**PEOPLES-SIDNEY
      FINANCIAL CORPORATION**


Sidney,
      Ohio





**ANNUAL
      REPORT**


June
      30,
      2007





PEOPLES-SIDNEY
      FINANCIAL CORPORATION


Sidney,
      Ohio





ANNUAL
      REPORT


June
      30,
      2007








CONTENTS







TO
                OUR SHAREHOLDERS
            
            2BUSINESS
                OF PEOPLES-SIDNEY FINANCIAL
                CORPORATION
            
            4MARKET
                PRICE OF THE CORPORATION’S COMMON SHARES AND RELATED
                SHAREHOLDER MATTERS
            
            4SELECTED
                CONSOLIDATED FINANCIAL INFORMATION AND OTHER
                DATA
            
            6MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS
            
            8REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                FIRM
            
            21CONSOLIDATED
                FINANCIAL STATEMENTSConsolidated
                Balance Sheets
            
            22Consolidated
                Statements of Income
            
            23Consolidated
                Statements of Changes in Shareholders’
                Equity
            
            24Consolidated
                Statements of Cash Flows
            
            27Notes
                to Consolidated Financial Statements
            
            28SHAREHOLDER
                INFORMATION
            
            52CORPORATE
                INFORMATION
            
            53




1.
 *Table
          of Contents*




LETTERHEADDOUGLAS STEWART
              Dear
                Shareholder:
                
                The
                    past fiscal year was very positive for our Company, despite volatility
                    in
                    the stock market, high gas prices, housing credit problems and
                    other
                    issues surfacing throughout our industry.  We invite you to
                    review the results of our 2007 fiscal year operations contained
                    in this
                    report, but first allow me to share a few comments with
                    you.
                
                ·**Financial
                  Results**
                Our
                    Company’s net income was $1,020,000.  This resulted in an
                    earnings per share figure of $0.76 which was equal to our previous
                    year.  Our shareholders received $0.74 per share in dividends
                    for the year as we paid out 97% of our income as a return on
                    your
                    investment.
                
                ·**Financial
                  Condition**
                
                Our
                    Company remains very strong financially and continues to be a
                    well-capitalized institution.  We have added new services for
                    our customers including the addition of a web-site and Internet
                    Banking
                    which will be available very soon.  While adding new services is
                    important in retaining and expanding our customer base, protecting
                    shareholder value remains at the forefront of our management
                    decision
                    process.
                
                Net
                  loans totaled $124,171,000 at year-end. This represents a 2.5%
                  increase.
                
                Deposit
                  totals decreased from $85,931,000 at June 30, 2005 to $82,819,000
                  at June
                  30, 2006. While we remained competitive with pricing throughout
                  the year,
                  customers elected to shift funds to other investments offering
                  higher
                  yields than the current rates being offered across the teller
                  window.
                
                ·****Outside
                  Conditions****
                
                Reporting
                    on the financial industry remains at the beginning of every newscast
                    throughout the country.  The impact of sub-prime mortgage
                    lending over the last few years has certainly created a lot of
                    hardship
                    for both lenders and borrowers.  Happily, we do not offer
                    sub-prime loans and never have.  Nonetheless, we accept risk on
                    every loan we make and the future is always unpredictable.  That
                    is why we have always maintained a strong loan underwriting
                    process.  This doesn’t mean we will not experience loan losses;
                    it does mean that our potential risk level is less than those
                    banks that
                    make high ratio loans to borrowers with past credit
                    problems.  It now appears that future legislation will change
                    the entire landscape of mortgage lending...perhaps back to the theory that a
                    downpayment is necessary to purchase a home and future generations
                    will
                    need to save for it.
                  
                  We
                    continue to watch closely the potential costs related to compliance
                    issues
                    and in particular the Sarbanes-Oxley legislation related to public
                    companies.  These costs will undoubtedly have an impact on our
                    bottom line.  We continue to review ways to manage these
                    increased expenses in the best interest of the Company and our
                    shareholders.
                  
                  We
                    commit to you to preserve the quality of operations you have
                    come to
                    expect from us.  Please visit us personally at any of our five
                    locations or on our web-site at
                    www.peoplesfederalsandl.com.  Your comments are always
                    welcome and your continued investment in our Company is
                    appreciated.
                Sincerely,
                
                **/s/
                  Douglas Stewart**
                Douglas
                  Stewart
                President
                  - CEO
 2.


3.
 *Table
            of Contents*




**BUSINESS
      OF PEOPLES-SIDNEY FINANCIAL CORPORATION**





Peoples-Sidney
      Financial Corporation, a unitary thrift holding company incorporated under
      the
      laws of the State of Delaware (“Peoples”), owns all of the issued and
      outstanding capital stock of Peoples Federal Savings and Loan Association,
      a
      savings and loan association chartered under the laws of the United States
      (the
“Association” and, together with Peoples, the “Corporation”).  On
      April 25, 1997, Peoples acquired all of the common stock issued by the
      Association upon its conversion from a mutual savings and loan association
      to a
      stock savings and loan association (“Conversion”).  Peoples’
activities have been limited primarily to holding the common shares of the
      Association.





Serving
      the Sidney, Ohio area since 1886, the Association conducts business from its
      main office at 101 East Court Street, Sidney, Ohio and three full-service
      branches in Sidney, Anna, and Jackson Center, Ohio.  The Association’s
      business involves attracting deposits from the general public and using such
      deposits as well as borrowings from the Federal Home Loan Bank to originate
      one-
      to four-family permanent and construction residential mortgages and, to a lesser
      extent, commercial real estate, consumer, land, multi-family and commercial
      business loans in its market area, which consists primarily of Shelby County
      and
      contiguous counties in Ohio.  The Association also invests in
      securities consisting primarily of U.S. government obligations, mortgage-backed
      and related securities and various types of short-term liquid
      assets.





As
      a
      savings and loan holding company, Peoples is subject to regulation, supervision
      and examination by the Office of Thrift Supervision of the United States
      Department of the Treasury (“OTS”).  As a savings and loan association
      chartered under the laws of the United States, the Association is subject to
      regulation, supervision and examination by the OTS and the Federal Deposit
      Insurance Corporation (“FDIC”).  The FDIC insures deposits in the
      Association up to applicable limits.  The Association is also a member
      of the Federal Home Loan Bank of Cincinnati (“FHLB”).




**MARKET
      PRICE OF THE CORPORATION’S COMMON SHARES AND** **RELATED
      SHAREHOLDER MATTERS**





The
      Corporation had 1,361,048 common shares outstanding on August 31, 2007, which
      were held of record by 745 shareholders.  As of January 1, 2006, price
      information with respect to the Corporation’s common stock is quoted on the OTC
      Bulletin Board under the symbol “PSFC”.  Prior to that, the
      Corporation’s common stock was quoted on The NASDAQ National Market System under
      the symbol “PSFC”.  The high and low daily closing prices for the
      common shares of the Corporation as quoted by The NASDAQ Stock Market, Inc.
      through December 31, 2005 and by the OTC Bulletin Board thereafter, and cash
      dividends paid by quarter, are shown below.





**September
                30,**
            
            
            **December
                31,**
            
            
            **March
                31,**
            
            
            **June
                30,****2006**
            
            
            **2006**
            
            
            **2007**
            
            
            **2007**High
            
            $
            15.00
            
            
            $
            15.00
            
            
            $
            14.50
            
            
            $
            13.50Low
            
            
            14.90
            
            
            
            14.17
            
            
            
            12.85
            
            
            
            12.40Cash
                Dividends
            
            
            0.16
            
            
            
            0.26
            
            
            
            0.16
            
            
            
            0.16





**September
                30,**
            
            
            **December
                31,**
            
            
            **March
                31,**
            
            
            **June
                30,****2005**
            
            
            **2005**
            
            
            **2006**
            
            
            **2006**High
            
            $
            17.35
            
            
            $
            16.48
            
            
            $
            15.10
            
            
            $
            15.25Low
            
            
            13.44
            
            
            
            14.11
            
            
            
            14.56
            
            
            
            14.50Cash
                Dividends
            
            
            0.15
            
            
            
            0.25
            
            
            
            0.16
            
            
            
            0.16






(Continued)


4.
 *Table
          of Contents*


Peoples
      pays dividends to shareholders using primarily funds received as dividends
      from
      the Association.  In addition to certain federal income tax
      considerations, OTS regulations impose limitations on the payment of dividends
      and other capital distributions by savings associations.  Under OTS
      regulations applicable to converted savings associations, the Association is
      not
      permitted to pay a cash dividend on its common shares if its regulatory capital
      would, as a result of such dividend payment, be reduced below the amount
      required for the Liquidation Account (the account established for the purpose
      of
      granting a limited priority claim on the assets of the Association in the event
      of complete liquidation to those members of the Association before the
      Conversion who maintain a savings account at the Association after the
      Conversion), or applicable regulatory capital requirements prescribed by the
      OTS.





A
      subsidiary of a savings and loan holding company must file a notice or an
      application with the OTS before it can declare and pay a dividend (1) if the
      proposed distribution would cause total distributions for that calendar year
      to
      exceed net income for that year to date plus the savings association’s retained
      net income for the preceding two years; (2) if the savings association will
      not
      be at least adequately capitalized following the capital distribution; (3)
      if
      the proposed distribution would violate a prohibition contained in any
      applicable statute, regulations or agreement between the savings association
      and
      the OTS (or the FDIC), or a condition imposed on the savings association in
      an
      OTS-approved application or notice; or, (4) if the savings association has
      not received certain favorable examination ratings from the OTS.  If a
      savings association subsidiary of a holding company is not required to file
      an
      application, it must typically file a notice with the OTS, unless it is both
      well-capitalized and meets the income test described above.  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.




5.
 *Table
          of Contents*


**SELECTED
      CONSOLIDATED FINANCIAL** **INFORMATION
      AND OTHER DATA**





The
      following tables set forth certain information concerning the consolidated
      financial condition and earnings of, and other data regarding, the Corporation
      at the dates and for the periods indicated.








Selected
                Financial Condition
            
            At
                June 30,and
                Other Data:
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(In
                thousands)Total
                amount of:Assets
            
            $
            138,308
            
            
            $
            139,047
            
            
            $
            136,695
            
            
            $
            135,771
            
            
            $
            143,568Securities
                available for sale
            
            
            4,848
            
            
            
            5,250
            
            
            
            5,434
            
            
            
            5,288
            
            
            
            11,517FHLB
                stock
            
            
            1,821
            
            
            
            1,768
            
            
            
            1,674
            
            
            
            1,601
            
            
            
            1,539Loans,
                net (1)
            
            
            121,487
            
            
            
            124,171
            
            
            
            121,110
            
            
            
            115,652
            
            
            
            115,260Deposits
            
            
            82,479
            
            
            
            82,819
            
            
            
            85,931
            
            
            
            86,764
            
            
            
            93,452Borrowed
                funds
            
            
            38,189
            
            
            
            38,511
            
            
            
            32,589
            
            
            
            31,140
            
            
            
            32,190Common
                stock in ESOP subject to repurchase obligation
            
            
            1,677
            
            
            
            1,757
            
            
            
            --
            
            
            
            --
            
            
            
            --Shareholders’
                equity
            
            
            15,258
            
            
            
            15,500
            
            
            
            17,761
            
            
            
            17,431
            
            
            
            17,384





Year
                ended June 30,Selected
                Operations Data:
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(In
                thousands)Interest
                income
            
            $
            8,981
            
            
            $
            8,415
            
            
            $
            7,803
            
            
            $
            7,910
            
            
            $
            8,782Interest
                expense
            
            
            4,231
            
            
            
            3,628
            
            
            
            3,189
            
            
            
            3,404
            
            
            
            4,423Net
                interest income
            
            
            4,750
            
            
            
            4,787
            
            
            
            4,614
            
            
            
            4,506
            
            
            
            4,359Provision
                for loan losses
            
            
            2
            
            
            
            72
            
            
            
            92
            
            
            
            53
            
            
            
            69Net
                interest income after provision for loan losses
            
            
            4,748
            
            
            
            4,715
            
            
            
            4,522
            
            
            
            4,453
            
            
            
            4,290Noninterest
                income
            
            
            132
            
            
            
            134
            
            
            
            105
            
            
            
            131
            
            
            
            139Noninterest
                expense
            
            
            3,295
            
            
            
            3,223
            
            
            
            3,098
            
            
            
            3,035
            
            
            
            3,118Income
                before income taxes
            
            
            1,585
            
            
            
            1,626
            
            
            
            1,529
            
            
            
            1,549
            
            
            
            1,311Income
                tax expense
            
            
            565
            
            
            
            587
            
            
            
            551
            
            
            
            574
            
            
            
            475Net
                income
            
            $
            1,020
            
            
            $
            1,039
            
            
            $
            978
            
            
            $
            975
            
            
            $
            836Earnings
                per common share – basic
            
            $
            0.76
            
            
            $
            0.76
            
            
            $
            0.71
            
            
            $
            0.71
            
            
            $
            0.61Earnings
                per common share – diluted
            
            $
            0.76
            
            
            $
            0.76
            
            
            $
            0.71
            
            
            $
            0.71
            
            
            $
            0.61Dividends
                declared per share
            
            $
            0.74
            
            
            $
            0.72
            
            
            $
            0.67
            
            
            $
            0.64
            
            
            $
            0.49






(Continued)




6.
 *Table
          of Contents*


Selected
      Financial Ratios and Other Data:





Performance
                Ratios:
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Return
                on assets (ratio of net income to average total assets)
            
            
            0.74
            %
            
            
            0.75
            %
            
            
            0.72
            %
            
            
            0.70
            %
            
            
            0.60
            %Return
                on equity (ratio of netincome to average equity)
            
            
            6.69
            
            
            
            6.28
            
            
            
            5.58
            
            
            
            5.65
            
            
            
            4.85Dividend
                payout ratio (6)
            
            
            97.37
            
            
            
            94.74
            
            
            
            94.37
            
            
            
            90.14
            
            
            
            80.33Interest
                rate spread (2)
            
            
            3.15
            
            
            
            3.24
            
            
            
            3.20
            
            
            
            3.05
            
            
            
            2.83Net
                interest margin (3)
            
            
            3.53
            
            
            
            3.58
            
            
            
            3.51
            
            
            
            3.36
            
            
            
            3.23Ratio
                of operating expense to average total assets
            
            
            2.38
            
            
            
            2.34
            
            
            
            2.29
            
            
            
            2.19
            
            
            
            2.24Ratio
                of average interest-earning assets to average interest-bearing
                liabilities
            
            
            1.12x
            
            
            
            1.13x
            
            
            
            1.13x
            
            
            
            1.12x
            
            
            
            1.12xQuality
                Ratios:Nonperforming
                assets to total assets at end of period (4)
            
            
            1.43
            %
            
            
            1.44
            %
            
            
            1.22
            %
            
            
            0.96
            %
            
            
            1.47
            %Allowance
                for loan losses to nonperforming loans
            
            
            36.11
            
            
            
            47.03
            
            
            
            50.12
            
            
            
            62.17
            
            
            
            38.26Allowance
                for loan losses to gross loans (5)
            
            
            0.54
            
            
            
            0.71
            
            
            
            0.69
            
            
            
            0.65
            
            
            
            0.66Capital
                Ratios:Shareholders’
                equity to total assets at end of period
            
            
            11.03
            
            
            
            11.15
            
            
            
            12.99
            
            
            
            12.84
            
            
            
            12.11Average
                equity to average assets
            
            
            11.01
            
            
            
            12.02
            
            
            
            12.94
            
            
            
            12.47
            
            
            
            12.39Other
                Data:Number
                of full service offices (7)
            
            
            4
            
            
            
            4
            
            
            
            4
            
            
            
            4
            
            
            
            4




(1)
            Loans
                are shown net of net deferred loan fees, loans in process and the
                allowance for loan losses.


(2)
            The
                average interest rate spread represents the difference between the
                weighted average yield on interest-earning assets and the weighted
                average
                cost of interest-bearing
                liabilities.


(3)
            The
                net interest margin represents net interest income as a percent of
                average
                interest-earning assets.


(4)
            Nonperforming
                assets consist of nonperforming loans and foreclosed
                assets.  Nonperforming loans consist of all accruing loans 90
                days or more past due and all nonaccrual
                loans.


(5)
            Gross
                loans are stated at unpaid principal balances, net of deferred loan
                fees.


(6)
            Dividends
                declared per share divided by basic earnings per common
                share.


(7)
            Full
                service offices include the main office and separate drive-through
                facility and three full-service branches located in Anna, Jackson
                Center
                and the Sidney Wal-Mart.


