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 Quarter Ended September 30, 1998

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                         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 November 15, 1998
------                                   ---------------------------------------
Common Stock, $.01 par value                          1,850,509


<PAGE>

                               PS Financial, Inc.

                                   Form 10-QSB

                 Three and Nine Months Ended September 30, 1998

<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                   ----
PART I - Financial Information

<S>                                                                                                  <C>
  Item 1 - FINANCIAL STATEMENTS
           Condensed Consolidated Statements of Financial Condition at September 30, 1998 and        3
               December 31, 1997
           Condensed Consolidated Statements of Income for the three months and nine months ended    4
               September 30, 1998 and 1997
           Condensed Consolidated Statements of Changes in Stockholders' Equity for the nine         5
               months ended September 30, 1998 and 1997
           Condensed Consolidated Statements of Cash Flows for the nine months ended September       6
               30, 1998 and 1997
           Notes to the Condensed Consolidated Financial Statements as of September 30, 1998         8
  Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    10
  Item 3 - Quantitative and Qualititave Disclosure About Market Risk                                14

PART II - Other Information

  Item 1 - Legal Proceedings                                                                        18
  Item 2 - Changes in Securities                                                                    18
  Item 3 - Defaults Upon Senior Securities                                                          18
  Item 4 - Submission of Matters to a Vote of Security Holders                                      18
  Item 5 - Other Information                                                                        18
  Item 6 - Exhibits and Reports on Form 8-K                                                         18

SIGNATURES                                                                                          19
</TABLE>

                                       2

<PAGE>

                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    September 30, 1998 and December 31, 1997
                  (Dollars in thousands, expect per share data)

<TABLE>
<CAPTION>
                                                                              September 30,   December 31,
                                                                                  1998            1997
                                                                              -------------   ------------
<S>                                                                             <C>            <C>
ASSETS
Cash on hand and in banks ...................................................   $     297      $     440
Interest-bearing deposit accounts in other  financial institutions ..........       8,516          5,850
                                                                                ---------      ---------
         Total cash and cash equivalents ....................................       8,813          6,290

Interest-bearing term deposits in other financial  institutions .............         157            209
Securities available-for-sale ...............................................      27,340         33,459
Mortgage-backed securities available-for-sale ...............................       8,084          8,095
Loans receivable, net .......................................................      53,094         37,167
Federal Home Loan Bank stock ................................................       1,319            700
Premises and equipment, net .................................................         436            458
Accrued interest receivable .................................................         752            801
Other assets ................................................................         181            743
                                                                                ---------      ---------
Total assets ................................................................   $ 100,176      $  87,922
                                                                                =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
         Deposits ...........................................................   $  51,211      $  41,275
         FHLB Advances ......................................................      25,147         13,750
         Advances from borrowers for taxes and insurance ....................         918            498
         Accrued interest payable and other liabilities .....................         534          1,761
         Dividends payable ..................................................          --          7,529
                                                                                ---------      ---------
                  Total liabilities .........................................      77,810         64,813

Stockholders' Equity
         Common stock $0.01 par value per share, 2,500,000 shares authorized;
              1,947,904 and 2,050,429 issued and outstanding respectively              22             22
         Additional paid-in capital .........................................      21,637         21,602
         Retained earnings, substantially restricted ........................       5,984          5,518
         Unearned ESOP shares ...............................................      (1,101)        (1,173)
         Unearned stock awards ..............................................        (983)        (1,117)
         Treasury stock, at cost, 234,221 and 131,696 shares respectively ...      (3,310)        (1,896)
         Net unrealized gain on securities available-for-sale, net of tax ...         117            153
                                                                                ---------      ---------
                  Total Stockholders' equity ................................      22,366         23,109
                                                                                ---------      ---------
                           Total liabilities and Stockholders' equity .......   $ 100,176      $  87,922
                                                                                =========      =========
</TABLE>


