**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**





(Mark one)x
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**For
                the fiscal year ended June 30, 2007o
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**For
                the transition period
                from ..................................................... to
                .....................................................





Commission
      File No. 0-22223




PEOPLES-SIDNEY
      FINANCIAL CORPORATION


(Name
      of
      small business issuer in its charter)





Delaware
            
            31-1499862(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification Number)








101
                East Court Street, Sidney, Ohio
            
            45365(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer’s
      telephone number:  (937) 492-6129





Securities
      registered under Section 12(b) of the Exchange Act:





None





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, par value $0.01 per share


(Title
      of
      class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 xNo o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
oNo
x





Issuer’s
      revenues for the fiscal year ended June 30, 2007
      were:   $9,113,651.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of August 30, 2007, was $14,296,000.





At
      August
      31, 2007, there were issued and outstanding 1,361,048 of the Registrant’s Common
      Shares.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Parts
      II
      of Form 10-KSB – Portions of the Annual Report to Stockholders for the fiscal
      year ended June 30, 2007.





Part
      III
      of Form 10-KSB – Portions of Proxy Statement for 2007 Annual Meeting of
      Stockholders.





Transitional
      Small Business Disclosure Form (check one):


Yes           o                      No           x







1.





**INDEX**


**FORM
      10-KSB**





**PART
                I**
            
            Page**Item
                1**
            Description
                of Business
            3**Item
                2**
            Description
                of Property
            34**Item
                3**
            Legal
                Proceedings
            34**Item
                4**
            Submission
                of Matters to a Vote of Security
                Holders
            34**PART
                II****Item
                5**
            Market
                for Registrant’s Common Equity, Related Shareholder
                Matters and
                Small Business Issuer Purchases of Equity
                Securities
            35**Item
                6**
            Management’s
                Discussion and Analysis or Plan of
                Operation
            35**Item
                7**
            Financial
                Statements
            35**Item
                8**
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            35**Item
                8A(T)**
            Controls
                and Procedures
            35**Item
                8B**
            Other
                Information
            36**PART
                III****Item
                9**
            Directors,
                Executive Officers, Promoters and Control Persons;
                Compliance
                with Section 16(a) of the Exchange Act
            37**Item
                10**
            Executive
                Compensation
            37**Item
                11**
            Security
                Ownership of Certain Beneficial Owners and
                Management and
                Related Stockholder Matters
            37**Item
                12**
            Certain
                Relationships, Related Transactions and Director
                Independence
            38**Item
                13**
            Exhibits
            39**Item
                14**
            Principal
                Accountant Fees and Services
            40**Signatures**
            
            41**Exhibits**





2.
 ***Index***





**PART
      I**





**ITEM
      1 - DESCRIPTION OF BUSINESS**





**General**





Peoples-Sidney
      Financial Corporation (“Peoples”) is a Delaware corporation which was organized
      in 1997 by Peoples Federal Savings and Loan Association of Sidney
      (“Association”) for the purpose of becoming a savings and loan holding company,
      together referred to as the Corporation.  Peoples owns all of the
      capital stock of the Association issued in connection with the completion of
      the
      Association’s conversion from the mutual to stock form of organization on April
      25, 1997.  Unless the context otherwise requires, all references
      herein to the Corporation include Peoples and the Association on a consolidated
      basis.  The Association, Peoples’ only subsidiary, was organized in
      1886 as an Ohio-chartered mutual association and converted to a federally
      chartered association in 1958.





The
      Association is primarily engaged in the business of attracting savings deposits
      from the general public and investing such funds in permanent mortgage loans
      secured by one- to four-family residential real estate located primarily in
      Shelby County, Ohio, and the contiguous counties of Logan, Auglaize, Miami,
      Darke and Champaign.  The Association conducts business from its main
      office and separate drive-through facility in Sidney, Ohio and its full-service
      branches in Sidney, Anna and Jackson Center, Ohio.  The Association
      also originates loans for the construction of one- to four-family real estate,
      loans secured by multi-family real estate (over four units) and nonresidential
      real estate, consumer and commercial loans and invests in U.S. government
      obligations, mortgage-backed and related securities, interest bearing deposits
      in other financial institutions and other investments permitted by applicable
      law.





The
      Association’s operations are regulated by the Office of Thrift Supervision
      (“OTS”).  The Association is a member of the Federal Home Loan Bank
      (“FHLB”) System and a stockholder of the FHLB of Cincinnati.  The
      Association is also a member of the Deposit Insurance Fund (“DIF”) and its
      deposit accounts are insured up to applicable limits by the Federal Deposit
      Insurance Corporation (“FDIC”).  Accordingly, the Association is also
      subject to regulation and oversight by the FDIC.





The
      executive offices of the Corporation are located at 101 E. Court Street, Sidney,
      Ohio 45365 and its telephone number is (937) 492-6129.





**Forward-Looking
      Statements**





When
      used
      in this Form 10-KSB, the words or phrases “will likely result,” “are expected
      to,” “will continue,” “is anticipated,” “estimate,” “project” or similar
      expressions are intended to identify “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995.  Such
      statements are subject to certain risks and uncertainties, including, among
      other things, changes in economic conditions in the Corporation’s market area,
      changes in policies by regulatory agencies, fluctuations in interest rates,
      demand for loans in the Corporation’s market area and competition, that could
      cause actual results to differ materially from historical earnings and those
      presently anticipated or projected.  The Corporation wishes to caution
      readers not to place undue reliance on any such forward-looking statements,
      which speak only as of the date made.  The Corporation wishes to
      advise readers that the factors listed above could affect the Corporation’s
      financial performance and could cause the Corporation’s actual results for
      future periods to differ materially from any opinions or statements expressed
      with respect to future periods in any current statements.





The
      Corporation does not undertake and specifically declines any obligation to
      publicly release the result of any revisions which may be made to any
      forward-looking statements to reflect the occurrence of anticipated or
      unanticipated events or circumstances after the date of such
      statements.





3.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





**Lending
      Activities**





General:  The
      principal lending activity of the Corporation is originating for its portfolio
      first mortgage loans secured by owner-occupied one- to four-family residential
      properties located in its primary market area.  In addition, in order
      to increase the yield and/or the interest rate sensitivity of its portfolio
      and
      in order to provide more comprehensive financial services to families and
      businesses in the Corporation’s primary market area, the Corporation also
      originates construction or development, commercial real estate, consumer, land,
      multi-family and commercial business loans.  The Corporation may
      adjust or discontinue any product offering to respond to competitive or economic
      factors.





Loan
      Portfolio Composition:  The following information sets forth the
      composition of the Corporation’s loan portfolio in dollar amounts and in
      percentages (before deductions for loans in process, deferred loan fees and
      allowance for loan losses) as of the dates indicated.








June
                30,2007
            
            
            2006Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
                in thousands)Real
                estate loansOne-
                to four-family
            
            $
            86,556
            
            
            
            70.66
            %
            
            $
            90,116
            
            
            
            71.83
            %Construction
                and development
            
            
            1,523
            
            
            
            1.25
            
            
            
            2,982
            
            
            
            2.38Commercial
            
            
            13,893
            
            
            
            11.34
            
            
            
            12,972
            
            
            
            10.34Multi-family
            
            
            4,232
            
            
            
            3.45
            
            
            
            2,861
            
            
            
            2.28Land
            
            
            2,891
            
            
            
            2.36
            
            
            
            2,363
            
            
            
            1.88Total
                real estate loans
            
            
            109,095
            
            
            
            89.06
            
            
            
            111,294
            
            
            
            88.71Other
                loansConsumerAutomobile
            
            
            3,878
            
            
            
            3.17
            
            
            
            3,992
            
            
            
            3.18Deposit
                account
            
            
            201
            
            
            
            0.16
            
            
            
            245
            
            
            
            0.20Other
            
            
            1,278
            
            
            
            1.04
            
            
            
            1,556
            
            
            
            1.24Total
                consumer loans
            
            
            5,357
            
            
            
            4.37
            
            
            
            5,793
            
            
            
            4.62Commercial
                business loans
            
            
            8,049
            
            
            
            6.57
            
            
            
            8,363
            
            
            
            6.67Total
                loans
            
            
            122,501
            
            
            
            100.00
            %
            
            
            125,450
            
            
            
            100.00
            %Less:Allowance
                for loan losses
            
            
            (665
            )
            
            
            
            
            
            
            (894
            )Deferred
                loan fees
            
            
            (349
            )
            
            
            
            
            
            
            (385
            )Total
                loans, net
            
            $
            121,487
            
            
            
            
            
            
            $
            124,171




4.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





The
      following table shows the composition of the Corporation’s loan portfolios by
      fixed- and adjustable-rate at the dates indicated.





June
                30,2007
            
            
            2006Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
                in thousands)Fixed-rate
                loans:Real
                estateOne-
                to four-family
            
            $
            48,501
            
            
            
            39.59
            %
            
            $
            51,558
            
            
            
            41.10
            %Construction
                and development
            
            
            643
            
            
            
            0.53
            
            
            
            1,167
            
            
            
            0.93Commercial
            
            
            1,587
            
            
            
            1.29
            
            
            
            1,132
            
            
            
            0.90Multi-family
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Land
            
            
            953
            
            
            
            0.78
            
            
            
            843
            
            
            
            0.67Total
                real estate loans
            
            
            51,684
            
            
            
            42.19
            
            
            
            54,700
            
            
            
            43.60Consumer
                loans
            
            
            5,357
            
            
            
            4.37
            
            
            
            5,793
            
            
            
            4.62Commercial
                business loans
            
            
            5,187
            
            
            
            4.24
            
            
            
            4,662
            
            
            
            3.72Total
                fixed-rate loans
            
            
            62,228
            
            
            
            50.80
            
            
            
            65,155
            
            
            
            51.94Adjustable-rate
                loans:Real
                estateOne-
                to four-family
            
            
            38,055
            
            
            
            31.07
            
            
            
            38,558
            
            
            
            30.73Construction
                and development
            
            
            880
            
            
            
            0.72
            
            
            
            1,815
            
            
            
            1.45Commercial
            
            
            12,306
            
            
            
            10.05
            
            
            
            11,840
            
            
            
            9.44Multi-family
            
            
            4,232
            
            
            
            3.45
            
            
            
            2,861
            
            
            
            2.28Land
            
            
            1,938
            
            
            
            1.58
            
            
            
            1,520
            
            
            
            1.21Total
                real estate loans
            
            
            57,411
            
            
            
            46.87
            
            
            
            56,594
            
            
            
            45.11Consumer
                loans
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Commercial
                business loans
            
            
            2,862
            
            
            
            2.33
            
            
            
            3,701
            
            
            
            2.95Total
                adjustable rate loans
            
            
            60,273
            
            
            
            49.20
            
            
            
            60,295
            
            
            
            48.06Total
                loans
            
            
            122,501
            
            
            
            100.00
            %
            
            
            125,450
            
            
            
            100.00
            %Less:Allowance
                for loan losses
            
            
            (665
            )
            
            
            
            
            
            
            (894
            )Deferred
                loan fees
            
            
            (349
            )
            
            
            
            
            
            
            (385
            )Total
                loans, net
            
            $
            121,487
            
            
            
            
            
            
            $
            124,171




5.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





The
      following schedule presents the contracted maturities of the Corporation’s loan
      portfolio at June 30, 2007.  The schedule does not reflect the effects
      of possible prepayments or enforcement of the due-on-sale
      clauses.  The amortizing loans, such as one- to four-family and
      installment loans, show the entire current principal balance as being due at
      maturity.





