Securities and Exchange Commission

                             Washington, D.C. 20549

                                   FORM 10-QSB

                        [x] Quarterly Report pursuant to
                           Section 13 or 15 (d) Of The
                         Securities Exchange Act of 1934

                   [ ] For the Six Months Ended June 30, 1998

                         Commission File Number 0-28864

                               PS Financial, Inc.
           (Exact name of the registrant as specified in its charter)


           Delaware                                  36-4101473
   (State of incorporation)           (I.R.S. Employer Identification Number)

                        4800 South Pulaski Road, Chicago,
                           Illinois 60632 (Address of
                          principal executive offices)

                                 (773) 376-3800
              (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 (First Filing Pursuant to Rule 15d-13(a))___

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
stock, as of the latest practicable date.

Class:                                     SHARES OUTSTANDING at August 13, 1997
Common Stock,  $.01 par value                            1,947,904


<PAGE>


                               PS Financial, Inc.

                                   Form 10-QSB

                         Six Months Ended June 30, 1998


                         Part I - Financial Information

<TABLE>
<CAPTION>
<S>                                                                                     <C>
ITEM 1 - FINANCIAL STATEMENTS  (Unaudited)                                             Page
              Condensed Consolidated Statements of Financial Condition at June 30,       3
                   1998 and December 31, 1997                                            
                   
              Condensed Consolidated Statements of Income for the three months           4
                   and six  months ended  June 30, 1998 and 1997                          
              Condensed Consolidated Statements of Changes in Stockholders' Equity       5
                   for the six months ended June 30, 1998 and 1997                        
              Condensed Consolidated Statements of Cash Flows for the six months         6
                   ended June 30, 1998 and 1997
              Notes to the Condensed Consolidated Financial Statements as of June 30,    8
                   1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                     9
         AND RESULTS OF OPERATIONS 
                                            Part II - Other Information

              Item 4. Submission of Matters to a Vote of Security Holders               13
              Item 6. Exhibits and Reports on Form 8-K                                  13
</TABLE>


                                       2

<PAGE>



                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                       June 30, 1998 and December 31, 1997
                  (Dollars in thousands, expect per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                           June 30,  December 31,
                                                                             1998        1997
                                                                           --------    --------
<S>                                                                        <C>         <C>     
ASSETS
Cash on hand and in banks                                                  $    485    $    440
Interest-bearing deposit accounts in other  financial institutions              681       5,850
                                                                           --------    --------
         Total cash and cash equivalents                                      1,166       6,290

Interest-bearing term deposits in other financial  institutions                 207         209
Equity securities                                                               253        --
Securities available-for-sale                                                24,956      33,459
Mortgage-backed securities available-for-sale                                 8,592       8,095
Loans receivable, net                                                        47,619      37,167
Federal Home Loan Bank stock                                                    938         700
Premises and equipment, net                                                     447         458
Accrued interest receivable                                                     717         801
Other assets                                                                    105         743
                                                                           --------    --------
Total assets                                                               $ 85,000    $ 87,922
                                                                           ========    ========
LIABILITIES AND EQUITY
Liabilities
         Deposits                                                          $ 41,245    $ 41,275
         FHLB Advances                                                       18,550      13,750
         Advances from borrowers for taxes and insurance                        619         498
         Accrued interest payable and other liabilities                       1,823       1,761
         Dividends payable                                                     --         7,529
                                                                           --------    --------
                  Total liabilities                                          62,237      64,813
Equity
         Common stock $0.01 par value per share, 2,500,000 shares 
         authorized; 2,182,125 issued and outstanding
                                                                                 22          22
         Additional paid-in capital                                          21,628      21,602
         Retained earnings, substantially restricted                          5,837       5,518
         Unearned ESOP shares                                                (1,123)     (1,173)
         Unearned stock awards                                               (1,028)     (1,117)
         Treasury stock, at cost, 163,417 & 108,417 shares respectively      (2,690)     (1,896)
          Net unrealized gain on securities available-for-sale, net of tax      117         153
                                                                           --------    --------
                  Total equity                                               22,763      23,109
                                                                           --------    --------
                           Total liabilities and equity                    $ 85,000    $ 87,922
                                                                           ========    ========
</TABLE>


