10-Q 1 j0239301e10vq.txt PITTSBURGH HOME FINANCIAL CORP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------ Commission File Number 0-27522 PITTSBURGH FINANCIAL CORP. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 25-1772349 ------------------------------- ---------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 1001 Village Run Road Wexford, Pennsylvania 15090 --------------------------------------- ---------------------- (Address of principal executive office) (Zip Code) (724) 933-4509 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of August 13, 2003, there were issued and outstanding 1,424,881 shares of the Registrant's Common Stock, par value $.01 per share. PITTSBURGH FINANCIAL CORP. TABLE OF CONTENTS

PART I - ITEM 1 FINANCIAL STATEMENTS PITTSBURGH FINANCIAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes to unaudited consolidated financial statements. 3 PITTSBURGH FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to unaudited consolidated financial statements. 4 PITTSBURGH FINANCIAL CORP. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)

See accompanying notes to unaudited consolidated financial statements. 5 PITTSBURGH FINANCIAL CORP CONSOLIDATED STATEMENT OF CASH FLOWS

See accompanying notes to unaudited consolidated financial statements 6 PITTSBURGH FINANCIAL CORP. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying unaudited interim consolidated financial statements of Pittsburgh Financial Corp. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Pittsburgh Savings Bank (d/b/a BankPittsburgh) (the "Bank") and Pittsburgh Home Capital Trust I. Pinnacle Settlement Group, LLC is a majority owned subsidiary of the Company. FraMal Holdings Corporation is a wholly owned subsidiary of the Bank. All significant intercompany balances and transactions have been eliminated in consolidation. The Company reports comprehensive income in accordance with SFAS No. 130, which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. SFAS No.130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position. For the three months ended June 30, 2003 and 2002, the Company's total comprehensive income amounted to $119,000 and $1,583,000, respectively. Total comprehensive gain is comprised of net income of $94,000 and $254,000, respectively, and other comprehensive gain of $25,000 and $1,329,000, net of tax, respectively. For the nine months ended June 30, 2003 and 2002, the Company's total comprehensive loss amounted to $167,000 and a comprehensive gain of $988,000, respectively. Total comprehensive loss is comprised of net income of $417,000 and $567,000, respectively, and other comprehensive loss of $584,000 and comprehensive gain of $422,000, net of tax, respectively. Other comprehensive income consists of unrealized gains and losses on investment securities and mortgage-backed securities available for sale, net of tax. The results of operations for the nine months ended June 30, 2003 are not necessarily indicative of the results to be expected for the year ending September 30, 2003. The unaudited 7 consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended September 30, 2002. Note 2 - Business The Company is a unitary bank holding company headquartered near Pittsburgh, in Wexford, PA. The Bank, a wholly owned subsidiary of the Company, is a state chartered stock savings bank headquartered in Pittsburgh, Pennsylvania, which conducts business from seven offices in Allegheny and Butler counties. The Bank is primarily engaged in attracting retail deposits from the general public and using such deposits together with borrowings to originate loans. The Company's other wholly owned subsidiary, Pittsburgh Home Capital Trust I (the "Trust") is a Delaware business trust formed in December 1997 to issue $11.5 million of 8.56% Cumulative Trust Preferred Securities ("Preferred Securities"). These securities represent undivided beneficial interests in Pittsburgh Home Capital Trust I. The Trust purchased junior subordinated deferrable interest debentures ("Subordinated Debt") which were issued by the Company. The Company owns all of the common securities issued by the Trust. "See Notes 4 and 6." The Company's majority owned subsidiary, Pinnacle Settlement Group, LLC ("PSG"), a Pennsylvania limited liability company, was formed in April 2002 for the purpose of engaging in the title insurance business, settlement and escrow business, and related or ancillary activities. The Company has an 80% equity interest and an 84% voting interest in PSG. An unrelated limited liability company and two individuals have the remaining minority interest. FraMal Holdings Corporation is a wholly owned subsidiary of the Bank, headquartered in Delaware. The Company and Bank are subject to the regulations of certain federal and state agencies and periodic examinations by certain regulatory authorities. All of the Company's activities are community banking related. Note 3 - Earnings per share Earnings per share are based on the weighted average number of shares of common stock. Basic earnings per share are calculated by dividing income available to holders of common shares by the weighted average number of common shares outstanding during the period. Options, warrants, and other potentially diluted securities are excluded from the basic calculation, but are included in diluted earnings per share. 8 The following table sets forth the computation of basic and diluted earnings per share:

The Company accounts for its Employee Stock Ownership Plan (ESOP) in accordance with SOP 93-6, "Employers Accounting for Employee Stock Ownership Plans,"; shares controlled by the ESOP are not considered in the weighted average shares outstanding until the shares are committed for allocation to an employee's individual account. In accordance with SOP 93-6, uncommitted shares held by the ESOP (75,286 and 96,445 shares at June 30, 2003 and 2002, respectively) are excluded from basic average shares outstanding. Note 4 - Recent Accounting and Regulatory Developments In June 2001, the Financial Accounting Standards Board (FASB) issued FAS No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statement. Other intangible assets will continue to be amortized over their useful lives. FAS No. 142, as part of its adoption provisions, required a transitional impairment test to be applied to all goodwill and other indefinite-lived intangible assets within the first half of the year of adoption and any resulting impairment loss be reported as a change in accounting principle. The Company has completed this impairment test as of October 1, 2002 and determined that goodwill was not impaired. On October 1, 2002, the Company adopted FAS No. 147, "Acquisitions of Certain Financial Institutions." The Statement provides guidance on the accounting for acquisition of a financial institution which had previously been addressed in FAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions." FAS No. 147 states that the excess of the fair value of liabilities assumed over the fair value of the tangible and identifiable intangible assets acquired, if acquired in a business combination, represents goodwill that should be accounted for in accordance 9 with FAS No. 142, "Goodwill and Other Intangible Assets. Under FAS No. 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests." As a result, the Company ceased amortization of goodwill in the quarter ended December 31, 2002. Application of these Statements reduced non-interest expense by $25,000 during the nine months ended June 30, 2003 and increased net income by $16,500. Had goodwill not been amortized in 2002, non-interest expense would have been reduced by $8,500 and $25,000 for the three and nine months ended June 30, 2002 and net income would have increased by $5,610 and $16,500, respectively. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities" ("VIEs"), an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to improve financial reporting of special purpose and other entities. In accordance with FIN 46, business enterprises that represent the primary beneficiary of another entity by retaining a controlling financial interest in that entity's assets, liabilities and results of operating activities must consolidate the entity in its financial statements. Prior to the issuance of FIN 46, consolidation generally occurred when an enterprise controlled another entity through voting interests. Certain VIEs that are qualifying special purpose entities subject to the reporting requirements of FASB 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" will not be required to be consolidated under the provisions of FIN 46. The consolidation provisions of FIN 46 apply to VIEs entered into after January 31, 2003, and for preexisting VIEs in the first interim reporting period after June 15, 2003. The Company has determined that the provisions of FIN 46 may require de-consolidation of the subsidiary grantor trust, which issues mandatorily redeemable preferred securities of the grantor trust. In the event of a de-consolidation, the grantor trust may be de-consolidated and the junior subordinated debentures of the Company owned by the grantor trusts would be disclosed. The Trust Preferred Securities currently qualify as Tier 1 capital of the Company for regulatory capital purposes. The banking regulatory agencies have not issued any guidance which would change the capital treatment for Trust Preferred Securities based on the impact of the adoption of FIN 46. No other impact of significance on the Company's results of operations, financial condition or cash flows is expected from the adoption of FIN No. 46. In May 2003, the FASB issued Statement of Financial Accounting Standard ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, the Company's fourth quarter of fiscal 2003. This statement establishes standards for how an issuer classifieds and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within the statement's scope as a liability. The adoption of this Statement is not expected to have a significant impact on the Company's financial condition, results of operations or cash flows. 10 Note 5- Stock-Based Compensation In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition when companies elect to change from the intrinsic method under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", to the fair value method of accounting for stock-based employee compensation, including stock options. In addition, the Statement amends the disclosure requirement of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the fair value based method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has a stock-based option plan that is accounted for under the intrinsic method of accounting. The following table illustrates the pro forma net income and earnings per share if the Company had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation.