Real
                EstateOne-
                to Four-
              Family
                and
              Construction
                and
              Development
            
            
            Multi-family,
              Commercial
              and
                Land
            
            
            Consumer
            
            
            Commercial
              Business
            
            
            TotalAmount
            
            
            Weighted
              Average
              Rate
            
            
            Amount
            
            
            Weighted
              Average
              Rate
            
            
            Amount
            
            
            Weighted
              Average
              Rate
            
            
            Amount
            
            
            Weighted
              Average
              Rate
            
            
            Amount
            
            
            Weighted
              Average
              Rate(Dollars
                in thousands)1
                year or less*
            
            $
            30
            
            
            
            9.01
            %
            
            $
            377
            
            
            
            6.99
            %
            
            $
            774
            
            
            
            8.45
            %
            
            $
            1,653
            
            
            
            8.33
            %
            
            $
            2,834
            
            
            
            8.19
            %Over
                1 year – 3 years
            
            
            322
            
            
            
            7.34
            
            
            
            139
            
            
            
            7.39
            
            
            
            1,811
            
            
            
            8.00
            
            
            
            3,215
            
            
            
            8.29
            
            
            
            5,487
            
            
            
            8.12Over
                3 years – 5 years
            
            
            636
            
            
            
            7.34
            
            
            
            120
            
            
            
            7.55
            
            
            
            2,182
            
            
            
            7.70
            
            
            
            2,508
            
            
            
            8.05
            
            
            
            5,446
            
            
            
            7.82Over
                5 years – 10 years
            
            
            5,453
            
            
            
            6.56
            
            
            
            1,003
            
            
            
            6.86
            
            
            
            539
            
            
            
            7.29
            
            
            
            673
            
            
            
            7.92
            
            
            
            7,668
            
            
            
            6.77Over
                10 years – 20 years
            
            
            50,408
            
            
            
            6.48
            
            
            
            12,731
            
            
            
            6.98
            
            
            
            51
            
            
            
            8.00
            
            
            
            --
            
            
            
            --
            
            
            
            63,190
            
            
            
            6.58Over
                20 years
            
            
            31,230
            
            
            
            6.81
            
            
            
            6,646
            
            
            
            7.36
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            37,876
            
            
            
            6.90Total
            
            $
            88,079
            
            
            
            6.61
            %
            
            $
            21,016
            
            
            
            7.10
            %
            
            $
            5,357
            
            
            
            7.87
            %
            
            $
            8,049
            
            
            
            8.19
            %
            
            $
            122,501
            
            
            
            6.86
            %





*Include
      demand loans, loans having no stated maturity and overdraft loans.





The
      total
      amount of loans due after June 30, 2008 that have predetermined interest rates
      is $60,169, while the total amount of loans due after such dates which have
      floating or adjustable interest rates is $59,498.





6.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





Under
      federal law, the aggregate amount of loans that the Association is permitted
      to
      make to any one borrower is generally limited to 15% of unimpaired capital
      and
      surplus (25% if the security for such loan has a “readily ascertainable” value
      or 30% for certain residential development loans).  At June 30,
      2007, based on the above limitation, the Association’s regulatory loan-to-one
      borrower limit was approximately $2.0 million.  On the same date, the
      Association had no borrowers with outstanding balances in excess of this
      amount.  As of June 30, 2007, the largest dollar amount of
      indebtedness of one borrower or group of related borrowers was $1,527,211,
      and
      is secured by a church.  The next largest loan to one borrower or
      group of related borrowers had an outstanding balance of $1,492,605 at June
      30,
      2007 and is secured by multiple one-to four-family real estate
      properties.  In addition, there are five other lending relationships
      that individually total in excess of $1.0 million. ****As of
      June 30, 2007, all such loans were performing in accordance with their
      terms.





Loan
      applications are accepted by salaried loan officers at the Association’s
      offices.  Loan applications are presented for approval to the
      Executive Committee of the Board of Directors or to the full Board of Directors,
      depending on loan amount.  All loans of $100,000 or more are subject
      to review by the full Board of Directors.  Decisions on loan
      applications are made on the basis of detailed applications and property
      valuations (consistent with the Association’s written appraisal policy), by
      qualified independent appraisers (unless the Association’s exposure will be
      $100,000 or less).  The loan applications are designed primarily to
      determine the borrower’s ability to repay and include length of employment, past
      credit history and the amount of current indebtedness.  Significant
      items on the application are verified through use of credit reports, financial
      statements, tax returns and/or confirmations.  The Association is an
      equal opportunity lender.





Generally,
      the Association requires an attorney’s title opinion on its mortgage loans as
      well as fire and extended coverage casualty insurance in amounts at least equal
      to the principal amount of the loan or the value of improvements on the
      property, depending on the type of loan.  The Association also
      requires flood insurance to protect the property securing its interest when
      the
      property is located in a flood plain.





**One-
      to Four-Family Residential Real Estate Lending**





The
      cornerstone of the Association’s lending program has long been the origination
      of long-term permanent loans secured by mortgages on owner-occupied one- to
      four-family residences.  At June 30, 2007, $86.6 million, or 70.66% of
      the Association’s loan portfolio, consisted of permanent loans on one- to
      four-family residences.  At that date, the average outstanding
      residential loan balance was $69,578 and the largest outstanding residential
      loan had a principal balance of $866,922. ****Virtually all
      of the residential loans originated by the Association are secured by properties
      located in the Association’s market area.





The
      Association originates fixed-rate residential loans in amounts and at rates
      that
      are monitored for compliance with the Association’s asset/liability management
      policy.  Currently, the Association originates fixed-rate loans with
      maturities of up to 20 years for retention in its own portfolio. Limiting the
      contractual term to 20 years, as opposed to the more traditional 30-year period,
      allows for accelerated principal repayment and equity build up for the
      borrower.  Currently, all such loans are made on owner-occupied
      properties.  At June 30, 2007, the Association had $48.5 million of
      fixed-rate permanent one-to four-family residential loans, constituting 39.59%
      of the Association’s loan portfolio at such date.  The Association
      also has a lending option in place to originate 15- and 30-year fixed rate
      mortgage loans which may be sold to the Federal Home Loan Bank under its
      Mortgage Purchase Program.  As of June 30 2007, the Association has
      originated and sold two loans.  The current principal balance of these
      loans at June 30, 2007 was $159,819.





7.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





The
      Association has offered adjustable rate mortgage (“ARM”) loans at rates, terms
      and points determined in accordance with market and competitive
      factors.  The Association’s current one- to four-family residential
      ARMs are fully amortizing loans with contractual maturities of up to 30
      years.  Applicants are qualified using a fully indexed rate, and no
      ARMs allow for negative amortization. The interest rates on the ARMs originated
      by the Association are generally subject to adjustment at one, three, and
      five-year intervals based on a margin over the analogous Treasury Securities
      Constant Maturity Index.  Decreases or increases in the interest rate
      of the Association’s ARMs are generally limited to 6% above or below the initial
      interest rate over the life of the loan, and up to 2% per adjustment
      period.  The Association’s ARMs are not convertible into fixed-rate
      loans, and do not contain prepayment penalties.  ARM loans may be
      assumed on a case-by-case basis with the Association’s consent.  At
      June 30, 2007, the total balance of one- to four-family ARMs was $38.1 million,
      or 31.07% of the Corporation’s loan portfolio.  All ARMs originated by
      the Association are retained and serviced by it.





The
      Association has a program specifically tailored to first-time
      homebuyers.  These loans are made on a five-year adjustable basis with
      a term up to 30 years.  The margin, which is lower than other products
      currently offered, is 200 basis points.  Additionally, somewhat higher
      debt-to-income ratios are permitted, although mandatory escrows for taxes and
      insurance, an acceptable credit rating and an employment history of at least
      one
      year are required.  The maximum loan amount under this program, which
      requires that the property be owner-occupied, is currently $75,000 unless Board
      of Director approval is obtained, which can be the lesser of the purchase price
      or 90% of appraised value.  At June 30, 2007, the Association had
      approximately $1.2 million of first-time homebuyer loans in its
      portfolio.





As
      discussed above, the Association evaluates both the borrower’s ability to make
      principal, interest and escrow payments and the value of the property that
      will
      secure the loan.  The Association originates residential mortgage
      loans with loan-to-value ratios up to 90%.  On mortgage loans
      exceeding a 90% loan-to-value ratio at the time of origination, the Association
      will generally require private mortgage insurance in an amount intended to
      reduce the Association’s exposure to less than 90% of the appraised value of the
      underlying property.





The
      Association’s residential mortgage loans customarily include due-on-sale clauses
      giving the Association the right to declare the loan immediately due and payable
      in the event that, among other things, the borrower sells or otherwise disposes
      of the property subject to the mortgage and the loan is not repaid.





The
      Association uses the same underwriting standards for home equity lines of credit
      as it uses for one- to four-family residential mortgage loans.  The
      Association’s home equity lines of credit are originated in amounts, which,
      together with the amount of the first mortgage, generally do not exceed 80%
      of
      the appraised value of the property securing the loan.  At June 30,
      2007, the Association had $888,000 of home equity lines of credit and an
      additional $974,000 of funds committed, but undrawn, under such
      lines.





**Construction
      and Development Lending**





The
      Association makes construction loans to individuals for the construction of
      their primary or secondary residences and loans to individuals, builders or
      developers for the construction of single-family homes, multi-family units
      and
      commercial real estate projects.  Loans to individuals for the
      construction of their residences or for residential rentals typically run for
      12
      months.  The borrower pays interest only during the construction
      period.  Residential construction loans are generally underwritten
      pursuant to the same guidelines used for originating permanent residential
      loans.  At June 30, 2007, the Association had 15 construction and
      development loans with outstanding aggregate balances of $1,523,000 secured
      by
      residential and commercial real estate properties.  Of this amount,
      $1,068,000 in loans was outstanding directly to borrowers intending to live
      in
      the properties upon completion of construction.  Loans outstanding to
      borrowers intending to rent the properties totaled $197,000.





8.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





The
      Association makes loans to builders and developers to finance the construction
      of residential property.  Such loans generally have adjustable
      interest rates based upon prime or treasury indexes with terms ranging from
      six
      months to one year.  The proceeds of the loan are advanced during
      construction based upon the percentage of completion as determined by an
      inspection.  The loan amount normally does not exceed 85% of projected
      completed value for homes that have been pre-sold to the ultimate
      occupant.  For loans to builders for the construction of homes not yet
      pre-sold, which may carry a higher risk, the loan-to-value ratio is generally
      limited to 80%.  Whether the Association is willing to provide
      permanent takeout financing to the purchaser of the home is determined
      independently of the construction loan by separate underwriting.  In
      the event that upon completion the house is not sold, the builder is required
      to
      make principal and interest payments until the house is sold.  At June
      30, 2007, the Association did not have any construction loans with builders
      that
      pre-sold their homes and had 3 loans with an outstanding aggregate balance
      of
      $258,000 secured by one-to four-family residential properties constructed by
      builders who have not pre-sold their homes to individual
      purchasers.  The Association also makes a limited number of commercial
      real estate development loans with the loan amount generally not to exceed
      75%
      of the completed value.  At June 30, 2007, the Association did not
      have any commercial real estate development loans.





Construction
      and development lending generally affords the Association an opportunity to
      receive interest at rates higher than those obtainable from residential lending
      and to receive higher origination and other loan fees.  In addition,
      such loans are generally made for relatively short
      terms.  Nevertheless, construction lending to persons other than
      owner-occupants is generally considered to involve a higher level of credit
      risk
      than one- to four-family permanent residential lending due to the concentration
      of principal in a limited number of loans and borrowers and the effects of
      general economic conditions on construction projects, real estate developers
      and
      managers.  In addition, the nature of these loans is such that they
      are more difficult to evaluate and monitor.  The Association’s risk of
      loss on a construction or development loan is dependent largely upon the
      accuracy of the initial estimate of the property’s value upon completion of the
      project and the estimated cost (including interest) of the
      project.  If the estimate of value proves to be inaccurate, the
      Association may be confronted, at or prior to the maturity of the loan, with
      a
      project with a value which is insufficient to assure full repayment and/or
      the
      possibility of having to make substantial investments to complete and sell
      the
      project.  Because defaults in repayment may not occur during the
      construction period, it may be difficult to identify problem loans at an early
      stage.  When loan payments become due, the cash flow from the property
      may not be adequate to service the debt.  In such cases, the
      Association may be required to modify the terms of the loan.





**Commercial
      Real Estate Lending**





The
      Association’s commercial real estate loan portfolio consists of loans secured by
      a variety of non-residential properties including retail facilities, small
      office buildings, farm real estate and churches.  At June 30, 2007 the
      Association’s largest commercial real estate loan totaled
      $1,527,000.  At that date, the Association had commercial real estate
      loans totaling $13,893,000, or 11.34%, of gross loans receivable.





The
      Association has originated both adjustable- and fixed-rate commercial real
      estate loans, although most current originations have adjustable
      rates.  Rates on the Association’s adjustable-rate commercial real
      estate loans generally adjust in a manner consistent with the Association’s one-
      to four-family residential ARMs, although five-year adjustment periods are
      not
      currently offered.  Commercial real estate loans are generally
      underwritten in amounts of up to 75% of the appraised value of the underlying
      property.





