         10,460          7,565               
-------------------------------------------------------------------------------          
  Total                              $16,679        $16,493        $14,636               
===============================================================================
</TABLE> 

NOTE 8.  INCOME TAXES
 ...............................................................................

The provision for income taxes is comprised of the following:
<TABLE> 
<CAPTION> 
                                     FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
                                        1996           1995           1994       
-------------------------------------------------------------------------------  
<S>                                  <C>            <C>            <C>           
Federal:                                                                         
  Current                             $2,896         $1,376         $1,667       
  Deferred                               120             11             21       
-------------------------------------------------------------------------------  
                                       3,016          1,387          1,688       
State:                                                                           
  Current                                465            225            206       
-------------------------------------------------------------------------------  
Provision for income taxes            $3,481         $1,612         $1,894       
===============================================================================
</TABLE> 
   A reconciliation of the federal statutory tax rate to the tax rate applicable
to income before federal income taxes follows:
<TABLE> 
<CAPTION> 
                                                      DECEMBER 31,
-------------------------------------------------------------------------------
                                       1996           1995           1994       
------------------------------------------------------------------------------- 
<S>                                    <C>            <C>            <C>        
Federal statutory rate                   34%            34%            34%      
State income taxes                        3              3              4       
Other                                     1             (1)            (1)      
------------------------------------------------------------------------------- 
                                         38%            36%            37%      
===============================================================================
</TABLE> 


                                     GA Financial, Inc. Annual Report 1996    33
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



   The deferred tax assets and deferred tax liabilities recorded on the
 statements of financial condition are as follows:

<TABLE> 
<CAPTION> 
-------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)                             DECEMBER 31, 1996                  DECEMBER 31, 1995
-------------------------------------------------------------------------------------------------------------
                                             DEFERRED TAX    DEFERRED TAX        DEFERRED TAX   DEFERRED TAX
                                                ASSETS        LIABILITIES          ASSETS       LIABILITIES
-------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>                 <C>            <C> 
                                                                                             
Tax bad debt reserve                              $ --             $  765           $  --            $  765
Reserve for possible loan loss                     351                 --             279                --
Loan origination fees/costs                        109                 --             135                --
Depreciation/amortization                           --                830              --               803
Employee benefits                                   --                 --             183                --
Net unrealized holding losses (gains)
  on securities available for sale                  --                 52              --             1,735
Other                                               24                 --              --                16
-------------------------------------------------------------------------------------------------------------
Deferred tax asset/liability                      $484             $1,647           $ 597            $3,319
=============================================================================================================
</TABLE>
   Net accumulated deferred income tax assets (liabilities) at December 31, 1996
and 1995 were ($1.2) million and ($2.7) million, respectively.


NOTE 9.  DERIVATIVE FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND
         CONCENTRATION OF CREDIT RISK
--------------------------------------------------------------------------------

The Company has only limited involvement with derivative financial instruments.
Derivative financial instruments are held for or issued for purposes other than
trading.  These investments are used to manage interest rate and prepayment
risk.  Periodically, the Company enters into unconditional forward commitments
to purchase mortgage-backed certificates, such as those issued by the Government
National Mortgage Company, at a fixed price and coupon rate to be delivered,
typically, no longer than six months in the future.  In addition, the Company
also enters into 50-50 flexible commitments to purchase GNMA's whereby the
broker will deliver at least 50% of the commitment amount or up to 150% of the
total commitment amount on the settlement date.  In effect, 50% of the
commitment represents an unconditional forward commitment and the remaining
portion of the commitment represents standby commitments (put options) with
certain Board of Directors approved brokers.  These commitments can be sold on
the open market.  The Company will only enter into these commitments when it has
available liquidity to meet the full amount of the commitment and believes the
coupon interest rate is appropriate for asset liability management, thereby
reducing its own exposure to fluctuations in interest rates as well as to
enhance the yield due to a discount received for writing a put option.
   Risks associated with these commitments arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
securities values and interest rates.  Under standby commitments, the Company
bears the risk of an unfavorable change in the price of the mortgage-backed
certificates underlying the options.  The Company reviews the creditworthiness
of the party to these commitments and disposes of forward commitments in the
event the market risk reaches specified levels.
   A purchase commitment can be "paired off" against a sale commitment for the
same type of security bearing the same contract amount, rate and settlement
date. This is usually done when the sale commitment is at a higher fixed price
than the purchase commitment and management determines there is a high risk of
prepayment. During calendar years 1996, 1995 and 1994, certain purchase
commitments were "paired off" against sale commitments. Such activity resulted
in net gains of approximately $54,000, $207,000 and $143,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.