7.
 *Table
          of Contents*


**MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF** **FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**General**





The
      following is management’s analysis of the Corporation’s consolidated financial
      condition and consolidated results of operations as of and for the year ended
      June 30, 2007, compared to prior years.  This discussion is designed
      to provide a more comprehensive review of the operating results and financial
      position than could otherwise be obtained from an examination of the
      consolidated financial statements alone.  This analysis should be read
      in conjunction with the consolidated financial statements and related footnotes
      and the selected financial data included elsewhere in this report.





The
      Corporation provides financial services through its main office and separate
      drive-through facility in Sidney, Ohio, and three full-service branch offices
      in
      Sidney, Anna, and Jackson Center, Ohio.  The Corporation’s primary
      deposit products are checking, savings and term certificate
      accounts.  Its primary lending products are residential mortgage,
      commercial and installment loans.  Substantially all loans are secured
      by specific items of collateral including business assets, consumer assets
      and
      real estate.  Commercial loans are expected to be repaid from cash
      flow from operations of businesses.  Real estate loans are secured by
      both residential and commercial real estate.  Substantially all
      revenues and services are derived from financial institution products and
      services in Shelby County and contiguous counties.





**Overview
      and Outlook**





Fiscal
      year 2007 showed a general decline in lending as interest rates fluctuated
      and
      newscasts repeatedly broadcast poor economic news.  This caused a
      general lack of consumer confidence, which, in turn, affected the purchase
      of
      big-ticket items such as automobiles, equipment, and housing.  Our
      local housing market followed the national trend in being somewhat depressed,
      with an increase in foreclosures and other issues connected to the sub-prime
      mortgage market.  More expensive homes are showing some decline in
      value and tend to remain on the market for longer periods of
      time.  The number of homes for sale in our market has risen
      substantially and vacancies are up as well.  The end result was a
      decline in our loan production in fiscal 2007.  The Federal Reserve is
      watching the economy closely.  Perhaps a decrease in interest rates
      would be encouraging to consumers and the housing market could begin to
      rebound.





The
      Association maintained a stable deposit base during the fiscal year, sufficient
      to fund new loan requests.  With the stock market now performing under
      a correction, investors may again seek guaranteed return investments such as
      certificates of deposit and other savings products until the market
      stabilizes.  Over the long term, however, we feel that growing a
      deposit base will be challenging as government statistics related to the
      National Personal Savings Rate continue to decline.





On
      a
      positive note, our institution is positioned to provide funds for increased
      loan
      demand when the economy does rebound and consumers have a better confidence
      level.





**Forward-Looking
      Statements**





When
      used
      in this discussion or future filings by the Corporation with the Securities
      and
      Exchange Commission (“SEC”), or other public or shareholder communications, or
      in oral statements made with the approval of an authorized executive officer,
      the words or phrases “will likely result,” “are expected to,” “will continue,”
“is anticipated,” “estimate,” “project,” “believe” or similar expressions are
      intended to identify “forward-looking statements” within the meaning of the
      Private Securities Litigation Reform Act of 1995.  The Corporation
      wishes to caution readers not to place undue reliance on any such
      forward-







(Continued)




8.
 *Table
          of Contents*


looking
      statements, which speak only as of the date made, and to advise readers that
      various factors, including regional and national economic conditions, changes
      in
      levels of market interest rates, credit risks of lending activities and
      competitive and regulatory factors, could affect the Corporation’s financial
      performance and could cause the Corporation’s actual results for future periods
      to differ materially from those anticipated or projected.





The
      Corporation is not aware of any trends, events or uncertainties that will have
      or are reasonably likely to have a material effect on its liquidity, capital
      resources or operations except as discussed herein.  The Corporation
      is not aware of any current recommendations by regulatory authorities that
      would
      have such effect if implemented.





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





**Comparison
      of Financial Condition at June 30, 2007 and June 30, 2006**





Total
      assets at June 30, 2007 were $138.3 million compared to $139.0 million at June
      30, 2006, a decrease of $0.7 million.  The decrease in total assets
      was due primarily to a decrease in loans and securities available for sale
      of
      $2.7 million and $0.4 million, respectively partially offset by an increase
      in
      cash and cash equivalents of $2.5 million.





Cash
      and
      cash equivalents increased $2.5 million from $4.7 million at June 30, 2006
      to
      $7.2 million at June 30, 2007.  The increase was primarily attributed
      to an increase of $2.0 million in overnight
      deposits.  Interest-bearing deposits that we hold in other financial
      institutions and cash and due from other financial institutions combined also
      increased $0.5 million.  The increase in cash and cash equivalents
      resulted from repayments in the loan portfolio coupled with a decrease in
      lending activity.





The
      securities portfolio, which is classified as available for sale, decreased
      $0.4
      million from $5.2 million at June 30, 2006 to $4.8 million at June 30,
      2007.  The decrease is due to the maturity of a $500,000 security,
      which was partially offset by an increase in the fair value of the securities
      during the current fiscal year.  See Note 2 of Notes to Consolidated
      Financial Statements.





Federal
      Home Loan Bank stock increased $53,000 from June 30, 2006 to June 30, 2007
      as a
      result of normal dividends payments received in the form of additional
      stock.  Effective with the dividend received at March 31, 2007, the
      FHLB began paying cash dividends instead of issuing additional
      stock.  It is expected that the method of paying cash dividends will
      continue for subsequent periods.





Loans
      decreased $2.7 million from $124.2 million at June 30, 2006 to $121.5 million
      at
      June 30, 2007, a decrease of 2.2%.  The most significant decreases in
      mortgage loans occurred in one- to four-family residential and real estate
      construction and development loans, which decreased $3.6 million and $1.5
      million, respectively.  Consumer and commercial loans also combined
      for a decrease of $0.7 million.  These decreases were partially offset
      by increases of $1.4 million in multi-family residential loans, $0.9 million
      in
      commercial real estate loans and $0.5 in land loans.  The decreases in
      the loan portfolio were consistent with the general slow down in the residential
      housing market, new construction and activity in commercial
      business.  Consumer requests for financing have also decreased as a
      result of increased competition in the form attractive financing provided by
      auto manufactures and other consumer credit opportunities.  Increases,
      particularly in the multi-family loan category, resulted from loan customers
      using the depressed housing market as an opportunity to purchase investment
      properties.  See Note 3 of Notes to Consolidated Financial
      Statements.




(Continued)


9.
 *Table
          of Contents*


Premises
      and equipment decreased $111,000 from $1,975,000 at June 30, 2006 to $1,864,000
      at June 30, 2007.  This decrease resulted from normal depreciation of
      existing assets partially offset by equipment purchases and routine improvements
      to the office building.





Other
      real estate owned increased $43,000 to $143,000 at June 30 2007 as a result
      of
      the addition of four one- to four-family residential properties acquired through
      foreclosure during the recent fiscal year.  Offsetting this increase
      was the subsequent sale of three of the newly acquired properties resulting
      in a
      net loss of $2,221 coupled with the sale of a one- to four-family residential
      property that was purchased at sheriff’s sale during fiscal 2006.  The
      sale resulted in a loss of $120.





Total
      deposits decreased $0.3 million, or 0.4%, from $82.8 million at June 30, 2006
      to
      $82.5 million at June 30, 2007.  The most significant changes occurred
      in savings accounts, which decreased $2.6 million and certificates of deposit
      accounts, which increased $1.9 million.  NOW accounts increased $0.6
      million while noninterest-bearing demand deposits and money market accounts
      combined for a decrease of $0.2 million.  The majority of the increase
      in certificates resulted from a new $1.0 million jumbo account while the
      remainder appeared to shift from the more liquid savings accounts in an attempt
      to lock in current interest rates.  Local competition, the
      attractiveness of the stock market as well as economic demands on the cash
      flow
      of our depositor base continues to limit the availability of deposit
      funds.  See Note 7 of Notes to Consolidated Financial
      Statements.





Borrowed
      funds decreased $0.3 million, from $38.5 million at June 30, 2006 to $38.2
      million at June 30, 2007.  This decrease was the result of the
      scheduled repayments of mortgage-matched advances of $1.8 million and repayments
      of $3.5 million in variable-rate cash management advances.  These
      decreases were partially offset by the addition of a $5.0 million fixed-rate
      advance.  Borrowed funds represent a significant portion of our
      liabilities, and we expect this mix of deposits and borrowed funds will continue
      for the foreseeable future.   See Note 8 of Notes to Consolidated
      Financial Statements.





Shareholders’
      equity decreased $241,000 from June 30, 2006 to June 30, 2007.  This
      decrease is due to the payment of dividends equal to 97.0% of the Corporation’s
      earnings for fiscal 2007, the purchase of 31,600 shares of common stock for
      treasury, and the impact of an adjustment to beginning retained earnings to
      reflect deferred taxes on FHLB stock dividends received prior to June 30, 1991
      upon adoption of SAB No. 108 (see Note 1).  This decrease was
      partially offset by the after tax impact of an increase in fair value of the
      Corporation’s available for sale security portfolio, the current allocation of
      shares to the ESOP participants and the transfer and change in the fair value
      of
      common stock in the ESOP subject to the repurchase obligation for fiscal
      2007.





Under
      the
      Employee Retirement Income Security Act (“ERISA”), employer securities that are
      held by participants in an employee stock ownership plan (“ESOP”)  and
      that are not readily tradeable on an established market must include a put
      option.  The put option is a right to demand that the sponsor redeem
      shares of employer stock held by the participant, for which there is no market,
      for an established cash price.  The Over the Counter Bulletin Board
      listing which the Corporation transferred to on January 1, 2006 from the NASDAQ
      National Market System does not meet the Internal Revenue Code requirements
      to
      be readily tradable on an established securities market.  The
      Securities Exchange Commission's Accounting Series Release 268 requires
      securities held by an ESOP (whether or not allocated) to be reported outside
      of
      permanent equity if, by their terms, they can be put to the sponsor for
      cash.  As a result, the Corporation made this transfer.







(Continued)


10.
 *Table
          of Contents*


**Comparison
      of Results of Operations for the** **Year
      Ended June 30, 2007 and June 30, 2006**





**Net
      Income.**The
      Corporation earned net income of $1,020,000 for the year ended June 30, 2007
      compared to net income of $1,039,000 for the year ended June 30,
      2006.  The decrease in net income was due primarily to a decrease in
      net interest income coupled with an increase in noninterest
      expense.  The decreases to net income were partially offset by a
      decrease in the provision for loan losses and federalincome
      tax expense.





**Net
      Interest Income.**Net
      interest income totaled $4,750,000 for the year ended June 30, 2007 compared
      to
      $4,787,000 for the year ended June 30, 2006, a decrease of $37,000, or
      0.8%.  The decrease was the result of a decrease in the net interest
      spread between interest earning assets and interest bearing liabilities during
      the current fiscal year combined with a lower average balance of net interest
      earning assets.





Interest
      and fees on loans increased $509,000, or 6.4%, from $7,990,000 for the year
      ended June 30, 2006 to $8,499,000 for the year ended June 30,
      2007.  The increase in interest income was due primarily to higher
      average interest rates on loans coupled with an increase in average loans
      receivable during fiscal 2007.  The average balance of loans increased
      to $123.3 million with an average yield 6.89% for fiscal 2007 from an average
      balance of $122.5 million with an average yield of 6.52% for fiscal
      2006.





Interest
      earned on securities decreased $1,000 to $210,000 for the year ended June 30,
      2007 compared to $211,000 for the year ended June 30, 2006.  The
      decrease in interest on securities was the result of a decrease in the average
      balance partially offset by an increase in the average yield
      earned.  Interest on interest-bearing demand, time and overnight
      deposits with other financial institutions increased $41,000 to $161,000 for
      the
      year ended June 30, 2007 compared to $120,000 for the year ended June 30,
      2006.  The increase in interest earned on deposits with other
      financial institutions was the result of a higher average yield earned on such
      investments coupled with an increase in the average balance.





Dividends
      on FHLB stock increased over the comparable period due to an increase in the
      dividend rate paid by FHLB.





Interest
      paid on deposits increased $363,000, or 20.4% for the year ended June 30, 2007
      compared to the year ended June 30, 2006.  The increase resulted from
      an increase in the average interest rate paid on deposits partially offset
      by a
      lower average balance of interest-bearing deposits.  The average
      balance of interest-bearing deposits for the year ended June 30, 2006 was $83.1
      million at an average cost of 2.13% compared to an average balance of
      interest-bearing deposits for the year ended June 30, 2007 of $80.3 million
      at
      an average cost of 2.66%.





Interest
      paid on borrowed funds increased $241,000 from $1,854,000 for the year ended
      June 30, 2006 to $2,095,000 for the year ended June 30, 2007.  This
      increase was caused by a higher average balance of borrowings coupled with
      a
      higher average cost of borrowed funds.  The average balance of
      borrowings for the year ended June 30, 2006 was $35.4 million at an average
      cost
      of 5.24% compared to an average balance of $39.4 million at an average cost
      of
      5.32% for the year ended June 30, 2007.  For further discussion about
      the Corporation’s interest-rate risk management, see the Asset and Liability
      Management section.





**Provision
      for Loan Losses.**The
      Corporation maintains an allowance for loan losses in an amount that, in
      Management’s judgment, is adequate to absorb probable incurred losses in the
      loan portfolio.  While Management utilizes its best judgment and
      information available, the ultimate adequacy of the allowance is dependent
      upon
      a variety of factors, including the performance of the Corporation’s loan
      portfolio, the economy, changes in real estate values and interest rates and
      the
      view of the regulatory authorities toward loan classifications.  The
      provision for loan losses is determined by Management as the amount to be added
      to the allowance for loan losses after net charge-offs have been deducted to
      bring the allowance







(Continued)




11.
 *Table
            of Contents*





to
      a
      level that is considered adequate to absorb probable incurred losses in the
      loan
      portfolio.  The amount of the provision is based on Management’s
      monthly review of the loan portfolio and consideration of such factors as
      historical loss experience, general prevailing economic conditions, changes
      in
      the size and composition of the loan portfolio, specific borrower
      considerations, including the ability of the borrower to repay the loan and
      the
      estimated value of the underlying collateral and observations from regulatory
      authorities.





The
      provision for loan losses for the year ended June 30, 2007 totaled $2,000
      compared to $73,000 for the year ended June 30, 2006, a decrease of
      $71,000.  The allowance for loan losses totaled $665,000, or 0.54% of
      loans receivable and 36.1% of total nonperforming loans at June 30, 2007,
      compared with $894,000, or 0.71% of loans receivable and 47.0% of total
      nonperforming loans at June 30, 2006.  Nonperforming loans decreased
      $59,000 from $1,900,000 at June 30, 2006 to $1,841,000 at June 30,
      2007.  The Corporation experienced $230,000 in net charge-offs during
      the current fiscal year primarily related to commercial loans compared to
      $14,000 in net charge-offs in the prior fiscal year primarily related to
      consumer loans.  However, the majority of charge-offs in 2007 related
      to loans, which had specific loss allocations at June 30, 2006 and thus, were
      provided for in the prior year.  Despite nonperforming loans remaining
      similar at both year-ends, the current year nonperforming loans have lower
      loss
      allocations.  The provision for loan losses was lower in fiscal 2007
      due to the full pay-off of a commercial loan relationship that had a specific
      loss allocation of $80,000 at June 30, 2006.  The decrease in the
      provision for loan losses was also due to a decrease in the total loan
      portfolio.  Loans declined during the current fiscal year by 2.3% as
      compared to loan growth of 2.6% for the prior fiscal year.  The
      Corporation’s low historical charge-off history is the product of a variety of
      factors, including the Corporation’s underwriting guidelines, which generally
      require a loan-to-value or projected completed value ratio of 90% for purchase
      or construction of one- to four-family residential properties and 75% for
      commercial real estate and land loans, established income information and
      defined ratios of debt to income.





**Noninterest
      income.**Noninterest
      income, which includes service fees and other miscellaneous income and gains
      or
      losses on sale of real estate owned, loans and equipment decreased $2,000,
      from
      $134,000 for the year ended June 30, 2006 to $132,000 for the year ended June
      30, 2007.  This decrease was primarily related to decrease in service
      fees and other charges which resulted from a decrease in the average balance
      of
      NOW accounts during the current fiscal year.





**Noninterest
      expense.**Noninterest
      expense totaled $3,295,000 for the year ended June 30, 2007 compared to
      $3,223,000 for the year ended June 30, 2006, an increase of
      $72,000.  All noninterest expense categories increased with the
      exception of director fees, which remained unchanged.  The most
      significant increase of $29,000 was in professional services relating to the
      addition of third party reviews to assist the Corporation with regulatory
      compliance.  Compensation and benefits expense increased $22,000 due
      to normal increases in compensation and benefits expense.  Other
      expense increased $11,000 primarily as a result of an increase in training
      and
      travel expense also related to regulatory compliance.  The remaining
      categories combined for an increase of $10,000.