9.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





Appraisals
      on properties securing commercial real estate loans originated by the
      Association are performed by a qualified independent appraiser at the time
      the
      loan is made.  In addition, the Association’s underwriting procedures
      generally require verification of the borrower’s credit history, income and
      financial statements, banking relationships, references and income projections
      for the property.  Personal guarantees are generally obtained for the
      Association’s commercial real estate loans. Substantially all of the commercial
      real estate loans originated by the Association are secured by properties
      located within the Association’s market area.





Commercial
      real estate loans generally present a higher level of risk than loans secured
      by
      one- to four-family residences.  This greater risk is due to several
      factors, including the concentration of principal in a limited number of loans
      and borrowers, the effects of general economic conditions on income producing
      properties and the increased difficulty of evaluating and monitoring of these
      types of loans.  Furthermore, the repayment of loans secured by
      commercial real estate is typically dependent upon the successful operation
      of
      the related real estate project.  If the cash flow from the project is
      reduced (for example, if leases are not obtained or renewed), the borrower’s
      ability to repay the loan may be impaired.





**Multi-Family
      Lending**





The
      Association has historically made permanent multi-family loans in its primary
      market area.  At June 30, 2007 multi-family loans totaled $4,232,000,
      or 3.45% of gross loans receivable.





The
      Association’s multi-family loan portfolio includes loans secured by five or more
      unit residential buildings located primarily in the Association’s market
      area.





**Land
      Lending**





Land
      loans include loans to develop vacant or raw land and are made to various
      builders and developers with whom the Association has had long-standing
      relationships.  All of such loans are secured by land zoned for
      residential or commercial developments and located within the Association’s
      market area.  Proceeds are used for excavation, utility placements and
      street improvements. Disbursements related to acquisition and development land
      loans are typically based on inspections to determine the progress of the
      project.  As lots are sold, a portion of the sale price is applied to
      the principal of the outstanding loan in order to ensure the loan is paid in
      full prior to all lots in the development being sold.  Interest
      payments are required at regular intervals (quarterly or semi-annually) and
      loan
      terms typically are written for three years.  At June 30, 2007, the
      Association had $214,000 of loans receivable in this category.





The
      Association also makes loans to individuals who purchase and hold land for
      various reasons, such as the future construction of a residence.  Such
      loans are generally originated with terms of five years and have maximum
      loan-to-value ratios of 85% for loans on improved residential building lots
      and
      75% on undeveloped acreage.  At June 30, 2007, the Association had
      $2,677,000 in land loans to individuals.





Land
      lending generally affords the Association an opportunity to receive interest
      at
      rates higher than those obtainable from residential
      lending.  Nevertheless, land lending is generally considered to
      involve a higher level of credit risk due to the fact that funds are advanced
      upon the security of the land, which is of uncertain value prior to its
      development.





10.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





**Consumer
      Lending**





Management
      believes that offering consumer loan products helps to expand the Association’s
      customer base and to create stronger ties with its existing customer
      base.  In addition, because consumer loans generally have shorter
      terms to maturity and carry higher rates of interest than do residential
      mortgage loans, they can be valuable asset/liability management
      tools.  The Association currently originates substantially all of its
      consumer loans in its market area.  At June 30, 2007, the
      Association’s consumer loans totaled $5,357,000, or 4.37% of the Association’s
      gross loan portfolio.





The
      Association offers a variety of secured consumer loans, including automobile
      loans, loans secured by savings deposits and home improvement
      loans.  Although the Association primarily originates consumer loans
      secured by real estate, deposits or other collateral, the Association also
      makes
      unsecured personal loans.





The
      largest component of the Association’s consumer lending program is automobile
      loans.  At June 30, 2007, automobile loans totaled $3,878,000, or
      3.17% of gross loans receivable.  The Association makes loans directly
      to the consumer to aid in the purchase of new and used vehicles, which serve
      as
      collateral for the loan.  The Association also employs other
      underwriting criteria discussed below in deciding whether to extend
      credit.





The
      terms
      of other types of consumer loans vary according to the type of collateral,
      length of contract and creditworthiness of the borrower.  The
      underwriting standards employed by the Association for consumer loans include
      a
      determination of the applicant’s payment history on other debts and an
      assessment of the borrower’s ability to meet payments on the proposed loan along
      with his existing obligations.  In addition to the creditworthiness of
      the applicant, the underwriting process also includes a comparison of the value
      of the security, if any, in relation to the proposed loan amount.





Consumer
      loans may entail greater risk than residential mortgage loans, particularly
      in
      the case of consumer loans that are unsecured or secured by rapidly depreciable
      assets such as automobiles.  In such cases, any repossessed collateral
      for defaulted consumer loans may not provide adequate sources of repayment
      for
      the outstanding loan balances as a result of the greater likelihood of damage,
      loss, or depreciation.  In addition, consumer loan collections are
      dependent on the borrower’s continuing financial stability, and thus are more
      likely to be affected by adverse personal circumstances.  Furthermore,
      the application of various federal and state laws, including federal and state
      bankruptcy and insolvency laws, may limit the amount which can be recovered
      on
      such loans.





**Commercial
      Business Lending**





In
      order
      to increase the yield and interest rate sensitivity of its loan portfolio and
      in
      order to satisfy the demand for financial services available to individuals
      and
      businesses in its primary market area, the Association has maintained a small
      portfolio of commercial business loans.  Although the portfolio
      remains a small percentage of gross loans outstanding, the Association has
      experienced growth over the last few years primarily from the Anna and Jackson
      Center branch facilities.  Unlike residential mortgage loans, which
      generally are made on the basis of the borrower’s ability to make repayment from
      his or her employment and other income, and which are secured by real property
      whose value tends to be more easily ascertainable, commercial business loans
      are
      generally of higher risk and typically are made on the basis of the borrower’s
      ability to make repayment from the cash flow of the borrower’s
      business.  As a result, the availability of funds for the repayment of
      commercial business loans may be substantially dependent on the success of
      the
      business itself (which, in turn, may be dependent upon the general economic
      environment).  During the past ten years, the Association has made
      commercial business loans to businesses such as small retail operations, small
      manufacturing concerns and professional firms.  The


11.
 ***Index***




**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





Association’s
      commercial business loans almost always include personal guarantees and are
      usually, but not always, secured by business assets, such as accounts
      receivable, equipment, inventory and real estate.  However, the
      collateral securing the loans may depreciate over time, may be difficult to
      appraise and may fluctuate in value based on the success of the
      business.  Moreover, personal guarantees may be of limited utility in
      safeguarding the Association’s position.





Most
      of
      the Association’s commercial business loans have terms ranging from three months
      to one year and may carry fixed or adjustable interest rates.  The
      underwriting process for commercial business loans generally includes
      consideration of the borrower’s financial statements, tax returns, projections
      of future business operations and inspection of the subject collateral, if
      any.  At June 30, 2007, commercial business loans totaled $8,049,000,
      or 6.57% of the Association’s gross loans receivable.


**Originations,
        Purchases and Sales of Loans**





The
      Association originates real estate and other loans through employees located
      at
      the Association’s offices.  Walk-in customers and referrals from real
      estate brokers and builders are also important sources of loan
      originations.  The Association has historically not utilized the
      services of mortgage or loan brokers, nor purchased loans from other
      lenders.  The Association recently initiated a new mortgage program
      that will afford the opportunity to make and sell both 15 and 30 year fixed
      rate
      products at existing market rates.  As off June 30, 2007 the
      Association had originated and sold two loans totaling $160,200 under the FHLB
      Mortgage Purchase Program.  The current balance of these loans is
      $159,819.





**Delinquencies
      and Nonperforming Assets**





When
      a
      borrower fails to make a required payment on a loan, the Association attempts
      to
      cure the delinquency by contacting the borrower.  A late notice is
      sent on all loans over 30 days delinquent.  Another late notice is
      sent 60 days after the due date followed by a letter from the President of
      the
      Association.





If
      the
      delinquency is not cured by the 90th day, the customer may be provided written
      notice that the account will be referred to counsel for collection and
      foreclosure, if necessary.  A good faith effort by the borrower at
      this time will defer foreclosure for a reasonable length of time depending
      on
      individual circumstances.  The Association may agree to accept a deed
      in lieu of foreclosure.  If it becomes necessary to foreclose, the
      property is sold at public sale and the Association may bid on the property
      to
      protect its interest.  The decision to foreclose is made by the Senior
      Loan Officer after discussion with the members of the Executive Committee or
      Board of Directors.





Consumer
      and commercial loans are charged-off if they remain delinquent for 120 days
      unless the borrower and lender agree on a payment plan.  If terms of
      the plan are not met, the customer’s loan is then subject to
      charge-off.  The Association’s procedures for repossession and sale of
      collateral are subject to various requirements under federal and state
      laws.





Real
      estate acquired by the Association as a result of foreclosure or by deed in
      lieu
      of foreclosure is classified as real estate owned until it is
      sold.  When property is acquired by foreclosure or deed in lieu of
      foreclosure, it is initially recorded at fair value less estimated disposal
      costs at the date of acquisition.  Any write-down resulting therefrom
      is charged to the allowance for loan losses.  Subsequent decreases in
      the value of the property are charged to operations through the creation of
      a
      valuation allowance.  After acquisition, all costs incurred in
      maintaining the property are expensed.  Costs relating to the
      development and improvement of the property, however, are capitalized to the
      extent of estimated fair value.





12.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





The
      following table sets forth the Corporation’s loan delinquencies by type, by
      amount and by percentage of type at June 30, 2007.





Loans
                Delinquent For:30-89
                Days
            
            
            90
                Days and Over
            
            
            Total
                Delinquent LoansNumber
            
            
            Amount
            
            
            Category
            
            
            Number
            
            
            Amount
            
            
            Category
            
            
            Number
            
            
            Amount
            
            
            Category(Dollars
                in thousands)Real
                estate:One-
                to four-family
            
            
            32
            
            
            $
            1,906
            
            
            
            2.20
            %
            
            
            22
            
            
            $
            1,546
            
            
            
            1.79
            %
            
            
            54
            
            
            $
            3,452
            
            
            
            3.99
            %Construction
                and development
            
            
            1
            
            
            
            35
            
            
            
            2.29
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1
            
            
            
            35
            
            
            
            2.29Commercial
            
            
            2
            
            
            
            133
            
            
            
            0.95
            
            
            
            1
            
            
            
            29
            
            
            
            0.21
            
            
            
            3
            
            
            
            162
            
            
            
            1.16Multi-family
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Land
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Consumer
            
            
            25
            
            
            
            130
            
            
            
            2.44
            
            
            
            9
            
            
            
            20
            
            
            
            0.37
            
            
            
            34
            
            
            
            150
            
            
            
            2.81Commercial
                business
            
            
            6
            
            
            
            286
            
            
            
            3.55
            
            
            
            3
            
            
            
            246
            
            
            
            3.06
            
            
            
            9
            
            
            
            532
            
            
            
            6.61Total
            
            
            66
            
            
            $
            2,490
            
            
            
            2.03
            %
            
            
            35
            
            
            $
            1,841
            
            
            
            1.50
            %
            
            
            101
            
            
            $
            4,331
            
            
            
            3.54
            %




13.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





Classification
      of Assets**:**  Federal regulations require that
      savings institution classify its assets on a regular basis.  In
      addition, in connection with examinations of savings institutions, OTS and
      FDIC
      examiners have authority to identify problem assets and, if appropriate, require
      them to be classified.  There are four classifications for problem
      assets:  Special Mention, Substandard, Doubtful and
      Loss.  Special Mention assets pose an unwarranted financial risk that,
      if not corrected, could potentially weaken the loan by adversely impacting
      the
      future repayment ability of the borrower.  Substandard assets have one
      or more defined weaknesses and are characterized by the distinct possibility
      that the Association will sustain some loss if the deficiencies are not
      corrected.  Doubtful assets have the weaknesses of substandard assets,
      with the additional characteristics that the weaknesses make collection or
      liquidation in full on the basis of currently existing facts, conditions and
      values questionable, and there is a high possibility of loss.  An
      asset classified as Loss is considered uncollectible and of such little value
      that continuance as an asset on the balance sheet of the institution, without
      establishment of a specific valuation allowance or charge-off, is not
      warranted.  Assets classified as Special Mention, Substandard or
      Doubtful require the institution to establish prudent general allowances for
      loan losses.  If an asset or portion thereof is classified as Loss,
      the institution may charge-off such amount against the loan loss
      allowance.  If an institution does not agree with an examiner’s
      classification of an asset, it may appeal this determination to the District
      Director of the OTS.