34  GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 10.  EMPLOYEE BENEFIT PLANS

On July 1, 1996 the Company merged its defined benefit plan (Plan) with the
Financial Institutions Retirement Fund (FIRF), a multi-employer plan.  This
merger effectively resulted in a settlement and curtailment of the Plan.  This
merger resulted in a before tax gain of $769,000.  The Plan was modified to
reduce the benefit formula from a 60% high three year average salary to a 30%
high five year average salary and a 25 year target service minimum.  Any full-
time employee as of June 30, 1996 is eligible to participate in the current
Plan.
   Pension expense under FIRF will match the Company's required contribution to
the FIRF as determined annually. The Company was not required to make any
contributions to the FIRF for fiscal 1996.
   The Company had a noncontributory, defined benefit pension plan (the Plan)
covering substantially all employees meeting minimum age and service
requirements.  The Plan generally provides benefits based on years of credited
service and final average earnings.  The Company's current funding policy was to
annually contribute the amount recommended by its consulting actuary subject to
current pension laws.
   Net pension expense for the years ended December 31, 1995 and 1994 consists
of the following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(Dollars in Thousands)                                     1995         1994
--------------------------------------------------------------------------------
<S>                                                       <C>          <C>
Service cost-benefits earned during the year              $ 391        $ 475
Interest accrued on projected benefit obligation            396          373
Actual investment income on plan assets                    (827)         135
Net amortization and deferral                               505         (389)
--------------------------------------------------------------------------------
Net pension expense                                       $ 465        $ 594
================================================================================
</TABLE>
   The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated statement of financial condition at
December 31:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(Dollars in Thousands)                                    1995         1994
--------------------------------------------------------------------------------
<S>                                                      <C>         <C>
Actuarial present value of benefit obligations:                 
Accumulated benefit obligation, including                       
  vested benefits of approximately $3.7 million                 
  and $3.4 million for 1995 and 1994, respectively       $3,778      $ 3,366
Projected salary increases                                2,487        2,455
--------------------------------------------------------------------------------
Projected benefit obligation                              6,265        5,821
Plan assets at fair value                                 5,493        4,403
--------------------------------------------------------------------------------
Plan assets less than projected benefit obligation         (772)      (1,418)
Unrecognized actuarial losses                               255          926
Unrecognized transition credit                             (112)        (125)
Unrecognized prior service costs                             90           98
--------------------------------------------------------------------------------
Accrued pension costs included in the consolidated              
  statements of financial condition                       ($539)       ($519)
================================================================================
</TABLE>

   The projected benefit obligation was determined using an assumed discount
rate of 7.0% for 1995 and 5.75% in 1994. The expected rate of increase in
compensation was 5.50% and the expected long term rate of return on the plan
assets was 7.50% for 1995 and 1994.


                                       GA Financial, Inc. Annual Report 1996  35
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



   Pension plan assets were primarily certificates of deposit with maturities of
not more than one year and U.S. Treasury Securities.  Changes in these values,
attributable to differences between actual and expected returns on plan assets,
were deferred as unrecognized gains or losses and included in the determination
of net pension costs over time.  For the year ended December 31, 1995, the
Plan's assets included investments in the Company's certificates of deposit and
interest-bearing checking accounts which approximated $776,000.
   On January 30, 1996 the Board of Directors approved a 401(k) program for all
eligible employees permitting participants to defer a maximum of 15% of their
base salary with the Company contributing a 25% match on the first 6% of
deferred income.  The compensation expense relating to the 401(k) match was
$41,000 for 1996.  The Company will match 50% beginning in 1997.
   The Company has established for full-time employees who have attained the age
of 21 a separate Employee Stock Ownership Plan ("ESOP") in connection with the
conversion (See Note 2). The ESOP borrowed an aggregate of $7.1 million from the
Company and purchased 712,000 common shares issued in the conversion. The
Association intends to make scheduled discretionary cash contributions to the
ESOP sufficient to service and repay the amounts borrowed over a period of up to
14 years. In connection with the formation of the ESOP, the Company adopted
Statement of Position 93-6. As shares in the ESOP are earned and committed to be
released, compensation expense will be recorded based on their fair value during
each reporting period. The difference between the fair value of the shares
committed to be released and the cost of those shares to the ESOP will be
charged or credited to additional paid-in capital. The balance of unearned
shares held by the ESOP is shown as a reduction of shareholders' equity. Only
those shares in the ESOP which have been earned and are committed to be released
will be included in the computation of earnings per share. At December 31, 1996,
50,857 of the shares in the ESOP were earned and committed to be released.
Compensation expense related to the ESOP amounted to $622,000 for the year ended
December 31, 1996. Dividends received on unallocated ESOP shares in 1996
amounted to $93,000 and are included in compensation expense. The fair value at
December 31, 1996 of the unearned shares in the ESOP was $10 million based on
the last sales price of the company's common stock of approximately $15.125 on
that date.