                                       3

<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in thousands, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                       Six Months Ended                  Three months ended
                                                                           June 30,                           June 30,
                                                                     1998             1997               1998              1997
                                                                --------------   --------------    ---------------    -------------
<S>                                                            <C>              <C>               <C>                <C>      
Interest income
                      Loans                                    $        1,851   $        1,618    $           978    $         814
                      Securities                                          963              873                424              502
                      Mortgage-backed securities                          302              267                143              138
                      Other                                                77              110                 44               35
                                                               --------------   --------------    ---------------    -------------
                              Total interest income                     3,193            2,868              1,589            1,489
Interest expense
                      Deposits                                            864              859                433              435
                      Other borrowings                                    479               40                255               40
                                                               --------------   --------------    ---------------    -------------
                              Total interest expense                    1,343              899                688              475
                                                               --------------   --------------    ---------------    -------------
Net interest income                                                     1,850            1,969                901            1,014

Provision for loan losses                                                   0                0                  0                0
                                                               --------------   --------------    ---------------    -------------
Net interest income after provision for loan                            1,850            1,969                901            1,014

Noninterest income
                      Net gain (loss) on sale of securities                23              (3)                  0              (9)
                      Other                                                46               35                 34               17
                                                               --------------   --------------    ---------------    -------------
                              Total noninterest income                     69               32                 34                8
Noninterest expense
                      Compensation and benefits                           446              362                218              196
                      Occupancy and equipment expense                      60               65                 32               33
                      Data processing                                      30               25                 15               11
                      Federal insurance premiums                           13               14                  6                7
                      Professional Fees                                    50               66                 33               47
                      Other                                               124               93                 74               51
                                                               --------------   --------------    ---------------    -------------
                              Total noninterest expense                   723              625                378              345
                                                               --------------   --------------    ---------------    -------------
Income before income tax expense                                        1,196            1,376                557              677
Income tax expense                                                        424              528                199              259
                                                               --------------   --------------    ---------------    -------------
Net income                                                     $          772   $          848    $           358    $         418
                                                               ==============   ==============    ===============    =============
Earnings per share                                             $         0.41   $         0.42    $          0.19    $        0.21
                                                               ==============   ==============    ===============    =============
Average shares outstanding                                          1,867,852        2,016,469          1,875,819        2,017,769
                                                               ==============   ==============    ===============    =============
</TABLE>

                                       4

<PAGE>


<TABLE>
<CAPTION>
                                        PS FINANCIAL, INC.
                                         CHICAGO, ILLINOIS
               CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           (Dollars in thousands, except per share data)
--------------------------------------------------------------------------------------------------------------
Six Months Ended June 30                                                   1998                 1997
--------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>      <C>          <C>
Common Shares
Balance at beginning of year                                            $     22             $     22
--------------------------------------------------------------------------------------------------------------
Balance at June 30                                                      $     22             $     22
--------------------------------------------------------------------------------------------------------------
Additional Paid-In Capital
Balance at beginning of year                                            $ 21,602             $ 21,170
Change in additional paid in capital                                          26                    0
--------------------------------------------------------------------------------------------------------------
Balance at June 30                                                      $ 21,628             $ 21,170
--------------------------------------------------------------------------------------------------------------
Retained Earnings, Substantially Restricted
Balance at beginning of year                                            $  5,518             $ 12,669
Net income for the period                                                    772    $772     $    848     $848
Dividends declared                                                          (453)                (174)
--------------------------------------------------------------------------------------------------------------
Balance at June 30                                                      $  5,837             $ 13,343
--------------------------------------------------------------------------------------------------------------
Unearned ESOP Shares
Balance at beginning of year                                            $ (1,173)            $ (1,691)
Change in unearned ESOP shares                                                50                    0
--------------------------------------------------------------------------------------------------------------
Balance at June 30                                                      $ (1,123)            $ (1,691)
--------------------------------------------------------------------------------------------------------------
Unearned RRP Shares
Balance at beginning of year                                            $ (1,117)            $      0
Change in RRP shares                                                          89                 (881)
--------------------------------------------------------------------------------------------------------------
Balance at June 30                                                      $ (1,028)            $   (881)
--------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year                                              (1,896)                   0
Change in Treasury Stock                                                    (794)                   0
--------------------------------------------------------------------------------------------------------------
Balance at June 30                                                      $ (2,690)            $      0
--------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available-for-sale
Balance at beginning of year                                            $    153             $    (23)
Change in unrealized gain (loss) on securities                               (36)    (36)          40       40
available-for-sale net of tax
--------------------------------------------------------------------------------------------------------------
Balance at June 30                                                      $    117             $     17
--------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                              $ 22,763             $ 31,980
--------------------------------------------------------------------------------------------------------------
Comprehensive Income                                                                $736                  $888
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                       5