On
      the
      basis of management’s review of its assets, at June 30, 2007, the Association
      had classified a total of $1,791,000 of its loans, as follows:





One-
              To
                Four-
              Family
            
            
            Commercial
              Real
              Estate
            
            
            Land
            
            
            Consumer
            
            
            Commercial
              Business
            
            
            Total(Dollars
                in thousands)Special
                Mention
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Substandard
            
            
            1,496
            
            
            
            29
            
            
            
            --
            
            
            
            19
            
            
            
            --
            
            
            
            1,544Doubtful
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            246
            
            
            
            246Loss
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1
            
            
            
            --
            
            
            
            1$
            1,496
            
            
            $
            29
            
            
            $
            --
            
            
            $
            20
            
            
            $
            246
            
            
            $
            1,791





The
      Association’s classified assets consist of the (i) nonperforming loans and (ii)
      loans and other assets of concern discussed herein.  As of June 30,
      2007, these asset classifications are consistent with those of the OTS and
      FDIC.





The
      following table sets forth the amounts and categories of non-performing
      assets.  Interest income on loans is accrued over the term of the
      loans based upon the principal outstanding except where serious doubt exists
      as
      to the collectibility of a loan, in which case the accrual of interest is
      discontinued.  For all years presented, the Association has had no
      troubled debt restructurings (which involve forgiving a portion of interest
      or
      principal on any loans or making loans at a rate materially less than that
      of
      market rates).  Foreclosed assets include assets acquired in
      settlement of loans.





14.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





June
                30,2007
            
            
            2006(Dollars
                in thousands)Nonaccruing
                loansOne-
                to four-family
            
            $
            1,496
            
            
            $
            1,479Construction
                and Development
            
            
            --
            
            
            
            --Commercial
                real estate
            
            
            29
            
            
            
            46Multi-family
            
            
            --
            
            
            
            --Land
            
            
            --
            
            
            
            --Consumer
            
            
            1
            
            
            
            --Commercial
                business
            
            
            246
            
            
            
            --Total
            
            
            1,772
            
            
            
            1,525Accruing
                loans delinquent more than 90 daysOne-
                to four-family
            
            
            50
            
            
            
            --Construction
                and Development
            
            
            --
            
            
            
            --Commercial
                real estate
            
            
            --
            
            
            
            --Multi-family
            
            
            --
            
            
            
            --Land
            
            
            --
            
            
            
            --Consumer
            
            
            19
            
            
            
            46Commercial
                business
            
            
            --
            
            
            
            329Total
            
            
            69
            
            
            
            375Foreclosed
                assetsOne-
                to four-family
            
            
            143
            
            
            
            100Construction
                and development
            
            
            --
            
            
            
            --Commercial
                real estate
            
            
            --
            
            
            
            --Multi-family
            
            
            --
            
            
            
            --Land
            
            
            --
            
            
            
            --Consumer
            
            
            --
            
            
            
            --Commercial
                business
            
            
            --
            
            
            
            --Total
            
            
            143
            
            
            
            100Total
                nonperforming assets
            
            $
            1,984
            
            
            $
            2,000Total
                as a percentage of total assets
            
            
            1.43
            %
            
            
            1.44
            %





For
      the
      year ended June 30, 2007 gross interest income which would have been recorded
      had the nonaccruing loans been current in accordance with their original terms
      amounted to $126,249.  The amount that was included in interest income
      on such loans was $82,522 for the year ended June 30, 2007.





Other
      Assets of Concern:  As of June 30, 2007, the Association had no
      assets that are not now disclosed because of known information about the
      possible credit problems of the borrowers or the cash flows of the security
      property which would cause management to have some doubts as to the ability
      of
      the borrowers to comply with present loan repayment terms and which may result
      in the future inclusion of such items in the nonperforming asset
      categories.




15.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





Allowance
      for Loan Losses:  Management estimates the allowance balance
      required based on past loan loss experience, the nature and volume of the
      portfolio, information about specific borrower situations and estimated
      collateral values, economic conditions, and other
      factors.  Allocations of the allowance may be made for specific loans,
      but the entire allowance is available for any loan that, in management’s
      judgment, should be charged-off.





A
      loan is
      impaired when full payment under the terms of the loan is not
      expected.  Commercial and commercial real estate loans are
      individually evaluated for impairment.  If a loan is impaired, a
      portion of the allowance is allocated so that the loan is reported, net, at
      the
      present value of estimated future cash flows using the loan’s existing rate or
      at the fair value of collateral if repayment is expected solely from the
      collateral.  Large groups of smaller balance homogeneous loans, such
      as consumer and residential real estate loans, are collectively evaluated for
      impairment.





As
      of
      June 30, 2007, the Association’s allowance for loan losses as a percent of gross
      loans receivable and as a percent of nonperforming loans amounted to 0.54%
      and
      36.1%, respectively.  As of June 30, 2006, the Association’s allowance
      for loan losses as a percent of gross loans receivable and as a percent of
      nonperforming loans amounted to 0.71% and 47.0%, respectively.  In
      light of the level of nonperforming assets to total assets and the nature of
      these assets, management believes that the allowance for loan losses is
      adequate.  While management believes that it uses the best information
      available to determine the allowance for loan losses, unforeseen market
      conditions could result in adjustments to the allowance for loan losses, and
      net
      earnings could be significantly affected, if circumstances differ substantially
      from the assumptions used in making the final determination.





16.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





The
      following table sets forth an analysis of the Corporation’s allowance for loan
      losses.





Yearended June30,2007
            
            
            2006(Dollars in thousands)Balance
                at beginning of period
            
            $
            894
            
            
            $
            836Charge-offsOne-
                to four-family
            
            
            7
            
            
            
            --Construction
                and Development
            
            
            --
            
            
            
            --Commercial
                real estate
            
            
            --
            
            
            
            --Multi-family
            
            
            --
            
            
            
            --Consumer
            
            
            36
            
            
            
            17Commercial
                business
            
            
            192
            
            
            
            --235
            
            
            
            17RecoveriesOne-
                to four-family
            
            
            --
            
            
            
            --Construction
                and Development
            
            
            --
            
            
            
            --Commercial
                real estate
            
            
            --
            
            
            
            --Multi-family
            
            
            --
            
            
            
            --Consumer
            
            
            3
            
            
            
            2Commercial
                business
            
            
            1
            
            
            
            --4
            
            
            
            2Net
                charge-offs
            
            
            231
            
            
            
            15Additions
                charged to operations
            
            
            2
            
            
            
            73Balance
                at end of period
            
            $
            665
            
            
            $
            894Ratio
                of net charge-offs during the period to average loans outstanding*
                during
                the period
            
            
            0.19
            %
            
            
            0.01
            %Ratio
                of net charge-offs during the period to nonperforming assets at the
                end of
                the period
            
            
            11.61
            %
            
            
            0.72
            %





* Calculated
      net of deferred loan fees and the allowance for loan losses.





17.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





The
      distribution of the Corporation’s allowance for losses on loans at the dates
      indicated is summarized as follows:





June
                30,2007
            
            
            2006Allowance
            
            
            Category
            
            
            Loans
            
            
            Allowance
            
            
            Category
            
            
            Loans(Dollars
                in thousands)One-
                to four-family
            
            $
            347
            
            
            $
            86,556
            
            
            
            70.66
            %
            
            $
            388
            
            
            $
            90,116
            
            
            
            71.83
            %Construction
                and development
            
            
            1
            
            
            
            1,523
            
            
            
            1.25
            
            
            
            4
            
            
            
            2,982
            
            
            
            2.38Commercial
                real estate
            
            
            16
            
            
            
            13,893
            
            
            
            11.34
            
            
            
            19
            
            
            
            12,972
            
            
            
            10.34Multi-family
            
            
            2
            
            
            
            4,232
            
            
            
            3.45
            
            
            
            1
            
            
            
            2,861
            
            
            
            2.28Land
            
            
            3
            
            
            
            2,891
            
            
            
            2.36
            
            
            
            4
            
            
            
            2,363
            
            
            
            1.88Consumer
            
            
            105
            
            
            
            5,357
            
            
            
            4.37
            
            
            
            140
            
            
            
            5,793
            
            
            
            4.62Commercial
                business
            
            
            191
            
            
            
            8,049
            
            
            
            6.57
            
            
            
            338
            
            
            
            8,363
            
            
            
            6.67Unallocated
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Total
            
            $
            665
            
            
            $
            122,501
            
            
            
            100.00
            %
            
            $
            894
            
            
            $
            125,450
            
            
            
            100.00
            %




**Investment
      Activities**





As
      part
      of its asset/liability management strategy, the Corporation invests in U.S.
      Government and agency obligations and mortgage-backed securities to supplement
      its lending activities.  The Association’s investment policy also
      allows for investments in overnight funds and certificates of
      deposit.  The Association may consider the expansion of investments
      into other securities if deemed appropriate.  At June 30, 2007, the
      Corporation did not own any securities of a single issuer that exceeded 10%
      of
      the Association’s equity, other than U.S. Government or federal agency
      obligations.  See Note 2 of the Notes to the Consolidated Financial
      Statements for additional information regarding the Association’s securities
      portfolio.





As
      of
      June 30, 2007 the Corporation had securities totaling $4.8 million classified
      as
      available for sale while there were no securities classified as held to
      maturity.  As future securities are acquired, the Corporation may
      elect to classify them as either available for sale or held to
      maturity.





18.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





The
      following table sets forth the composition of the Corporation’s investments in
      securities and time deposits at the dates indicated.


June
                30,2007
            
            
            2006Carrying
              Value
            
            
            %
                of
              Total
            
            
            Carrying
              Value
            
            
            %
                of
              Total(Dollars in thousands)U.S.
                Government Agencies
            
            $
            4,848
            
            
            
            72.70
            %
            
            $
            5,250
            
            
            
            74.81
            %FHLB
                stock
            
            
            1,821
            
            
            
            27.30
            
            
            
            1,768
            
            
            
            25.19Total
                securities
            
            $
            6,669
            
            
            
            100.00
            %
            
            $
            7,018
            
            
            
            100.00
            %Average
                remaining life of securities
            
            3.59
                years
            
            
            4.19
                yearsOther
                interest-earning assetsInterest-bearing
                deposits with banks
            
            $
            4,117
            
            
            
            67.31
            %
            
            $
            3,816
            
            
            
            100.00
            %Overnight
                deposits
            
            
            2,000
            
            
            
            32.69
            
            
            
            --
            
            
            
            --Total
            
            $
            6,117
            
            
            
            100.00
            %
            
            $
            3,816
            
            
            
            100.00
            %




19.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





The
      composition and maturities of the securities portfolio, excluding FHLB stock,
      are indicated in the following table.





June
                30, 2007Less
                than 1 year
            
            
            1
                to 5 years
            
            
            5
                to 10 years
            
            
            Total
                SecuritiesCarrying
            
            
            Fair
            
            
            Carrying
            
            
            Fair
            
            
            Carrying
            
            
            Fair
            
            
            Carrying
            
            
            FairValue
            
            
            Value
            
            
            Value
            
            
            Value
            
            
            Value
            
            
            Value
            
            
            Value
            
            
            Value(Dollars
                in thousands)U.S.
                Government Agencies available for sale
            
            $
            997
            
            
            $
            997
            
            
            $
            1,988
            
            
            $
            1,988
            
            
            $
            1,863
            
            
            $
            1,863
            
            
            $
            4,848
            
            
            $
            4,848$
            997
            
            
            $
            997
            
            
            $
            1,988
            
            
            $
            1,988
            
            
            $
            1,863
            
            
            $
            1,863
            
            
            $
            4,848
            
            
            $
            4,848Weighted
                average yield
            
            
            5.00
            %
            
            
            5.00
            %
            
            
            4.50
            %
            
            
            4.50
            %
            
            
            4.00
            %
            
            
            4.00
            %
            
            
            4.40
            %
            
            
            4.40
            %




20.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





**Sources
      of Funds**





General.  The
      Corporation’s primary sources of funds are deposits, amortization and prepayment
      of loan principal, maturities of securities, short-term investments and funds
      provided from operations as well as FHLB advances.





Deposits.  The
      Association offers a variety of deposit accounts having a wide range of interest
      rates and terms.  The Association’s deposits consist of passbook
      accounts, statement savings, NOW accounts, Christmas club, money market and
      certificate accounts.  The Association relies primarily on
      advertising, including newspaper and radio, competitive pricing policies and
      customer service to attract and retain these deposits.  Neither
      premiums nor brokered deposits are utilized.





The
      flow
      of deposits is influenced significantly by general economic conditions, changes
      in money market and prevailing interest rates and competition.