NOTE 11.  CAPITAL REQUIREMENTS AND REGULATORY RESTRICTIONS
--------------------------------------------------------------------------------

As a savings and loan holding company, the Company is not required to maintain
any minimum level of capital; however, the Association is subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory --
and possibly additional discretionary -- actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements.  Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital guidelines that
involve quantitative measures of the Company's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Company's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.  The Association is considered "well-capitalized" under the OTS' prompt
corrective action regulations.
   Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), the Office of Thrift Supervision (the OTS) issued regulations covering
minimum regulatory capital requirements.  Under OTS regulations, the Association
is required to maintain minimum regulatory tangible capital of at least 1.5% of
total assets, a minimum 3.0% leverage core capital ratio (expressed as a
percentage of tangible assets) and minimum risk-based capital of 8.0% (expressed
as a percentage of risk-weighted assets, which includes off-balance sheet items)
as defined by the OTS.


36  GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMNETS (CONTINUED)



<TABLE>
<CAPTION>
 
------------------------------------------------------------------------------------------------------ 
(DOLLARS IN THOUSANDS)                        TANGIBLE CAPITAL  CORE CAPITAL     RISK-BASED CAPITAL
------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>            <C>
December 31, 1996:          
  Consolidated shareholders' equity                $122,404       $122,404           $122,404 
  General valuation allowance                            --             --              1,031 
  Unrealized gains on certain available-for-
    sale securities                                     (88)           (88)               (88)
  Core deposit intangible                            (1,277)        (1,277)            (1,277)
------------------------------------------------------------------------------------------------------
  Regulatory capital computed                       121,039        121,039            122,070
------------------------------------------------------------------------------------------------------
  Minimum capital requirement                         9,489         18,979             17,477
------------------------------------------------------------------------------------------------------
  Regulatory capital excess                        $111,550       $102,060           $104,593
======================================================================================================
  Computed capital ratio                              19.13%         19.13%             55.88%
  Minimum capital ratio                                1.50%          3.00%              8.00%
------------------------------------------------------------------------------------------------------
  Regulatory capital excess                           17.63%         16.13%             47.88%
======================================================================================================
 
December 31, 1995:
  Consolidated retained earnings                   $ 48,230       $ 48,230           $ 48,230 
  General valuation allowance                            --             --                822 
  Unrealized gains on certain available-for
    sale securities                                  (2,954)        (2,954)            (2,954)
------------------------------------------------------------------------------------------------------
  Regulatory capital computed                        45,276         45,276             46,098
------------------------------------------------------------------------------------------------------
  Minimum capital requirement                         7,750         15,500             19,784
------------------------------------------------------------------------------------------------------
  Regulatory capital excess                        $ 37,526       $ 29,776           $ 26,314
======================================================================================================
  Computed capital ratio                               8.77%          8.77%             18.64%
  Minimum capital ratio                                1.50%          3.00%              8.00%
------------------------------------------------------------------------------------------------------
  Regulatory capital excess                            7.27%          5.77%             10.64%
======================================================================================================
</TABLE>

   Pursuant to Regulation D of the Federal Reserve, the Company is required to
maintain certain balances which include both cash on hand and deposits with the
Federal Reserve.  The amount of these balances at December 31, 1996 and 1995
approximated $1.1 million and $961,000, respectively.



                                       GA Financial, Inc. Annual Report 1996  37
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 12.  FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
the determination of fair value for certain of the Company's assets, liabilities
and off balance sheet liabilities.  The following methods and assumptions were
used to estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value.