<PAGE>

                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                 Six months ended
                                                                                                     June 30,
                                                                                               1998              1997
                                                                                             --------          --------
<S>                                                                                          <C>               <C>     
Cash flows from operating activities
         Net income                                                                          $    772          $    848
         Adjustments to reconcile net income to net cash from operating
              activities
             Depreciation                                                                          25                24
             Amortization of premiums and discounts on investment and
                  mortgage-backed securities, net
                                                                                                   13               (37)
             Net gain on sales of securities available-for-sale                                   (23)                3
             RRP expense                                                                           89                15
             ESOP expense                                                                          71                 0
             Change in
                  Deferred loan origination fees                                                  (41)              (18)
                  Accrued interest receivable and other assets                                    722              (115)
                  Other liabilities and deferred income taxes                                     129               372
                                                                                             --------          --------
             Net cash provided by operating activities                                          1,757             1,092

Cash flows from investing activities
         Proceeds from sale of securities available-for-sale                                    3,500             7,989
         Proceeds from sale of mortgage-backed securities available-for-sale
                                                                                                1,102             1,014
         Purchase of Federal Home Loan Bank Stock                                                (238)                0
         Proceeds from repayment of securities available-for-sale                               1,381               466
         Proceeds from maturities of securities available-for-sale                             12,000             2,250
         Purchase of securities available-for-sale                                             (6,996)          (16,505)
         Purchase of mortgage-backed securities available-for-sale                             (3,014)           (4,176)
         Purchase of equity securities available-for-sale                                        (268)                0
         Net decrease in interest-bearing term deposits in other financial
              institutions                                                                          2                89
         Net change in loans                                                                  (10,411)             (454)
         Capital expenditures, net                                                                (14)              (13)
                                                                                             --------          --------
             Net cash used in investing activities                                             (2,956)           (9,340)

Cash flows from financing activities
         Net increase (decrease) in deposits                                                      (30)             (178)
         Dividends Paid                                                                        (8,022)             (174)
         Borrowings from FHLB                                                                   4,800             4,500
         Purchase of Treasury Stock                                                              (794)                0
         Net increase in advance payments by borrowers for insurance and taxes                    121                45
                                                                                             --------          --------
             Net cash provided by (used in) financing activities                               (3,925)            4,193

Decrease in cash and cash equivalents                                                          (5,124)           (4,055)

Cash and cash equivalents at beginning of period                                                6,290             8,758
                                                                                             --------          --------

Cash and cash equivalents at end of period                                                   $  1,166          $  4,703
                                                                                             ========          ========

Supplemental disclosure of cash flow information
             Cash paid during the period for
                       Interest                                                              $  1,310          $    860
                       Income taxes                                                               645               486
</TABLE>

                                       6

<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
              Notes to Condensed Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions  to Form 10-QSB.  Accordingly,
they do not include all the  information  and  footnotes  required by  generally
accepted accounting principles for complete financial statements.

In the opinion of management,  the unaudited  consolidated  financial statements
contain  all  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary to present fairly the financial condition of PS Financial,  Inc. as of
June 30, 1998 and December 31, 1997,  and the results of its  operations for the
three month and six month periods then ended June 30, 1998 and 1997.

NOTE 2 - CONVERSION

On November 26, 1996,  Preferred  Savings Bank ("Bank")  converted  from a state
chartered  mutual savings bank to a federally  chartered stock savings bank. The
Bank issued all of its common stock to PS Financial, Inc. ("Company") and at the
same time the  Company  issued  2,182,125  shares of common  stock at $10.00 per
share to the ESOP,  certain  depositors of the Bank, and certain  members of the
general public, all pursuant to a plan of conversion ("Conversion").

The ESOP purchased  174,570 shares of common stock  representing 8% of the total
issued  shares.  The ESOP borrowed  $1,745,700  from the Company to purchase the
stock  using the  stock as  collateral  for the  loan.  The loan is to be repaid
principally from the Bank's  contributions to the ESOP over a period of up to 40
years.

NOTE 3 - CAPITAL REQUIREMENTS

Pursuant to federal  regulations,  savings  institutions  must meet two separate
capital  requirements.  The  following  is a summary  of the  Bank's  regulatory
capital at June 30, 1998.