The
      variety of deposit accounts offered by the Association has allowed it to be
      competitive in obtaining funds and to respond with flexibility to changes in
      consumer demand.  The Association has become more susceptible to
      short- term fluctuations in deposit flows, as customers have become more
      interest rate conscious.  The Association manages the pricing of its
      deposits in keeping with its asset/liability management, profitability and
      growth objectives.  Based on its experience, the Association believes
      that its passbook, demand and NOW accounts are relatively stable sources of
      deposits.  However, the ability of the Association to attract and
      maintain certificate deposits, and the rates paid on these deposits, has been
      and will continue to be significantly affected by market
      conditions.





At
      June
      30, 2007, the Association had approximately $6,406,000 in certificate accounts
      in amounts of $100,000 or more maturing as follows:





Maturity
                Period
            
            Amount
            
            
            Weighted
              Average
              Rate(Dollars
                in thousands)Three
                months or less
            
            $
            1,048
            
            
            
            4.20
            %Over
                three through six months
            
            
            461
            
            
            
            4.60Over
                six through 12 months
            
            
            1,008
            
            
            
            4.23Over
                12 months
            
            
            3,889
            
            
            
            4.86Total
            
            $
            6,406
            
            
            
            4.64
            %





For
      additional information regarding the composition of the Corporation’s deposits,
      see Note 7 of Notes to Consolidated Financial Statements.





21.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





**Borrowings**





The
      Corporation’s other available sources of funds include advances from the FHLB of
      Cincinnati and other borrowings.  As a member of the FHLB of
      Cincinnati, the Association is required to own capital stock in the FHLB of
      Cincinnati and is authorized to apply for advances from the FHLB of
      Cincinnati.  Each FHLB credit program has its own interest rate, which
      may be fixed or variable, and range of maturities.  The FHLB of
      Cincinnati may prescribe the acceptable uses for these advances, as well as
      limitations on the size of the advances and repayment provisions.





The
      following table sets forth the maximum month-end balance and average balance
      of
      FHLB advances for the periods indicated.





Year Ended June 30,2007
            
            
            2006(Dollars
                in thousands)FHLB
                advancesBalance
                at end of period
            
            $
            38,189
            
            
            $
            38,511Weighted
                average rate at period end
            
            
            5.33
            %
            
            
            5.32
            %Maximum
                balance at any month-end during the period
            
            $
            41,383
            
            
            $
            38,511Average
                balance for the period
            
            $
            39,377
            
            
            $
            35,412Weighted
                average rate for the period
            
            
            5.32
            %
            
            
            5.24
            %





**Service
      Corporations**





As
      a
      federally chartered savings association, the Association is permitted by OTS
      regulations to invest up to 2.0% of its assets, or $2.8 million at June 30,
      2007
      in the stock of, or loans to, service corporation subsidiaries.  As of
      such date, the Association had no investments in service
      corporations.








**REGULATION**





**General**





The
      Association is a federally chartered savings association, the deposits of which
      are federally insured by the FDIC and backed by the full faith and credit of
      the
      United States Government up to applicable limits.  The Association is
      subject to broad federal regulation and oversight extending to all its
      operations, principally by its primary federal regulator, the
      OTS.  The Association is a member of the FHLB of Cincinnati and is
      subject to certain limited regulation by the Board of Governors of the Federal
      Reserve System (“Federal Reserve Board”).  As the savings and loan
      holding company of the Association, Peoples also is subject to federal
      regulation and oversight, principally by the OTS.  The purpose of the
      regulation of Peoples and other savings and loan holding companies is to protect
      subsidiary savings associations.  The Association is a member of the
      DIF, the deposit insurance fund administered by the FDIC.  As a
      result, the FDIC has certain regulatory and examination authority over the
      Association.





Certain
      of these regulatory requirements and restrictions are discussed below or
      elsewhere in this document.





22.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





**USA
      Patriot Act of 2001**.  In October 2001, the USA Patriot Act of
      2001 was enacted in response to the terrorist attacks in New York, Pennsylvania
      and Washington, D.C., which occurred on September 11, 2001.  The
      Patriot Act is intended to strengthen U.S. law enforcement’s and the
      intelligence communities’ abilities to work cohesively to combat terrorism on a
      variety of fronts.  The potential impact of the Patriot Act on
      financial institutions of all kinds is significant and wide
      ranging.  The Patriot Act contains sweeping anti-money laundering and
      financial transparency laws and imposes various regulations, including standards
      for verifying client identification at account opening, and rules to promote
      cooperation among financial institutions, regulators and law enforcement
      entities in identifying parties that may be involved in terrorism or money
      laundering.





Our
      policies and procedures have been updated to reflect the requirements of the
      USA
      Patriot Act. No significant changes in our business or customer practices were
      required as a result of the implementation of these requirements.





**Sabanes-Oxley
      Act of 2002**.  On July 30, 2002, President Bush signed into
      law the Sarbanes-Oxley Act of 2002, or the SOA.  The SOA is the most
      far-reaching U.S. securities legislation enacted in many years, and includes
      many substantive and disclosure-based requirements. The stated goals of the
      SOA
      are to increase corporate responsibility, to provide for enhanced penalties
      for
      accounting and auditing improprieties at publicly traded companies and to
      protect investors by improving the accuracy and reliability of corporate
      disclosures pursuant to the securities laws.  The SOA generally
      applies to all companies, both U.S. and non-U.S., that file or are required
      to
      file periodic reports with the Securities and Exchange Commission under the
      Securities Exchange Act of 1934 (the “Exchange Act”).





The
      law
      creates an independent auditing-oversight board under the SEC.  The
      law also increases penalties for corporate wrongdoers, forces faster and
      more-extensive financial disclosure, and creates avenues of recourse for
      aggrieved shareholders.  The SOA also contains separate provisions
      that require signed certifications to be made by the chief executive officer
      and
      chief financial officer of all public companies, and provides criminal penalties
      of up to $5.0 million and imprisonment of up to 20 years for an officer that
      willfully provides a certification knowing it to be untrue.





The
      Act
      also addresses functions and responsibilities of audit committees of public
      companies.  Each audit committee is directly responsible for the
      appointment, compensation and oversight of the work of their company’s outside
      auditors, and the auditors must report directly to the audit
      committee.  Each audit committee member must be independent, which
      under the Act means that he or she cannot (other than in his or her capacity
      as
      a member of the audit committee, the board or any other board committee) accept
      any consulting, advisory or other compensatory fees from the company or be
      affiliated with the company or any of its subsidiaries.  Each audit
      committee must establish procedures to receive and respond to any complaints
      and
      concerns regarding the company’s accounting, accounting controls or auditing
      matters.  These procedures would include enabling the company’s
      employees to transmit concerns regarding questionable accounting or auditing
      matters by confidential, anonymous submission.  In recognition of the
      audit committee’s independent status, each audit committee is authorized to
      engage independent counsel and other advisors.  The company must also
      provide the appropriate funding, as determined by the audit committee, for
      payment of compensation to the auditors and advisors of the audit
      committee.





23.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





**Federal
      Deposit Insurance Reform Act of 2005.**  The FDIRA, signed into
      law on February 8, 2006, amended current laws regarding the federal deposit
      insurance system.  Pursuant to the FDIRA, the FDIC merged the Bank
      Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into
      one deposit insurance fund, the DIF, on March 31, 2006.  The new
      legislation also abolishes the prior minimum 1.25% reserve ratio and the
      mandatory assessments when the ratio falls below 1.25%.  Under the
      FDIRA, the FDIC, at the beginning of each year, has the flexibility to adjust
      the DIF’s reserve ratio between 1.15% and 1.50% depending upon a variety of
      factors, including projected losses, economic considerations and assessment
      rates.  For 2007, the FDIC has set the designated reserve ratio at
      l.25%.





Deposit
      insurance coverage limits are raised under the FDIRA from $100,000 to $250,000
      for certain types of Individual Retirement Accounts, 401(k) plans and other
      retirement savings accounts (including Keough accounts and “457” plan accounts,
      among others).  The current $100,000 limit continues to apply to
      individual accounts and municipal deposits; however, Congress included in the
      FDIRA the authority for the FDIC to review all levels of insurance coverage
      after March 31, 2010, and index such insurance coverage to
      inflation.  Additionally, the FDIRA states that undercapitalized
      financial institutions cannot accept employee benefit plan
      deposits.





Certain
      one-time deposit premium assessment credits were also authorized under the
      FDIRA, and regulations related to the apportionment of such credits have
      recently been issued by the FDIC.  On May 25, 2007 the Association was
      notified of the amount of the one-time assessment credit.  The
      assessment credit will be applied automatically to reduce deposit insurance
      assessments, not FICO assessments, beginning with the assessment due on June
      29,
      2007.  The amount calculated as the Association’ share of the one-time
      assessment credit pool was $114,165.





**Federal
      Regulation of Savings Associations**





The
      OTS
      has extensive authority over the operations of savings associations, such as
      the
      Association.  As part of this authority, the Association is required
      to file periodic reports with the OTS and is subject to periodic examinations
      by
      the OTS.  The last regular OTS examination of the Association was as
      of June 30, 2006.  When these examinations are conducted by the OTS,
      the examiners may require the Association to provide for higher general or
      specific loan loss reserves and take other corrective action.  All
      savings associations are subject to a semi-annual assessment, based upon the
      savings association’s total assets, to fund the operations of the
      OTS.  The Association’s OTS assessment for the fiscal year ended June
      30, 2007 was $51,000.





The
      OTS
      also has extensive enforcement authority over all savings institutions and
      their
      holding companies, including the Association and Peoples.  This
      enforcement authority includes, among other things, the ability to assess civil
      money penalties, to issue cease-and-desist or removal orders and to initiate
      injunctive actions.  In general, these enforcement actions may be
      initiated for violations of laws and regulations and unsafe or unsound
      practices.  Other actions or inactions may provide the basis for
      enforcement action, including misleading or untimely reports filed with the
      OTS.  Except under certain circumstances, public disclosure of final
      enforcement actions by the OTS is required.





In
      addition, the investment, lending and branching authority of the Association
      is
      prescribed by federal law and it is prohibited from engaging in any activities
      not permitted by such laws.  For example, the permissible level of
      investment by federal associations, subject to safety and soundness
      restrictions, (1) in loans secured by non-residential real property may not
      exceed 400% of total capital, (2) in commercial loans may not exceed 20% of
      assets, provided that amounts in excess of 10% of assets may only be small
      business loans, (3) related to leasing of tangible personal property may not
      exceed 10% of assets, and (4) in loans for personal, family and household
      purposes when combined with commercial paper and corporate debt securities,
      may
      not exceed 35% of assets.  The Association is in compliance with the
      noted restrictions.  Federal savings associations are also generally
      authorized to branch nationwide.  Federal


24.
 ***Index***




**ITEM 1 - DESCRIPTION OF
      BUSINESS**  (Continued)




associations such as the Association may designate under
      which
      investment authority (or basket) it made a loan or investment if that loan
      or
      investment is authorized under different sections of the law.




The
      Association’s general permissible lending limit for loans-to-one-borrower is
      equal to the greater of $500,000 or 15% of unimpaired capital and surplus
      (except for loans fully secured by certain readily marketable collateral, in
      which case this limit is increased to 25% of unimpaired capital and
      surplus).  At June 30, 2007, the Association’s lending limit under
      this restriction was $2.0 million.  The Association is in compliance
      with the loans-to-one-borrower limitation.





The
      OTS,
      as well as the other federal banking agencies, has adopted guidelines
      establishing safety and soundness standards on such matters as loan underwriting
      and documentation, asset quality, earnings standards, internal controls and
      audit systems, interest rate risk exposure and compensation and other employee
      benefits.  Any institution that fails to comply with these standards
      must submit a compliance plan.





**Insurance
      of Accounts and Regulation by the FDIC**





The
      Association is a member of the DIF, which is administered by the
      FDIC.  Deposits are insured up to applicable limits by the FDIC and
      such insurance is backed by the full faith and credit of the U.S.
      Government.  As insurer, the FDIC imposes deposit insurance premiums
      and is authorized to conduct examinations of and to require reporting by
      FDIC-insured institutions.  It also may prohibit any FDIC-insured
      institution from engaging in any activity the FDIC determines by regulation
      or
      order to pose a serious risk to the FDIC.  The FDIC also has the
      authority to initiate enforcement actions against banks after giving the OTS
      an
      opportunity to take such action, and may terminate the deposit insurance if
      it
      determines that the institution has engaged in unsafe or unsound practices
      or is
      in an unsafe or unsound condition.





