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 Three Months Ended March 31, 1998

                         Commission File Number 0-28864


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


          Delaware                                     36-410473
  (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 May 10, 1998
Common Stock,  $.01 par value                                   2,005,429

<PAGE>

                               PS Financial, Inc.

                                   Form 10-QSB

                        Three Months Ended March 31, 1998
<TABLE>
Part I - Financial Information

ITEM 1 - FINANCIAL STATEMENTS                                                        Page
<S>                                                                                  <C>

          Condensed Consolidated Statements of Financial Condition at March 31,        3
             1998 and December 31, 1997
          Condensed Consolidated Statements of Income for the three  months ended      4
            March 31, 1998 and 1997
          Condensed Consolidated Statements of Changes in Stockholders' Equity         5
            for the three months ended March 31, 1998 and 1997
          Condensed Consolidated Statements of Cash Flows for the three months         6
            ended March 31, 1998 and 1997
          Notes to the Condensed Consolidated Financial Statements as of March 
            31, 1998                                                                   8

ITEM 2 -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
           CONDITION AND RESULTS OF OPERATIONS                                        10

                           Part II - Other Information

          Item 6. Exhibits and Reports on Form 8-K                                    15
</TABLE>


                                       2

<PAGE>



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

<TABLE>
<CAPTION>

                                                                               March 31,  December 31,
                                                                                 1998        1997
                                                                                 ----        ----
<S>                                                                             <C>         <C>     
ASSETS

Cash on hand and in banks                                                       $    441    $    440
Interest-bearing deposit accounts in other  financial institutions                 1,253       5,850
                                                                                --------    --------
         Total cash and cash equivalents                                           1,694       6,290

Interest-bearing term deposits in other financial  institutions                      212         209
Equity securities                                                                    273        --
Securities available-for-sale                                                     28,316      33,459
Mortgage-backed securities available-for-sale                                      9,468       8,095
Loans receivable, net                                                             41,682      37,167
Federal Home Loan Bank stock                                                         913         700
Premises and equipment, net                                                          449         458
Accrued interest receivable                                                          799         801
Other assets                                                                          17         743
                                                                                --------    --------
         Total assets                                                           $ 83,823    $ 87,922
                                                                                ========    ========
LIABILITIES AND EQUITY
Liabilities
         Deposits                                                               $ 41,116    $ 41,275
         Advances from borrowers for taxes and insurance                             291         498
         FHLB advances                                                            18,000      13,750
         Accrued interest payable and other liabilities                            1,095       1,761
         Dividends payable                                                             0       7,529
                                                                                --------    --------
                  Total liabilities                                               60,502      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                                               21,619      21,602
         Retained earnings, substantially restricted                               5,705       5,518
         Unearned ESOP shares                                                     (1,149)     (1,173)
         Unearned stock awards                                                    (1,073)     (1,117)
         Treasury stock, at cost, 108,417 shares                                  (1,896)     (1,896)
         Net unrealized gain (loss) on securities available-for-sale, net             93         153
          of tax
                                                                                --------    --------
                  Total equity                                                    23,321      23,109
                                                                                --------    --------
                           Total liabilities and equity                         $ 83,823    $ 87,922
                                                                                ========    ========
</TABLE>


                                       3

<PAGE>

                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in thousands, except per share data)


                                                         Three months ended
                                                              March 31,
                                                           1998       1997
                                                           ----       ----
Interest income
                      Loans                             $    873    $    804
                      Securities                             539         371
                      Mortgage-backed securities             159         129
                      Other                                   33          75
                                                        --------    --------
                              Total interest income        1,604       1,379
Interest expense
                      Deposits                               431         424
                      Other borrowings                       224           0
                                                        --------    --------
                              Total interest expense         655         424
                                                        --------    --------
Net interest income                                          949         955

Provision for loan losses                                      0           0
                                                        --------    --------
Net interest income after provision for loan                 949         955

Noninterest income
                      Net gain on sale of securities          23           6
                      Other                                   13          18
                                                        --------    --------
                              Total noninterest income        36          24
Noninterest expense
                      Compensation and benefits              228         166
                      Occupancy and equipment expense         28          32
                      Data processing                         16          14
                      Federal insurance premiums               7           7
                      Professional fees                       17          22
                      Other                                   50          39
                                                        --------    --------
                              Total noninterest expense      346         280
                                                        --------    --------
Income before income tax expense                             639         699
Income tax expense                                           225         269
                                                        --------    --------
Net income                                              $    414    $    430
                                                        ========    ========
Earnings per share
         Basic                                          $   0.21    $   0.21
                                                        ========    ========
         Diluted                                        $   0.21    $   0.21
                                                        ========    ========