                                                         Core     Risk based
                                                       Capital     Capital
                                                       -------     -------
                                                           (In thousands)

 Regulatory capital                                    $15,282     $15,461

Minimum capital requirement                              3,414       3,189
                                                       -------     -------

Excess regulatory capital over minimum  requirement    $11,868     $12,272
                                                       =======     =======


                                       8

<PAGE>



NOTE 4 - EARNINGS PER SHARE

A  reconciliation  of the  numerators and  denominators  for earnings per common
share  computations  for the three months and six months ended June 30, 1998 and
1997 is presented below.

<TABLE>
<CAPTION>
                                                                   Six Months Ended June 30,       Three Months Ended June 30,
                                                                   1998                1997              1998           1997
                                                                   ----                ----              ----           ----
<S>                                                          <C>                <C>               <C>               <C>       
Basic Earnings Per Share
     Net income                                              $        771,565   $        847,843  $        357,647  $  418,046
                                                             ================   ================  ================  ==========
     Weighted average common shares outstanding                     1,867,852          2,016,469         1,875,819   2,017,769
                                                             ================   ================  ================  ==========
         Basic Earnings Per Share                            $           0.41   $           0.42  $           0.19  $     0.21
                                                             ================   ================  ================  ==========

Earnings Per Share Assuming Dilution
     Net income                                              $        771,565   $        847,843  $        357,647  $  418,046
                                                             ================   ================  ================  ==========
     Weighted average common shares outstanding                     1,867,852          2,016,469         1,875,819   2,017,769
     Add dilutive effect of assumed exercises
         Incentive stock options                                       37,169                 --            37,169          --
         Stock awards                                                      --                 82                --          --
     Weighted average common and dilutive potential common          1,905,021          2,016,551         1,912,988   2,017,769
     shares outstanding
                                                             ================   ================  ================  ==========
              Diluted Earnings Per Share                     $           0.41   $           0.42  $           0.19  $     0.21
                                                             ================   ================  ================  ==========
</TABLE>

                                       9

<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Comparison of Financial Condition at June 30, 1998 and December 31, 1997

Total assets  decreased  $2.9 million from $87.9 million at December 31, 1997 to
$85.0 million at June 30, 1998 due mainly to the payment of the special dividend
of $7.5 million in January 1998. In order to provide for additional liquidity in
light of the  payment  of the  special  dividend,  the  Company  increased  FHLB
advances by $4.8 million.

The Company's net loans receivable increased by $10.4 million from $37.2 million
at December 31, 1997 to $47.6  million at June 30, 1998.  In addition,  mortgage
backed  securities  increased by $497,000 from $8.1 million at December 31, 1997
to $8.6  million at June 30,  1998.  These  increases  were  mainly  offset by a
decrease in cash and cash  equivalents  of $5.1  million,  from $6.3  million at
December  31, 1997 to $1.2  million at June 30,  1998,  as well as a decrease in
securities  available-for-sale  by $8.5 million,  from $33.5 million at December
31,  1997 to $25.0  million  at June 30,  1998.  The  decreases  were due to the
payment of the special dividend of $7.5 million in January 1998.

Total  liabilities at June 30, 1998 were $62.2 million compared to $64.8 million
at December 31, 1997, a decrease of $2.6  million.  The decrease of $7.5 million
in other  liabilities  was due  mainly  to the  payment  of the  $4.00 per share
special dividend which totaled $7.5 million.  In order to provide for additional
liquidity in light of the payment of the special dividend, the Company increased
FHLB advances by $4.8 million.

Equity at June 30, 1998 was $22.8 million  compared to $23.1 million at December
31,  1997,  a decrease of $346,000,  or 1.5%,  due  primarily to net earnings of
$772,000  partially  offset  by a $36,000  decrease  in the  unrealized  gain on
securities  available-for-sale,  payment of regular dividends totaling $453,000,
and treasury stock purchased at a cost of $794,000.

Comparison  of  Operating  Results for the Three  Months Ended June 30, 1998 and
June 30, 1997.

General

Net earnings for the three months ended June 30, 1998 were $358,000,  a decrease
of $60,000,  or 14.4%,  from net earnings of $418,000 for the three months ended
June 30, 1997.  The decrease in net earnings is primarily due to the decrease in
the net interest margin  resulting from the payment of a special $4.00 per share
dividend  in January  and the  increased  use of FHLB  advances in an attempt to
better  leverage  the  Company's  high  capital  ratio  and  provide  additional
liquidity to fund increased loan demand.