                                       3

<PAGE>

<TABLE>
                                                           PS FINANCIAL, INC.
                                                            CHICAGO, ILLINOIS
                                               CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                              (Dollars in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                        Nine months Ended                  Three months ended
                                                                          September 30,                       September 30,
                                                                     1998             1997               1998              1997
                                                                 -----------       -----------        -----------        -----------
<S>                                                              <C>               <C>                <C>                <C>
Interest income
    Loans                                                        $     2,907       $     2,447        $     1,056        $       828
    Securities                                                         1,361             1,442                398                569
    Mortgage-backed securities                                           465               419                163                152
    Other                                                                231               145                154                 35
                                                                 -----------       -----------        -----------        -----------
            Total interest income                                      4,964             4,453              1,771              1,584

Interest expense
    Deposits                                                           1,346             1,299                482                440
    Other borrowings                                                     849               156                370                116
                                                                 -----------       -----------        -----------        -----------
            Total interest expense                                     2,195             1,455                852                556
                                                                 -----------       -----------        -----------        -----------

Net interest income                                                    2,769             2,998                919              1,028

Provision for loan losses                                                 40                 0                 40                  0
                                                                 -----------       -----------        -----------        -----------
                                                                                                      -----------        -----------

Net interest income after provision for loan                           2,729             2,998                879              1,028

Noninterest income
    Net gain (loss) on sale of securities                                 22                (1)                (1)                 2
    Other                                                                 71                51                 25                 17
                                                                 -----------       -----------        -----------        -----------
            Total noninterest income                                      93                50                 24                 19

Noninterest expense
    Compensation and benefits                                            709               532                263                170
    Occupancy and equipment expense                                       90                97                 30                 32
    Data processing                                                       45                40                 15                 15
    Federal insurance premiums                                            20                20                  7                  7
    Professional Fees                                                     69                79                 19                 14
    Other                                                                185               148                 61                 53
                                                                 -----------       -----------        -----------        -----------
            Total noninterest expense                                  1,118               916                395                291
                                                                 -----------       -----------        -----------        -----------

Income before income tax expense                                       1,704             2,132                508                756
Income tax expense                                                       572               866                148                338
                                                                 -----------       -----------        -----------        -----------

Net income                                                       $     1,132       $     1,266        $       360        $       418
                                                                 ===========       ===========        ===========        ===========
Earnings per share                                               $      0.61       $      0.64        $      0.20        $      0.21
                                                                 ===========       ===========        ===========        ===========
Average shares outstanding                                         1,848,945         1,990,291          1,815,776          1,951,686
                                                                 ===========       ===========        ===========        ===========
</TABLE>




                                       4

<PAGE>

<TABLE>
                                                    PS FINANCIAL, INC.
                                                    CHICAGO, ILLINOIS
                           CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                      (Dollars in thousands, except per share data)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine months Ended September 30                                                1998                            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                             <C>
Common Shares
Balance at beginning of year                                                $     22                        $     22
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30                                                     $     22                        $     22
------------------------------------------------------------------------------------------------------------------------------------
Additional Paid-In Capital
Balance at beginning of year                                                $ 21,602                        $ 21,170
Change in additional paid in capital                                              35                             (56)
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30                                                     $ 21,637                        $ 21,114
------------------------------------------------------------------------------------------------------------------------------------
Retained Earnings, Substantially Restricted
Balance at beginning of year                                                $  5,518                        $ 12,669
Net income for the period                                                      1,132        $  1,132           1,266        $  1,266
Dividends declared                                                              (666)                           (346)
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30                                                     $  5,984                        $ 13,589
------------------------------------------------------------------------------------------------------------------------------------
Unearned ESOP Shares
Balance at beginning of year                                                $ (1,173)                       $ (1,691)
Change in unearned ESOP shares                                                    72                               0
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30                                                     $ (1,101)                       $ (1,691)
------------------------------------------------------------------------------------------------------------------------------------
Unearned RRP Shares
Balance at beginning of year                                                $ (1,117)                       $      0
Change in RRP shares                                                             134                          (1,162)
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30                                                     $   (983)                       $ (1,162)
------------------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year                                                  (1,896)                              0
Change in Treasury Stock                                                      (1,414)                             (7)
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30                                                     $ (3,310)                       $     (7)
------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available-for-sale
Balance at beginning of year                                                $    153                        $    (23)
Change in unrealized gain (loss) on securities                                   (36)            (36)            143             143
available-for-sale net of tax
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30                                                     $    117                        $    120
------------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                                  $ 22,366                        $ 31,985
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income                                                                        $  1,096                        $  1,409
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                 5