11 Note 6 - Guaranteed Preferred Beneficial Interests in Subordinated Debt On January 30, 1998, the Company issued, through a wholly owned subsidiary, Pittsburgh Home Capital Trust I (the Trust) 8.56% Cumulative Trust Preferred Securities (Preferred Securities) with an aggregate liquidation amount of $11,500,000 which are redeemable at the option of the Company on or after January 30, 2003. The Company has guaranteed the payment of distributions and payments on liquidation of redemption of the Preferred Securities, but only in each case to the extent of funds held by the Trust. During the fiscal year ended September 30, 2002, the Company repurchased on the open market 119,300 shares or $1.2 million liquidation amount of Preferred Securities, at an average cost of $9.47 per share. In October 2002, the Company repurchased an additional 62,500 shares or $625,000 liquidation amount of Preferred Securities at an average cost of $10.26 per share. As of June 30, 2003, the Company had repurchased a total of 181,800 shares ($1.8 million liquidation amount) or 19.1% of the Preferred Securities outstanding. On May 2, 2003, the Company redeemed $2.0 million (200,000 shares) of the Preferred Securities at a redemption price equal to the liquidation amount of $10.00, plus accrued and unpaid distributions thereon through May 2, 2003. As a result of the redemption, the Company recognized a loss of approximately $101,000 which was primarily related to the write off of unamortized issuance costs. Note 7 - Subsequent Events On August 8, 2003, First Commonwealth Financial Corporation, the holding company for First Commonwealth Bank, and the Company announced the execution of a definitive agreement under which the Company and Bank would merge into First Commonwealth Financial Corporation and First Commonwealth Bank, respectively. Under the terms of the agreement, the shareholders of the Company can elect to receive $20.00 in cash or an equivalent value of First Commonwealth common stock for each Company share owned, subject to proration as provided in the definitive agreement to ensure that 40% of the aggregate merger consideration will be paid in cash and 60% in the First Commonwealth common stock. The definitive agreement was unanimously approved by the Board of Directors of both organizations. The transaction is subject to all required regulatory approvals and the approval by the Company's shareholders. The transaction is expected to be completed by December 31, 2003. 12 PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION At June 30, 2003, the Company's total assets amounted to $376.4 million compared to $413.7 million at September 30, 2002, a decrease of $37.3 million, or 9.0%. Cash and interest-bearing deposits decreased $8.1 million, or 34.0%, to $15.7 million at June 30, 2003, compared to $23.8 million at September 30, 2002. The Company's loans receivable, net of allowance, decreased $6.7 million, or 2.8%, to $234.1 million at June 30, 2003 compared to $240.8 million at September 30, 2002. The decrease is primarily attributable to the extraordinarily high level of repayments of residential 1-4 family mortgage loans that the Company has experienced as a result of the overall decline in market interest rates. Investments and mortgage-backed securities decreased $21.5 million, or 17.3%, from $124.3 million at September 30, 2002 to $102.8 million at June 30, 2003. The decrease is primarily due to the sale of $32.9 million in mortgage-backed securities. The Company's investment in FHLB Stock decreased $100,000 from $8.1 million at September 30, 2002 to $8.0 million at June 30, 2003. Bank owned life insurance totaled $6.5 million at June 30, 2003 compared to $6.3 million at September 30, 2002. Total liabilities decreased by $37.0 million, or 9.5%, to $353.6 million at June 30, 2003 compared to $390.6 million at September 30, 2002. Deposits decreased by $14.5 million, or 7.4%, to $181.7 million at June 30, 2003 compared to $196.2 million at September 30, 2002. During the quarter ended December 31, 2002, the Company sold its Bethel Park and Mt. Oliver offices and deposits in two separate transactions. Total deposits sold in these transactions were approximately $16.4 million. Excluding the sale of the two branch offices, retail deposits increased $2.9 million and wholesale certificates of deposit decreased $1.0 million for the nine months ended June 30, 2003. Borrowings decreased $21.4 million, or 11.8%, to $160.5 million at June 30, 2003 compared to $181.9 million at September 30, 2002. Guaranteed preferred beneficial interest in subordinated debt decreased $2.2 million, or 22.4%, from $9.8 million at September 30, 2002 to $7.6 million at June 13 30, 2003 as the Company redeemed $2.0 million of the Preferred Securities at a redemption price equal to the liquidation amount of $10.00. Total stockholders' equity decreased $200,000, or 0.9%, to $22.8 million at June 30, 2003 compared to $23.0 million at September 30, 2002. RESULTS OF OPERATIONS GENERAL. The Company reported net income for the quarter ended June 30, 2003 of $94,000 as compared to net income of $254,000 for the same quarter