Interest Income

Interest  income  for the three  months  ended  June 30,  1998 was $1.6  million
compared to $1.5 million for the three  months ended June 30, 1997,  an increase
of $100,000,  or 6.8%. The increase in interest  income was the result of a $4.2
million increase in the average balance of interest-earning assets primarily due
to an increase in the average balance of loans  receivable.  The increase in the
average  balance  was  partially  offset  by a  decrease  in  yield  on new loan
originations  for the three  months  ended June 30,  1998.  The decrease in loan
yields was primarily the result of repayments on higher-yielding mortgages being
replaced by lower-yielding mortgages as long term rates declined in general.

Interest Expense

Interest expense for the three months ended June 30, 1998 was $688,000  compared
to $475,000 for the three  months ended June 30, 1997,  an increase of $213,000,
or 44.8%.  The increase in interest expense was primarily due to the addition of
$14.1  million in FHLB  advances,  as well as an  increase in the Bank's cost of
deposits.  The increase in the cost of deposits was  primarily due to a decrease
in lower-yielding passbook balances..

Provision for Loan Losses


                                       10

<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The Bank's  provision  for loan losses was zero for the three  months ended June
30,  1998 and 1997.  At June 30,  1998,  the Bank's  allowance  for loan  losses
totaled  $179,000,  or 0.4% of total  loans.  The  amount of the  provision  and
allowance  for  estimated  losses on loans is  influenced  by  current  economic
conditions,  actual loss experience,  industry trends and other factors, such as
adverse  economic  conditions,  including  declining real estate values,  in the
Bank's market area. In addition,  various  regulatory  agencies,  as an integral
part of their examination process,  periodically review the Bank's allowance for
loan  losses.  Such  agencies  may require the Bank to provide  additions to the
allowance  based upon  judgments  which  differ  from those of  management.  The
absence of a loan loss  provision  for the three  months  ended June 30, 1998 is
indicative of management's  assessment of the adequacy of the allowance for loan
losses,  given the trends in  historical  loss  experience  of the portfolio and
current economic conditions,  as well as the fact that the majority of loans are
single-family  residential loans and the  loan-to-values are generally less than
80%. Although management uses the best information available, future adjustments
to the  allowance may be necessary due to economic,  operating,  regulatory  and
other conditions that may be beyond the Bank's control.

Past due loan  balances  over  sixty  days at June 30,  1998  decreased  to $1.9
million  compared to $2.0 million at December 31,  1997.  Non-accruing  loans at
June 30, 1998 totaled $352,000 compared to $471,000 at December 31, 1997.

Noninterest Income

Noninterest income for the three months ended June 30, 1998 was $34,000 compared
to $8,000 for the three months ended June 30, 1997.  The increase was  primarily
due to a net gain of $16,000  on the sale of a company  vehicle as well as a net
loss of $9,000 on sales of securities in 1997.

Noninterest Expense

Noninterest  expense  was  $378,000  for the three  months  ended June 30,  1998
compared to $345,000 for the three  months  ended June 30, 1997,  an increase of
$33,000.  The  increase  was  primarily  a  result  of  a  $22,000  increase  in
compensation  and  benefits,  including  the  implementation  of  the  Company's
Recognition  and Retention  Plan,  and an increase of $19,000 in other  expenses
used to grow the loan portfolio,  partially offset by a decrease in professional
fees of $10,000.

Income Taxes

Income taxes were  $199,000 for the three months ended June 30, 1998 compared to
$259,000 for the three  months  ended June 30,  1997, a decrease of $60,000,  or
23.2%.  The  decrease  was  primarily a result of a $120,000  decrease in pretax
earnings.

Comparison of Operating  Results for the Six Months Ended June 30, 1998 and June
30, 1997.

General

Net earnings for the six months ended June 30, 1998 were $772,000, a decrease of
$76,000,  or 9.0%,  from net  earnings of $848,000 for the six months ended June
30, 1997.  The decrease in net earnings is primarily  due to the decrease in the
ratio of interest earning assets to interest bearing liabilities  resulting from
the payment of a special  $4.00 per share  dividend in January and the increased
use of FHLB advances in an attempt to better leverage the Company's high capital
ratio.

Interest Income

Interest income for the six months ended June 30, 1998 was $3.2 million compared
to $2.9 million for the six months ended June 30, 1997, an increase of $325,000,
or 11.3%.  The  increase  in  interest  income was the result of a $4.8  million
increase in the average balance of  interest-earning  assets primarily due to an
increase in the average balance of loans receivable. The increase in the average
balance was partially offset by a decrease in yield on new loan originations 


                                       11

<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

for the three  months  ended June 30,  1998.  The  decrease  in loan  yields was
primarily the result of repayments on  higher-yielding  mortgages being replaced
by lower-yielding mortgages as long term rates declined in general.