<PAGE>

<TABLE>
                                                   PS FINANCIAL, INC.
                                                   CHICAGO, ILLINOIS
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS

------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                             Nine months ended
                                                                                                               September 30,
                                                                                                           1998              1997
                                                                                                         --------          --------
<S>                                                                                                      <C>               <C>
Cash flows from operating activities
         Net income                                                                                      $  1,132          $  1,266
         Adjustments to reconcile net income to net cash from
              operating activities
             Depreciation                                                                                      36                37
             Provision for loan loss                                                                           40                 0
             Amortization of premiums and discounts on investment
                  and mortgage-backed securities, net                                                          10                (5)
             Net gain on sales of securities available-for-sale                                               (22)                1
             RRP expense                                                                                      134                60
             ESOP expense                                                                                     107                 0
             Change in
                  Deferred loan origination fees                                                              (60)              (40)
                  Accrued interest receivable and other assets                                                611              (199)
                  Other liabilities and deferred income taxes                                              (1,206)              286
                                                                                                         --------          --------
                       Net cash provided by operating activities                                              782             1,406

Cash flows from investing activities
         Proceeds from sale of securities available-for-sale                                                3,500            10,485
         Proceeds from sale of mortgage-backed securities available-for-sale                                1,102             1,014
         Purchase of Federal Home Loan Bank Stock                                                            (619)              (88)
         Proceeds from repayment of securities available-for-sale                                           1,864               823
         Proceeds from maturities of securities available-for-sale                                         15,000             5,250
         Proceeds from maturities of equity securities                                                        205                 0
         Purchase of securities available-for-sale                                                         (8,300)          (25,847)
         Purchase of mortgage-backed securities available-for-sale                                         (3,014)           (6,209)
         Purchase of equity securities available-for-sale                                                  (4,272)                0
         Net decrease in interest-bearing term deposits in other financial
              institutions                                                                                     52                89
         Net change in loans                                                                              (15,907)              539
         Capital expenditures, net                                                                            (14)              (40)
                                                                                                         --------          --------
             Net cash used in investing activities                                                        (10,403)          (13,984)

Cash flows from financing activities
         Net increase (decrease) in deposits                                                                9,936              (888)
         Dividends Paid                                                                                    (8,195)             (346)
         Borrowings from FHLB                                                                              11,397             8,500
         Purchase of Treasury Stock                                                                        (1,414)           (1,285)
         Net change in advance payments by borrowers for insurance and taxes                                  420              (236)
                                                                                                         --------          --------
             Net cash provided by (used in) financing activities                                           12,144             5,745

Change in cash and cash equivalents                                                                         2,523            (6,833)

Cash and cash equivalents at beginning of period                                                            6,290             8,758
                                                                                                         --------          --------
</TABLE>

                                                                 6

<PAGE>

<TABLE>
<S>                                                                                                      <C>               <C>
Cash and cash equivalents at end of period                                                               $  8,813          $  1,925
                                                                                                         ========          ========

Supplemental disclosure of cash flow information
             Cash paid during the period for
                       Interest                                                                          $  2,071          $  1,445
                       Income taxes                                                                           870               676
</TABLE>

                                                                 7

<PAGE>

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of PS  Financial,  Inc.  (the  Company),  its  wholly-owned
subsidiary  Preferred  Savings  Bank (the  Bank),  and the  Bank's  wholly-owned
subsidiary,  Preferred Service  Corporation,  which engages in limited insurance
activities.  All significant  intercompany  balances and transactions  have been
eliminated.