**Income
      Tax Expense.**The
      volatility of income tax expense is primarily attributable to income before
      income taxes.  Income tax expense totaled $565,000 for the year ended
      June 30, 2007 compared to $587,000 for the year ended June 30, 2006, a decrease
      of $22,000.  The effective tax rate was 35.7% for the year ended June
      30, 2007 and 36.1% for the year ended June 30, 2006.  The decrease in
      the effective tax rate was primarily due to the Corporation’s lower average
      stock price during fiscal 2007 which resulted in less compensation expense
      for
      the Corporation’s ESOP.


(Continued)


12.
 *Table
          of Contents*


**Comparison
      of Results of Operations for the** **Year
      Ended June 30, 2006 and June 30, 2005**





**Net
      Income.**The
      Corporation earned net income of $1,039,000 for the year ended June 30, 2006
      compared to net income of $978,000 for the year ended June 30,
      2005.  The increase in net income was due primarily to an increase in
      net interest income coupled with an increase in noninterest income and a
      decrease in the provision for loan losses. This increase was partially offset
      by
      an increase in noninterest expense and federalincome
      tax expense.





**Net
      Interest Income.**Net
      interest income totaled $4,787,000 for the year ended June 30, 2006 compared
      to
      $4,614,000 for the year ended June 30, 2005, an increase of $173,000, or
      3.8%.  The increase was the result of an increase in the net interest
      spread between interest earning assets and interest bearing liabilities during
      the current fiscal year combined with a higher average balance of interest
      earning assets.





Interest
      and fees on loans increased $518,000, or 6.9%, from $7,472,000 for the year
      ended June 30, 2005 to $7,990,000 for the year ended June 30,
      2006.  The increase in interest income was due primarily to higher
      average interest rates on loans coupled with an increase in average loans
      receivable during fiscal 2006.  The yield earned on loans increased
      from 6.30% for fiscal 2005 to 6.52% for fiscal 2006.





Interest
      earned on securities increased $18,000 to $211,000 for the year ended June
      30,
      2006 compared to $193,000 for the year ended June 30, 2005.  The
      increase in interest on securities was the result of an increase in the average
      yield earned.  Interest on interest-bearing demand, time and overnight
      deposits with other financial institutions increased $55,000 to $120,000 for
      the
      year ended June 30, 2006 compared to $65,000 for the year ended June 30, 2005.
      The increase in interest earned on deposits with other financial institutions
      was the result of a higher average yield earned on such investments partially
      offset by a decrease in the average balance.





Dividends
      on FHLB stock increased over the comparable period due to an increase in the
      dividend rate paid by FHLB.





Interest
      paid on deposits increased $218,000, or 14.0% for the year ended June 30, 2006
      compared to the year ended June 30, 2005.  The increase resulted from
      an increase in the average interest rate paid on deposits partially offset
      by a
      lower average balance of deposits.  The average balance of deposits
      for the year ended June 30, 2005 was $85.5 million at an average cost of 1.82%
      compared to an average balance of deposits for the year ended June 30, 2006
      of
      $83.1 million at an average cost of 2.13%.





Interest
      paid on borrowed funds increased $221,000 from $1,633,000 for the year ended
      June 30, 2005 to $1,854,000 for the year ended June 30, 2006.  This
      increase was caused by a higher average balance of borrowings partially offset
      by a lower average cost of borrowed funds.  The average balance of
      borrowings for the year ended June 30, 2005 was $30.8 million at an average
      cost
      of 5.30% compared to an average balance of $35.4 million at an average cost
      of
      5.24% for the year ended June 30, 2006.  For further discussion about
      the Corporation’s interest-rate risk management, see the Asset and Liability
      Management section.





**Provision
      for Loan Losses.**The
      provision for loan losses for the year ended June 30, 2006 totaled $73,000
      compared to $91,000 for the year ended June 30, 2005, a decrease of
      $18,000.  The allowance for loan losses totaled $894,000, or 0.71% of
      loans receivable and 47.0% of total nonperforming loans at June 30, 2006,
      compared with $836,000, or 0.69% of loans receivable and 50.1% of total
      nonperforming loans at June 30, 2005. Nonaccrual loans increased $207,000 from
      $1,318,000 at June 30, 2005 to $1,525,000 at June 30, 2006.  The
      Corporation experienced $14,000 in net charge-offs during the current fiscal
      year compared to $9,000 in net charge-offs in the prior fiscal year primarily
      related to consumer loans.  The decrease in the provision for loan
      losses was due to a decrease in loan growth.  Loans grew during the
      current fiscal




(Continued)


13.
 *Table
          of Contents*


year
      by
      2.6% as compared to loan growth of 4.7% for the prior fiscal
      year.  This decrease in loan growth more than offset the previously
      mentioned negative trends.





**Noninterest
      income.**Noninterest
      income, which includes service fees and other miscellaneous income and gains
      or
      losses on sale of real estate owned, increased $29,000, from $105,000 for the
      year ended June 30, 2005 to $134,000 for the year ended June 30,
      2006.  This increase resulted primarily from a pre-tax loss of $25,000
      related to the sale of property held in real estate owned during the prior
      fiscal year compared to a $3,000 gain in the current fiscal year.





**Noninterest
      expense.**Noninterest
      expense totaled $3,223,000 for the year ended June 30, 2006 compared to
      $3,098,000 for the year ended June 30, 2005, an increase of
      $125,000.  Compensation and benefits expense increased $86,000 from
      $1,628,000 for the year ended June 30, 2005 to $1,714,000 for the year ended
      June 30, 2006. The increase is due to normal increases in compensation and
      benefits expense.  Computer processing increased $71,000 from $275,000
      for the year ended June 30, 2005 to $346,000 for the year ended June 30,
      2006.  This increase was related to an increase in data processing
      services as a result of the conversion that occurred during the fourth quarter
      of fiscal 2005.  Professional services also increased $31,000 for the
      year ended June 30, 2006 resulting from new government regulations and
      requirements.  These increases were partially offset by a decrease of
      $40,000 in occupancy and equipment expense largely related to a decrease in
      equipment expense coupled with a decrease in telephone expense resulting from
      an
      upgrade in communication service.  Other expenses also decreased
      $27,000 from $349,000 for the year ended June 30, 2005 to $322,000 for the
      year
      ended June 30, 2006 primarily due to a savings of $12,000 as a result of
      delisting from the NASDAQ market as of January 1, 2006.





**Income
      Tax Expense.**The
      volatility of income tax expense is primarily attributable to income before
      income taxes.  Income tax expense totaled $587,000 for the year ended
      June 30, 2006 compared to $552,000 for the year ended June 30, 2005, an increase
      of $35,000.  The effective tax rates were 36.1% for both years ended
      June 30, 2006 and 2005.





**Yields
      Earned and Rates Paid.**The
      following table sets forth certain information relating to the Corporation’s
      average balance sheet and reflects the average yield on interest-earning assets
      and the average cost of interest-bearing liabilities for the periods
      indicated.  Such yields and costs are derived by dividing income or
      expense by the average balances of interest-earning assets or interest-bearing
      liabilities, respectively, for the periods presented.  Average
      balances are derived from average daily balances.  Nonaccruing loans
      have been included in the table as loans carrying a zero yield.




(Continued)


14.
 *Table
          of Contents*




Year
                  ended June 30,2007
              
              
              2006
              
              
              2005Average
              
              
              Interest
              
              
              
              
              
              Average
              
              
              Interest
              
              
              
              
              
              Average
              
              
              Interestoutstanding
              
              
              earned/
              
              
              Yield/
              
              
              outstanding
              
              
              earned/
              
              
              Yield/
              
              
              outstanding
              
              
              earned/
              
              
              Yield/balance
              
              
              paid
              
              
              rate
              
              
              balance
              
              
              paid
              
              
              rate
              
              
              balance
              
              
              paid
              
              
              rate(Dollars
                  in thousands)**ASSETS:**Interest-earning
                  assets:Interest-earning
                  deposits
              
              $
              4,243
              
              
              $
              161
              
              
              
              3.81
              %
              
              $
              3,965
              
              
              $
              120
              
              
              
              3.04
              %
              
              $
              5,729
              
              
              $
              65
              
              
              
              1.14
              %Securities
                  available for sale (1)
              
              
              5,040
              
              
              
              210
              
              
              
              4.05
              
              
              
              5,337
              
              
              
              211
              
              
              
              3.84
              
              
              
              5,386
              
              
              
              193
              
              
              
              3.51Loans
                  (2)
              
              
              123,281
              
              
              
              8,499
              
              
              
              6.89
              
              
              
              122,468
              
              
              
              7,990
              
              
              
              6.52
              
              
              
              118,550
              
              
              
              7,472
              
              
              
              6.30FHLB
                  stock
              
              
              1,801
              
              
              
              111
              
              
              
              6.16
              
              
              
              1,708
              
              
              
              94
              
              
              
              5.53
              
              
              
              1,628
              
              
              
              73
              
              
              
              4.46Total
                  interest-earning assets
              
              
              134,365
              
              
              
              8,981
              
              
              
              6.68
              
              
              
              133,478
              
              
              
              8,415
              
              
              
              6.30
              
              
              
              131,293
              
              
              
              7,803
              
              
              
              5.94Noninterest-earning
                  assets:Cash
                  and due from banks
              
              
              1,204
              
              
              
              
              
              
              
              
              
              
              
              1,119
              
              
              
              
              
              
              
              
              
              
              
              1,095Premises
                  and equipment, net
              
              
              1,915
              
              
              
              
              
              
              
              
              
              
              
              2,039
              
              
              
              
              
              
              
              
              
              
              
              2,097Accrued
                  interest and other assets
              
              
              1,029
              
              
              
              
              
              
              
              
              
              
              
              1,032
              
              
              
              
              
              
              
              
              
              
              
              979Total
                  noninterest-earning assets
              
              
              4,148
              
              
              
              
              
              
              
              
              
              
              
              4,190
              
              
              
              
              
              
              
              
              
              
              
              4,171Total
                  assets
              
              $
              138,513
              
              
              
              
              
              
              
              
              
              
              $
              137,668
              
              
              
              
              
              
              
              
              
              
              $
              135,464**LIABILITIES
                  AND SHAREHOLDERS' EQUITY:**Interest-bearing
                  liabilities:Savings
                  deposits
              
              $
              24,267
              
              
              $
              182
              
              
              
              0.75
              %
              
              $
              27,139
              
              
              $
              203
              
              
              
              0.75
              %
              
              $
              29,975
              
              
              $
              225
              
              
              
              0.75
              %Demand
                  and NOW deposits
              
              
              12,634
              
              
              
              138
              
              
              
              1.10
              
              
              
              13,277
              
              
              
              139
              
              
              
              1.05
              
              
              
              11,785
              
              
              
              67
              
              
              
              0.57Certificate
                  accounts
              
              
              43,439
              
              
              
              1,816
              
              
              
              4.18
              
              
              
              42,708
              
              
              
              1,432
              
              
              
              3.35
              
              
              
              43,780
              
              
              
              1,264
              
              
              
              2.89Total
                  interest-bearing deposits
              
              
              80,340
              
              
              
              2,136
              
              
              
              2.66
              
              
              
              83,124
              
              
              
              1,774
              
              
              
              2.13
              
              
              
              85,540
              
              
              
              1,556
              
              
              
              1.82Borrowed
                  funds
              
              
              39,377
              
              
              
              2,095
              
              
              
              5.32
              
              
              
              35,412
              
              
              
              1,854
              
              
              
              5.24
              
              
              
              30,792
              
              
              
              1,633
              
              
              
              5.30Total
                  interest-bearing liabilities
              
              
              119,717
              
              
              
              4,231
              
              
              
              3.53
              
              
              
              118,536
              
              
              
              3,628
              
              
              
              3.06
              
              
              
              116,332
              
              
              
              3,189
              
              
              
              2.74Noninterest-bearing
                  liabilitiesDemand
                  deposits
              
              
              1,207
              
              
              
              
              
              
              
              
              
              
              
              1,250
              
              
              
              
              
              
              
              
              
              
              
              1,150Accrued
                  interest payable and other liabilities
              
              
              680
              
              
              
              
              
              
              
              
              
              
              
              538
              
              
              
              
              
              
              
              
              
              
              
              450Total
                  noninterest-bearing liabilities
              
              
              1,887
              
              
              
              
              
              
              
              
              
              
              
              1,788
              
              
              
              
              
              
              
              
              
              
              
              1,600Total
                  liabilities
              
              
              121,604
              
              
              
              
              
              
              
              
              
              
              
              120,324
              
              
              
              
              
              
              
              
              
              
              
              117,932Comon
                  stock in ESOP subject to repurchase obligation
              
              
              1,662
              
              
              
              
              
              
              
              
              
              
              
              790
              
              
              
              
              
              
              
              
              
              
              
              --Total
                  shareholders’ equity
              
              
              15,247
              
              
              
              
              
              
              
              
              
              
              
              16,554
              
              
              
              
              
              
              
              
              
              
              
              17,532Total
                  liabilities and shareholders’ equity
              
              $
              138,513
              
              
              
              
              
              
              
              
              
              
              $
              137,668
              
              
              
              
              
              
              
              
              
              
              $
              135,464Net
                  interest income; interest rate spread (3)
              
              
              
              
              
              $
              4,750
              
              
              
              3.15
              %
              
              
              
              
              
              $
              4,787
              
              
              
              3.24
              %
              
              
              
              
              
              $
              4,614
              
              
              
              3.20
              %Net
                  earning assets
              
              $
              14,649
              
              
              
              
              
              
              
              
              
              
              $
              14,942
              
              
              
              
              
              
              
              
              
              
              $
              14,961Net
                  interest margin (4)
              
              
              
              
              
              
              
              
              
              
              3.53
              %
              
              
              
              
              
              
              
              
              
              
              3.58
              %
              
              
              
              
              
              
              
              
              
              
              3.51
              %Average
                  interest-earning assets to interest- bearing liabilities
              
              
              1.12x
              
              
              
              
              
              
              
              
              
              
              
              1.13x
              
              
              
              
              
              
              
              
              
              
              
              1.13x


(1)
            Average
                balance includes unrealized gains and losses while yield is based
                on
                amortized cost.


(2)
            Calculated
                net of deferred loan fees, loan discounts, loans in process and allowance
                for loan losses and includes nonperforming
                loans.


(3)
            Net
                interest rate spread represents the difference between the yield
                on
                interest-earning assets and the cost of interest-bearing
                liabilities.


(4)
            Net
                interest margin represents net interest income divided by average
                interest-earning assets.


(Continued)   15.
 *Table
                of Contents*


The
      table
      below describes the extent to which changes in interest rates and changes in
      volume of interest-earning assets and interest-bearing liabilities have affected
      the Corporation’s interest income and expense during the years
      indicated.  For each category of interest-earning assets and
      interest-bearing liabilities, information is provided on changes attributable
      to
      (1) changes in volume (multiplied by prior year rate), (2) changes in rate
      (multiplied by prior year volume) and (3) total changes in rate and
      volume.  The combined effects of changes in both volume and rate, that
      are not separately identified, have been allocated proportionately to the change
      due to volume and change due to rate:





Year
                ended June 30,2007
                vs. 2006
            
            
            2006
                vs. 2005Increase
            
            
            
            
            
            Increase(decrease)
            
            
            
            
            
            (decrease)due
                to
            
            
            
            
            
            due
                toVolume
            
            
            Rate
            
            
            Total
            
            
            Volume
            
            
            Rate
            
            
            Total(In
                thousands)Interest
                income attributable to:Interest-earning
                deposits
            
            $
            9
            
            
            $
            32
            
            
            $
            41
            
            
            $
            (25
            )
            
            $
            80
            
            
            $
            55Securities
                available for sale
            
            
            (12
            )
            
            
            11
            
            
            
            (1
            )
            
            
            --
            
            
            
            18
            
            
            
            18Loans
                receivable
            
            
            53
            
            
            
            456
            
            
            
            509
            
            
            
            251
            
            
            
            267
            
            
            
            518FHLB
                stock
            
            
            6
            
            
            
            11
            
            
            
            17
            
            
            
            3
            
            
            
            18
            
            
            
            21Total
                interest-earning assets
            
            $
            56
            
            
            $
            510
            
            
            $
            566
            
            
            $
            229
            
            
            $
            383
            
            
            $
            612Interest
                expense attributable to:Savings
                deposits
            
            $
            (21
            )
            
            $
            --
            
            
            $
            (21
            )
            
            $
            (22
            )
            
            $
            --
            
            
            $
            (22
            )Demand
                and NOW deposits
            
            
            (7
            )
            
            
            6
            
            
            
            (1
            )
            
            
            10
            
            
            
            62
            
            
            
            72Certificates
                accounts
            
            
            25
            
            
            
            359
            
            
            
            384
            
            
            
            (31
            )
            
            
            199
            
            
            
            168Borrowed
                funds
            
            
            210
            
            
            
            31
            
            
            
            241
            
            
            
            242
            
            
            
            (21
            )
            
            
            221Total
                interest-bearing liabilities
            
            $
            207
            
            
            $
            396
            
            
            $
            603
            
            
            $
            199
            
            
            $
            240
            
            
            $
            439Net
                interest income
            
            
            
            
            
            
            
            
            
            $
            (37
            )
            
            
            
            
            
            
            
            
            
            $
            173





**Asset
      and Liability Management**





The
      Association, like other financial institutions, is subject to interest rate
      risk
      to the extent that its interest-earning assets reprice differently than its
      interest-bearing liabilities.  As part of its effort to monitor and
      manage interest rate risk, the Association uses the “net portfolio value”
(“NPV”) methodology adopted by the OTS as part of its capital
      regulations.  Although the Association is not currently subject to NPV
      regulation because such regulation does not apply to institutions with less
      than
      $300 million in assets and risk-based capital in excess of 12%, application
      of
      NPV methodology may illustrate the Association’s interest rate
      risk.