                                       4

<PAGE>

                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                            (Dollars in thousands, except per share data)
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31                                                      1998                       1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>       <C>            <C>    
Common Shares
Balance at beginning of year                                            $     22                   $    22
-------------------------------------------------------------------------------------------------------------------------
Balance at March 31                                                     $     22                   $    22
-------------------------------------------------------------------------------------------------------------------------
Additional Paid-In Capital
Balance at beginning of year                                            $ 21,602                   $21,170
Change in additional paid in capital                                          17                         0
-------------------------------------------------------------------------------------------------------------------------
Balance at March 31                                                     $ 21,619                   $21,170
-------------------------------------------------------------------------------------------------------------------------
Retained Earnings, Substantially Restricted
Balance at beginning of year                                            $  5,518                   $12,669
Net income for the period                                                    414         $414          430        $430
Dividends declared                                                         (227)                         0
-------------------------------------------------------------------------------------------------------------------------
Balance at March 31                                                     $  5,705                   $13,099
-------------------------------------------------------------------------------------------------------------------------
Unearned ESOP Shares
Balance at beginning of year                                            $(1,173)                   $(1,691)
Change in unearned ESOP shares                                                24                         0
-------------------------------------------------------------------------------------------------------------------------
Balance at March 31                                                     $(1,149)                   $(1,691)
-------------------------------------------------------------------------------------------------------------------------
Unearned RRP Shares
Balance at beginning of year                                            $(1,117)                   $     0
Change in RRP shares                                                          44                         0
-------------------------------------------------------------------------------------------------------------------------
Balance at March 31                                                     $(1,073)                   $     0
-------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year                                             (1,896)                         0
Change in Treasury Stock                                                       0                         0
-------------------------------------------------------------------------------------------------------------------------
Balance at March 31                                                     $(1,896)                   $     0
-------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available-for-sale
Balance at beginning of year                                            $    153                   $   (23)
Change in unrealized gain (loss) on securities                              (60)          (60)        (101)        (101)
available-for-sale net of tax
-------------------------------------------------------------------------------------------------------------------------
Balance at March 31                                                     $     93                   $  (124)
-------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                              $ 23,321                   $ 32,476
-------------------------------------------------------------------------------------------------------------------------
Comprehensive Income                                                                     $354                      $329
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                        5
<PAGE>


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


<TABLE>
<CAPTION>
                                                                   Three months ended
                                                                       March 31,
                                                                    1998        1997
                                                                   -------    -------
<S>                                                                <C>        <C>    
Cash flows from operating activities
    Net income                                                     $   414    $   430
    Adjustments to reconcile net income to net cash from
         operating activities
        Depreciation                                                    12         11
        Amortization of premiums and discounts on
             investment and mortgage-backed securities, net              5        (12)
        Net gain on sales of  securities available-for-sale            (23)        (6)
        RRP Expense                                                     44          0
        ESOP Expense                                                    41          0
        Change in
             Deferred loan origination fees                            (12)       (14)
             Accrued interest receivable and other assets              728        100
             Other liabilities and deferred income taxes              (540)       255
                                                                   -------    -------
                  Net cash provided by operating activities            669        764

Cash flows from investing activities
    Proceeds from sale of securities available-for-sale              3,500      4,001
    Proceeds from sale of mortgage-backed securities
      available-for-sale                                             1,102      1,014
    Purchase of Federal Home Loan Bank stock                          (213)         0
    Proceeds from repayment of securities available-for-sale           510        193
    Maturities of securities available-for-sale                      4,500      1,250
    Purchase of securities available-for-sale                       (3,001)    (8,514)
    Purchase of mortgage-backed securities available-for-sale       (3,014)    (4,176)
    Purchase of equity securities available-for-sale                  (268)         0
    Net decrease (increase) in interest-bearing term deposits in
        other financial institutions                                    (3)        99
    Net change in loans                                             (4,503)       348
    Capital expenditures, net                                           (3)        (5)
                                                                   -------    -------
        Net cash used in investing activities                       (1,393)    (5,790)