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
September 30, 1998 and December 31, 1997,  and the results of its operations for
the three month and nine month periods ended September 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 September 30, 1998.

                                                           Core       Risk based
                                                          Capital      Capital
                                                          -------      -------
                                                             (In thousands)
Regulatory capital                                        $15,399      $15,623

Minimum capital requirement                                 3,819        3,469
                                                          -------      -------

Excess regulatory capital over minimum  requirement       $11,580      $12,154
                                                          =======      =======


                                       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 nine months ended September 30, 1998
and 1997 is presented below.

<TABLE>
<CAPTION>
                                                                              Nine months Ended               Three Months Ended
                                                                                September 30,                    September 30,
                                                                            1998            1997             1998            1997
                                                                         ----------      -----------      ----------      ----------
<S>                                                                      <C>             <C>              <C>             <C>
Basic Earnings Per Share
     Net income                                                          $1,132,288      $ 1,266,521      $  360,723      $  418,676
                                                                         ==========      ===========      ==========      ==========
     Weighted average common shares outstanding                           1,848,945        1,990,291       1,815,776       1,951,686
                                                                         ==========      ===========      ==========      ==========
         Basic Earnings Per Share                                        $     0.61      $      0.64      $     0.20      $     0.21
                                                                         ==========      ===========      ==========      ==========

Earnings Per Share Assuming Dilution
     Net income                                                          $1,132,288      $ 1,266,521      $  360,723      $  418,676
                                                                         ==========      ===========      ==========      ==========
     Weighted average common shares outstanding                           1,848,945        1,990,291       1,815,776       1,951,686
     Add dilutive effect of assumed exercises
         Incentive stock options                                             33,938               --          12,436          14,788
         Stock awards                                                           206               --              --              --
     Weighted average common and dilutive                                 1,883,089        1,990,291       1,828,212       1,966,474
                                                                         ==========      ===========      ==========      ==========
              Diluted Earnings Per Share                                 $     0.60      $      0.64      $     0.20      $     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 September 30, 1998 and December 31, 1997

Total assets  increased $12.3 million from $87.9 million at December 31, 1997 to
$100.2  million at  September  30,  1998 due mainly to an  increase  in the loan
portfolio  of $15.9  million,  funded by  increases  in FHLB  advances  of $13.4
million and  deposits of $9.9  million,  partially  offset by the payment of the
special dividend of $7.5 million in January 1998.

The Company's net loans receivable increased by $15.9 million from $37.2 million
at December  31, 1997 to $53.1  million at  September  30,  1998.  Cash and cash
equivalents  increased  $2.5 million,  from $6.3 million at December 31, 1997 to
$8.8 million at September  30, 1998,  while  Equity  securities  increased  $3.9
million,  from $0 at December 31, 1997 to $3.9  million at  September  30, 1998.
These   increases   were   mainly   offset   by   a   decrease   in   securities
available-for-sale  by $10.1 million, from $33.5 million at December 31, 1997 to
$23.4 million at September 30, 1998.

In order to increase  the size of the loan  portfolio,  the Company has utilized
the services of an area  mortgage  broker who  receives a fee for each  mortgage
originated  for the  Company.  The  broker  serves the same  market  area as the
Company,  and the loans share the same characteristics of the Company's existing
loans.  Through  September 30, 1998,  the Company has  originated  $14.0 million
loans through this broker.

Total  liabilities  at September 30, 1998 were $77.8  million  compared to $64.8
million at December 31, 1997, an increase of $13.0 million. The decrease of $8.1
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 in January,
1998,  and the  increase  in the loan  portfolio,  the  Company  increased  FHLB
advances by $13.4  million.  In  addition,  deposits  increased  by $9.9 million
during the period.

Total  Stockholders'  Equity at September 30, 1998 was $22.4 million compared to
$23.1  million at December  31,  1997,  a decrease  of  $743,000,  or 3.2%,  due
primarily to net earnings of $1.1 million partially offset by a $36,000 decrease
in the  unrealized  gain on  securities  available-for-sale,  payment of regular
dividends  totaling  $666,000,  and treasury  stock  purchased at a cost of $1.4
million.