in 2002. For the nine months ended June 30, 2003, net income was $417,000 as compared to $567,000 for the nine months ended June 30, 2002. The decrease of $160,000 in net income for the three months ended June 30, 2003 compared to the three months ended June 30, 2002 was primarily the result of a $474,000 decrease in net interest income and a $121,000 increase in noninterest expense, which were partially offset by a $374,000 increase in noninterest income, and a $60,000 decrease in income tax expense. The decrease of $150,000 in net income for the nine months ended June 30, 2003 compared to the nine months ended June 30, 2002 was primarily the result of a $976,000 decrease in net interest income, a $553,000 increase in noninterest expense and an $42,000 decrease in income taxes, partially offset by a $1.2 million increase in noninterest income and a $180,000 decrease in provision for loan losses. For the quarter ended June 30, 2003, the Company recognized a pre-tax net gain of $298,000 on the sale of investment securities and a pre-tax net loss of $101,000 on the extinguishment of trust preferred debt compared to a pre-tax net gain of $9,000 for the sale of foreclosed real estate for the quarter ended June 30, 2002. For the nine months ended June 30, 2003, the Company recognized a pre-tax net gain of $454,000 on the sale of branch deposits and branch offices, a pre-tax net gain of $542,000 on the sale of investment securities, and a $152,000 pre-tax net loss on the early extinguishment of trust preferred debt, compared to a pre-tax gain on investment sales of $8,000, and a pre-tax gain of $22,000 on the sale of foreclosed real estate for the nine months ended June 30, 2002. The Company's average interest rate spread decreased 38 basis points from 1.83% for the three months ended June 30, 2002 to 1.45% for the three months ended June 30, 2003. The decrease was primarily attributable to a decrease in the yield on the Company's earning assets of 98 basis points from 6.82% for the three months ended June 30, 2002 to 5.84% for the three months ended June 30, 2003 partially offset by a decrease in the Company's cost of funds of 60 basis points from 4.99% for the three months ended June 30, 2002 to 4.39% for the three months ended June 30, 2003. As a result of the above, combined with a smaller earning asset base, the Company's net interest income decreased for the quarter by $474,000 or 23.4%. The Company's interest rate spread decreased from 1.73% for the nine months ended June 30, 2002 to 1.50% for the nine months ended June 30, 2003. The decrease was primarily due to a decrease in the Company's yield on earning assets of 89 basis points from 6.90% to 6.01%, offset by a decrease in the Company's cost of funds of 66 basis points from 5.17% for the nine months ended June 30, 2002 to 4.51% for the nine months ended June 30, 2003. In addition, the Company's average total earning assets decreased 14 $24.6 million from $397.0 million to $372.4 million. As a result of the above, the Company's net interest income decreased for the nine months ended June 30, 2003 by $976,000 or 16.5%. Noninterest income increased $374,000 or 85.2% and $1.2 million or 87.8% for the quarter and nine months ended June 30, 2003 when compared to the same periods in 2002. The increases were primarily due to an increase in fee income, income recognized from bank owned life insurance, and fees generated from the Company's majority owned loan settlement subsidiary. Noninterest expense increased $121,000 or 5.9% and 553,000 or 9.2% for the quarter and nine months ended June 30, 2003 when compared to the same periods in 2002. The increases were primarily related to costs associated with the aforementioned loan settlement subsidiary. The Company reported diluted earnings per share of $.07 and $.30 for the quarter and nine months ended June 30, 2003, compared to $.19 and $.41 for the same periods ended June 30, 2002. INTEREST INCOME. Interest income decreased $1.44 million or 21.5% for the quarter ended June 30, 2003, compared to the same period in 2002. Interest income decreased $3.78 million or 18.4% for the nine months ended June 30, 2003, compared to the same period in 2002. The decrease of $1.44 million for the quarter is primarily the result of a 98 basis point decrease in the average yield on earning assets from 6.82% for the quarter ended June 30, 2002 to 5.84% for the quarter ended June 30, 2003. In addition, the Company's average total earning assets decreased $22.0 million from $393.8 million to $360.8 million for the quarter and $24.6 million from $397.0 million to $372.4 million for the nine months ended June 30, 2003. Interest income on loans receivable decreased $914,000 or 18.6% and $2.9 million or 19.3% for the quarter and nine months ended June 30, 2003 when compared to the same periods in 2002. The decreases in interest income for the quarter and nine months ended June 30, 2003 were primarily the result of the $18.2 million and $72.3 million in repayments on residential mortgage loans and mortgage backed securities due to the low interest rate environment. The average balance of loans receivable decreased by $26.7 million from $258.8 million for the quarter ended June 30, 2002 to $232.1 million for the quarter ended June 30, 2003 and $36.9 million from $269.6 million for the nine months ended June 30, 2002 to $232.7 million for the nine months ended June 30, 2003, and the related yields decreased .70% from 7.60% to 6.90% for the quarter and .49% from 7.59% to 7.10% for the nine months ended June 30, 2003, when compared to the same periods in 2002. 15 Loans receivable, net at June 30, 2003 and September 30, 2002 are summarized below:

Investment and mortgage-backed security interest income decreased by $519,000 or 29.4% and $776,000 or 15.2% for the three and nine months ended June 30, 2003 compared to the same periods in 2002. The average balance of investment and mortgage-backed securities totaled $115.8 million with a weighted average yield of 4.30% and $128.5 million with a weighted average yield of 4.49% for the three and nine months ended June 30, 2003 compared to $125.5 million with a weighted average yield of 5.62% and $118.2 million with a weighted average yield of 5.76% for the same periods in 2002. The decreases in the average balances are primarily due to the extraordinary high level of prepayments as well as investment sales. During the quarter and nine months ended June 30, 2003, the Company sold $12.1 million and $32.9 million in mortgage backed securities for a gain of $298,000 and $542,000, respectively. 16 Average Balances, Net Interest Income and Yields Earned and Rates Paid For the three months ended June 30,

17 Average Balances, Net Interest Income and Yields Earned and Rates Paid For the nine months ended March 31,

18 INTEREST EXPENSE. Interest expense decreased $970,000 or 20.7% and $2.8 million or 19.1% for the three and nine months ended June 30, 2003, compared to the same periods in 2002. The average cost of funds decreased to 4.39% from 4.99% and to 4.51% from 5.17%, respectively, for the three and nine months ended June 30, 2003 when compared to the same periods in 2002. The average balance of interest-bearing liabilities decreased $37.1 million and $27.1 million for the three and nine months ended June 30, 2003 when compared to the same periods in 2002. The decrease in interest-bearing liabilities was primarily the result of the sale of the Company's Bethel Park and Mt. Oliver offices and deposits. Average deposits decreased $16.4 million or 8.8% and $18.0 million or 9.47%, respectively, for the three and nine months ended June 30, 2003 when compared to the same periods in 2002. Average borrowed funds decreased $18.7 million or 10.4% and $8.0 million or 4.5%, respectively, for the three and nine months ended June 30, 2003 when compared to the same periods in 2002. Interest expense associated with the trust preferred securities of Pittsburgh Home Capital Trust I totaled $173,000 and $615,000 for the three and nine months ended June 30, 2003, compared to $211,000 and $680,000 for the three and nine months ended June 30, 2002. PROVISION FOR LOAN LOSSES. It is management's policy to maintain an allowance for estimated losses based on the risk of loss in the loan portfolio. Management's periodic evaluation of the adequacy of the allowance is based on the Company's loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of the underlying collateral and current economic conditions. Management classifies all delinquent assets according to risk. A reserve level is estimated by management for each category of classified loans, with an estimated percentage applied to the delinquent loan category balance. Activity for the period under analysis (charge offs, recoveries) is also taken into account as a basis for adjusting estimated losses to actual experience. While management has allocated the allowance to different loan categories, the allowance is general in nature and is available for the loan portfolio in its entirety. Activity in the allowance for loan losses is summarized as follows for the nine months ended June 30, 2003 and 2002:

19 The Company designates all loans that are 90 or more days past due as non-performing. Generally, when loans are classified as non-performing, unpaid accrued interest is a reduction of interest income on loans receivable and is only recognized when cash payments are received. The Company's non-performing assets decreased from $4.8 million at September 30, 2002 to $4.6 million at June 30, 2003. This $200,000 decrease was primarily attributable to a $438,000 decrease in non-accruing commercial real estate loans, a $118,000 decrease in real estate owned, a $100,000 decrease in non-accruing construction loans, a $21,000 decrease in non-accruing consumer loans which were partially offset by a $503,000 increase in nonaccruing one-to-four family mortgage loans. Although non-performing assets increased in the one-to-four family portfolios, most of these loans are secured by property located in the Company's market area. During the nine months ended June 30, 2003, the majority of the properties held in real estate owned were sold at or near their net realizable value. NONINTEREST INCOME. Noninterest income increased