Cash flows from financing activities
    Net increase (decrease) in deposits                               (159)      (336)
    Dividends paid                                                  (7,756)         0
    Borrowings from FHLB                                             4,250          0
    Net decrease in advance payments by borrowers for insurance
        and taxes                                                     (207)      (263)
                                                                   -------    -------
        Net cash used in financing activities                       (3,872)      (599)

Decrease in cash and cash equivalents                               (4,596)    (5,625)

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

Cash and cash equivalents at end of period                         $ 1,694    $ 3,133
                                                                   =======    =======
</TABLE>

                                       6

<PAGE>

<TABLE>
<S>                                                                <C>        <C>    
Supplemental disclosure of cash flow information
    Cash paid during the period for
              Interest                                             $   624    $   422
              Income taxes                                              95          5
</TABLE>


                                        7

<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
March 31, 1998 and 1997,  and the results of its  operations for the three month
period then ended.

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 three separate
capital  requirements.  The  following  is a summary  of the  Bank's  regulatory
capital at March 31, 1998.

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

Regulatory capital                                         $20,792      $20,792

Minimum capital requirement                                  3,155        2,978
                                                           -------      -------
Excess regulatory capital over minimum
requirement                                                $17,637      $17,814
                                                           =======      =======


                                       8

<PAGE>


                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4 - EARNINGS PER SHARE

A  reconciliation  of the  numerators and  denominators  for earnings per common
share  computations  for the  three  months  ended  March  31,  1998 and 1997 is
presented below.

                                                    Three Months Ended March 31,
                                                         1998        1997
                                                         ----        ----
Basic Earnings Per Share
     Net income                                       $  413,918   $  429,796
                                                      ==========   ==========
     Weighted average common shares outstanding        1,956,435    2,013,053
                                                      ==========   ==========
         Basic Earnings Per Share                     $     0.21   $     0.21
                                                      ==========   ==========

Earnings Per Share Assuming Dilution
     Net income                                       $  413,918   $  429,796
                                                      ==========   ==========
     Weighted average common shares outstanding        1,956,435    2,013,053
     Add dilutive effect of assumed exercises
         Incentive stock options                          12,364         --
         Stock awards                                      3,284         --
     Weighted average common and dilutive potential    1,972,083    2,013,053
                                                      ==========   ==========
              Diluted Earnings Per Share              $     0.21   $     0.21
                                                      ==========   ==========




                                       9

<PAGE>


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

--------------------------------------------------------------------------------
Comparison of Financial Condition at March 31, 1998 and December 31, 1997


Total assets  decreased  $4.1 million from $87.9 million at December 31, 1997 to
$83.8  million  at March 31,  1998,  due mainly to the  payment  of the  special
dividend  of $7.5  million in January  1998,  which was  partially  offset by an
increase in FHLB advances of $4.3 million.

The Bank's net loans receivable  increased by $4.5 million from $37.2 million at
December   31,   1997  to  $41.7   million   at  March  31,   1998.   Securities
available-for-sale  decreased by $5.2 million from $33.5 million at December 31,
1997 to $28.3 million at March 31, 1998. In addition, mortgage backed securities
increased by $1.4 million from $8.1 million at December 31, 1997 to $9.5 million
at March 31, 1998.  These increases were mainly offset by a decrease in cash and
cash  equivalents of $4.6 million from $6.3 million at December 31, 1997 to $1.7
million at March 31, 1998.  The decreases were due to the payment of the special
dividend  of $7.5  million in January  1998,  which was  partially  offset by an
increase in FHLB advances of $4.3 million.

Total liabilities at March 31, 1998 were $60.5 million compared to $64.8 million
at December 31, 1997, a decrease of $4.3  million.  The decrease of $8.3 million
in other  liabilities  was due to the  payment  of the $4.00  per share  special
dividend which totaled $7.5 million.

Equity at March 31, 1998 was $23.3 million compared to $23.1 million at December
31, 1997,  an increase of $212,000,  or 1.0%,  due  primarily to net earnings of
$414,000 and partially  offset by a $61,000  decrease in the unrealized  gain on
securities   available-for-sale   and  payment  of  regular  dividends  totaling
$227,000.

Comparison  of  Operating  Results for the Three Months Ended March 31, 1998 and
March 31, 1997.