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

General

Net income  for the three  months  ended  September  30,  1998 was  $360,000,  a
decrease  of $58,000,  or 13.9%,  from net  earnings  of $418,000  for the three
months ended September 30, 1997. The decrease in net income was primarily due to
the decrease in the net interest margin  resulting from the payment of a special
$4.00 per share  dividend in January,  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, and an increase of $104,000
in noninterest expense.

Interest Income

Interest  income for the three months ended  September 30, 1998 was $1.8 million
compared to $1.6  million for the three  months ended  September  30,  1997,  an
increase of $200,000,  or 12.5%.  The increase in interest income was the result
of a $8.3 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  September  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.




                                       10

<PAGE>



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

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

Interest Expense

Interest  expense for the three  months  ended  September  30, 1998 was $852,000
compared to $556,000 for the three months ended  September 30, 1997, an increase
of $296,000, or 53.2%. The increase in interest expense was primarily due to the
addition of $11.3  million in FHLB  advances and an increase in deposits of $9.9
million used to fund the growing loan  portfolio,  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  and an increase in higher
yielding time deposits.

Provision for Loan Losses

The Bank's  provision  for loan losses was $40,000  for the three  months  ended
September  30, 1998  compared to zero for the three months ended  September  30,
1997. The increase was primarily a result of increased  non-performing  loans of
multi-family  and commercial  real estate loans and the general  increase in the
loan portfolio. In order to increase the size of the loan portfolio, the Company
has utilized the services of an area mortgage broker who receives a fee for each
mortgage originated for the Company. At September 30, 1998, the Bank's allowance
for loan losses  totaled  $224,000,  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  September 30, 1997
was 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 September 30, 1998  decreased to $1.5
million  compared to $2.0 million at December 31,  1997.  Non-accruing  loans at
September  30, 1998 totaled  $1.5  million  compared to $471,000 at December 31,
1997,  including one loan secured by a single  family  residence for $616,000 in
which the Bank is currently working with the borrower to resolve the situation.

Noninterest Income

Noninterest  income for the three  months ended  September  30, 1998 was $24,000
compared to $19,000 for the three months ended  September 30, 1997. The increase
was primarily due to increased late charges received on delinquent loans.

Noninterest Expense

Noninterest  expense was $395,000 for the three months ended  September 30, 1998
compared to $291,000 for the three months ended  September 30, 1997, an increase
of $104,000, or 35.7%. The increase was primarily a result of a $93,000 increase
in compensation and benefits,  including a severance payment of $40,000 upon the
departure of an executive officer.

Income Taxes

Income  taxes were  $148,000  for the three  months  ended  September  30,  1998
compared to $338,000 for the three months ended  September  30, 1997, a decrease
of  $190,000,  or 56.2%.  The  decrease  was  primarily  a result of a  $248,000
decrease in pretax earnings,  and increased  investment in federally  tax-exempt
municipal bonds.


                                       11

<PAGE>


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

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

Comparison of Operating Results for the Nine months Ended September 30, 1998 and
September 30, 1997.

General

Net income for the nine months  ended  September  30, 1998 was $1.1  million,  a
decrease of $200,000,  or 15.4%,  from net earnings of $1.3 million for the nine
months ended September 30, 1997. The decrease in net income was primarily due to
the  decrease  in net  interest  income  reflecting  a 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,  the increased use of
FHLB advances in an attempt to better leverage the Company's high capital ratio,
as well as the increase in deposits.

Interest Income

Interest  income for the nine months ended  September  30, 1998 was $5.0 million
compared to $4.5  million for the nine  months  ended  September  30,  1997,  an
increase of $500,000,  or 11.1%.  The increase in interest income was the result
of a $6.5 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 nine months ended September 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 nine months ended  September 30, 1998 was $2.2 million
compared to $1.5  million for the nine  months  ended  September  30,  1997,  an
increase of $700,000,  or 46.7%.  The increase in interest expense was primarily
due to a $11.3 million increase in FHLB advances, an increase of $9.3 million in
deposits, as well as 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 and an increase in higher yielding time deposits.