Generally,
      NPV is the discounted present value of the difference between incoming cash
      flows on interest-earning and other assets and outgoing cash flows on
      interest-bearing and other liabilities.  The application of the
      methodology attempts to quantify interest rate risk as the change in the NPV
      that would result from a theoretical 200 basis point (1 basis point equals
      0.01%) change in market interest rates.  Both a 200 basis point
      increase in market interest rates and a 200 basis point decrease in market
      interest rates are considered.




(Continued)   16.
 *Table
              of Contents*


Presented
      below, as of March 31, 2007, is an analysis of the Association’s interest-rate
      risk as measured by changes in the NPV for instantaneous and sustained parallel
      shifts of 100 basis points in market interest rates.  The table below
      represents the Thrift Bulletin 13a reporting requirements and the target limits
      set by the Association.  The Office of Thrift Supervision (OTS) is the
      primary regulator for the institution and considers the greater loss in the
      sensitivity measure at up or down 200 basis points in their interest rate risk
      review.  Although the Association would experience a greater decline
      in market value equity should interest rates increase 300 basis points, the
      Association’s sensitivity measure is currently greater at 200 basis points down
      where the NPV Ratio declines 109 basis points (NPV Ratio of 14.16%) than 200
      basis points up where the NPV Ratio declines 13 basis points (NPV Ratio of
      15.12%).  The interest rate sensitivity measure shifted towards being
      more sensitive to rising rates at the up 200 basis point level in June 2006
      and
      reversed back to the down 200 basis points in the September 2006 quarter where
      it has remained.  This is reflective of the absence of additional
      interest rate increases by the Federal Reserve since June 29,
      2006.  This continues to be the result of relatively low interest
      rates from a historical perspective and the flat yield curve that has persisted
      despite previous increases by the Federal Reserve.  The Board of
      Directors and Management continued to monitor interest rates during the past
      year after the anticipated pause following the June 29, 2006 increase by the
      Federal Reserve that originally started in June 2004.  During the
      preceding 12 months, Management continued efforts to control rising liability
      costs as the result of higher short-term interest rates that have effected
      deposit liability cost while being constrained on increases in some loan
      interest rates because of the continuing modest changes in longer term interest
      rates.  Because of the continued flat yield curve, an additional
      Federal Home Loan Bank advance of $5,000,000 for 5 years at 5.12% was secured
      on
      October 31, 2006 to replace the Cash Management Advances that were adjustable
      in
      order to help control rising liability costs.  The narrow spread
      between short-term rates and long-term rates that continued over the last year
      will again represent the greatest challenge during the coming
      year.  The greatest interest rate sensitivity at March 31, 2007 was a
      109 basis point decline in the NPV ratio if interest rates decreased 200 basis
      points.  This increased slightly from the 105 basis point decline
      reported last year if rates decreased 200 basis points.  Management
      does not consider declining interest rates to be a problem in the current
      interest rate environment as longer-term interest rates are still on the lower
      end of historical levels even with the increases in short term rates by the
      Federal Reserve through June 2006.  Even if the Federal Reserve begins
      to lower rates during the coming year, management believes the greater risk
      remains with rising interest rates.  Management also continued to work
      toward having a proper mix of assets and liabilities as the market would allow
      in order to combat the fluctuations in interest rates and market conditions
      that
      result in non-parallel shifts in interest rates.





March
                31, 2007Target
                LimitUnder
                AssetEconomic
                Value
            
            
            NPV
                Ratio
            
            
            LiabilityChange
            
            
            Market
                Value
            
            
            Market
                Value
            
            
            MVE/
            
            
            ManagementIn
                Rates
            
            
            Equity
            
            
            Total
                Assets
            
            
            MVTA
            
            
            Policy(Dollars in
              thousands)+400
            
            
            $
            
            *
            
            $
            
            *
            
            
            *
            
            
            
            4
            %+300
            
            
            
            19,867
            
            
            
            136,916
            
            
            
            14.51
            %
            
            
            4+200
            
            
            
            21,144
            
            
            
            139,830
            
            
            
            15.12
            
            
            
            6+100
            
            
            
            21,938
            
            
            
            142,419
            
            
            
            15.40
            
            
            
            7STATIC
            
            
            
            22,030
            
            
            
            144,500
            
            
            
            15.25-100
            
            
            
            21,758
            
            
            
            146,373
            
            
            
            14.87
            
            
            
            7-200
            
            
            
            20,930
            
            
            
            147,814
            
            
            
            14.16
            
            
            
            6-300
            
            
            
            *
            
            
            
            *
            
            
            
            *
            
            
            
            4-400
            
            
            
            *
            
            
            
            *
            
            
            
            *
            
            
            
            4*Not
                currently reported by OTS


(Continued)


17.
 *Table
          of Contents*





March
                31, 2006Target
                LimitUnder
                AssetEconomic
                Value
            
            
            NPV
                Ratio
            
            
            LiabilityChange
            
            
            Market
                Value
            
            
            Market
                Value
            
            
            MVE/
            
            
            ManagementIn
                Rates
            
            
            Equity
            
            
            Total
                Assets
            
            
            MVTA
            
            
            Policy(Dollars
                in thousands)+400
            
            
            $
            
            *
            
            $
            
            *
            
            
            *
            
            
            
            4
            %+300
            
            
            
            18,252
            
            
            
            134,814
            
            
            
            13.54
            %
            
            
            4+200
            
            
            
            19,715
            
            
            
            137,844
            
            
            
            14.30
            
            
            
            6+100
            
            
            
            20,923
            
            
            
            140,777
            
            
            
            14.86
            
            
            
            7STATIC
            
            
            
            21,656
            
            
            
            143,448
            
            
            
            15.10-100
            
            
            
            21,646
            
            
            
            145,570
            
            
            
            14.87
            
            
            
            7-200
            
            
            
            20,624
            
            
            
            146,839
            
            
            
            14.05
            
            
            
            6-300
            
            
            
            *
            
            
            
            *
            
            
            
            *
            
            
            
            4-400
            
            
            
            *
            
            
            
            *
            
            
            
            *
            
            
            
            4*Not
                currently reported by OTS





As
      with
      any method of measuring interest rate risk, certain shortcomings are inherent
      in
      the NPV approach.  For example, although certain assets and
      liabilities may have similar maturities or periods of repricing, they may react
      in different degrees to changes in market interest rates.  Also, the
      interest rates on certain types of assets and liabilities may fluctuate in
      advance of changes in market interest rates, while interest rates on other
      types
      may lag behind changes in market rates.  Further, in the event of a
      change in interest rates, expected rates of prepayment on loans and
      mortgage-backed securities and early withdrawal levels from certificates of
      deposit would likely deviate significantly from those assumed in making risk
      calculations.





**Liquidity
      and Capital Resources**





The
      Corporation’s liquidity, primarily represented by cash and cash equivalents, is
      a result of its operating, investing and financing activities.  These
      activities are summarized below for the years ended June 30, 2007, 2006 and
      2005.


Year
                Ended June 30,2007
            
            
            2006
            
            
            2005Net
                income
            
            $
            1,020
            
            
            $
            1,039
            
            
            $
            978Adjustments
                to reconcile net income to net cash from operating
                activities
            
            
            447
            
            
            
            434
            
            
            
            258Net
                cash from operating activities
            
            
            1,467
            
            
            
            1,473
            
            
            
            1,236Net
                cash from investing activities
            
            
            3,124
            
            
            
            (3,300
            )
            
            
            (5,645
            )Net
                cash from financing activities
            
            
            (2,124
            )
            
            
            1,221
            
            
            
            (304
            )Net
                change in cash and cash equivalents
            
            
            2,467
            
            
            
            (606
            )
            
            
            (4,713
            )Cash
                and cash equivalents at beginning of period
            
            
            4,715
            
            
            
            5,321
            
            
            
            10,034Cash
                and cash equivalents at end of period
            
            $
            7,182
            
            
            $
            4,715
            
            
            $
            5,321





The
      Corporation’s principal sources of funds are deposits, loan repayments,
      maturities of securities and other funds provided by operations.  The
      Corporation also has the ability to borrow from the FHLB.  While
      scheduled loan repayments and maturing investments are relatively predictable,
      deposit flows and early loan prepayments are more influenced by interest rates,
      general economic conditions and competition.  The Corporation
      maintains investments in liquid assets based upon management’s




(Continued)




18.
 *Table
          of Contents*


assessment
      of (1) need for funds; (2) expected deposit flows; (3) yields available on
      short-term liquid assets; and, (4) objectives of the asset/liability management
      program.





The
      Association is subject to various regulatory capital requirements administered
      by the federal regulatory agencies.  Under capital adequacy guidelines
      and the regulatory framework for prompt corrective action, the Association
      must
      meet specific capital guidelines that involve quantitative measures of the
      Association’s assets, liabilities and certain off-balance-sheet items as
      calculated under regulatory accounting practices.  The Association’s
      capital amounts and classifications are also subject to qualitative judgments
      by
      the regulators about the Association’s components, risk weightings and other
      factors.  Failure to meet minimum capital requirements can initiate
      certain mandatory actions that, if undertaken, could have a direct material
      effect on the Corporation’s financial statements.  At June 30, 2007
      and 2006, management believes the Association complies with all regulatory
      capital requirements.  Based on the Association’s computed regulatory
      capital ratios, the Association is considered well capitalized under FDIC
      guidelines at June 30, 2007 and 2006.  No conditions or events have
      occurred subsequent to the last notification by regulators that management
      believes would change the Association’s category.





The
      following table summarizes the Association’s capital requirements to be well
      capitalized under prompt corrective action regulations and actual capital
      amounts at June 30, 2007.





Excess
                of Actual CapitalWell
                Capitalized
            
            
            Over
                Well CapitalizedActual
                capital
            
            
            Requirement
            
            
            Requirement
            
            
            ApplicableAmount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Asset
                Total(Dollars
                in thousands)Total
                risk-based capital
            
            $
            13,989
            
            
            
            16.1
            %
            
            $
            8,663
            
            
            
            10.0
            %
            
            $
            5,326
            
            
            
            6.1
            %
            
            $
            86,628Tier
                1 risk-based capital
            
            
            13,572
            
            
            
            15.7
            
            
            
            5,198
            
            
            
            6.0
            
            
            
            8,374
            
            
            
            9.7
            
            
            
            86,628Core
                capital
            
            
            13,572
            
            
            
            9.8
            
            
            
            6,926
            
            
            
            5.0
            
            
            
            6,646
            
            
            
            4.8
            
            
            
            138,516





On
      April
      19, 2005, the Corporation authorized the commencement of a 5% stock repurchase
      program, which was completed on November 30, 2006.  The plan allowed
      for the repurchase of up to 71,600 shares made from time to time at the
      discretion of management in both the open market and through unsolicited
      negotiated transactions.  Purchases were funded with positive
      operating cash flow and existing cash balances.   Repurchased
      shares will be available for use in connection with the Corporations existing
      stock plans and for other corporate purposes.  During the
      nineteen-month period the Corporation repurchased a total of 71,600 shares
      at a
      weighted average price of $15.15 per share.





**Critical
      Accounting Policies and Estimates**





The
      accounting and reporting policies of the Corporation are in accordance with
      U.S.
      generally accepted accounting principles and conform to general practices within
      the banking industry.  The accounting and reporting policy for the
      allowance for loan losses is deemed critical since it involves the use of
      estimates and requires significant management judgments.  The
      allowance for loan losses is a valuation allowance for probable incurred credit
      losses, increased by the provision for loan losses and decreased by charge
      offs.  We estimate the allowance balance by considering 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 out judgment, has
      incurred a loss.  Loan losses are charged against the allowance when
      we believe the loan balance cannot be collected.  We monitor loan
      quality monthly and consider various factors, including portfolio risk, economic
      environment and loan delinquencies, when determining the level of the provision
      for loan losses.  Application of assumptions different than
      those




(Continued)   19.
 *Table
              of Contents*


used
      by
      management could result in material changes in the Corporation’s financial
      position or results of operations.  See Notes 1 (Summary of
      Significant Accounting Policies) and 3 (Loans), which provide detail with regard
      to the Corporation’s methodology and reporting of the allowance for loan
      losses.




**Impact
      of Inflation and Changing Prices**





The
      Consolidated Financial Statements and Notes included herein have been prepared
      in accordance with accounting principles generally accepted in the United States
      of America (“GAAP”).  Presently, GAAP requires the Corporation to
      measure financial position and operating results primarily in terms of historic
      dollars.  Changes in the relative value of money due to inflation or
      recession are generally not considered.





In
      management’s opinion, changes in interest rates affect the financial condition
      of a financial institution to a far greater degree than changes in the inflation
      rate.  While interest rates are greatly influenced by changes in the
      inflation rate, they do not change at the same rate or in the same magnitude
      as
      the inflation rate.  Rather, interest rate volatility is based on
      changes in the expected rate of inflation, as well as on changes in monetary
      and
      fiscal policies.


20.
 *Table
          of Contents*




REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







Board
      of
      Directors and Shareholders


Peoples-Sidney
      Financial Corporation


Sidney,
      Ohio








We
      have
      audited the accompanying consolidated balance sheets of Peoples-Sidney Financial
      Corporation as of June 30, 2007 and 2006, and the related consolidated
      statements of income, changes in shareholders’ equity and cash flows for each of
      the three years in the period ended June 30, 2007.  These financial
      statements are the responsibility of the Corporation’s
      management.  Our responsibility is to express an opinion on these
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement.  An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements.  An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement
      presentation.  We believe that our audits provide a reasonable basis
      for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Peoples-Sidney Financial
      Corporation as of June 30, 2007 and 2006, and the results of its operations
      and
      its cash flows for each of the three years in the period ended June 30, 2007
      in
      conformity with U.S. generally accepted accounting principles.





As
      discussed in Note 1, the Corporation adopted Staff Accounting Bulletin 108,
      “Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements” and accordingly adjusted
      assets and liabilities at the beginning of 2006 with an offsetting adjustment
      to
      the opening balance of retained earnings.