General

Net earnings for the three months ended March 31, 1998 were $414,000, a decrease
of $16,000,  or 3.7%,  from net  earnings of $430,000 for the three months ended
March 31, 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 three  months  ended  March 31,  1998 was $1.6  million
compared to $1.4 million for the three months ended March 31, 1997,  an increase
of  $225,000,  or 16.3%.  The  increase in interest  income was the result of an
increase in the average balance of  interest-earning  assets primarily due to an
increase in the average balance of mortgage  loans.  The increase in the average
balance was helped by an increase  in yield on  interest-earning  assets for the
three  months  ended March 31,  1998.  This  increase  was  primarily  due to an
increase in the yield on loans which replaced lower yielding agency securities.

Interest Expense

Interest expense for the three months ended March 31, 1998 was $655,000 compared
to $424,000 for the three months ended March 31, 1997,  an increase of $231,000,
or 54.4%.  The increase in interest  expense was due to the use of FHLB advances
during the three months ended March 31, 1998  compared to the three months ended
March 31, 1997.  The increase was partially  offset by a decrease in the average
balance of interest-bearing deposits.

Provision for Loan Losses

The Bank's  provision  for loan losses was zero for the three months ended March
31,  1998 and 1997.  At March 31,  1998,  the Bank's  allowance  for loan losses
totaled  $174,000,  or .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 

                                       10

<PAGE>

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

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

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
March 31, 1998 and 1997 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 at March 31, 1998  increased to $3.8 million  compared to
$2.6  million at March 31,  1997.  Non-accruing  loans at March 31, 1998 totaled
$1.5 million compared to $1.1 million at March 31, 1997.

Noninterest Income

Noninterest  income  for the  three  months  ended  March 31,  1998 was  $36,000
compared to $24,000 for the three months ended March 31, 1997.  The increase was
primarily due to a $17,000 increase in net gain on sales of securities in 1998.

Noninterest Expense

Noninterest  expense  was  $346,000  for the three  months  ended March 31, 1998
compared to $280,000 for the three  months ended March 31, 1997,  an increase of
$66,000.  The  increase  was  primarily  a  result  of  a  $62,000  increase  in
compensation and benefits,  including ESOP and RRP expenses,  and an increase of
$11,000 in other operating  expenses,  partially  offset by a $5,000 decrease in
professional fees.

Income Taxes

Income taxes were $225,000 for the three months ended March 31, 1998 compared to
$269,000 for the three  months  ended March 31, 1997, a decrease of $44,000,  or
19.6%.  The  decrease  was  primarily  a result of a $60,000  decrease in pretax
earnings.

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
March  31,  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 March 31, 1998, $30.5 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


                                       11

<PAGE>


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

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


asset/liability mismatch. Third, the Company maintains a portfolio of securities
and liquid assets with  weighted  average lives of three years or less. At March
31, 1998, the Company had $28.3 million of securities  with a remaining  average
life of 8.26  years.  Fourth,  the  Company  has  maintained  a  mortgage-backed
securities portfolio with  adjustable-rates.  At March 31, 1998, adjustable rate
mortgage-backed  securities  totaled  $6.4  million  which  represented  7.6% 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.



                                       12
<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).


Change in Interest   Estimated    Ratio of NPV        Estimated Increase   
       Rates            NPV            to             (Decrease) in NPV    
  (Basis Points)      Amount      Total Assets      Amount          Percent

       +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

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.


                                       13
<PAGE>

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

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

Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related  Information",  was issued in 1997 by the Financial
Accounting  Standards Board.  This Statement  establishes  standards for the way
that public business  enterprises report information about operating segments in
annual financial reports issued to shareholders.  It also establishes  standards
for related disclosures about products and services, geographic areas, and major
customers.  Statement 131 is effective for periods  beginning after December 15,
1997.  Management  does not believe that the  provisions  of this  Statement are
applicable to the Company,  since substantially all of the Company's  operations
are banking services.

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  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.


                                       14
<PAGE>

                               PS FINANCIAL, INC.
                                CHICAGO, ILLINOIS
                           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.                 None
                   b.                 None



                                       15

<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: May 15, 1998                            By: /s/Kimberly Rooney
                                  ---------------------------------------------
                                                  Kimberly Rooney
                                              Chief Executive Officer
                                           (Principal Executive Officer)


Date: May 15, 1998                            By: /s/Jeffrey Przybyl
                                  ---------------------------------------------
                                                  Jeffrey Przybyl
                                              Chief Financial Officer
                                   (Principal Financial and Accounting Officer)


                                       16