Provision for Loan Losses

The Bank's  provision  for loan losses was $40,000  for the three  months  ended
September  30, 1998  compared to zero for the three months ended  September  30,
1997. The increase was primarily a result of increased  non-performing  loans of
multi-family  and commercial  real estate loans and the general  increase in the
loan portfolio. In order to increase the size of the loan portfolio, the Company
has utilized the services of an area mortgage broker who receives a fee for each
mortgage originated for the Company.  The broker caters to the same clientele as
the  Company,  and the loans  share the same  characteristics  of the  Company's
existing  loans.  Through  September 30, 1998, the Company has originated  $14.0
million loans through this broker.  At September 30, 1998, the Bank's  allowance
for loan losses  totaled  $224,000,  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  September 30, 1997
was 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 September 30, 1998  decreased to $1.5
million  compared to $2.0 million at December 31,  1997.  Non-accruing  loans at
September  30, 1998 totaled  $1.5  million  compared to $471,000 at December 31,
1997,  including one loan secured by a single  family  residence for $616,000 in
which the Bank is currently working with the borrower to resolve the situation.


                                       12

<PAGE>

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

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

Noninterest Income

Noninterest  income for the nine  months  ended  September  30, 1998 was $93,000
compared to $50,000 for the nine months ended  September 30, 1998.  The increase
was primarily a result of a net gain of $22,000 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 $1.1  million for the nine months ended  September  30,
1998  compared to $916,000 for the nine months  ended  September  30,  1997,  an
increase  of  $184,000.  The  increase  was  primarily  a result of an  $177,000
increase in  compensation  and  benefits,  including the  implementation  of the
Company's Recognition and Retention Plan and a severance payment of $40,000 upon
the departure of an executive officer.

Income Taxes

Income taxes were $572,000 for the nine months ended September 30, 1998 compared
to  $866,000  for the nine  months  ended  September  30,  1997,  a decrease  of
$294,000,  or 34.0%. The decrease was primarily a result of a $400,000  decrease
in pretax earnings and increased income from tax-exempt municipal bonds.



                                       13

<PAGE>

                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
            Quantitative and Qualitative Disclosure About Market Risk

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

Asset/Liability Management

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
September  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 June 30,
1998 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. The Company's  vulnerability to a change
in interest  rates has increased in 1998 due to a reduction in capital caused by
the payment of the  special  dividend  and the  increase in long term fixed rate
assets.

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 September 30, 1998, $39.2 million or 96.8% 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 has maintained a  mortgage-backed
securities portfolio with  adjustable-rates.  At September 30, 1998,  adjustable
rate mortgage-backed  securities totaled $5.4 million which represented 5.57% of
interest-earning  assets.  Fourth,  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.  Fifth,  the Company has
started  to  attract  more term  deposits  to better  match up with its  assets.
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.



                                       14

<PAGE>

                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
            Quantitative and Qualitative Disclosure About Market Risk

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

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.

The  following  table sets forth,  at June 30,  1998,  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).

Change in Interest
       Rates          Estimated     Ratio of NPV          Estimated Increase
  (Basis Points)         NPV             to               (Decrease) in NPV
------------------     Amount       Total Assets      Amount            Percent
                      ---------     -------------     ------            -------
       +400            $9,655           12.36%        ($9,767)          (50)%
       +300            12,070           14.93          (7,351)          (38)
       +200            14,579           17.42          (4,843)          (25)
       +100            17,080           19.74          (2,342)          (12)
        ---            19,421           21.76            ---             ---
       -100            21,978           23.84           2,557             13
       -200            24,689           25.90           5,268             27
       -300            27,703           28.05           8,282             43
       -400            31,005           30.24          11,583             60

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


                                       15
<PAGE>

Impact of New Accounting Standards

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.