CASH
The carrying amount of cash, which includes interest-bearing demand deposits,
approximates fair value.

FEDERAL FUNDS SOLD
The carrying amount of these overnight federal funds approximates fair value.

INVESTMENTS
The fair values of some investments are based on quoted market prices or on bid
quotations received from security dealers.  If a quoted market price is not
available, fair value is estimated using quoted market prices for securities
with similar remaining maturities, comparable credit risk and coupon rates.

Mortgage-Related Securities and Collateralized Mortgage Obligations
The fair values are based on quoted market prices or dealer quotes.

LOANS RECEIVABLE
Fair values were estimated for loan portfolios with similar financial
characteristics by discounting contractual cash flows with adjustments for
prepayment.  Assumptions regarding cash flows and discount rates were
judgmentally determined using available internal information which management
believes to be reasonable, taking into consideration the credit rating of the
counterparties, current interest rates and remaining maturities.

FEDERAL HOME LOAN BANK STOCK
The stock can be redeemed at its carrying amount; therefore, the carrying amount
approximates fair value.

Noninterest-Bearing Demand Deposits
The fair value on these deposits is the amount payable on the reporting date.

SAVINGS ACCOUNTS
The fair value of Passbook, SuperNOW and Money Market accounts is the amount
payable on demand at the reporting date.  The fair value of fixed-maturity
certificates of deposit is estimated based on present value computations using
as a discount rate the rates currently offered for deposits of similar remaining
maturities.

BORROWED FUNDS
Fair value is determined by discounting the borrowings using current rates of
borrowings with comparable maturities as of the reporting date.

COMMITMENTS TO EXTEND CREDIT
Fair value was estimated using the fees currently charged, if any, to enter into
similar agreements, taking into account the remaining terms of the agreements
and the creditworthiness of the counterparties.

FORWARD AND STANDBY COMMITMENTS
Fair value was estimated based on bid quotations from security dealers.



38  GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)                     DECEMBER 31, 1996            DECEMBER 31,   1995
-------------------------------------------------------------------------------------------------
                                         ESTIMATED          BOOK        ESTIMATED      BOOK
FINANCIAL ASSETS:                        FAIR VALUE        VALUE       FAIR VALUE     VALUE
-------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>         <C>             <C>
                                                                                    
Cash                                       $ 22,349      $ 22,349      $ 16,870      $ 16,870
Federal funds sold                            1,950         1,950           300           300
Investment securities                       119,347       119,347        71,060        71,060
Mortgage-related securities                 244,482       244,482       168,779       168,779
Loans receivable                            230,946       231,759       185,401       180,275
-------------------------------------------------------------------------------------------------
                                           $619,074      $619,887      $442,410      $437,284
=================================================================================================
FINANCIAL LIABILITIES:                                                           
Noninterest-bearing demand deposits        $ 19,685      $ 19,685      $ 17,464      $ 17,464 
Savings accounts                            428,840       429,881       407,218       407,406
Borrowed funds                               51,603        51,525            --            --
-------------------------------------------------------------------------------------------------
                                           $500,128      $501,091      $424,682      $424,870
=================================================================================================
</TABLE> 

<TABLE> 
<CAPTION>  
 
                                           Estimated   Contract or     Estimated    Contract or
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS    Fair Value  Notional Amt    Fair Value   Notional Amt
-------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>             <C>          <C> 
Commitments to extend credit                     --       $24,400            --       $25,600
================================================================================================= 
</TABLE>

A reconciliation of forward and standby commitment activity for periods
presented as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------- 
(DOLLARS IN THOUSANDS)                       FORWARD COMMITMENTS         STANDBY COMMITMENTS
-------------------------------------------------------------------------------------------------
<S>                                          <C>                         <C> 
Balance at December 31, 1994                      $     --                    $     --
Purchase commitments                                32,000                      12,000
Commitments matured/expired                             --                     (12,000)
Commitments settled                                 (9,000)                         --
Commitments sold                                   (23,000)                         --
-------------------------------------------------------------------------------------------------
Balance at December 31, 1995                     $      --                    $     --
================================================================================================= 
                                                                   
Purchase commitments                             $ 126,805                    $  4,000
Commitments matured/expired                             --                          --
Commitments settled                               (108,805)                     (4,000)
Commitments sold                                    (4,000)                         --
-------------------------------------------------------------------------------------------------
Balance at December 31, 1996                     $  14,000                    $     --
=================================================================================================
</TABLE>

The fair value of the forward commitments at December 31, 1996 is $14.1 million.