Pursuant
      to a rule adopted by the Board of Directors of the FDIC in November 2006,
      beginning in 2007, the FDIC will place each insured institution into one of
      four
      risk categories.  Category placement will be a two-step process based
      on (i) capital ratios (the capital assignment group), and (ii) other relevant
      information (the supervisory group assignment).  Capital group
      assignments will be made quarterly and include the following four designations:
      well capitalized, adequately capitalized and
      undercapitalized.  Supervisory group assignments will be divided as
      follows: (X) group A (financially sound institutions), (Y) group B (institutions
      that demonstrate weakness), and (Z) group C (institutions that pose a
      substantial possibility of loss to the DIF unless corrective action is
      taken).





The
      schedule of DIF assessment rates has been revised.  Effective January
      1, 2007, there are four risk categories.  Premiums for 2007 will range
      from 5 cents per $100 of assessable deposits (for institutions deemed to be
      in
      the lowest risk category) to 43 cents per $100 of assessable deposits (for
      institutions deemed to be in the highest risk category).





DIF-insured
      institutions are required to pay a Financing Corporation (FICO) assessment,
      in
      order to fund the interest on bonds issued to resolve thrift failures in the
      1980s.  For the quarter ended December 31, 2006, the FICO assessment
      was equal to 1.24 basis points for each $100 in domestic
      deposits.  The first quarter rate for 2007 was 1.22 basis points for
      each $100 in domestic deposits.  These assessments, which may be
      revised based upon the level of DIF deposits, will continue until the bonds
      mature in the years 2017 through 2019.





25.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





Under
      the
      Federal Deposit Insurance Act ("FDIA"), the FDIC may terminate deposit insurance
      upon a finding that the institution has engaged in unsafe or unsound practices,
      is in an unsafe or unsound condition to continue operations or has violated
      any
      applicable law, regulation, rule, order or condition imposed by the FDIC or
      the
      OTS.  Management of the Bank does not know of any practice, condition
      or violation that might lead to termination of deposit insurance.





**Regulatory
      Capital Requirements**





Federally
      insured savings associations, such as the Association, are required to maintain
      a minimum level of regulatory capital.  The OTS has established
      capital standards, including a tangible capital requirement, a leverage ratio
      (or core capital) requirement and a risk-based capital requirement applicable
      to
      such savings associations.  These capital requirements must be
      generally as stringent as the comparable capital requirements for national
      banks.  The OTS is also authorized to impose capital requirements in
      excess of these standards on individual associations on a case-by-case
      basis.





The
      capital regulations require tangible capital of at least 1.5% of adjusted total
      assets (as defined by regulation).  Tangible capital generally
      includes common stockholders’ equity and retained income, and certain
      noncumulative perpetual preferred stock and related income.  In
      addition, all intangible assets, other than a limited amount of purchased
      mortgage servicing rights, must be deducted from tangible capital for
      calculating compliance with the requirement.





The
      OTS
      regulations establish special capitalization requirements for savings
      associations that own subsidiaries.  In determining compliance with
      the capital requirements, all subsidiaries engaged solely in activities
      permissible for national banks or engaged in certain other activities solely
      as
      agent for its customers are “includable” subsidiaries that are consolidated for
      capital purposes in proportion to the association’s level of
      ownership.  For excludable subsidiaries the debt and equity
      investments in such subsidiaries are deducted from assets and
      capital.  The Association does not have any subsidiaries.





At
      June
      30, 2007, the Association had tangible capital of $13,572,000, or 9.8% of
      adjusted total assets.  The minimum requirement was 1.5 % of adjusted
      total assets on that date.





The
      capital standards also effective require core capital equal to at least 4%
      of
      adjusted total assets.  Core capital generally consists of tangible
      capital plus certain intangible assets, including a limited amount of purchased
      credit card receivables.  At June 30, 2007, the Association had core
      capital equal to $13,572,000, or 9.8% of adjusted total assets.  The
      minimum leverage ratio requirement was 4.0% and the well capitalized requirement
      was 5.0% on that date.





The
      OTS
      risk-based requirement requires savings associations to have total capital
      of at
      least 8% of risk-weighted assets.  Total capital consists of core
      capital, as defined above, and supplementary capital.  Supplementary
      capital consists of certain permanent and maturing capital instruments that
      do
      not qualify as core capital and general valuation loan and lease loss allowances
      up to a maximum of 1.25% of risk-weighted assets.  Supplementary
      capital may be used to satisfy the risk-based requirement only to the extent
      of
      core capital.  The OTS is also authorized to require a savings
      association to maintain an additional amount of total capital to account for
      concentration of credit risk and the risk of non-traditional
      activities.  At June 30, 2007, the Association had $417,000 of its
      total $665,000 of allowance for loan losses that were general loss reserves,
      which was less than 1.25% of risk-weighted assets.  Certain exclusions
      from capital and assets are required to be made for the purpose of calculating
      total capital.  The Association had no such exclusions from capital
      and assets at June 30, 2007.  In determining the amount of
      risk-weighted assets, all assets, including certain off-balance sheet items,
      will be multiplied by a risk weight, ranging from 0% to 100%, based on the
      risk
      inherent in the type of asset.  For example, the OTS has assigned a
      risk weight of 50% for prudently underwritten permanent one- to four-family
      first lien mortgage loans not more than 90 days delinquent and having a loan
      to
      value ratio of not more than 80% at origination unless insured to such ratio
      by
      an insurer approved by the FNMA or FHLMC.  On June 30, 2007, the
      Association had total capital of $13,989,000 (including $13,572,000 in core
      capital and $417,000 in qualifying supplementary capital) and risk-weighted
      assets of $86,628,000 or total capital of 16.1% of risk-weighted
      assets.  The minimum requirement was 8.0 % and the well capitalized
      requirement was 10.0% on that date.





26.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)




**Prompt
      Corrective Action**





The
      OTS
      and the FDIC are authorized and, under certain circumstances required, to take
      certain actions against savings associations that fail to meet their capital
      requirements.  The OTS is generally required to take action to
      restrict the activities of an “undercapitalized association” (generally defined
      to be one with less than either a 4% core capital ratio, a 4% Tier 1
      risked-based capital ratio or an 8% risk-based capital ratio).  Any
      such association must submit a capital restoration plan and until such plan
      is
      approved by the OTS may not increase its assets, acquire another institution,
      establish a branch or engage in any new activities, and generally may not make
      capital distributions.  The OTS is authorized to impose the additional
      restrictions that are applicable to significantly undercapitalized
      associations.





Any
      savings association that fails to comply with its capital plan or is
“significantly undercapitalized” (i.e., Tier 1 risk-based or core capital ratios
      of less than 3% or a risk-based capital ratio of less than 6%) must be made
      subject to one or more of additional specified actions and operating
      restrictions which may cover all aspects of its operations and include a forced
      merger or acquisition of the association.  An association that becomes
“critically undercapitalized” (i.e., a tangible capital ratio of 2% or less) is
      subject to further mandatory restrictions on its activities in addition to
      those
      applicable to significantly undercapitalized associations.  In
      addition, the OTS must appoint a receiver (or conservator with the concurrence
      of the FDIC) for a savings association, with certain limited exceptions, within
      90 days after it becomes critically undercapitalized.  Any
      undercapitalized association is also subject to the general enforcement
      authority of the OTS and the FDIC, including the appointment of a conservator
      or
      a receiver.  The OTS is also generally authorized to reclassify an
      association into a lower capital category and impose the restrictions applicable
      to such category if the institution is engaged in unsafe or unsound practices
      or
      is in an unsafe or unsound condition.





The
      imposition by the OTS or the FDIC of any of these measures on the Association
      may have a substantial adverse effect on its operations and
      profitability.





**Limitations
      on Dividends and Other Capital Distributions**





OTS
      regulations impose various restrictions on savings associations with respect
      to
      their ability to make distributions of capital, which include dividends, stock
      redemptions or repurchases, cash-out mergers and other transactions charged
      to
      the capital account.  Assuming the absence of supervisory problems,
      OTS regulations generally permit a federal savings association to pay dividends
      in any calendar year equal to net income for that year plus retained net income
      for the preceding two years less any dividends paid.  This evaluation
      is made for the Association on a calendar year basis.  At June 30,
      2007 the Association had paid dividends in excess of retained net income for
      calendar years 2005, 2006 and calendar year to date 2007 of
      $2,299,000.  Therefore, the Association must apply for OTS approval to
      pay additional dividends to Peoples until such time as the total of retained
      net
      income for the current calendar to date plus the previous two calendar years
      exceeds the amount of planned dividends at that time.





27.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





Assuming
      the absence of supervisory problems, savings associations that before and after
      the proposed distribution remain well-capitalized, may make capital
      distributions during any calendar year equal to the greater of 100% of net
      income for the year-to-date plus retained net income for the two preceding
      years
      (less any dividends paid).  However, an institution deemed to be in
      need of more than normal supervision by the OTS may have its dividend authority
      restricted by the OTS.  The Association may pay dividends in
      accordance with this general authority.





Savings
      associations proposing to make any capital distribution need only submit written
      notice to the OTS 30 days prior to such distribution.  Savings
      associations that do not, or would not meet their current minimum capital
      requirements following a proposed capital distribution, however, must obtain
      OTS
      approval prior to making such distribution.  The OTS may object to the
      distribution during that 30-day period based on safety and soundness
      concerns.





**Qualified
      Thrift Lender Test**





All
      savings associations, including the Association, are required to meet a
      qualified thrift lender (“QTL”) test to avoid certain restrictions on their
      operations.  This test requires a savings association to have at least
      65% of its portfolio assets (as defined by regulation) in qualified thrift
      investments on a monthly average for nine out of every 12 months on a rolling
      basis.  As an alternative, the savings association may maintain 60% of
      its assets in those assets specified in Section 7701(a)(19) of the Internal
      Revenue Code of 1986, as amended (the “Code”).  Under either test,
      such assets primarily consist of residential housing related loans and
      investments.





Any
      savings association that fails to meet the QTL test must convert to a national
      bank charter, unless it requalifies as a QTL and thereafter remains a
      QTL.  If an association does not requalify and converts to a national
      bank charter, it must remain insured with the FDIC’s Deposit Insurance
      Fund.  If such an association has not yet requalified or converted to
      a national bank, its new investments and activities are limited to those
      permissible for both a savings association and a national bank, and it is
      limited to national bank branching rights in its home state.  In
      addition, the association is immediately ineligible to receive any new FHLB
      borrowings and is subject to national bank limits for payment of
      dividends.  If such association has not requalified or converted to a
      national bank within three years after the failure, it must divest of all
      investments and cease all activities not permissible for a national
      bank.  In addition, it must repay promptly any outstanding FHLB
      borrowings, which may result in prepayment penalties.  If any
      association that fails the QTL test is controlled by a holding company, then
      within one year after the failure, the holding company must register as a bank
      holding company and become subject to all restrictions on bank holding
      companies.  See -”Holding Company Regulation of Peoples.”





If
      the
      Association fails the QTL test, Peoples must obtain the approval of the OTS
      prior to continuing after such failure, directly or through its other
      subsidiaries, any business activity other than those approved for multiple
      savings and loan holding companies or their subsidiaries.  In
      addition, within one year of such failure the Peoples must register as, and
      will
      become subject to, the restrictions applicable to bank holding
      companies.  The activities authorized for a bank holding company are
      more limited than are the activities authorized for a unitary or multiple
      savings and loan holding company.  See “-Qualified Thrift Lender
      Test.”





28.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





**Community
      Reinvestment Act**





Under
      the
      Community Reinvestment Act (“CRA”), every FDIC insured institution has a
      continuing and affirmative obligation consistent with safe and sound banking
      practices to help meet the credit needs of its entire community, including
      low
      and moderate income neighborhoods.  The CRA does not establish
      specific lending requirements or programs for financial institutions nor does
      it
      limit an institution’s discretion to develop the types of products and services
      that it believes are best suited to its particular community, consistent with
      the CRA.  The CRA requires the OTS, in connection with the examination
      of the Association, to assess the institution’s record of meeting the credit
      needs of its community and to take such record into account in its evaluation
      of
      certain applications, such as a merger or the establishment of a branch, by
      the
      Association.  An unsatisfactory rating may be used as the basis for
      the denial of an application by the OTS.





Due
      to
      the heightened attention being given to the CRA in recent years, the Association
      may be required to devote additional funds for investment and lending in its
      local community.  The Association was examined for CRA compliance in
      2007 and received a rating of satisfactory.