/s/
              Crowe Chizek and Company LLCCrowe
                Chizek and Company LLC





Columbus,
      Ohio


August
      31, 2007


21.
 *Table
          of Contents*


PEOPLES–SIDNEY
      FINANCIAL CORPORATION


CONSOLIDATED
      BALANCE SHEETS


June
      30,
      2007 and 2006









2007
            
            
            2006**ASSETS**Cash
                and due from financial institutions
            
            $
            1,065,054
            
            
            $
            899,313Interest-bearing
                deposits in other financial institutions
            
            
            4,117,144
            
            
            
            3,815,616Overnight
                deposits
            
            
            2,000,000
            
            
            
            --Total
                cash and cash equivalents
            
            
            7,182,198
            
            
            
            4,714,929Securities
                available for sale
            
            
            4,847,820
            
            
            
            5,250,170Federal
                Home Loan Bank stock
            
            
            1,820,800
            
            
            
            1,768,100Loans,
                net of allowance of $664,800 and $893,600
            
            
            121,487,075
            
            
            
            124,171,193Accrued
                interest receivable
            
            
            795,326
            
            
            
            827,725Premises
                and equipment, net
            
            
            1,864,053
            
            
            
            1,974,672Other
                real estate owned and repossessions
            
            
            143,482
            
            
            
            102,086Other
                assets
            
            
            167,540
            
            
            
            238,593Total
                assets
            
            $
            138,308,294
            
            
            $
            139,047,468**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Deposits
            
            $
            82,479,470
            
            
            $
            82,819,038Borrowed
                funds
            
            
            38,189,030
            
            
            
            38,511,268Accrued
                interest payable and other liabilities
            
            
            704,238
            
            
            
            460,821Total
                liabilities
            
            
            121,372,738
            
            
            
            121,791,127Common
                stock in ESOP subject to repurchase obligation
            
            
            1,677,238
            
            
            
            1,756,829Preferred
                stock, $.01 par value, 500,000 shares authorized, none issued and
                outstanding
            
            
            --
            
            
            
            --Common
                stock, $.01 par value, 3,500,000 shares authorized, 1,785,375 shares
                issued
            
            
            16,569
            
            
            
            16,675Additional
                paid-in capital
            
            
            9,169,858
            
            
            
            9,065,163Retained
                earnings
            
            
            11,702,607
            
            
            
            11,764,118Treasury
                stock 424,327 and 392,727 shares at cost
            
            
            (5,198,322
            )
            
            
            (4,725,278
            )Unearned
                employee stock ownership plan shares
            
            
            (333,042
            )
            
            
            (457,602
            )Accumulated
                other comprehensive loss
            
            
            (99,352
            )
            
            
            (163,564
            )Total
                shareholders’ equity
            
            
            15,258,318
            
            
            
            15,499,512Total
                liabilities and shareholders’ equity
            
            $
            138,308,294
            
            
            $
            139,047,468







See
      accompanying notes to consolidated financial statements


22.
 *Table
          of Contents*


PEOPLES–SIDNEY
      FINANCIAL CORPORATION


CONSOLIDATED
      STATEMENTS OF INCOME


Years
      Ended June 30, 2007, 2006 and 2005










2007
            
            
            2006
            
            
            2005Interest
                incomeLoans,
                including fees
            
            $
            8,498,715
            
            
            $
            7,989,538
            
            
            $
            7,471,853Securities
            
            
            210,304
            
            
            
            211,249
            
            
            
            193,054Demand,
                time and overnight deposits
            
            
            161,484
            
            
            
            120,490
            
            
            
            65,535Dividends
                on Federal Home Loan Bank stock
            
            
            110,880
            
            
            
            94,486
            
            
            
            72,648Total
                interest income
            
            
            8,981,383
            
            
            
            8,415,763
            
            
            
            7,803,090Interest
                expenseDeposits
            
            
            2,136,734
            
            
            
            1,774,181
            
            
            
            1,556,564Borrowed
                funds
            
            
            2,094,722
            
            
            
            1,854,265
            
            
            
            1,632,866Total
                interest expense
            
            
            4,231,456
            
            
            
            3,628,446
            
            
            
            3,189,430Net
                interest income
            
            
            4,749,927
            
            
            
            4,787,317
            
            
            
            4,613,660Provision
                for loan losses
            
            
            1,681
            
            
            
            72,568
            
            
            
            91,497Net
                interest income after provision for loan losses
            
            
            4,748,246
            
            
            
            4,714,749
            
            
            
            4,522,163Noninterest
                incomeService
                fees and other charges
            
            
            126,140
            
            
            
            131,033
            
            
            
            129,966Gain
                (loss) on sale of REO and repossessions
            
            
            (3,406
            )
            
            
            2,912
            
            
            
            (24,600
            )Mortgage
                banking income
            
            
            4,534
            
            
            
            --
            
            
            
            --Gain
                on sale of premises and equipment
            
            
            5,000
            
            
            
            --
            
            
            
            --Total
                noninterest income
            
            
            132,268
            
            
            
            133,945
            
            
            
            105,366Noninterest
                expenseCompensation
                and benefits
            
            
            1,735,497
            
            
            
            1,713,679
            
            
            
            1,627,546Director
                fees
            
            
            97,200
            
            
            
            97,200
            
            
            
            97,200Occupancy
                and equipment
            
            
            379,605
            
            
            
            377,295
            
            
            
            417,384Computer
                processing
            
            
            351,544
            
            
            
            346,233
            
            
            
            275,096Professional
                services
            
            
            186,782
            
            
            
            158,198
            
            
            
            126,669State
                franchise taxes
            
            
            211,513
            
            
            
            208,425
            
            
            
            205,373Other
            
            
            333,098
            
            
            
            321,674
            
            
            
            348,788Total
                noninterest expense
            
            
            3,295,239
            
            
            
            3,222,704
            
            
            
            3,098,056Income
                before income taxes
            
            
            1,585,275
            
            
            
            1,625,990
            
            
            
            1,529,473Income
                tax expense
            
            
            565,300
            
            
            
            586,600
            
            
            
            551,600Net
                income
            
            $
            1,019,975
            
            
            $
            1,039,390
            
            
            $
            977,873Earnings
                per common share - basic
            
            $
            0.76
            
            
            $
            0.76
            
            
            $
            0.71Earnings
                per common share - diluted
            
            $
            0.76
            
            
            $
            0.76
            
            
            $
            0.71









See
      accompanying notes to consolidated financial statements


23.
 *Table
          of Contents*


PEOPLES–SIDNEY
      FINANCIAL CORPORATION


CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


Years
      Ended June 30, 2007, 2006 and 2005







AccumulatedAdditional
            
            
            
            
            
            
            
            
            Unearned
            
            
            OtherCommon
            
            
            Paid-In
            
            
            Retained
            
            
            Treasury
            
            
            ESOP
            
            
            ComprehensiveStock
            
            
            Capital
            
            
            Earnings
            
            
            Stock
            
            
            Shares
            
            
            Income
                (Loss)
            
            
            TotalBalance,
                July 1, 2004
            
            $
            17,854
            
            
            $
            10,748,851
            
            
            $
            11,642,982
            
            
            $
            (4,113,716
            )
            
            $
            (727,121
            )
            
            $
            (137,937
            )
            
            $
            17,430,913Comprehensive
                income:Net
                income for the year ended June 30, 2005
            
            
            --
            
            
            
            --
            
            
            
            977,873
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            977,873Change
                in net unrealized gain (loss) on securities available for sale, net
                of reclassification and tax effects
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            95,881
            
            
            
            95,881Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,073,754Cash
                dividends - $.67 per share
            
            
            --
            
            
            
            --
            
            
            
            (918,358
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (918,358
            )Commitment
                to release 11,775 employee stock ownership plan shares
            
            
            --
            
            
            
            36,919
            
            
            
            --
            
            
            
            --
            
            
            
            138,163
            
            
            
            --
            
            
            
            175,082Balance,
                June 30, 2005
            
            $
            17,854
            
            
            $
            10,785,770
            
            
            $
            11,702,497
            
            
            $
            (4,113,716
            )
            
            $
            (588,958
            )
            
            $
            (42,056
            )
            
            $
            17,761,391








(Continued)


24.
 *Table
          of Contents*


PEOPLES–SIDNEY
      FINANCIAL CORPORATION


CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)


Years
      Ended June 30, 2007, 2006 and 2005









AccumulatedAdditional
            
            
            
            
            
            
            
            
            Unearned
            
            
            OtherCommon
            
            
            Paid-In
            
            
            Retained
            
            
            Treasury
            
            
            ESOP
            
            
            ComprehensiveStock
            
            
            Capital
            
            
            Earnings
            
            
            Stock
            
            
            Shares
            
            
            Income
                (Loss)
            
            
            TotalBalance,
                July 1, 2005
            
            
            17,854
            
            
            
            10,785,770
            
            
            
            11,702,497
            
            
            
            (4,113,716
            )
            
            
            (588,958
            )
            
            
            (42,056
            )
            
            
            17,761,391Comprehensive
                income:Net
                income for the year ended June 30, 2006
            
            
            --
            
            
            
            --
            
            
            
            1,039,390
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,039,390Change
                in net unrealized gain (loss)  on securities available for
                sale,  net of reclassification and tax
                effects
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (121,508
            )
            
            
            (121,508
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            917,882Transfer
                of 106,713 common shares subject to repurchase obligation on January
                1,
                2006 upon change to OTC Bulletin Board
            
            
            (1,067
            )
            
            
            (1,552,674
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (1,553,741
            )Cash
                dividends - $.72 per share
            
            
            --
            
            
            
            --
            
            
            
            (977,769
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (977,769
            )Commitment
                to release 11,195 employee stock ownership plan shares
            
            
            --
            
            
            
            35,043
            
            
            
            --
            
            
            
            --
            
            
            
            131,356
            
            
            
            --
            
            
            
            166,399Transfer
                of 11,195 common shares subject to repurchase obligation and change
                in
                value
            
            
            (112
            )
            
            
            (202,976
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (203,088
            )Purchase
                of 40,000 treasury shares, at cost
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (611,562
            )
            
            
            --
            
            
            
            --
            
            
            
            (611,562
            )Balance,
                June 30, 2006
            
            
            16,675
            
            
            
            9,065,163
            
            
            
            11,764,118
            
            
            
            (4,725,278
            )
            
            
            (457,602
            )
            
            
            (163,564
            )
            
            
            15,499,512








(Continued)


25.
 *Table
          of Contents*


PEOPLES–SIDNEY
      FINANCIAL CORPORATION


CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)


Years
      Ended June 30, 2007, 2006 and 2005







AccumulatedAdditional
            
            
            
            
            
            
            
            
            Unearned
            
            
            OtherCommon
            
            
            Paid-In
            
            
            Retained
            
            
            Treasury
            
            
            ESOP
            
            
            ComprehensiveStock
            
            
            Capital
            
            
            Earnings
            
            
            Stock
            
            
            Shares
            
            
            Income
                (Loss)
            
            
            TotalBalance,
                July 1, 2006
            
            $
            16,675
            
            
            $
            9,065,163
            
            
            $
            11,764,118
            
            
            $
            (4,725,278
            )
            
            $
            (457,602
            )
            
            $
            (163,564
            )
            
            $
            15,499,512Adjustment
                to apply SAB 108 (see Note 1)
            
            
            --
            
            
            
            --
            
            
            
            (92,075
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (92,075
            )Comprehensive
                income:Net
                income for the year ended June 30, 2007
            
            
            --
            
            
            
            --
            
            
            
            1,019,975
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,019,975Change
                in net unrealized gain (loss)  on securities available for sale,
                net of reclassification and tax effects
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            64,212
            
            
            
            64,212Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,084,187Cash
                dividends - $.74 per share
            
            
            --
            
            
            
            --
            
            
            
            (989,411
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (989,411
            )Commitment
                to release 10,616 employee stock ownership plan shares
            
            
            --
            
            
            
            24,998
            
            
            
            --
            
            
            
            --
            
            
            
            124,560
            
            
            
            --
            
            
            
            149,558Transfer
                of 10,616 common shares subject to repurchase obligation and change
                in
                value
            
            
            (106
            )
            
            
            79,697
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            79,591Purchase
                of 31,600 treasury shares, at cost
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (473,044
            )
            
            
            --
            
            
            
            --
            
            
            
            (473,044
            )Balance,
                June 30, 2007
            
            $
            16,569
            
            
            $
            9,169,858
            
            
            $
            11,702,607
            
            
            $
            (5,198,322
            )
            
            $
            (333,042
            )
            
            $
            (99,352
            )
            
            $
            15,258,318










See
      accompanying notes to consolidated financial statements


26.
 *Table
          of Contents*


PEOPLES–SIDNEY
      FINANCIAL CORPORATION


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


Years
      Ended June 30, 2007, 2006 and 2005









2007
            
            
            2006
            
            
            2005Cash
                flows from operating activitiesNet
                income
            
            $
            1,019,975
            
            
            $
            1,039,390
            
            
            $
            977,873Adjustments
                to reconcile net income to net cash from operating
                activitiesDepreciation
            
            
            164,813
            
            
            
            184,279
            
            
            
            192,512Provision
                for loan losses
            
            
            1,681
            
            
            
            72,568
            
            
            
            91,497Proceeds
                from sale of loans in secondary market
            
            
            161,829
            
            
            
            --
            
            
            
            --Loans
                disbursed for sale in secondary market
            
            
            (159,490
            )
            
            
            --
            
            
            
            --Gain
                on sale of loans
            
            
            (4,549
            )
            
            
            --
            
            
            
            --Amortization
                of mortgage servicing rights
            
            
            66
            
            
            
            --
            
            
            
            --Net
                amortization (accretion) of securities
            
            
            (360
            )
            
            
            (360
            )
            
            
            (359
            )Gain
                on sale of premises and equipment
            
            
            (5,000
            )
            
            
            --
            
            
            
            --(Gain)
                loss on sale of REO and repossessions
            
            
            3,406
            
            
            
            (2,912
            )
            
            
            24,600FHLB
                stock dividends
            
            
            (52,700
            )
            
            
            (94,200
            )
            
            
            (72,500
            )Deferred
                taxes
            
            
            90,124
            
            
            
            (20,211
            )
            
            
            59,239Compensation
                expense for ESOP shares
            
            
            149,558
            
            
            
            166,399
            
            
            
            175,082Change
                in:Accrued
                interest receivable and other assets
            
            
            105,597
            
            
            
            (7,608
            )
            
            
            (88,694
            )Accrued
                expense and other liabilities
            
            
            28,140
            
            
            
            129,210
            
            
            
            (129,691
            )Deferred
                loan fees
            
            
            (36,357
            )
            
            
            6,223
            
            
            
            6,291Net
                cash from operating activities
            
            
            1,466,733
            
            
            
            1,472,778
            
            
            
            1,235,850Cash
                flows from investing activitiesProceeds
                from maturities of securities available for sale
            
            
            500,000
            
            
            
            --
            
            
            
            --Net
                change in loans
            
            
            2,449,846
            
            
            
            (3,328,672
            )
            
            
            (5,665,710
            )Premises
                and equipment expenditures
            
            
            (54,194
            )
            
            
            (63,260
            )
            
            
            (163,217
            )Proceeds
                from sale of premises and equipment
            
            
            5,000
            
            
            
            --
            
            
            
            --Proceeds
                from sale of REO and repossessions
            
            
            224,145
            
            
            
            89,703
            
            
            
            184,128Net
                cash from investing activities
            
            
            3,124,797
            
            
            
            (3,300,564
            )
            
            
            (5,644,799
            )Cash
                flows from financing activitiesNet
                change in deposits
            
            
            (339,568
            )
            
            
            (3,111,699
            )
            
            
            (833,516
            )Proceeds
                from long-term FHLB advances
            
            
            5,000,000
            
            
            
            7,000,000
            
            
            
            1,000,000Repayments
                of long-term FHLB advances
            
            
            (1,822,238
            )
            
            
            (2,077,451
            )
            
            
            (2,051,669
            )Net
                change in short-term FHLB advances
            
            
            (3,500,000
            )
            
            
            1,000,000
            
            
            
            2,500,000Cash
                dividends paid
            
            
            (989,411
            )
            
            
            (977,769
            )
            
            
            (918,358
            )Purchase
                of treasury shares
            
            
            (473,044
            )
            
            
            (611,562
            )
            
            
            --Net
                cash from financing activities
            
            
            (2,124,261
            )
            
            
            1,221,519
            
            
            
            (303,543
            )Net
                change in cash and cash equivalents
            
            
            2,467,269
            
            
            
            (606,267
            )
            
            
            (4,712,492
            )Cash
                and cash equivalents at beginning of year
            
            
            4,714,929
            
            
            
            5,321,196
            
            
            
            10,033,688Cash
                and cash equivalents at end of year
            
            $
            7,182,198
            
            
            $
            4,714,929
            
            
            $
            5,321,196Supplemental
                cash flow informationInterest
                paid
            
            $
            4,220,858
            
            
            $
            3,601,688
            
            
            $
            3,179,028Income
                taxes paid
            
            
            510,000
            
            
            
            450,000
            
            
            
            600,000Supplemental
                noncash disclosuresTransfer
                from loans to REO and repossessions
            
            
            268,947
            
            
            
            188,877
            
            
            
            109,643Adjustment
                to apply SAB 108 (See Note 1)
            
            
            92,075
            
            
            
            --
            
            
            
            --





See
      accompanying notes to consolidated financial statements


27.
 *Table
          of Contents*





PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005










**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





Principles
      of Consolidation:  The consolidated financial statements include
      Peoples-Sidney Financial Corporation (“Peoples”) and its wholly-owned
      subsidiary, Peoples Federal Savings and Loan Association (the “Association”), a
      federal stock savings and loan association, together referred to as the
      Corporation.  Intercompany accounts and transactions have been
      eliminated in consolidation.





Nature
      of Operations:  The Corporation provides financial services
      through its main office in Sidney, Ohio, and branch offices in Sidney, Anna
      and
      Jackson Center, Ohio.  Its primary deposit products are checking,
      savings and term certificate accounts, and its primary lending products are
      residential mortgage, commercial and installment loans.  Substantially
      all loans are secured by specific items of collateral including business assets,
      consumer assets and commercial and residential real
      estate.  Commercial loans are expected to be repaid from cash flow
      from operations of businesses.  There are no significant
      concentrations of loans to any one industry or customer.  However, the
      customers’ ability to repay their loans is dependent on the real estate and
      general economic conditions in the area.  Other financial instruments,
      which potentially represent concentrations of credit risk, include deposit
      accounts in other financial institutions and overnight
      deposits.  Substantially all revenues and services are derived from
      financial institution products and services in Shelby County and contiguous
      counties.  Management considers the Corporation to operate primarily
      in one segment, banking.