                                       GA Financial, Inc. Annual Report 1996  39
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



   The Company also has loan commitments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
instruments involve elements of credit risk in excess of the amount recognized
in the consolidated financial statements. The Company's exposure to credit loss
in the event of nonperformance by the counterparty to the financial instruments
for commitments to extend credit is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments and the commitments expire within 60 days. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held includes residential real estate and income-producing
properties. Total commitments to extend credit at December 31, 1996 and 1995
were $24.4 million and $25.6 million, respectively, in loan commitments and
unused lines of credit which bear market rates at the time the commitments are
exercised. The loan commitments are held other than for trading. Since many of
the loan commitments may expire without being drawn upon, the total commitment
amount does not necessarily represent future cash requirements. The Company's
lending is primarily concentrated in the local southwestern Pennsylvania market.
At December 31, 1996, the Company had approximately $113.3 million of
residential real estate loans located out of its primary market area. These
loans are concentrated in other regions of Pennsylvania, Ohio, Delaware and New
York and are not serviced by the Company. The Company has no significant
concentrations of credit risk with any individual counterparty to originate
loans.

   The Company believes that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of active
secondary markets for many financial instruments.  This lack of uniform
valuation methodologies also introduces a greater degree of subjectivity to
these estimated values.


NOTE 13.  SAIF ASSESSMENT
 ................................................................................

On September 30, 1996, President Clinton signed into law the Deposit Insurance
Funds Act of 1996, which included provisions recapitalizing the SAIF, provides
for the eventual merger of the thrift fund with the Bank Insurance Fund ("BIF"),
and reallocates payment of the annual Financing Corp. ("FICO") bond obligation.
As part of the package, the Federal Deposit Insurance Corp. ("FDIC") imposed a
special one-time assessment of 65.7 basis points to be applied against all SAIF-
assessable deposits as of March 31, 1995, which will bring the SAIF up to the
statutorily prescribed 1.25 percent designated reserve ratio.  The special
assessment, paid by the Company in November 1996, was included as a $2.8 million
pretax charge to the Company's operations in 1996.  The assessment reduced the
Company's 1996 net after-tax earnings of $1.8 million or $.23 per share.

   Effective January 1, 1997, SAIF members will have the same risk-based
assessment schedule as BIF members. The Company, as a well capitalized bank,
will effectively pay no assessment for deposit insurance coverage beginning on
January 1, 1997. However, all SAIF and BIF institutions including the Company
will be responsible for sharing the cost of interest payments on the FICO bonds.
The cost will be an annualized charge of 1.3 basis points for BIF deposits and
6.4 basis points for SAIF deposits. The approximate annual cost of interest
payments for the Company is estimated at $288,000.

   The Deposit Insurance Funds Act provides that the BIF and SAIF will merge on
January 1, 1999 if there are no more savings associations as of that date. That
legislation also requires that the Department of Treasury submit a report to
Congress by March 31, 1997 that makes recommendations regarding a common
financial institutions charter, including whether the separate charters for
thrifts and banks should be abolished.  Various proposals to eliminate the
federal thrift charter, create a uniform financial institutions charter and
abolish the OTS have been introduced in Congress. The bills would require
federal savings institutions to convert to a national bank or some type of state
charter by a specified date (January 1, 1998 in one bill, June 30, 1998 in the
other) or they would automatically become national banks. Converted federal
thrifts would generally be required to conform their activities to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered thrifts would become subject to the same federal regulation as
applies to state commercial banks. Holding companies 

40 GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



For savings institutions would become subject to the same regulation as holding
companies that control commercial banks, with a limited grandfather provision
for unitary savings and loan holding company activities. The Bank is unable to
predict whether such legislation would be enacted, the extent to which the
legislation would restrict or disrupt its operations or whether the BIF and SAIF
funds will eventually merge.


NOTE 14.  SUPPLEMENTARY CASH FLOW INFORMATION
 ................................................................................