**Activities
      of Associations and Their Subsidiaries**





When
      a
      savings institution establishes or acquires a subsidiary or elects to conduct
      any new activity through a subsidiary that the association controls, the savings
      institution must notify the FDIC and the OTS 30 days in advance and provide
      the
      information each agency may, by regulation, require. Savings institutions also
      must conduct the activities of subsidiaries in accordance with existing
      regulations and orders.





The
      OTS
      may determine that the continuation by a savings institution of its ownership,
      control of, or its relationship to, the subsidiary constitutes a serious risk
      to
      the safety, soundness or stability of the savings institution or is inconsistent
      with sound banking practices or with the purposes of the FDIA. Based upon that
      determination, the FDIC or the OTS has the authority to order the savings
      institution to divest itself of control of the subsidiary. The FDIC also may
      determine by regulation or order that any **s**pecific activity
      poses a serious threat to the DIF. If so, it may require that no DIF member
      engage in that activity directly.





**Transactions
      with Affiliates**





Savings
      institutions must comply with Sections 23A and 23B of the Federal Reserve Act
      relative to transactions with affiliates in the same manner and to the same
      extent as if the savings institution were a Federal Reserve member Savings
      Bank.
      Generally, transactions between a savings institution or its subsidiaries and
      its affiliates are required to be on terms as favorable to the association
      as
      transactions with non-affiliates. In addition, certain of these transactions,
      such as loans to an affiliate, are restricted to a percentage of the
      association's capital. Affiliates of the Savings Bank include the Corporation
      and any company that is under common control with the Savings Bank. In addition,
      a savings institution may not lend to any affiliate engaged in activities not
      permissible for a savings and loan holding company or acquire the securities
      of
      most affiliates. The OTS has the discretion to treat subsidiaries of savings
      institutions as affiliates on a case-by-case basis.





On
      April
      1, 2003, the Federal Reserve's Regulation W, which comprehensively amends
      sections 23A and 23B of the Federal Reserve Act, became effective. The Federal
      Reserve Act and Regulation W are applicable to savings institutions such as
      the
      Bank. The Regulation unifies and updates staff interpretations issued over
      the
      years, incorporates several new interpretative proposals (such as to clarify
      when transactions with an unrelated third party will be attributed to an
      affiliate) and addresses new issues arising as a result of the expanded scope
      of
      nonbanking activities engaged in by banks and bank holding companies in recent
      years and authorized for financial holding companies under the Financial
      Services Modernization Act of 1999.





29.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





Certain
      transactions with directors, officers or controlling persons are also subject
      to
      conflict of interest regulations enforced by the OTS. These conflict of interest
      regulations and other statutes also impose restrictions on loans to such persons
      and their related interests. Among other things, such loans must be made on
      terms substantially the same as for loans to unaffiliated
      individuals.





**Regulatory
      and Criminal Enforcement Provisions**





The
      OTS
      has primary enforcement responsibility over savings institutions and has the
      authority to bring action against all "institution-affiliated parties,"
      including stockholders, and any attorneys, appraisers and accountants who
      knowingly or recklessly participate in wrongful action likely to have an adverse
      effect on an insured institution. Formal enforcement action may range from
      the
      issuance of a capital directive or cease and desist order to removal of officers
      or directors, receivership, conservatorship or termination of deposit insurance.
      Civil penalties cover a wide range of violations and can amount to $25,000
      per
      day, or $1.1 million per day in especially egregious cases. The FDIC has the
      authority to recommend to the Director of the OTS that enforcement action be
      taken with respect to a particular savings institution. If the Director does
      not
      take action, the FDIC has authority to take such action under certain
      circumstances. Federal law also establishes criminal penalties for certain
      violations.  On February 12, 2007 the Association consented, without
      admitting or denying liability, to the issuance of an order to cease and desist
      relating to alleged violations of the Bank Secrecy Act and related regulations
      (“Consent Order”).  The Association agreed to comply with the Bank
      Secrecy Act and such regulations, and adopted a corrective action plan, which
      it
      monitors on a monthly basis.  The Association believes it is in
      compliance with the Consent Order.





**Holding
      Company Regulation of Peoples**





Peoples
      is a unitary savings and loan holding company subject to regulatory oversight
      by
      the OTS.  As such, Peoples is required to register and file reports
      with the OTS and is subject to regulation and examination by the
      OTS.  In addition, the OTS has enforcement authority over Peoples and
      its nonsavings association subsidiaries that also permits the OTS to restrict
      or
      prohibit activities that are determined to be a serious risk to the subsidiary
      savings association.





Peoples
      generally is not subject to activity restrictions.  If Peoples
      acquires control of another savings association as a separate subsidiary, it
      would become a multiple savings and loan holding company, and the activities
      of
      Peoples and any of its subsidiaries (other than the Association or any other
      DIF-insured savings association) would become subject to such
      restrictions.





**Federal
      Securities Law**





The
      common stock of Peoples is registered with the SEC under the Securities Exchange
      Act of 1934, as amended (the “Exchange Act”).  Peoples is subject to
      the information, proxy solicitation, insider trading restrictions and other
      requirements of the SEC under the Exchange Act.





Peoples’
      stock held by persons who are affiliates (generally officers, directors and
      principal stockholders) of Peoples may not be resold without registration unless
      sold in accordance with certain resale restrictions.  If Peoples meets
      specified current public information requirements, each affiliate of Peoples
      is
      able to sell in the public market, without registration, a limited number of
      shares in any three-month period.





30.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





**Federal
      Reserve System**





The
      Federal Reserve Board requires all depository institutions to maintain
      noninterest-bearing reserves at specified levels against their transaction
      accounts (primarily checking, NOW and Super NOW checking
      accounts).  At June 30, 2007, the Association was in compliance with
      these reserve requirements.  The balances maintained to meet the
      reserve requirements imposed by the Federal Reserve Board may be used to satisfy
      liquidity requirements that may be imposed by the OTS.  See
“-Liquidity.”





Savings
      associations are authorized to borrow from the Federal Reserve Bank “discount
      window,” but Federal Reserve Board regulations require associations to exhaust
      other reasonable alternative sources of funds, including FHLB borrowings, before
      borrowing from the Federal Reserve Bank.





**Federal
      Home Loan Bank System**





The
      Association is a member of the FHLB of Cincinnati, which is one of 12 regional
      FHLBs that administer the home financing credit function of savings
      associations.  Each FHLB serves as a reserve or central bank for its
      members within its assigned region.  It is funded primarily from
      proceeds derived from the sale of consolidated obligations of the FHLB
      System.  It makes loans to members (i.e., advances) in accordance with
      policies and procedures, established by the board of directors of the FHLB,
      which are subject to the oversight of the Federal Housing Finance Board
      (“FHFB”).  All advances from the FHLB are required to be fully secured
      by sufficient collateral as determined by the FHLB.  In addition, all
      long-term advances are required to provide funds for residential home
      financing.





As
      a
      member, the Association is required to purchase and maintain stock in the FHLB
      of Cincinnati.  At June 30, 2007, the Association had $1,821,000 in
      FHLB stock, which was in compliance with this requirement.





Under
      federal law, the FHLB is required to provide funds for the resolution of
      troubled savings institutions and to contribute to low- and moderately-priced
      housing programs through direct loans or interest subsidies on advances targeted
      for community investment and low- and moderate-income housing projects. These
      contributions have affected adversely the level of FHLB dividends paid and
      could
      continue to do so in the future. These contributions also could have an adverse
      effect on the value of FHLB stock in the future.  In addition, the
      federal agency that regulates the FHLBs has required each  bank to
      register its stock with the SEC, which will increase the costs of each bank
      and
      may have other effects that are not possible to predict at this
      time.  Finally, the FHFB has adopted a rating system for all
      examinations after December 31, 2006.  Institutions will be given an
      exam score from 1 to 4 based on an evaluation of specified
      factors.  Ratings will not be made public.





For
      the
      year ended June 30, 2007, dividends paid by the FHLB of Cincinnati to the
      Association totaled $110,900, which constitutes a $16,400 increase over the
      amount of dividends received in fiscal year 2006.  The $30,000
      dividend for the quarter ended June 30, 2007 reflects an annualized rate of
      6.5%.





**Federal
      and State Taxation**





In
      addition to the regular income tax, corporations, including savings associations
      such as the Association, generally are subject to a minimum tax.  An
      alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
      minimum taxable income, which is the sum of a corporation’s regular taxable
      income (with certain adjustments) and tax preference items, less any available
      exemption.  The alternative minimum tax is imposed to the extent it
      exceeds the corporation’s regular income tax and net operating losses can offset
      no more than 90% of alternative minimum taxable income.  However, as
      provided in the Job Creation and Worker Assistance Act of 2002, this 90%
      limitation does not apply to net operating losses originated in tax years ending
      during calendar years 2001 and 2002.





31.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**(Continued)





A
      portion
      of the Association’s reserves for losses on loans may not, without adverse tax
      consequences, be utilized for the payment of cash dividends or other
      distributions to a shareholder (including distributions on redemption,
      dissolution or liquidation) or for any other purpose (except to absorb bad
      debt
      losses).  As of June 30, 2007, the portion of the Association’s
      reserves subject to this treatment for tax purposes totaled approximately $2.2
      million.





Peoples
      and the Association file consolidated federal income tax returns on a fiscal
      year basis using the accrual method of accounting.





The
      Corporation has been audited by the IRS, or the statute of limitations for
      assessment has closed, with respect to federal income tax returns through June
      30, 2003.  With respect to years examined by the IRS, either all
      deficiencies have been satisfied or sufficient reserves have been established
      to
      satisfy asserted deficiencies.  In the opinion of management, any
      examination of still open returns (including returns of subsidiaries and
      predecessors of, or entities merged into the Corporation) would not result
      in a
      deficiency that could have a material adverse effect on the financial condition
      of the Corporation.





Ohio
      Taxation:  The Association conducts its business in Ohio and
      consequently is subject to the Ohio corporate franchise tax.  A
      financial institution subject to the Ohio corporate franchise tax levied by
      the
      Ohio Revised Code pays a tax equal to 1.3 times its apportioned net
      worth.  The apportionment factor consists of a gross receipts factor,
      determined by reference to the total receipts of the financial institution
      from
      all sources, a property factor, determined by reference to the net book value
      of
      all loans and fixed assets owned by the financial institution and a payroll
      factor.  The Corporation also files an Ohio franchise tax return and
      pays tax on its Ohio taxable income.  However, the only income
      recorded by the Corporation is the income generated by the Association,
      therefore the Corporation is required to only pay the minimum annual filing
      amount of $50.00.





Delaware
      Taxation:  As a Delaware holding company, Peoples is exempted from
      Delaware corporate income tax but is required to file an annual report with
      and
      pay an annual fee to the State of Delaware.  This tax is calculated on
      the Assumed Par Value method, which is based on a capital valuation amount
      as
      opposed to net income.





**Competition**





The
      Association experiences strong competition both in originating real estate
      loans
      and in attracting deposits.  This competition arises from a highly
      competitive market area with numerous savings institutions and commercial banks,
      as well as credit unions, mortgage bankers and national and local securities
      firms.  The Association competes for loans principally on the basis of
      the interest rates and loan fees it charges, the types of loans it originates
      and the quality of services it provides to borrowers.





The
      Association attracts all of its deposits through the communities in which its
      offices are located; therefore, competition for those deposits is principally
      from other savings institutions, commercial banks, securities firms, money
      market and mutual funds and credit unions located in the same
      communities.  The ability of the Association to attract and retain
      deposits depends on its ability to provide an investment opportunity that
      satisfies the requirements of investors as to rate of return, liquidity, risk,
      convenient locations and other factors.  The Association competes for
      these deposits by offering a variety of deposit accounts at competitive rates,
      convenient business hours and a customer-oriented staff.





32.
 ***Index***





**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





**Employees**





At
      June
      30, 2007, the Association had a total of 32 full-time employees, 14 of whom
      have
      been employed by the Association for at least 10 years, and 7 part-time
      employees.  None of the Association’s employees are represented by any
      collective bargaining group.  Management considers its employee
      relations to be good.





**Executive
      Officers of the Registrant Who are Not Directors**





The
      following information as to the business experience during the past five years
      is supplied with respect to the executive officers of Peoples and the
      Association who do not serve on Peoples’ or the Association’s Board of
      Directors.  Executive officers are elected annually to serve until
      their successors are elected or until they resign or are removed by the Board
      of
      Directors.  There are no arrangements or understandings between the
      persons named and any other person pursuant to which such officers were
      elected.