Use
      of
      Estimates:  To prepare financial statements in conformity with U.
      S. generally accepted accounting principles, management makes estimates and
      assumptions based on available information.  These estimates and
      assumptions affect the amounts reported in the financial statements and the
      disclosures provided, and actual results could differ.  The allowance
      for loan losses and fair values of financial instruments are particularly
      subject to change.





Cash
      Flows:  Cash and cash equivalents include cash, deposits with
      financial institutions, overnight deposits and time deposits with original
      maturities of 90 days or less.  Overnight deposits are sold for
      one-day periods.  Net cash flows are reported for loan and deposit
      transactions, as well as short-term borrowings under its cash management line
      of
      credit with the Federal Home Loan Bank of Cincinnati.





Securities:  Securities
      are classified as held to maturity and carried at amortized cost when management
      has the positive intent and ability to hold them to
      maturity.  Securities are classified as available for sale when they
      might be sold before maturity.  Securities available for sale are
      carried at fair value, with unrealized holding gains or losses reported in
      other
      comprehensive income, net of tax.





Interest
      income includes amortization of premiums and accretion of
      discounts.  Realized gains and losses on sales of securities are
      recorded on the trade date and determined using the amortized cost of the
      specific security sold.





Declines
      in the fair value of securities below their cost that are other than temporary
      are reflected as realized losses.  In estimating other-than-temporary
      losses, management considers the length of time and extent that fair value
      has
      been less than cost, the financial condition and near term prospects of the
      issuer, and the Corporation’s ability and intent to hold the security for a
      period sufficient to allow for any anticipated recovery in fair
      value.




(Continued)   28.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)





Federal
      Home Loan Bank (FHLB) stock:  The Association is a member of the
      FHLB system.  Members are required to own a certain amount of stock
      based on the level of borrowings and other factors, and may invest in additional
      amounts.  FHLB stock is carried at cost, classified as a restricted
      security, and periodically evaluated for impairment based on ultimate recovery
      of par value.  Both cash and stock dividends are reported as
      income.





Loans
      Held for Sale:  Mortgage loans originated and intended for sale in
      the secondary market are carried at the lower of aggregate cost or market,
      as
      determined by outstanding commitments from investors.  Net unrealized
      losses, if any, are recorded as a valuation allowance and charged to
      earnings.





Mortgage
      loans held for sale are generally sold with servicing rights retained without
      recourse.  The carrying value of mortgage loans sold is reduced by the
      cost allocated to the servicing right.  Gains and losses on sales of
      mortgage loans are based on the difference between the selling price and the
      carrying value of the related loan sold.





Loans:  Loans
      that management has the intent and ability to hold for the foreseeable future
      or
      until maturity or payoff are reported at the principal balance outstanding,
      less
      net deferred loan fees and the allowance for loan losses.





Interest
      income is accrued on the unpaid principal balance using the interest method
      and
      includes amortization of net deferred loan fees over the loan
      term.  Interest income on loans is discontinued at the time the loan
      is 90 days delinquent unless the credit is well secured and in process of
      collection.  Past due status is based upon the contractual terms of
      the loan.  In all cases, loans are placed on nonaccrual or charged-off
      at an earlier date if collection of principal or interest is considered
      doubtful.





All
      interest accrued but not received for loans placed on nonaccrual is reversed
      against interest income.  Interest received on such loans is accounted
      for on the cash-basis or cost-recovery method, until qualifying for return
      to
      accrual.  Loans are returned to accrual status when all the principal
      and interest amounts contractually due are brought current and future payments
      are reasonably assured.





Allowance
      for Loan Losses:  The allowance for loan losses is a valuation
      allowance for probable incurred credit losses.  Loan losses are
      charged against the allowance when management believes the uncollectibility
      of a
      loan balance is confirmed.  Subsequent recoveries, if any, are
      credited to the allowance.  Management estimates the allowance balance
      required using 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.





The
      allowance consists of specific and general components.  The specific
      component relates to loans that are individually classified as impaired or
      loans
      otherwise classified as substandard or doubtful.  The general
      component covers non-classified loans and is based on historical loss experience
      adjusted for current factors.




(Continued)   29.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)





A
      loan is
      impaired when full payment under the loan terms 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, and accordingly, they are not separately identified for impairment
      disclosures.





Servicing
      Rights:  Servicing assets represent the allocated value of
      retained servicing rights on loans sold.  Servicing assets are
      expensed in proportion to, and over the period of, estimated net servicing
      revenues.  Impairment is evaluated based on the fair value of the
      assets.  Fair value is determined using prices for similar assets with
      similar characteristics, when available, or based upon discounted cash flows
      using market-based assumptions.  Any impairment of a grouping is
      reported as a valuation allowance, to the extent that fair value is less than
      the capitalized amount for a grouping.





Servicing
      fee income is recorded for fees earned for servicing loans.  The fees
      are based on a contractual percentage of the outstanding principal; or a fixed
      amount per loan and are recorded as income when earned.  The
      amortization of mortgage servicing rights is netted against loan servicing
      fee
      income.





Transfers
      of Financial Assets:  Transfers of financial assets are accounted
      for as sales, when control over the assets has been
      relinquished.  Control over transferred assets is deemed to be
      surrendered when the assets have been isolated from the Corporation, the
      transferee obtains the right (free of conditions that constrain it from taking
      advantage of the right) to pledge or exchange the transferred assets, and the
      Corporation does not maintain effective control over the transferred assets
      through an agreement to repurchase them before their maturity.





Foreclosed
      Assets:  Assets acquired through or instead of loan foreclosure
      are initially recorded at fair value at acquisition less estimated selling
      costs, establishing a new cost basis.  Any reduction to fair value
      from the carrying value of the related loan at the time the property is acquired
      is accounted for as a loan charge-off.  After acquisition, a valuation
      allowance reduces the reported amount to the lower of the initial amount or
      fair
      value less costs to sell.  Expenses, gains and losses on disposition,
      and changes in the valuation allowance are reported in net gain or loss on
      other
      real estate owned.





Premises
      and Equipment: Land is carried at cost.  Premises and equipment
      are stated at cost less accumulated depreciation.  Depreciation
      expense is calculated using the straight-line method based on the estimated
      useful lives of the assets.  The useful lives range from 10 years to
      40 years for building and improvements, 3 years to 20 years for furniture and
      equipment and 5 years for automobiles.  These assets are reviewed for
      impairment when events indicate the carrying amount may not be
      recoverable.  Maintenance and repairs are charged to expense as
      incurred and improvements are capitalized.





Income
      Taxes:  Income tax expense is the total of the current year income
      tax due or refundable and the change in deferred tax assets and
      liabilities.  Deferred tax assets and liabilities are the expected
      future tax amounts for the temporary differences between carrying amounts and
      tax basis of assets and liabilities, computed using enacted tax
      rates.  A valuation allowance, if needed, reduces deferred tax assets
      to the amount expected to be realized.




(Continued)   30.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)





Employee
      Stock Ownership Plan:  The cost of shares issued to the Employee
      Stock Ownership Plan (“ESOP”), but not yet allocated to participants, is shown
      as a reduction of shareholders’ equity.  Compensation expense is based
      on the market price of shares as they are committed to be released to
      participant accounts.  Dividends on allocated ESOP shares reduce
      retained earnings; dividends on unearned ESOP shares reduce debt and accrued
      interest.  Participants may exercise a put option and require the
      Corporation to repurchase their ESOP shares upon termination.  As a
      result, an amount of equity equal to the fair value of the allocated shares
      is
      reclassified out of shareholders’ equity.





Stock-based
      Compensation: Prior to July 1, 2005, the Corporation accounted for
      stock-based compensation expense using the intrinsic value method as required
      by
      Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
      Employees” and as permitted by Statement of Financial Accounting Standards
      (“SFAS”) No. 123, “Accounting for Stock-based Compensation.”  No
      stock-based compensation cost was reflected in net income for stock options,
      as
      all options granted had an exercise price equal to the market price of the
      underlying common stock at the date of grant.





On
      July
      1, 2005, the Corporation adopted SFAS No. 123 (revised 2004), “Share Based
      Payment” (“SFAS 123R”), which requires measurement of compensation cost for all
      stock-based awards based on the grant-date fair value and recognition of
      compensation cost over the service period of stock-based awards, which is
      usually the same as the vesting period.  The fair value of stock
      options is determined using the Black-Scholes valuation model, which is
      consistent with the Corporation’s valuation methodology previously utilized for
      options in footnote disclosures required under SFAS No. 123.  The fair
      value of stock grants will also be determined using the Black-Scholes valuation
      model.  The Company has adopted SFAS 123R using the modified
      prospective method, which provides for no retroactive application to prior
      periods and no cumulative adjustment to equity.  It also provides for
      expense recognition for both new and existing stock-based awards as the required
      services are rendered.  SFAS 123R also amends SFAS No. 95, “Statement
      of Cash Flows,” and requires tax benefits related to excess stock-based
      compensation deductions be presented in the statement of cash flows as financing
      cash inflows.





No
      compensation expense was recognized in 2007 or 2006 as there were no unvested
      options at July 1, 2005 and no options have been awarded or modified since
      July
      1, 2005.





Advertising
      Costs:  Advertising costs are generally expensed as
      incurred.  Advertising expense included in other noninterest expense
      totaled $23,429, $20,188 and $16,995 for the years ending June 30, 2007, 2006,
      and 2005.





Loan
      Commitments and Related Financial Instruments:  Financial
      instruments include off-balance sheet credit instruments, such as commitments
      to
      make loans, issued to meet customer financing needs.  The face amount
      for these items represents the exposure to loss, before considering customer
      collateral or ability to repay.  Such financial instruments are
      recorded when they are funded.





Earnings
      Per Common Share: Basic earnings per common share (“EPS”) is net income
      divided by the weighted average number of common shares outstanding during
      the
      period.  ESOP shares are considered outstanding for this calculation
      unless unearned.  Management recognition plan (“MRP”) shares are
      considered outstanding as they become vested.  Diluted EPS includes
      the dilutive effect of MRP shares and the additional potential common shares
      issuable under stock options.


(Continued)


31.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)





Dividend
      Restriction:  Financial institution regulations require the
      maintenance of certain capital levels and may limit the amount of dividends
      that
      may be paid.  For detail on dividend restrictions and regulatory
      capital requirements, see Note 13.





Comprehensive
      Income:  Comprehensive income consists of net income and other
      comprehensive income (loss), net of tax.  Other comprehensive income
      (loss) includes net unrealized gains and losses on securities available for
      sale, which is also recognized as a separate component of equity.





Loss
      Contingencies:  Loss contingencies, including claims and legal
      actions arising in the ordinary course of business, are recorded as liabilities
      when the likelihood of loss is probable and an amount or range of loss can
      be
      reasonably estimated.  Management does not believe there now are such
      matters that will have a material effect on the financial
      statements.





Fair
      Values of Financial Instruments:  Fair values of financial
      instruments are estimated using relevant market information and other
      assumptions, as more fully disclosed in a separate note.  Fair value
      estimates involve uncertainties and matters of significant judgment regarding
      interest rates, credit risk, prepayments and other factors, especially in the
      absence of broad markets for particular items.  Changes in assumptions
      or in market conditions could significantly affect the estimates.





Staff
      Accounting Bulletin 108: In September 2006, the Securities and Exchange
      Commission (“SEC”) released Staff Accounting Bulletin (“SAB”) No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements”, which is effective for
      fiscal years ending on or after November 15, 2006.  SAB No. 108
      provides guidance on how the effects of prior-year uncorrected financial
      statement misstatements should be considered in quantifying current year
      misstatement.  SAB No. 108 requires public companies to quantify
      misstatements using both an income statement (rollover) and balance sheet (iron
      curtain) approach and evaluate whether each approach results in a misstatement
      that, when all relevant quantitative and qualitative factors are considered,
      is
      material.  If prior years errors that had been previously considered
      immaterial now are considered material based on either approach, no restatement
      is required so long as management properly applied its previous approach and
      all
      relevant facts and circumstances were considered.  Adjustments
      considered immaterial in prior years under the method previously used, but
      now
      considered material under the dual approach required by SAB No. 108, are to
      be
      recorded upon initial adoption of SAB No. 108.  The amount so recorded
      is shown as a cumulative effect adjustment in opening retained earnings as
      of
      July 1, 2006.  Included in this cumulative effect adjustment is the
      following item.





The
      Corporation had not established a deferred tax liability associated with stock
      dividends received from the FHLB prior to June 30, 1991.  The
      resultant understatement of federal income tax expense was insignificant to
      any
      prior periods’ earnings.  As a result of adopting SAB No. 108, the
      Corporation reduced beginning retained earnings and increased the deferred
      tax
      liability by $92,075.





Reclassifications:  Reclassification
      of certain amounts in the prior years consolidated financial statements have
      been made to conform to the current presentation.




(Continued)   32.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)





Effect
      of Newly Issued But Not Yet Effective Accounting Standards:  In
      February, 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
      Instruments”.  This statement clarifies the treatment of derivatives
      that are freestanding or embedded as part of a beneficial interest in a
      securitized financial asset.  This statement will be effective July 1,
      2007.  The adoption of this pronouncement is not expected to have a
      material impact on the consolidated financial statements.





In
      March,
      2006, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 156, “Accounting for Servicing of Financial
      Assets”.  This statement allows the entity to choose the amortization
      method or the fair value method to account for each separately recognized
      servicing asset or liability.  This statement will be effective July
      1, 2007.  The adoption of this pronouncement is not expected to have a
      material impact on the consolidated financial statements.





In
      June
      2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for Uncertainty
      in Income Taxes – an Interpretation of FASB Statement No. 106”, which clarifies
      the accounting for uncertainty in income taxes recognized in a company’s
      financial statements in accordance with SFAS 109, Accounting for Income
      Taxes.  FIN 48 prescribes a recognition and measurement threshold for
      a tax position taken or expected to be taken in a tax return.  FIN 48
      also provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition.  FIN 48
      will be effective July 1, 2007.  The impact of adopting FIN 48 will
      not be material to the consolidated financial statements.





In
      September 2006, FASB issued SFAS Statement No. 157, Fair Value Measurement
      (“SFAS No. 157”).  SFAS No. 157 defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles,
      and expands disclosures about fair value measurements.  SFAS No. 157
      does not require any new fair value measurements.  This statement is
      effective for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years.  The Corporation has not yet determined the
      effect, if any, that the application of SFAS No. 157 will have on its
      consolidated financial statements.





In
      February 2007, the FASB issued SFAS Statement No. 159, The Fair Value Option
      for
      Financial Assets and Financial Liabilities – Including an Amendment of FASB
      Statement No. 115, (“SFAS No. 159”).  SFAS No. 159 permits entities to
      choose to measure many financial instruments and certain other items at fair
      value at specified election dates.  If the fair value option is
      elected, a business entity shall report unrealized gains and losses on elected
      items in earnings at each subsequent reporting date.  Upon initial
      adoption of this Statement, an entity is permitted to elect the fair value
      option for available-for-sale and held-to-maturity securities previously
      accounted for under SFAS Statement No. 115, Accounting for Certain Investments
      in Debt and Equity Securities (“SFAS No. 115”).  The effect of
      reclassifying those securities into the trading category should be included
      in a
      cumulative-effect adjustment of retained earnings and not in current-period
      earnings and should be separately disclosed.  SFAS No. 159 is
      effective as of the beginning of the first fiscal year that begins after
      November 15, 2007.  The Corporation has not yet determined the effect,
      if any, that the application of SFAS No. 159 will have on its consolidated
      financial statements.


(Continued)


33.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      2 - SECURITIES AVAILABLE FOR SALE**





The
      fair
      value of available for sale securities and the related gross unrealized gains
      and losses recognized in accumulated other comprehensive income (loss) were
      as
      follows.





Gross
            
            
            GrossFair
            
            
            Unrealized
            
            
            UnrealizedValue
            
            
            Gains
            
            
            Losses2007U.S.
                Government agencies
            
            $
            4,847,820
            
            
            $
            --
            
            
            $
            (150,534
            )2006U.S.
                Government agencies
            
            $
            5,250,170
            
            
            $
            --
            
            
            $
            (247,824
            )








Contractual
      maturities of securities available for sale at year-end 2007 were as
      follows.  Actual maturities may differ from contractual maturities
      because borrowers may have the right to call or prepay obligations with or
      without call or prepayment penalties.