Cash paid during the years ended December 31, for interest and income taxes was
approximately $17.4 million and $2.8 million, respectively, in 1996, $16.4
million and $2.2 million, respectively, in 1995 and $14.7 million and $1.8
million, respectively, in 1994.  Noncash investing and financing activity
consisted of the following:  Investment securities and mortgage-backed
securities with an amortized cost of $230 million were reclassed from the
Company's held to maturity portfolio to their available for sale portfolio in
1995.  In addition, in December, 1996 and December, 1995, the Company either
sold or purchased both investment securities and mortgage-backed certificates
and collateralized mortgage obligations that did settle with the brokers until
subsequent to December 31.  Accordingly, amounts due to brokers of $5.8 million
and $42.0 million are shown separately on the consolidated statements of
financial condition at December 31, 1996 and December 31, 1995.  Amounts due
from brokers of $73.1 million is shown separately on the consolidated financial
statements of financial condition at December 31, 1995.  In 1994, the Company
designated $17.3 million of held to maturity investment securities as available
for sale investment securities upon the adoption of SFAS No. 115.


NOTE 15.  NEW ACCOUNTING PRONOUNCEMENTS
 ................................................................................

In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of."  The adoption of
this standard in 1996 did not have an effect on the Company's results of
operations.

   In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." The statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings based on a control-oriented "financial-components" approach. Under
this approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and liabilities it has incurred,
derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished. The provisions of SFAS No. 125 are effective for
transactions occurring after December 31, 1996, except those provisions relating
to repurchase agreements, securities lending, and other similar transactions and
pledged collateral, which have been delayed until after December 31, 1997 by
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125, an amendment of FASB Statement No. 125." The adoption of
these statements is not expected to have a material impact on the Company's
financial position or results of operations.


NOTE 16.  EARNINGS PER SHARE
 ................................................................................

The average number of shares outstanding for the period since March 25, 1996 is
8,154,000.  Primary earnings per share is calculated by dividing net income by
the weighted average number of common shares and common stock equivalents
outstanding. Shares outstanding for 1996 do not include ESOP shares that were
purchased and unallocated during 1996 in accordance with SOP 93-6, "Employers'
Accounting for Employee Stock Ownership Plans."  Shares granted but not yet
purchased under the Company's Stock Award Plan are considered common stock
equivalents for the earnings per share calculation.  Earnings per share
information is not comparable for prior periods as the Company did not complete
its stock offering until March 25, 1996.  The earnings per share for 1996
assumes the stock conversion was completed on January 1, 1996.


                                        GA Financial, Inc. Annual Report 1996 41
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 17.  GA FINANCIAL, INC. (PARENT COMPANY)
 ................................................................................

The following are the parent company's condensed financial statements:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(Dollars in Thousands)                                       December 31, 1996
--------------------------------------------------------------------------------
<S>                                                          <C>
STATEMENT OF FINANCIAL CONDITION
ASSETS
  Cash                                                                $     21
  Mortgage related securities, at fair value                             1,726
  Investment securities, at fair value                                  26,597
  Investment in the Association                                         93,768
  Accrued interest receivable                                              378
  Prepaid expenses and other assets                                         83
--------------------------------------------------------------------------------
  Total Assets                                                        $122,573
================================================================================
 
LIABILITIES AND SHAREHOLDERS' EQUITY
  Liabilities:
  Other                                                               $    169
  Shareholder's Equity:
 
  Total Shareholders' Equity                                           122,404
--------------------------------------------------------------------------------
  Total Liabilities and Shareholders' Equity                          $122,573
================================================================================
<CAPTION>  
--------------------------------------------------------------------------------
(Dollars in Thousands)                    For the Year Ended December 31, 1996
--------------------------------------------------------------------------------
<S>                                                                   <C> 
STATEMENT OF INCOME
  Investment securities interest income                               $  2,042
  Net gain on sale of investment securities                                 11
  Mortgage related securities interest income                               33
 
  General and administrative expenses                                     (319)
  Income taxes                                                            (249)
  State franchise taxes                                                   (795)
--------------------------------------------------------------------------------
  Income before equity in undistributed earnings of subsidiary             723
  Equity in undistributed earnings of Association                        4,879
--------------------------------------------------------------------------------
    Net income                                                        $  5,602
================================================================================
</TABLE> 
 