Interest Expense

Interest  expense  for the six  months  ended  June 30,  1998  was $1.3  million
compared  to $899,000  for the six months  ended June 30,  1997,  an increase of
$444,000,  or 49.4%.  The increase in interest  expense was  primarily  due to a
$14.1  million  increase in FHLB  advances.  A $700,000  decrease in the average
balance  of  interest-bearing  deposit  for the six months  ended June 30,  1998
compared  to the six  months  ended  June 30,  1997 was  partially  offset by an
increase in the average cost of funds for deposits.  The increase in the cost of
funds was primarily due to a decrease in lower-yielding passbook balances.

Provision for Loan Losses

The Bank's  provision for loan losses was zero for the six months ended June 30,
1998 and 1997. At June 30, 1998,  the Bank's  allowance for loan losses  totaled
$179,000,  or 0.4% of total loans. The amount of the provision and allowance for
estimated losses on loans is influenced by current economic  conditions,  actual
loss  experience,  industry trends and other factors,  such as adverse  economic
conditions,  including  declining real estate values, in the Bank's market area.
In  addition,  various  regulatory  agencies,  as  an  integral  part  of  their
examination  process,  periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to provide  additions to the allowance  based
upon judgments which differ from those of management. The absence of a loan loss
provision for the six months ended June 30, 1998 is  indicative of  management's
assessment of the adequacy of the allowance for loan losses, given the trends in
historical loss experience of the portfolio and current economic conditions,  as
well as the fact that the majority of loans are single-family  residential loans
and the loan-to-values are generally less than 80%. Although management uses the
best information available, future adjustments to the allowance may be necessary
due to economic,  operating,  regulatory and other conditions that may be beyond
the Bank's control.

Past due loan  balances  over  sixty  days at June 30,  1998  decreased  to $1.9
million  compared to $2.0 million at December 31,  1997.  Non-accruing  loans at
June 30, 1998 totaled $352,000 compared to $471,000 at December 31, 1997.

Noninterest Income

Noninterest  income for the six months ended June 30, 1998 was $69,000  compared
to $32,000 for the six months ended June 30, 1998.  The increase was primarily a
result of a net gain of $23,000 on sales of securities and a net gain of $16,000
on the sale of a company vehicle in 1998.

Noninterest Expense

Noninterest expense was $723,000 for the six months ended June 30, 1998 compared
to $625,000 for the six months ended June 30, 1997, an increase of $98,000.  The
increase  was  primarily  a result of an $84,000  increase in  compensation  and
benefits,   including  the  implementation  of  the  Company's  Recognition  and
Retention  Plan,  and an increase of $30,000 in other  expenses used to grow the
loan portfolio, offset in part by a $16,000 decrease in professional fees.

Income Taxes

Income taxes were  $424,000  for the six months ended June 30, 1998  compared to
$528,000 for the six months  ended June 30,  1997,  a decrease of  $104,000,  or
19.7%.  The  decrease  was  primarily a result of a $180,000  decrease in pretax
earnings.

Asset/Liability Management


                                       12

<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
In an attempt to manage its  exposure to changes in interest  rates,  management
monitors the Company's interest rate risk. The Board of Directors meets at least
quarterly to review the Company's interest rate risk position and profitability.
The  Board  of  Directors  also  reviews  the  Company's  portfolio,  formulates
investment strategies and oversees the timing and implementation of transactions
to assure  attainment of the Company's  objectives in the most effective manner.
In addition,  the Board anticipates reviewing on a quarterly basis the Company's
asset/liability  position,  including simulations of the effect on the Company's
capital of various interest rate scenarios. Interest rate risk information as of
June  30,  1998  was not yet  available  at the  time of this  filing;  however,
management estimates that there has not been a material change from the December
31, 1997 presentation, which is discussed below.

In managing its asset/liability mix, PS Financial, depending on the relationship
between long- and  short-term  interest  rates,  market  conditions and consumer
preference,  often places more emphasis on managing net interest  margin than on
better  matching the interest rate  sensitivity of its assets and liabilities in
an effort to enhance net interest income. Management believes that the increased
net interest  income  resulting from a mismatch in the maturity of its asset and
liability  portfolios can, during periods of declining or stable interest rates,
provide  high  enough  returns to justify the  increased  exposure to sudden and
unexpected increases in interest rates.