by $374,000 or 85.3% and $1.2 million or 87.8% for the three and nine months ended June 30, 2003 compared to the same periods in 2002. As noted above, the Company recognized a pre-tax net gain of $298,000 on investment sales and a $101,000 pretax net loss on the early extinguishment of trust preferred debt for the three months ended June 30, 2003, as compared to a pre-tax gain of $9,000 on the sale of foreclosed real estate for the three months ended June 30, 2002. For the nine months ended June 30, 2003, the Company recognized a pre-tax net gain of $454,000 on the sale of branch deposits and branch offices, a $542,000 pre-tax net gain on investment sales and a $152,000 pre-tax net loss on the early extinguishment of trust preferred debt. This compares to a pre-tax net gain on investment sales of $8,000 and a pre-tax gain of $22,000 on the sale of foreclosed real estate for the nine months ended June 30, 2002. Service charges and other fees increased $187,000 to $470,000 and $309,000 to $1.2 million for the three and nine months ended June 30, 2003, compared to $283,000 and $885,000 for the same periods in 2002. The increases in service charges and other fees are primarily the result of fees generated from the Company's majority owned loan settlement subsidiary and, to a lesser extent, increases to the Company's fee structure to remain competitive in the marketplace. Income from bank owned life insurance, which was purchased during the three months ended December 31, 2001, totaled $93,000 and $279,000 for the three and nine months ended June 30, 2003, compared to $99,000 and $202,000 for the same periods in 2002. Other income decreased $4,000 to $53,000 and decreased $65,000 to $156,000 for the three and nine months ended June 30, 2003, compared to for the same periods in 2002. NONINTEREST EXPENSE. Noninterest expense increased by $121,000 or 5.9%, and $553,000 or 9.2%, respectively, for the three and nine months ended June 30, 2003, compared to the same periods in 2002. Compensation and other benefits increased $122,000 to $1.1 million and $445,000 to $3.3 million for the three and nine months ended June 30, 2003 compared to $1.0 million and $2.9 million for the three and nine months ended June 30, 2002. The primary reasons for the increases in compensation and other benefits include salaries and benefits for the loan settlement subsidiary, severance costs associated with a former officer, the continued expansion of the Bank's commercial 20 lending and cash management departments, and normal salary adjustments. Premises and occupancy costs decreased $12,000 to $425,000, and increased $34,000 to $1.29 million for the three and nine months ended June 30, 2003 compared to $437,000 and $1.26 million for the three and nine months ended June 30, 2002. Marketing costs decreased $16,000 to $66,000, and $20,000 to $243,000 for the three and nine months ended June 30, 2003 from $82,000 and $264,000 for the three and nine months ended June 30, 2002. PROVISION FOR INCOME TAXES. The Bank recognized a provision for income taxes of $54,000 and $232,500 for the three and nine months ended June 30, 2003, compared to $114,000 and $275,000 for the same periods in 2002. The effective tax rates during the three and nine months ended June 30, 2003 and 2002 were 36.6% and 35.8%, and 30.9% and 32.6%, respectively. ASSET AND LIABILITY MANAGEMENT Management presently monitors and evaluates the potential impact of interest rate changes upon the level of net interest income and the economic value of the Company's equity on a quarterly basis. The economic value of equity ("EVE") analysis approximates a total return for the Company's financial condition under the different interest rate scenarios. The Company focuses on the impact of a plus and minus 200 basis point immediate interest rate shock on its net interest income. The Company believes that simulation modeling enables the Company to more accurately evaluate and manage the possible effects on net interest income due to the exposure to changing market interest rates, the slope of the yield curve and different prepayment and deposit decay assumptions under various interest rate scenarios. At June 30, 2003, the Company's simulation model indicated that the Company's statement of financial condition is asset sensitive. The following table presents the Company's EVE as of June 30, 2003:

21 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are deposits, FHLB borrowings, repayments, prepayments and maturities of outstanding loans, maturities of investment securities and other short-term investments, and funds provided from operations. While scheduled loan repayments and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the movement of interest rates in general, economic conditions and competition. The Company manages the pricing of its deposits to maintain a deposit balance deemed appropriate and desirable. In addition, the Company invests in short-term investment securities and interest-earning assets which provide liquidity to meet lending requirements. Although the Company's deposits have historically represented the majority of its total