42 GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
(Dollars in Thousands)                    For the Year Ended December 31, 1996
--------------------------------------------------------------------------------
<S>                                                                   <C> 
STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income                                                            $  5,602
Adjustments to reconcile net income to net cash
  provided by operating activities:
    Equity in undistributed earnings of Association                     (4,879)
    Net realized gain on securities                                        (11)
    Net discount accretion on investment securities                        (65)
    Increase in accrued interest receivable                               (378)
    Increase in prepaid expenses and other assets                          (83)
--------------------------------------------------------------------------------
    Net cash provided by operating activities                              186
--------------------------------------------------------------------------------
Cash flows from investing activities:
  Proceeds from sale of available for sale securities                   24,004
  Repayments,  maturities and calls of available for sale securities     4,274
  Purchases of available for sale securities                           (56,393)
--------------------------------------------------------------------------------
  Net cash used in investing activities                                (28,115)
--------------------------------------------------------------------------------
Cash flows from financing activities:
  Proceeds from sale of common stock, net                               86,372
  Purchase of unearned employee stock ownership plan shares             (7,120)
  Purchase of Company capital stock                                    (43,269)
  Purchase of treasury stock                                            (6,768)
  Purchase of recognition and retention stock                             (737)
  Proceeds for employee stock ownership plan payment                       416
  Dividends paid to shareholders                                        (1,064)
  Net increase in other liabilities                                        120
--------------------------------------------------------------------------------
  Net cash provided by financing activities                             27,950
--------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                   21
Cash and cash equivalents at beginning of period                            -- 
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period                            $     21
================================================================================
</TABLE>
The parent company began operations on March 25, 1996.

                                        GA Financial, Inc. Annual Report 1996 43
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 18.  RELATED PARTY TRANSACTIONS
 ................................................................................

A member of senior management of the Company is also a partner in a law firm
which provided services to the Company during 1996.  Legal fees paid to the law
firm during the year ended December 31, 1996 were $32,000.  For the years ended
December 31, 1995 and 1994, payments to the legal firm for legal services
performed were $30,000 and $22,000.


NOTE 19.  SUBSEQUENT EVENTS
 ................................................................................

The Board of Directors declared a dividend of $.08 per share to shareholders of
record on February 10, 1997, payable on February 21, 1997.

   The Company's data processing division, DataOne Financial Services, provided
data processing services to the Company and two other financial institutions in
1996.  One of these institutions notified DataOne that it would not renew its
contract when it expired in December 1996.  The revenue from this institution in
1996 was $292,000.  DataOne is attempting to replace this company with a new
client.

   The trustee for the Company's 1996 stock-based incentive plan completed the
purchase of the Plan's 356,000 shares in February, 1997.  There were 50,000
shares purchased as of December 31, 1996.

   The Company has filed an application to the OTS, dated February 19, 1997, to
repurchase up to 10% of the outstanding common stock of the Company.


NOTE 20.  STOCK-BASED COMPENSATION PLANS
 ................................................................................

The Company has two stock-based compensation plans which are described below.
The Company has elected to follow Accounting Principles Board Opinion Number 25,
"Accounting For Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its stock-based compensation plans.

STOCK AWARDS
On October 16, 1996 shareholders approved the Company's Stock Award Program.
Under this program up to 4% of the Company's outstanding shares or 356,000
shares could be awarded to directors, officers, or employees. The Board of
Directors issued 308,650 shares to directors, officers, and employees. The
awards vest at the rate of 20% per year for five years and can be forfeited if
an employee is dismissed for cause. The value of the stock on the award date was
$13.13 which was equal to the market price of the stock on that date.
Compensation expense recorded in the consolidated financial statements under
this plan for 1996 was $133,000. The unearned compensation expense and common
stock yet to be issued under the current year award as of December 31, 1996 is
$3.9 million and $3.4 million, respectively.

44 GA Financial, Inc. Annual Report 1996 
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

STOCK OPTIONS

Under the Company's 1996 Stock Option Plan the Company was authorized to issue
options of up to 890,000 shares.  The Plan was approved by shareholders on
October 16, 1996.  The Board of Directors awarded options of 626,500 shares.
Under this plan the exercise price of $12.75 for each option is equal to the
market price of the stock on the date of the grant.  The options vest at the
rate of 20% per year for five years and are exercisable over a period of ten
years from the date of the grant.  Because the Company accounts for this stock
option plan using APB 25, no compensation expense has been recorded in the
financial statements for this plan.  Had compensation cost for this stock option
plan been determined based on the fair value at the grant date consistent with
the method of FASB Statement 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
----------------------------------------------------------- 
                                               1996
-----------------------------------------------------------
<S>                                 <C>             <C>
Net income (thousands)              As reported     $5,602
                                    Pro forma       $5,553

Primary earnings per share          As reported     $ 0.69
                                    Pro forma       $ 0.68

Fully diluted earnings per share    As reported     $ 0.68
                                    Pro forma       $ 0.68
</TABLE>

   The fair value for the options described above was estimated at the date of
the grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1996: risk-free interest rate of 6.82%, dividend yield
of 2%, volatility factors of the expected market price of the Company's common
stock of .253, and an average life of the options of 6.5 years. The Black-
Scholes 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 effect
of applying FAS 123 for pro forma disclosures are not likely to be
representative of the effects on reported net income for future years.