Management has taken a number of steps to limit to some extent its interest rate
risk.  First, the Company focuses its fixed rate loan originations on loans with
maturities of 15 years or less. At June 30, 1998,  $34.2 million or 92.6% of the
Company's one- to four family residential loan portfolio consisted of fixed rate
loans having original terms to maturity of 15 years or less. Second, the Company
offers  balloon  loans  of 10  years  or  less in an  attempt  to  decrease  its
asset/liability mismatch. Third, the Company maintains a portfolio of securities
and liquid  assets with  weighted  average lives of three years or less. At June
30, 1998, the Company had $25.0 million of securities  with a remaining  average
life of 9.29  years.  Fourth,  the  Company  has  maintained  a  mortgage-backed
securities portfolio with  adjustable-rates.  At June 30, 1998,  adjustable rate
mortgage-backed  securities  totaled $5.8  million  which  represented  7.10% of
interest-earning  assets.  Fifth,  the Company  has  attempted  to reinvest  the
proceeds  of most of its  borrowings  into  assets  with  maturities  which  are
anticipated  to be similar to those of its  borrowings.  Finally,  a substantial
proportion of the Company's  liabilities  consists of passbook  savings accounts
which are believed by management to be somewhat less  sensitive to interest rate
changes than certificate accounts.

The  primary  objective  of PS  Financial's  investment  strategy  is to provide
liquidity necessary to meet funding needs as well as to address daily,  cyclical
and  long-term  changes  in  the  asset/liability  mix,  while  contributing  to
profitability  by providing a stable flow of  dependable  earnings.  Investments
generally include interest-bearing deposits in other federally insured financial
institutions, FHLB stock and U.S. Government securities.

Generally, the investment policy of the Company is to invest funds among various
categories of  investments  and  maturities  based upon the  Company's  need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize  yield,  to provide  collateral  for  borrowings,  and to  fulfill  the
Company's asset/liability management policies.

PS  Financial's  cost of funds  responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. Consequently, the results
of operations are heavily influenced by the levels of short-term interest rates.
PS Financial offers a range of maturities on its deposit products at competitive
rates and monitors the maturities on an ongoing basis.

An  approach  used by  management  to  quantify  interest  rate  risk is the net
portfolio  value ("NPV")  analysis.  In essence,  this approach  calculates  the
difference  between the present value of  liabilities,  expected cash flows from
assets and cash flows from off balance sheet contracts.


                                       13
<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The following  table sets forth, at December 31, 1997, an analysis of the Bank's
interest  rate risk as measured by the estimated  changes in NPV resulting  from
instantaneous  and  sustained  parallel  shifts in the yield curve (+/-400 basis
points, measured in 100 basis point increments).

<TABLE>
<CAPTION>
Change in Interest
       Rates          Estimated        Ratio of NPV             Estimated Increase
  (Basis Points)        NPV                to                   (Decrease) in NPV
  -------------        Amount          Total Assets          Amount           Percent
                       ------          ------------          ------           -------
                                                                  
       <S>            <C>                   <C>             <C>                <C>  
       +400           $14,271               18%             ($8,611)           (38)%
       +300            16,443               21               (6,439)           (28)
       +200            18,792               24               (4,090)           (18)
       +100            21,087               27               (1,795)            (8)
         --            22,882               29                   --             --
       -100            24,658               31                1,776              8
       -200            26,318               34                3,436             15
       -300            28,216               36                5,334             23
       -400            30,508               39                7,626             33
</TABLE>

Certain  assumptions  utilized in assessing  interest rate risk were employed in
preparing the preceding table.  These assumptions relate to interest rates, loan
prepayment  rates,  deposit decay rates, and the market values of certain assets
under the various interest rate scenarios.  It was also assumed that delinquency
rates will not change as a result of changes in interest  rates  although  there
can be no assurance that this will be the case. Even if interest rates change in
the  designated  amounts,  there can be no assurance  that the Bank's assets and
liabilities  would  perform as set forth above.  In  addition,  a change in U.S.
Treasury rates in the designated amounts accompanied by a change in the shape of
the Treasury yield curve would cause significantly  different changes to the NPV
than indicated above

Impact of New Accounting Standards

On March 3,  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement 128, "Earning Per Share",  which is effective for financial statements
beginning  with year end 1997.  Statement  128  simplifies  the  calculation  of
earnings  per share  (EPS) by  replacing  primary  EPS with basic  EPS.  It also
requires  dual  presentation  of basic EPS and  diluted  EPS for  entities  with
complex  capital  structures.  Basic EPS include no dilution  and is computed by
dividing income available to common shareholders by the weighted-average  common
shares  outstanding for the period.  Diluted EPS reflects the potential dilution
of securities that could share in earnings,  such as stock options,  warrants or
other common stock equivalents. The Company expects Statement 128 to have little
impact on its  earnings  per share  calculations  in future  years,  other  than
changing  terminology  from  primary EPS to basic EPS. All prior period EPS data
will be restated to conform with the new presentation.

Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income",  was issued by the Financial  Accounting  Standards Board in 1997. This
Statement  establishes  standards  for  reporting  and display of  comprehensive
income and its components in a full set of general-purpose financial statements.
It does not address  issues of  recognition  or  measurement  for  comprehensive
income and is components.  Statement 130 is effective for fiscal years beginning
after  December 15, 1997.  Since the provisions of this Statement are disclosure
oriented, it will have no impact on the operations of the Company.

Comprehensive  income is now  reported  for all  periods.  Comprehensive  income
includes both net income and other  comprehensive  income.  Other  comprehensive
income  includes  the  change  in  unrealized  gains and  losses  on  securities
available for sale.



                                       14
<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Year 2000

The Company has conducted a review of its computer systems to review the systems
that  could  be  affected  by  the  "Year  2000"  issue  and  is  developing  an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer  programs being written using two digits rather than four to define the
applicable  year. For example,  programs that have time  sensitive  software may
recognize  a date using "00" as the year 1900  rather  than the year 2000.  This
could result in a major system failure or miscalculations. The Company presently
believes that, with  modifications to existing software and by converting to new
software,  the Year 2000 problem will not pose significant  operational problems
for the Company's  computer  systems as so modified and converted.  However,  if
such  modifications  and  conversions  are not completed  timely,  the Year 2000
problem may have a material impact on the operations of the Company.

Safe Harbor Statement

This report contains certain  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for the  purpose of these safe harbor
provisions.  Forward-looking  statements,  which are based on certain assumption
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally  identifiable  by use  of the  words  "believe",  "expect",  "intend",
"anticipate",  "estimate",  "project""  or similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest  rates,  general  economic  conditions,
legislative  /  regulatory  changes,  monetary  and fiscal  policies of the U.S.
Government,  including  policies of the U.S.  Treasury  and the Federal  Reserve
Board, the quality or composition of the loan or investment  portfolios,  demand
for loan products, deposit flows, competition,  demand for financial services in
the Company's  market area and accounting  principles,  policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such  statements.  Further
information  concerning  the  Company  and its  business,  including  additional
factors  that  could  materially  affect the  Company's  financial  results,  is
included in the Company's filings with the Securities and Exchange Commission.


                                       15
<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings
          None
Item 2.   Changes in Securities
          None
Item 3.   Defaults Upon Senior Securities
          None
Item 4.   Submission of Matters to a Vote of Security Holders

          The Company's  annual  meeting of  stockholders  was held on April 22,
          1998.  At the  meeting,  Lorraine G Ptak and Edward Wolak were elected
          for terms to expire in 2001. The votes cast for and withheld from each
          such director were as follows:

          Director                For       Withheld/Abstain    Broker Non-Votes
          --------                ---       ----------------    ----------------
          Lorraine G Ptak      1,706,756         42,302                 0
          Edward Wolak         1,706,756         42,302                 0

          Also at the annual  meeting,  a proposal to ratify the  appointment of
          Crowe, Chizek and Company,  LLP as independent auditors for the fiscal
          year ending  December  31, 1998 was  approved.  The votes cast for and
          against  this  proposal,  and the  number of  abstentions  and  broker
          non-votes with respect to the proposal, was as follows

          Approval of Crowe, Chizek and Company, LLP as independent auditors for
                    the fiscal year ending December 31, 1998

             For          Against        Abstentions        Broker Non-Votes
             ---          -------        -----------        ----------------
          1,718,932       20,676            9,450                   0

Item 5.   Other information
          None
Item 6.   Exhibits and Reports on Form 8-K
          a. None
          b. None


                                       16
<PAGE>


                                   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.

                               PS FINANCIAL, INC.
                                  (Registrant)


                                             -----------------------------------
Date: August 14, 1998                            By: /s/Kimberly Rooney
                                             -----------------------------------
                                                 Kimberly Rooney
                                                 Chief Executive Officer
                                                 (Principal Executive Officer)

Date: August 14, 1998                         By: /s/Jeffrey Przybyl
                                    --------------------------------------------
                                                 Jeffrey Przybyl
                                              Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



                                       17