David
      R. Fogt.  Mr. Fogt, age 56, is Vice President of Operations of the
      Association.  He is responsible for daily operational issues,
      overseeing information technology systems and core processing.  He is
      also the Bank Secrecy Act officer.  He has been employed by the
      Association since 1983.





Gary
      N. Fullenkamp*.* Mr. Fullenkamp, age 51, is Vice President of
      Mortgage Loans and Corporate Secretary of the Association.  He is
      responsible for mortgage lending operations of the Association, including
      underwriting and processing of mortgage loan activity. He has been employed
      by
      the Association since 1979.





Debra
      A. Geuy*.*  Mrs. Geuy, age 49, is Chief Financial Officer
      and Treasurer of the Association.  She is responsible for all
      financial and fiscal management aspects of the Association’s operations,
      including business planning, accounting and budgeting efforts.  She
      has been employed by the Association since 1978.





33.
 ***Index***





**ITEM
      2 - DESCRIPTION OF PROPERTY**





The
      following table sets forth information concerning the main and branch offices
      and a drive-in facility of the Association at June 30, 2007.  The
      Association believes that its current facilities are adequate.  The
      Association also maintains a 24-hour ATM at its main and branch office
      locations.





Year
                  Opened
                
                Owned
                  or
                    Leased
                
                Net
                    Book
                  Value
                    at
                  June
                    30,
                  2007**Main
                    Office**101
                    East Court Street
                1917
                
                Owned
                
                $434,496Sidney,
                    Ohio  45365**Drive-In**232
                    South Ohio Avenue
                1971
                
                Owned
                
                $139,820Sidney,
                    Ohio  45365**Anna
                    Branch**403
                    South Pike Street
                1998
                
                Owned
                
                $497,836Anna,
                    Ohio  45302**Jackson
                    Center Branch**115
                    East Pike Street
                1998
                
                Owned
                
                $367,411Jackson
                    Center, Ohio  45334**Sidney
                    Wal-Mart Branch**2400
                    West Michigan Avenue
                2001
                
                Leased
                
                $122,115Sidney,
                    Ohio  45365





The
      Association’s depositor and borrower customer files are maintained by an
      independent data processing company.  The net book value of the data
      processing and computer equipment utilized by the Association at June 30, 2007
      was approximately $99,457.








**ITEM
      3 – LEGAL PROCEEDINGS**





From
      time
      to time, the Corporation is involved as plaintiff or defendant in various legal
      proceedings arising in the normal course of its business.  While the
      ultimate outcome of these various legal proceedings cannot be predicted with
      certainty, it is the opinion of management that the resolution of these legal
      actions should not have a material effect on the Association’s financial
      position or results of operations.








**ITEM
      4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**





No
      matter
      was submitted to a vote of security holders, through the solicitation of proxies
      or otherwise, during the quarter ended June 30, 2007.





34.
 ***Index***





**PART
      II**





**ITEM
      5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER** **MATTERS
      AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
      SECURITIES**





Page
      4 of
      Peoples’ 2007 Annual Report to Stockholders, attached hereto as Exhibit 13, is
      incorporated herein by reference.








**ITEM
      6 – MANAGEMENT’S DISCUSSION AND ANALYSIS OR** **PLAN
      OF OPERATION**





Pages
      8
      through 20 of the Peoples’ 2007 Annual Report to Stockholders, attached hereto
      as Exhibit 13, are incorporated herein by reference.








**ITEM
      7 - FINANCIAL STATEMENTS**





Pages
      22
      through 51 of the Peoples’ 2007 Annual Report to Stockholders, attached hereto
      as Exhibit 13, are incorporated herein by reference.








**ITEM
      8 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS** **ON
      ACCOUNTING AND FINANCIAL DISCLOSURE**





Not
      applicable.








**ITEM
      8A(T) – CONTROLS AND PROCEDURES**





The
      Corporation’s management, with the participation of the Corporation’s Chief
      Executive Officer and Chief Financial Officer, has evaluated the effectiveness
      of the Company’s disclosure controls and procedures, as such term is defined
      Rules 13a-15(e) and 15d-15(e) of the securities Exchange Act of 1934 (Exchange
      Act) as of the end of the period covered by the report.





Based
      upon that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that as of June 30, 2007 our disclosure controls and procedures were
      effective to provide reasonable assurance that (i) the information required
      to
      be disclosed by us in this Report was recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules an forms, and (ii)
      information required to be disclosed by us in our reports that we file or submit
      under the Exchange Act is accumulated and communicated to our management,
      including our principal executive and principal financial officers, or person
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure.





There
      have not been any changes in the Corporation’s internal control over financial
      reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
      Exchange Act) during the fiscal year to which this report relates that have
      materially affected, or are reasonably likely to materially affect, the
      Corporation’s internal control over financial reporting.





Section
      404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and
      annually report on their systems of internal control over financial reporting.
      We will begin the process of evaluating, documenting and testing our system
      of
      internal control over financial reporting to provide the basis for our report
      that we anticipate, for the first time, will be a required part of our annual
      report on Form 10-KSB for the fiscal year ending June 30, 2008. Due to the
      ongoing evaluation and testing of our internal




35.
 *Index*




controls,
      there can be no assurance that if any control deficiencies are identified they
      will be corrected before the end of the 2008 fiscal year, or that there may
      not
      be significant deficiencies or material weaknesses that would be required to
      be
      reported. In addition, we expect the evaluation process and any required
      remediation, if applicable, to increase our accounting, legal and other costs
      and divert management resources from core business operations.






**ITEM
      8B – OTHER INFORMATION**





Not
      applicable.





36.
 ***Index***





**PART
      III**





**ITEM
      9 – DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL** **PERSONS;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**





**Directors**





Information
      concerning directors of Peoples is incorporated herein by reference from
      Peoples’ definitive Proxy Statement for the Annual Meeting of Stockholders to be
      held in 2007, which was filed with the SEC on September 11, 2007.





**Executive
      Officers**





Information
      concerning the executive officers of Peoples who are not directors is
      incorporated by reference from Part I of this Form 10-KSB under the caption
      “Executive Officers of the Registrant Who Are Not Directors.”





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Information
      concerning compliance with Section 16(a) reporting requirements by Peoples’
directors and executive officers is incorporated herein by reference from the
      Peoples’ definitive Proxy Statement for the Annual Meeting of Stockholders to be
      held in 2007, which was filed with the SEC on September 11, 2007.





**Code
      of Ethics**





We
      have
      adopted a Code of Ethics for Principal Executive Officers and Senior Financial
      Officers within the meaning of Item 406(b) of Regulation S-K.  This
      Code of Ethics applies to our principal executive officer, principal financial
      officer, principal accounting officer and others performing similar
      functions.  The Code of Ethics is attached hereto as Exhibit
      14.  If we make substantive amendments to the Code of Ethics that are
      applicable to our principal executive of financial officers, or grant any
      waiver, including any implicit waiver of any provision of the code as applicable
      to our principal executive or financial officers, we will disclose the nature
      of
      such amendment or waiver in a report on Form 8-K in a timely
      manner.








**ITEM
      10 – EXECUTIVE COMPENSATION**





Information
      concerning executive compensation is incorporated herein by reference from
      Peoples’ definitive Proxy Statement for the Annual Meeting of Stockholders to be
      held in 2007, which was filed with the SEC on September 11, 2007.








**ITEM
      11 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS** **AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS**





Information
      concerning security ownership of certain beneficial owners and management is
      incorporated herein by reference from Peoples’ definitive Proxy Statement for
      the Annual Meeting of Stockholders to be held in 2007, which was filed with
      the
      SEC on September 11, 2007.





37.
 ***Index***





The
      following table provides information as of June 30, 2007 related to our equity
      compensation plans in effect at that time.





**Equity
      Compensation Plan Information**





(a)
            (b)
            (c)Plan
                Category
            Number
                of securities
              to
                be issued upon
              exercise
                of
              outstanding
                options
            Weighted-average
              exercise
                price of
              outstanding
                options
            Number
                of securities
              remaining
                available for
              future
                issuance under
              equity
                compensation
              plans
                (excluding
              securities
              reflected
                in column (a))Equity
                compensation
              plans
                approved by
              security
                holders.
            119,972
            $16.04
            58,566





Additional
      information concerning security ownership of certain beneficial owners and
      management is incorporated herein by reference from the definitive Proxy
      Statement for the Annual Meeting of Stockholders to be held in 2007, a copy
      of
      which was filed with the SEC on September 11, 2007.





**ITEM
      12 – CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE**





Information
      concerning certain relationships, related transactions and director independence
      is incorporated herein by reference from Peoples’ definitive Proxy Statement for
      the Annual Meeting of Stockholders to be held in 2007, which has been filed
      with
      the SEC on September 11, 2007.





38.
 ***Index***





**ITEM
      13 - EXHIBITS**





Regulation
                S-B
              Exhibit
              Number
            
            Description
                of Document
            
            Incorporation
              by
              Reference
                to
              Prior
                Filing or
              Exhibit
                Number
              Attached
                Hereto3(i)
            
            Certificate
                of Incorporation
            
            *3(ii)
            
            By-Laws
            
            *4
            
            Instruments
                defining the rights of holders, including indentures
            
            *10.1
            
            Employee
                Stock Ownership Plan
            
            *10.2
            
            Form
                of Employment Agreement with Douglas Stewart
            
            *10.3
            
            Forms
                of Employment Agreements with David R. Fogt, Gary N. Fullenkamp,
                Debra A.
                Geuy and Steven Goins
            
            *10.4
            
            401(k)
                Plan
            
            *10.5
            
            Incentive
                Bonus Plan
            
            *10.6
            
            Peoples-Sidney
                Financial Corporation Amended and Restated 1998 Stock Option and
                Incentive
                Plan
            
            **10.7
            
            Peoples-Sidney
                Financial Corporation Amended and Restated 1998 Management Recognition
                Plan
            
            **11
            
            Statement
                re: computation of per-share earnings
            
            See
                Note 16 to the Consolidated Financial Statements on pages 48-49 of
                the
                2007 Annual Report Stockholders
                attached hereto as
                Exhibit 1313
            
            Annual
                report to Stockholders
            
            1314
            
            Code
                of Ethics for the Principal Executive Officer and Senior Financial
                Officer
                of Peoples-Sidney Financial Corporation
            
            1421
            
            Subsidiaries
                of Registrant
            
            2123
            
            Consents
                of experts and counsel
            
            2331.1
            
            Certification
                of the Chief Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            31.131.2
            
            Certification
                of the Chief Financial Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            31.2




39.
 ***Index***




32.1
            
            Certification
                of the Chief Executive Officer Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002
            
            32.132.2
            
            Certification
                of the Chief Financial Officer Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002
            
            32.2




*
            Filed
                as an exhibit to the Registrant’s Form S-1 registration statement (File
                No. 333-20461) and incorporated herein by
                reference.





**
            Filed
                as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the
                fiscal year ended June 30, 1999 (File No. 0-22223) and incorporate
                herein
                by reference.








**ITEM
      14 – PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**





Information
      concerning principal accountant fees and services is incorporated herein by
      reference from Peoples’ definitive Proxy Statement for The Annual Meeting of
      Stockholders to be held in 2007, which was filed with the SEC on September
      11,
      2007.





40.
 ***Index***





**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 under signed,
      thereunto duly authorized.





September
                28, 2007
            
            **PEOPLES-SIDNEY
                FINANCIAL CORPORATION**DateBy:
            /s/DOUGLAS
                STEWARTDouglas
                StewartPresident,
                CEO and Director





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities indicated on September 28, 2007.





Signatures
            
            Signatures/s/
                DOUGLAS STEWART
            
            /s/JAMES
                W. KERBERDouglas
                Stewart
            
            James
                W. KerberDouglas
                Stewart, President, CEO and Director
            
            DirectorSeptember
                28, 2007
            
            September
                28, 2007/s/RICHARD
                T. MARTIN
            
            /s/JOHN
                W. SARGEANTRichard
                T. Martin
            
            John
                W. SargeantChairman
                of the Board
            
            DirectorSeptember
                28, 2007
            
            September
                28, 2007/s/HARRY
                N. FAULKNER
            
            /s/DEBRA
                A. GEUYHarry
                N. Faulkner
            
            Debra
                A. GeuyDirector
            
            Chief
                Financial Officer and TreasurerSeptember
                28, 2007
            
            September
                28, 2007






41.