FairValueDue
                in one year or less
            
            $
            996,880Due
                after one year through five years
            
            
            1,987,820Due
                after five years through ten years
            
            
            1,863,120$
            4,847,820





A
      security pledged at year-end 2007 had a carrying amount of $1,863,000 and was
      pledged to secure public deposits and repurchase agreements.  No
      securities were pledged as collateral at year-end 2006.  There were no
      sales of securities in 2007, 2006 or 2005.





Securities
      with unrealized losses at year-end 2007 and 2006, aggregated by investment
      category and length of time that individual securities have been in a continuous
      unrealized loss position, are as follows.





Less
                than 12 Months
            
            
            12
                Months or More
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedDescription
                of Securities
            
            Value
            
            
            Loss
            
            
            Value
            
            
            Loss
            
            
            Value
            
            
            Loss2007U.S.
                Government agencies
            
            $
            --
            
            
            $
            --
            
            
            $
            4,847,820
            
            
            $
            (150,534
            )
            
            $
            4,847,820
            
            
            $
            (150,534
            )2006U.S.
                Government agencies
            
            $
            497,970
            
            
            $
            (2,030
            )
            
            $
            4,752,200
            
            
            $
            (245,794
            )
            
            $
            5,250,170
            
            
            $
            (247,824
            )




Unrealized
      losses on the investment securities have not been recognized into income because
      the securities are of high credit quality, management has the intent and ability
      to hold for the foreseeable future, and the decline in fair value is largely
      due
      to changes in interest rates.  The fair value is expected to recover
      as the securities approach their maturity date or reset date.




(Continued)   34.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      3 - LOANS**





Year-end
      loans were as follows.





2007
            
            
            2006Mortgage
                loans:1-4
                family residential
            
            $
            86,555,451
            
            
            $
            90,115,467Multi-family
                residential
            
            
            4,232,326
            
            
            
            2,861,027Commercial
                real estate
            
            
            13,893,048
            
            
            
            12,972,451Real
                estate construction and development
            
            
            1,522,448
            
            
            
            2,982,155Land
            
            
            2,891,359
            
            
            
            2,362,925Total
                mortgage loans
            
            
            109,094,632
            
            
            
            111,294,025Consumer
                loans
            
            
            5,357,102
            
            
            
            5,792,608Commercial
                loans
            
            
            8,049,139
            
            
            
            8,363,515Total
                loans
            
            
            122,500,873
            
            
            
            125,450,148Less:Allowance
                for loan losses
            
            
            (664,800
            )
            
            
            (893,600
            )Deferred
                loan fees
            
            
            (348,998
            )
            
            
            (385,355
            )$
            121,487,075
            
            
            $
            124,171,193




At
      June
      30, 2007 and 2006, there were no loans held for sale.  Mortgage loans
      serviced for others are not reported as assets.  The principal balance
      of these loans at June 30, 2007 was $159,819.  Servicing rights
      associated with the serviced loans totaled $2,145 at June 30,
      2007.  No mortgage loans were serviced for others at June 30,
      2006.





Activity
      in the allowance for loan losses was as follows.





2007
            
            
            2006
            
            
            2005Balance
                at beginning of year
            
            $
            893,600
            
            
            $
            835,500
            
            
            $
            752,900Provision
                for losses
            
            
            1,681
            
            
            
            72,568
            
            
            
            91,497Charge-offs
            
            
            (234,624
            )
            
            
            (16,675
            )
            
            
            (9,353
            )Recoveries
            
            
            4,143
            
            
            
            2,207
            
            
            
            456Balance
                at end of year
            
            $
            664,800
            
            
            $
            893,600
            
            
            $
            835,500





The
      majority of charge-offs in 2007 related to loans, which had specific loss
      allocations at June 30, 2006 and thus, were provided for in the prior
      year.  Additionally, a commercial loan relationship, which had a
      specific loss allocation of $80,000 at June 30, 2006, paid off in full during
      fiscal 2007.




(Continued)   35.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      3 - LOANS**(Continued)





Impaired
      loans were as follows.





2007
            
            
            2006Period-end
                impaired loans with no allowance for loan losses allocated
            
            $
            --
            
            
            $
            --Period-end
                impaired loans with allowance for loan losses allocated
            
            
            246,000
            
            
            
            232,000Amount
                of the allowance allocated to impaired loans
            
            
            35,000
            
            
            
            209,000











2007
            
            
            2006
            
            
            2005Average
                of impaired loans during the year
            
            $
            109,000
            
            
            
            214,000
            
            
            
            139,000Interest
                income recognized during the year
            
            
            4,419
            
            
            
            15,545
            
            
            
            10,046Cash-basis
                interest income recognized
            
            
            4,419
            
            
            
            4,846
            
            
            
            3,875








Nonperforming
      loans at year-end were as follows.





2007
            
            
            2006Loans
                past due over 90 days still on accrual
            
            $
            69,000
            
            
            $
            375,000Nonaccrual
                loans
            
            
            1,772,000
            
            
            
            1,525,000








Nonperforming
      loans include both smaller balance homogeneous loans that are collectively
      evaluated for impairment and individually classified impaired
      loans.





Activity
      for loans to executive officers, directors and companies with which they are
      affiliated for the year ended June 30, 2007, were as follows.





Balance
                at beginning of period
            
            $
            1,020,561Effect
                of changes in composition of related parties
            
            
            493,353New
                loans
            
            
            --Principal
                repayments
            
            
            (54,640
            )Balance
                at end of period
            
            $
            1,459,274




**NOTE
      4 - ACCRUED INTEREST RECEIVABLE**





Year-end
      accrued interest receivable was as follows.





2007
            
            
            2006Loans
            
            $
            764,381
            
            
            $
            815,725Securities
            
            
            30,945
            
            
            
            12,000$
            795,326
            
            
            $
            827,725


(Continued)


36.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      5 - PREMISES AND EQUIPMENT**





Year-end
      premises and equipment was as follows.





2007
            
            
            2006Land
            
            $
            225,166
            
            
            $
            225,166Buildings
                and improvements
            
            
            2,510,567
            
            
            
            2,504,154Furniture
                and equipment
            
            
            1,650,917
            
            
            
            1,656,739Automobile
            
            
            25,680
            
            
            
            22,416Total
                cost
            
            
            4,412,330
            
            
            
            4,408,475Accumulated
                depreciation
            
            
            (2,548,277
            )
            
            
            (2,433,803
            )$
            1,864,053
            
            
            $
            1,974,672





The
      Association entered into a lease for a branch in the Super Wal-Mart in Sidney
      that commenced in June 2001.  The lease term was renewed for five
      years at $39,750 annually.  The lease has another five-year renewal
      period at $49,688 annually.  Total rental expense was $39,750, $31,800
      and $31,800 for the years ended June 30, 2007, 2006 and 2005.





Rental
      commitments under the noncancelable operating lease was as follows, before
      considering the renewal option.





Year
                ending June 30,2008
            
            $
            39,7502009
            
            
            39,7502010
            
            
            39,7502011
            
            
            39,750$
            159,000


(Continued)


37.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      6 - FEDERAL INCOME TAXES**





Income
      tax expense was as follows.





2007
            
            
            2006
            
            
            2005Current
            
            $
            475,176
            
            
            $
            606,811
            
            
            $
            492,361Deferred
            
            
            90,124
            
            
            
            (20,211
            )
            
            
            59,239$
            565,300
            
            
            $
            586,600
            
            
            $
            551,600











Effective
      tax rates differ from federal statutory rates applied to financial statement
      income due to the following.





2007
            
            
            2006
            
            
            2005Income
                taxes computed at the statutory tax rate on pretax income
            
            $
            538,994
            
            
            $
            552,837
            
            
            $
            520,021Add
                tax effect of:ESOP
                fair value book expense in excess of tax deduction
            
            
            20,597
            
            
            
            24,673
            
            
            
            25,973Nondeductible
                expenses and other
            
            
            5,709
            
            
            
            9,090
            
            
            
            5,606$
            565,300
            
            
            $
            586,600
            
            
            $
            551,600Statutory
                tax rate
            
            
            34.0
            %
            
            
            34.0
            %
            
            
            34.0
            %Effective
                tax rate
            
            
            35.7
            %
            
            
            36.1
            %
            
            
            36.1
            %


(Continued)


38.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      6 - FEDERAL INCOME TAXES**(Continued)





Year-end
      deferred tax assets and deferred tax liabilities were due to the
      following.





2007
            
            
            2006Items
                giving rise to deferred tax assetsDeferred
                loan fees
            
            $
            117,412
            
            
            $
            129,516Reserve
                for delinquent interest
            
            
            20,233
            
            
            
            21,043Allowance
                for loan losses
            
            
            226,032
            
            
            
            303,824Accrued
                compensation
            
            
            1,986
            
            
            
            2,486Unrealized
                loss on securities available for sale
            
            
            51,182
            
            
            
            84,260Accrued
                ESOP expense
            
            
            23,190
            
            
            
            27,624Total
                deferred tax assets
            
            
            440,035
            
            
            
            568,753Items
                giving rise to deferred tax liabilitiesPrepaid
                expenses
            
            
            (54,275
            )
            
            
            (54,579
            )Securities
                accretion
            
            
            (495
            )
            
            
            (373
            )Depreciation
            
            
            (53,996
            )
            
            
            (77,977
            )FHLB
                stock dividends
            
            
            (404,671
            )
            
            
            (294,678
            )Mortgage
                servicing rights
            
            
            (729
            )
            
            
            --Total
                deferred tax liabilities
            
            
            (514,166
            )
            
            
            (427,607
            )Net
                deferred tax asset (liability)
            
            $
            (74,131
            )
            
            $
            141,146





Retained
      earnings at June 30, 2007 and 2006 included approximately $2,174,000 for which
      no provision for federal income taxes had been made.  This amount
      represents the qualifying and nonqualifying tax bad debt reserve as of December
      31, 1987, which is the end of the Association’s base year for purposes of
      calculating the bad debt deduction for tax purposes.  If this portion
      of retained earnings is used in the future for any purpose other than to absorb
      bad debts, it will be added to future taxable income.  The related
      amount of unrecognized deferred tax liability was approximately $739,000 at
      June
      30, 2007 and 2006.




(Continued)   39.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      7 - DEPOSITS**





Year-end
      deposits were as follows.





2007
            
            
            2006Noninterest-bearing
                demand deposits
            
            $
            1,166,551
            
            
            $
            1,194,173NOW
                accounts
            
            
            6,747,796
            
            
            
            6,191,480Money
                market accounts
            
            
            6,316,237
            
            
            
            6,530,593Savings
                accounts
            
            
            23,255,144
            
            
            
            25,818,593Certificates
                of deposit
            
            
            44,993,742
            
            
            
            43,084,199$
            82,479,470
            
            
            $
            82,819,038








The
      aggregate amount of certificates of deposit with a minimum denomination of
      $100,000 was $6,406,000 and $4,408,000 at June 30, 2007 and 2006,
      respectively.  Deposits more than $100,000 are not insured by the
      FDIC.  Related party deposits were $765,000 and $865,000 at June 30,
      2007 and 2006.





The
      scheduled maturities of certificates of deposit as of June 30, 2007 were as
      follows.





Year
                ended June 30,2008
            
            $
            20,742,2342009
            
            
            10,309,2732010
            
            
            4,568,0352011
            
            
            5,530,6522012
            
            
            3,843,548$
            44,993,742





**NOTE
      8 - BORROWED FUNDS**





At
      June
      30, 2007, the Association had a cash management line of credit enabling it
      to
      borrow up to $8,000,000 from the Federal Home Loan Bank of Cincinnati
      (“FHLB”).  All cash management advances have an original maturity of
      90 days.  The line of credit must be renewed on an annual
      basis.  There were no outstanding borrowings on this line of credit at
      June 30, 2007 and $3,500,000 at June 30, 2006.





At
      June
      30, 2007, based on the Association’s current FHLB stock ownership, total assets
      and pledgable residential mortgage loan portfolio, the Association had the
      ability to obtain borrowings up to a maximum of $61.0 million.




(Continued)   40.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      8 - BORROWED FUNDS******(Continued)





Advances
      from the Federal Home Loan Bank at year-end were as follows.





2007
            
            
            2006Cash
                management advance, variable rate at 5.43% at June 30,
                2006
            
            $
            --
            
            
            $
            3,500,0004.88%
                fixed-rate advance, due January 25, 2008
            
            
            2,000,000
            
            
            
            2,000,0006.13%
                fixed-rate advance, due June 25, 2008
            
            
            7,000,000
            
            
            
            7,000,0005.16%
                fixed-rate advance, due March 13, 2009
            
            
            3,000,000
            
            
            
            3,000,0006.00%
                convertible advance, fixed-rate until  September 2007, due June
                11, 2009
            
            
            5,000,000
            
            
            
            5,000,0004.42%
                fixed-rate advance, due July 9, 2010
            
            
            2,000,000
            
            
            
            2,000,0006.27%
                convertible advance, fixed-rate until September 2007, due September
                8,
                2010
            
            
            5,000,000
            
            
            
            5,000,0005.12%
                fixed-rate advance, due October 31, 2011
            
            
            5,000,000
            
            
            
            --5.30%
                select pay mortgage-matched advance, final maturity May 1,
                2011
            
            
            484,157
            
            
            
            658,3575.35%
                select pay mortgage-matched advance, final maturity July 1,
                2011
            
            
            1,118,371
            
            
            
            1,507,8493.92%
                select pay mortgage-matched advance, final maturity November 1,
                2012
            
            
            480,421
            
            
            
            587,9023.55%
                select pay mortgage-matched advance, final maturity March 1,
                2013
            
            
            617,819
            
            
            
            712,9914.10%
                select pay mortgage-matched advance, final maturity March 1,
                2015
            
            
            517,930
            
            
            
            716,9674.09%
                select pay mortgage-matched advance, final maturity November 1,
                2017
            
            
            496,302
            
            
            
            593,0683.31%
                select pay mortgage-matched advance, final maturity April 1,
                2019
            
            
            508,543
            
            
            
            638,9254.72%
                select pay mortgage-matched advance, final maturity November 1,
                2022
            
            
            2,067,366
            
            
            
            2,269,9984.38%
                select pay mortgage-matched advance, final maturity December 1,
                2022
            
            
            687,777
            
            
            
            755,9283.92%
                select pay mortgage-matched advance, final maturity December 1,
                2022
            
            
            549,696
            
            
            
            638,8743.64%
                select pay mortgage-matched advance, final  maturity March 1,
                2023
            
            
            1,660,648
            
            
            
            1,930,409$
            38,189,030
            
            
            $
            38,511,268




The
      interest rates on the convertible advances are fixed for a specified number
      of
      years, then convertible on a quarterly basis to a variable rate at the option
      of
      the FHLB.  If the convertible option is exercised, the advance may be
      prepaid without penalty.  The select pay mortgage-matched advances
      require monthly principal and interest payments and annual additional principal
      payments.




(Continued)   41.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      8 - BORROWED FUNDS******(Continued)





The
      maximum month-end balance of advances outstanding was $41,383,000 in 2007 and
      $38,511,000 in 2006.  Average balances of borrowings outstanding
      during 2007 and 2006 were $39,377,000 and $35,412,000.  Advances under
      the borrowing agreements were collateralized by the Association’s FHLB stock
      owned and $92,007,000 and $93,575,000 of qualifying mortgage loans at year-end
      2007 and 2006.





Maturities
      of FHLB advances for the next five years and thereafter were as
      follows.





Year
                ended June 30,2008
            
            $
            10,603,7382009
            
            
            9,416,1852010
            
            
            1,254,8072011
            
            
            8,108,1542012
            
            
            5,743,735Thereafter
            
            
            3,062,411$
            38,189,030





**NOTE
      9 - RETIREMENT PLANS**





The
      Corporation maintains a 401(k) profit sharing plan.  With certain
      exceptions, all employees who have attained the age of 21 and who have completed
      one year of employment, during which they worked at least 1,000 hours, are
      eligible to participate in the plan.  The Corporation provides a
      matching contribution on behalf of participants who make elective compensation
      deferrals at the rate of 50% of the first 6% of participant contributions up
      to
      a maximum match of 3% of the participant’s compensation.  The
      Corporation may also contribute additional amounts at its
      discretion.  Employee contributions are vested at all times and the
      Corporation’s matching contributions vest evenly over 5 years of
      service.  The cash contribution and related expense included in
      salaries and employee benefits was $35,308, $32,045 and $29,117 for the years
      ended June 30, 2007, 2006 and 2005.