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting Standards (SFAS) No. 131, "Disclosure about Segments of
an Enterprise and Related Information".  The statement establishes standards for
the way that public  business  enterprises  report  information  about operating
segments  and certain  other  information  in annual  financial  statements  and
requires that those  enterprises  report  selected  information  about operating
segments in interim financial  reports issued to shareholders.  The statement is
effective for financial  statements  for periods  beginning  after  December 15,
1997.  The  Company  adopted  SFAS No.  131 on  January  1,  1998  and  required
disclosures will be included beginning with the Company's 1998 Annual Report.
The Company operates as a single segment.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities".  SFAS No. 133  standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other  contracts.  Under  the  standard,  entities  are  required  to carry  all
derivative instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e.  gains or losses) of a derivative
instrument  depends on whether it has been designated and qualifies as part of a
hedging  relationship  and,  if so, on the  reason  for  holding  it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposure to change in fair value, cash flows, or foreign currencies. If
the hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is  recognized in earnings in the period of change  together with the
offsetting  loss or gain on the  hedged  item  attributable  to the  risk  being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the  gain  or loss on the  derivative  instrument  is  reported  initially  as a
component of other  comprehensive  income  (outside  earnings) and  subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amount  excluded  from  the  assessment  of hedge  effectiveness  as well as the
ineffective  portion of the gain or loss is reported  in  earnings  immediately.
Accounting for foreign  currency  hedges is similar to accounting for fair value
and cash flow hedges. If the derivative instrument is not designated as a hedge,
the gain or loss is  recognized  in  earnings  in the  period  of  change.  This
Statement will have no effect on the Company.

Year 2000

As the year 2000 approaches,  a significant business issue has emerged regarding
how existing application software programs and operating systems can accommodate
the date value for the year 2000. Many existing software  application  products,
including software  application  products used by the Bank and its suppliers and
customers,  were  designed to  accommodate  only a two-digit  date value,  which
represents  the year.  For  example,  information  relating  to the year 1996 is
stored in the system as "96".  As a result,  the year 1999 (i.e.  "99") could be
the maximum date value that these systems will be able to process accurately. In
response to concerns about this issue, regulatory agencies have begun to monitor
holding companies' and banks' readiness for the year 2000 as part of the regular
examination  process. The


                                       16

<PAGE>

Company  presently   believes  that  with  modification  to  existing  software,
conversion to new software,  and conversion to a new third party data processor,
the year 2000  issue  will not pose  significant  operational  problems  for the
Company's  computer  systems  or  business  operations.  Implementation  of  the
Company's plan to test in-house and out-sourced software has been underway since
the first  quarter of 1998.  Testing of  applications  considered to be "mission
critical"  are  scheduled  for  completion  by  second  quarter  of 1999.  Total
compliance of all systems is expected by management to be completed by the third
quarter of 1999;  management  currently estimates that such compliance will cost
$15,000. The team for the plan is responsible for the implementation of the plan
and reports to the  Company's  Board of  Directors  on a  quarterly  basis until
December  1998 and on a monthly  basis  thereafter  until the plan is completed.
However,  if  such  modifications  and  conversions  are  not  made,  or are not
completed  timely,  the year 2000 issue could have a material  adverse impact on
the  operations  of the  Company.  In addition,  there can be no assurance  that
unforeseen  problems in the Company's computer systems,  or the systems of third
parties on which the Company's  computers  rely, will not have an adverse effect
on the  Company's  systems or  operations.  Additionally,  failure of the Bank's
customers'  to prepare  for year 2000  compatibility  could  have a  significant
adverse effect on such customer's operations and profitability,  thus inhibiting
their ability to repay loans and adversely affecting the Bank's operations.  The
Company does not have sufficient  information  accumulated from customers of the
Bank to enable the Company to assess the degree to which  customers'  operations
are susceptible to potential problems relating to the year 2000 issue.

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.



                                       17

<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
        None

Item 5. Other information
        None

Item 6. Exhibits and Reports on Form 8-K

        a. Amended and restated By-laws

        b. None


                                       18

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

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


                                       19