                                     GA Financial, Inc. Annual Report 1996  45
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     A summary of the status of the Company's stock awards and fixed stock
option plan as of December 31, 1996 and changes during the year is presented
below:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Share Data)                 1996
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                        WEIGHTED AVG.
                                                                                                        EXERCISE PRICE
                                                           AWARDS               OPTIONS                  ON OPTIONS
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                 <C>                     <C>       
Outstanding at the beginning of the year                          --                    --                      --
Granted                                                      308,650               626,500                  $12.75
Exercised                                                         --                    --                      --
Forfeited                                                         --                    --                      --
---------------------------------------------------------------------------------------------------------------------------------
Outstanding at year end                                      308,650               626,500                   $12.75
---------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end                                  --
Weighted average fair value of options
  granted during the year                                    $12.75
</TABLE>

     Information about the fixed-stock option plan is described below:

<TABLE>  
<CAPTION> 
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Share Data)            OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE 
---------------------------------------------------------------------------------------------------------------------------------
                                                         REMAINING                                     NUMBER
                                              EXERCISE  OUTSTANDING      CONTRACTUAL       EXERCISE    EXERCISABLE     EXERCISE
                                              PRICE     AT 12/31/96          LIFE           PRICE       AT 12/31/96       PRICE
---------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>       <C>            <C>               <C>         <C>             <C> 
                                              $12.75      626,500           9.75 years       $12.75          --           $12.75
</TABLE>


46    GA Financial, Inc. Annual Report 1996
<PAGE>
 
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 21.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                               THREE MONTHS ENDED
--------------------------------------------------------------------------------
1996                              MARCH 31  JUNE 30  SEPTEMBER 30  DECEMBER 31
--------------------------------------------------------------------------------
<S>                               <C>       <C>      <C>           <C>
 
Interest income                     $8,731  $10,216       $10,515      $10,888
Interest expense                     4,218    4,113         4,350        4,864
Net interest income
 before provision for loan       
 losses                              4,513    6,103         6,165        6,024
Provision for loan losses               30       30            75           75
Non-interest income                    407      576         1,988          489
Non-interest expense/3/              3,267    3,397         6,412        3,896
Income before income taxes           1,623    3,252         1,666        2,542
Provision for income taxes             612    1,159           584        1,126
--------------------------------------------------------------------------------
  Net income                        $1,011  $ 2,093       $ 1,082      $ 1,416
================================================================================
Earnings per share/1/                  .12      .26           .13          .17
================================================================================

<CAPTION> 
1995                              MARCH 31  JUNE 30  SEPTEMBER 30  DECEMBER 31
--------------------------------------------------------------------------------
<S>                               <C>       <C>      <C>           <C>
 
Interest income                     $7,982  $ 8,123       $ 8,393      $ 8,335
Interest expense                     3,884    4,166         4,275        4,218
Net interest income
 before provision for loan
 losses                              4,098    3,957         4,118        4,117
Provision for loan losses               --       --            --           --
Non-interest income                    456      520           620       (1,174)
Non-interest expense                 3,151    2,767         3,022        3,340
Income before income taxes           1,403    1,710         1,716         (397)
Provision for income taxes             526      618           629         (161)
--------------------------------------------------------------------------------
  Net income (loss)                 $  877  $ 1,092       $ 1,087      $  (236)
================================================================================
Earnings per share/2/                   --       --            --           --
================================================================================
</TABLE>
/1/Quarterly earnings per share may vary from annual earnings per share due to
   rounding.
/2/Earnings per share information for the prior period is not comparable as the
   Company did not complete its stock offering until March 25, 1996.
/3/The SAIF assessment of $2.8 million was accrued on September 30, 1996.

                                     GA Financial, Inc. Annual Report 1996    47
<PAGE>

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