liabilities, the Company also utilizes other borrowing sources, primarily borrowings from the FHLB of Pittsburgh. At June 30, 2003, the Company had $140.5 million of outstanding borrowings from the FHLB of Pittsburgh. The maximum remaining borrowing capacity at June 30, 2003 was approximately $50.4 million. Liquidity management is both a daily and long-term function of business management. The Bank uses its sources of funds primarily to meet its ongoing commitments, to pay maturing savings certificates and savings withdrawals, to fund loan commitments and to maintain a portfolio of mortgage-backed and investment securities. At June 30, 2003, the total approved loan commitments outstanding amounted to $34.3 million including $3.9 million in loans in process, and unused lines of credit amounted to $14.7 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2003, totaled $44.9 million. Management believes that a significant portion of maturing deposits will remain with the Bank, based upon historical precedence. Under federal regulations, the Bank is required to maintain specific amounts of capital. The following table sets forth certain information concerning the Bank's regulatory capital.

Recently, the Federal Reserve has become aware that FIN No. 46 may have implications on how trust preferred securities are reported on bank holding companies' financial statements. In response, the Board of Governors of the Federal Reserve System issued a supervisory letter on July 2, 2003, instructing bank holding companies to continue to include the trust preferred securities in their Tier 1 capital for regulatory capital purposes until notice is given to the contrary. The Federal Reserve will review the regulatory implications of any accounting treatment changes and, if necessary or warranted, provide further guidance. The Federal Reserve may or may not allow institutions to continue to include trust preferred securities in Tier 1 capital for regulatory capital purposes. 22 "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 In addition to historical information, forward-looking statements are contained herein that are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause future results to vary from current expectations, include, but are not limited to, the impact of economic conditions (both generally and more specifically in the markets in which the Company operates), the impact of competition for the Company's customers from other providers of financial services, the impact of government legislation and regulation (which changes from time to time and over which the Company has no control), and other risks detailed in this Form 10-Q and in the Company's other Securities and Exchange Commission ("SEC") filings. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the SEC. 23 PART I - ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management presently monitors and evaluates the potential impact of interest rate changes upon the level of net interest income and the economic value of the Company's equity ("EVE") on a monthly basis. EVE is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. The Company focuses on the impact of a plus and minus 200 basis point immediate interest rate shock on its net interest income. The Company utilizes the Sendero system for its in-house modeling efforts and also works with an outside banking consultant in modeling its interest rate risk position. Quantitative and qualitative disclosures about market risk are presented in Item 7A of the Company's Annual Report on Form 10-K for the year ended September 30, 2002, filed with the SEC on December 23, 2002. See also "Part I, Item 2, Management's Disccussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Asset and Liability Management," for a discussion of the Company's EVE at June 30, 2003. Management believes there have been no material changes in the Company's market risk since September 30, 2002. PART I - ITEM 4 CONTROLS AND PROCEDURES Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations and are operating in an effective manner. 24 No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PITTSBURGH FINANCIAL CORP. PART II Item 1. Legal Proceedings Neither the Company nor the Bank is involved in any pending legal proceedings other than non-material legal proceedings occurring in the ordinary course of business. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security-Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 25 31.1 Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 (b) No Form 8-K reports were filed during the quarter. 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). (b) On April 28, 2003, the Registrant filed a Form 8-K under Item 9 to file their earnings release for the quarter ended March 31, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PITTSBURGH FINANCIAL CORP. Date: August 14, 2003 By: /s/J.Ardie Dillen ------------------ J. Ardie Dillen Chairman, President and Chief Executive Officer Date: August 14, 2003 By: /s/ Michael J. Kirk -------------------- Michael J. Kirk Executive Vice President and Chief Financial Officer 26

PITTSBURGH FINANCIAL CORP 10-Q