(Continued)


42.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      10 - EMPLOYEE STOCK OWNERSHIP PLAN**





The
      Corporation offers an employee stock ownership plan (“ESOP”) for the benefit of
      substantially all employees of the Corporation.  The ESOP received a
      favorable determination letter from the Internal Revenue Service on the
      qualified status of the ESOP under applicable provisions of the Internal Revenue
      Code.  The ESOP borrowed funds from Peoples in order to acquire common
      shares of Peoples.  The loan is secured by the shares purchased with
      the loan proceeds and will be repaid by the ESOP with funds from the
      Association’s discretionary contributions to the ESOP, dividends on unallocated
      shares received by the ESOP and earnings on ESOP assets.  When loan
      payments are made, ESOP shares are allocated to participants based on relative
      compensation.  Dividends on allocated shares increase participant
      accounts.





Participants
      receive the shares at the end of employment.  A participant may
      require stock received to be repurchased by the Corporation unless the stock
      is
      traded on an established market.  The Over the Counter Bulletin Board
      that the Corporation switched to on January 1, 2006 from the NASDAQ National
      Market System is not considered an established market according to the Internal
      Revenue Code.  As a result, allocated shares are subject to a
      repurchase obligation.





Contributions
      to the ESOP during 2007, 2006 and 2005 were $130,488, $137,604 and
      $144,721.  ESOP compensation expense was $149,558, $166,399 and
      $175,082 for the years ended June 30, 2007, 2006 and 2005.





Year-end
      ESOP shares were as follows.





2007
            
            
            2006Allocated
                shares
            
            
            128,524
            
            
            
            117,908Unreleased
                shares
            
            
            28,380
            
            
            
            38,996Total
                ESOP shares
            
            
            156,904
            
            
            
            156,904Fair
                value of unreleased shares
            
            $
            370,359
            
            
            $
            581,040








(Continued)




43.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      11 - STOCK OPTION AND INCENTIVE PLAN**





The
      Stock
      Option and Incentive Plan was approved by the shareholders of the Corporation
      on
      May 22, 1998 which provides for the issue of up to 178,538
      options.  Exercise price is the market price at the date of
      grant.  One-fifth of the options awarded become first exercisable on
      each of the first five anniversaries of the date of grant.  The option
      period expires 10 years from the date of grant.





A
      summary
      of the activity in the plan was as follows.





2007
            
            
            2006
            
            
            2005Shares
            
            
            Weighted
                Average Exercise Price
            
            
            Shares
            
            
            Weighted
                Average Exercise Price
            
            
            Shares
            
            
            Weighted
                Average Exercise PriceOutstanding
                at beginning of year
            
            
            128,898
            
            
            $
            16.04
            
            
            
            131,898
            
            
            $
            16.04
            
            
            
            131,898
            
            
            $
            16.04Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
            
            
            (8,926
            )
            
            
            16.01
            
            
            
            (3,000
            )
            
            
            16.01
            
            
            
            --
            
            
            
            --Outstanding
                at end of year
            
            
            119,972
            
            
            $
            16.04
            
            
            
            128,898
            
            
            $
            16.04
            
            
            
            131,898
            
            
            $
            16.04Options
                exercisable at year-end
            
            
            119,972
            
            
            $
            16.04
            
            
            
            128,898
            
            
            $
            16.04
            
            
            
            131,898
            
            
            $
            16.04Remaining
                shares available for grant
            
            
            58,566
            
            
            
            
            
            
            
            49,640
            
            
            
            
            
            
            
            46,640








Options
      outstanding at year-end were as follows.





Weighted
                AverageRemainingExercise
            
            Number
            
            
            Contractual
            
            
            NumberPrices
            
            Outstanding
            
            
            Life
            
            
            Exercisable$16.01
            
            
            118,727
            
            
            $
            0.90  
                yrs
            
            
            
            118,727$18.75
            
            
            1,245
            
            
            $
            0.95  
                yrs
            
            
            
            1,245Outstanding
                at year-end
            
            
            119,972
            
            
            $
            0.90  
                yrs
            
            
            
            119,972





There
      was
      no intrinsic value for the outstanding and exercisable options at June 30,
      2007,
      2006 and 2005.





**NOTE
      12 - MANAGEMENT RECOGNITION PLAN**





A
      Management Recognition Plan (“MRP”) was adopted by the Board of Directors and
      approved by the shareholders of the Corporation on May 22, 1998 to purchase
      71,415 common shares.  The MRP is used as a means of providing
      directors and certain key employees of the Corporation with an ownership
      interest in the Corporation in a manner designed to compensate such directors
      and key employees for services to the Corporation.




(Continued)   44.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      12 - MANAGEMENT RECOGNITION PLAN**(Continued)





In
      conjunction with the adoption of the MRP on May 22, 1998, the Board of Directors
      awarded 57,128 shares to certain directors, officers and employees of the
      Corporation.  No shares had been previously
      awarded.  One-fifth of such shares were earned and nonforfeitable on
      each of the first five anniversaries of the date of the award.  All
      MRP shares outstanding fully vested on May 22, 2003.  At June 30,
      2007, there were 14,287 shares reserved for future awards and held as treasury
      stock.  Compensation expense related to MRP shares is based upon fair
      value of the shares at the date of grant.  There was no compensation
      expense in 2007, 2006 or 2005.





**NOTE
      13 - REGULATORY MATTERS**





The
      Association is subject to various regulatory capital requirements administered
      by the federal regulatory agencies.  Under capital adequacy guidelines
      and the regulatory framework for prompt corrective action, the Association
      must
      meet specific capital guidelines that involve quantitative measures of the
      Association’s assets, liabilities and certain off-balance-sheet items as
      calculated under regulatory accounting practices.  Capital amounts and
      classifications are also subject to qualitative judgments by the
      regulators.  Failure to meet minimum capital requirements can initiate
      regulatory action.





Prompt
      corrective action regulations provide five classifications: well capitalized,
      adequately capitalized, undercapitalized, significantly undercapitalized, and
      critically undercapitalized, although these terms are not used to represent
      overall financial condition.  If adequately capitalized, regulatory
      approval is required to accept brokered deposits.  If
      undercapitalized, capital distributions are limited, as is asset growth and
      expansion, and capital restoration plans are required.





At
      June
      30, 2007 and 2006, management believes the Association complies with all
      regulatory capital requirements.  Based on the Association’s computed
      regulatory capital ratios, the Association is considered well capitalized under
      the Federal Deposit Insurance Act at June 30, 2007 and 2006.  No
      conditions or events have occurred subsequent to the last notification by
      regulators that management believes would change the Association’s
      category.


(Continued)   45.
 *Table
                of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      13 - REGULATORY MATTERS**(Continued)





At
      year-end 2007 and 2006, the Association’s actual capital levels and minimum
      required levels were as follows.





To
                Be WellCapitalized
                UnderFor
                Capital
            
            
            Prompt
                Corrective-Actual
            
            
            Adequacy
                Purposes
            
            
            Action
                RegulationsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio(Dollars
                in thousands)2007Total
                capital (to risk-weighted assets)
            
            $
            13,989
            
            
            
            16.1
            %
            
            $
            6,930
            
            
            
            8.0
            %
            
            $
            8,663
            
            
            
            10.0
            %Tier
                1 (core) capital (to risk-weighted assets)
            
            
            13,572
            
            
            
            15.7
            
            
            
            3,465
            
            
            
            4.0
            
            
            
            5,198
            
            
            
            6.0Tier
                1 (core) capital (to adjusted total assets)
            
            
            13,572
            
            
            
            9.8
            
            
            
            5,541
            
            
            
            4.0
            
            
            
            6,926
            
            
            
            5.0Tangible
                capital (to adjusted total assets)
            
            
            13,572
            
            
            
            9.8
            
            
            
            2,078
            
            
            
            1.5
            
            
            N/A2006Total
                capital (to risk-weighted assets)
            
            $
            16,048
            
            
            
            18.9
            %
            
            $
            6,779
            
            
            
            8.0
            %
            
            $
            8,473
            
            
            
            10.0
            %Tier
                1 (core) capital (to risk-weighted assets)
            
            
            15,368
            
            
            
            18.1
            
            
            
            3,389
            
            
            
            4.0
            
            
            
            5,084
            
            
            
            6.0Tier
                1 (core) capital (to adjusted total assets)
            
            
            15,368
            
            
            
            11.0
            
            
            
            5,576
            
            
            
            4.0
            
            
            
            6,970
            
            
            
            5.0Tangible
                capital (to adjusted total assets)
            
            
            15,368
            
            
            
            11.0
            
            
            
            2,091
            
            
            
            1.5
            
            
            N/A




The
      Qualified Thrift Lender test requires at least 65% of assets be maintained
      in
      housing-related finance and other specified areas.  If this test is
      not met, limits are placed on growth, branching, new investments, FHLB advances
      and dividends, or the Association must convert to a commercial bank
      charter.  Management believes the Association satisfies this
      test.





When
      the
      Association converted from a mutual to a stock institution, a “liquidation
      account” was established at $9,307,000, which was net worth reported in the
      conversion prospectus.  Eligible depositors who have maintained their
      accounts, less annual reductions to the extent they have reduced their deposits,
      would receive a distribution from this account if the Association
      liquidated.  Dividends may not reduce shareholders’ equity below the
      required liquidation account balance.





In
      addition to the liquidation account restriction discussed above, OTS regulations
      limit capital distributions by savings associations.  Generally,
      capital distributions are permitted without notice or application to the OTS
      if
      the distributions are limited to current year to date undistributed net income
      and prior two years’ undistributed net income, as long as the institution
      remains well capitalized after the proposed distribution.  If
      dividends to be paid would exceed the net income test, an application would
      be
      required. 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.




(Continued)   46.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      14 - OFF-BALANCE-SHEET ACTIVITIES**





Some
      financial instruments, such as loan commitments, credit lines, letters of credit
      and overdraft protection, are issued to meet customer financing
      needs.  These are agreements to provide credit or to support the
      credit of others, as long as conditions established in the contract are met,
      and
      usually have expiration dates.  Commitments may expire without being
      used.  Off-balance-sheet risk to credit loss exists up to the face
      amount of these instruments, although material losses are not
      anticipated.  The same credit policies are used to make such
      commitments as are used for loans, including obtaining collateral at exercise
      of
      the commitment.





The
      contractual amount of financial instruments with off-balance-sheet risk was
      as
      follows at year-end.





2007
            
            
            20061-4
                family residential real estate – fixed rate
            
            $
            219,000
            
            
            $
            239,0001-4
                family residential real estate – variable rate
            
            
            366,000
            
            
            
            448,000Commercial
                real estate – fixed rate
            
            
            232,000
            
            
            
            --Commercial
                lines of credit – variable rate
            
            
            5,324,000
            
            
            
            4,213,000Home
                equity lines of credit – variable rate
            
            
            974,000
            
            
            
            913,000





The
      interest rate on fixed-rate commitments ranged from 7.25% to 8.13% at June
      30,
      2007 and 6.38% to 8.00% at June 30, 2006.  Commitments to make loans
      are generally made for a period of 30 days or less.  The maximum
      maturity for fixed-rate commitments range from 10 years to 20
      years.





At
      June
      30, 2007and 2006, the Association was required to have $295,000 and $241,000
      on
      deposit with its correspondent banks as a compensating clearing
      requirement.





The
      Association entered into employment agreements with certain officers of the
      Corporation.  The agreements provide for a term of one to three years
      and a set salary as well as inclusion of the employee in any formally
      established employee benefit, bonus, pension and profit-sharing plans for which
      management personnel are eligible.  The agreements provide for
      extensions for a period of one year on each annual anniversary date, subject
      to
      review and approval of the extension by disinterested members of the Board
      of
      Directors of the Association.  The employment agreements also provide
      for vacation and sick leave and include provisions that would accelerate certain
      benefits upon change of control.


(Continued)


47.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS**





Carrying
      amounts and estimated fair values of financial instruments at year-end were
      as
      follows.





2007
            
            
            2006Estimated
            
            
            EstimatedCarrying
            
            
            Fair
            
            
            Carrying
            
            
            FairValue
            
            
            Value
            
            
            Value
            
            
            ValueFinancial
                assets:Cash
                and cash equivalents
            
            $
            7,182,198
            
            
            $
            7,182,198
            
            
            $
            4,714,929
            
            
            $
            4,714,929Securities
                available for sale
            
            
            4,847,820
            
            
            
            4,847,820
            
            
            
            5,250,170
            
            
            
            5,250,170Federal
                Home Loan Bank stock
            
            
            1,820,800
            
            
            
            1,820,800
            
            
            
            1,768,100
            
            
            
            1,768,100Loans,
                net
            
            
            121,487,075
            
            
            
            118,554,337
            
            
            
            124,171,193
            
            
            
            120,160,678Accrued
                interest receivable
            
            
            795,326
            
            
            
            795,326
            
            
            
            827,725
            
            
            
            827,725Financial
                liabilities:Deposits
            
            
            (82,479,470
            )
            
            
            (82,302,826
            )
            
            
            (82,819,038
            )
            
            
            (82,355,616
            )Borrowed
                funds
            
            
            (38,189,030
            )
            
            
            (36,879,457
            )
            
            
            (38,511,268
            )
            
            
            (36,427,921
            )Accrued
                interest payable
            
            
            (199,657
            )
            
            
            (199,657
            )
            
            
            (189,060
            )
            
            
            (189,060
            )




The
      estimated fair value approximates carrying amounts for all items except those
      described below.  Security fair values are based on market prices or
      dealer quotes, and if no such information is available, on the rate and term
      of
      the security and information about the issuer.  For fixed rate loans
      or deposits and for variable rate loans or deposits with infrequent repricing
      or
      repricing limits, fair value is based on discounted cash flows using current
      market rates applied to the estimated life and credit risk.  Fair
      values for impaired loans are estimated using discounted cash flow analysis
      or
      underlying collateral values.  Fair value of debt is based on current
      rates for similar financing.  The fair value of off-balance-sheet
      items is based on the current fees or cost that would be charged to enter into
      or terminate such arrangements, which are not material.




**NOTE
      16 - EARNINGS PER SHARE**





The
      factors used in the earnings per share computation follows.





2007
            
            
            2006
            
            
            2005BasicNet
                income
            
            $
            1,019,975
            
            
            $
            1,039,390
            
            
            $
            977,873Weighted
                average common shares outstanding
            
            
            1,369,928
            
            
            
            1,408,785
            
            
            
            1,432,648Less:  Average
                unallocated ESOP shares
            
            
            (33,688
            )
            
            
            (44,594
            )
            
            
            (56,079
            )Weighted
                average common shares outstanding for basic earnings per common
                share
            
            
            1,336,240
            
            
            
            1,364,191
            
            
            
            1,376,569Basic
                earnings per common share
            
            $
            0.76
            
            
            $
            0.76
            
            
            $
            0.71


(Continued)


48.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      16 - EARNINGS PER SHARE**(Continued)





2007
            
            
            2006
            
            
            2005DilutedNet
                income
            
            $
            1,019,975
            
            
            $
            1,039,390
            
            
            $
            977,783Weighted
                average common shares outstanding for basic earnings per  common
                share
            
            
            1,336,240
            
            
            
            1,364,191
            
            
            
            1,376,569Add:  Dilutive
                effects of assumed exercises of stock options
            
            
            --
            
            
            
            --
            
            
            
            92Weighted
                average common shares and dilutive potential common shares
                outstanding
            
            
            1,336,240
            
            
            
            1,364,191
            
            
            
            1,376,661Diluted
                earnings per common share
            
            $
            0.76
            
            
            $
            0.76
            
            
            $
            0.71








For
      each
      of the years ending June 30, 2007, 2006 and 2005, there were 119,972, 128,898
      and 1,245 stock options outstanding that were not dilutive as the exercise
      price
      of outstanding options was greater than the average market price for the
      periods.








**NOTE
      17 - OTHER COMPREHENSIVE INCOME (LOSS)**





Other
      comprehensive income (loss) components and related taxes were as
      follows.





2007
            
            
            2006
            
            
            2005Unrealized
                holding gains and (losses) on available-for-sale
                securities
            
            $
            97,290
            
            
            $
            (184,105
            )
            
            $
            145,276Tax
                effect
            
            
            (33,078
            )
            
            
            62,597
            
            
            
            (49,395
            )Other
                comprehensive income (loss)
            
            $
            64,212
            
            
            $
            (121,508
            )
            
            $
            95,881


(Continued)


49.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005








**NOTE
      18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION**





Following
      is condensed financial information of Peoples-Sidney Financial Corporation
      as of
      June 30, 2007and 2006, and for the periods ended June 30, 2007, 2006 and
      2005.








CONDENSED
      BALANCE SHEETS


June
      30,
      2007 and 2006





2007
            
            
            2006AssetsCash
                and cash equivalents
            
            $
            3,159,924
            
            
            $
            1,651,099Investment
                in subsidiary
            
            
            13,473,093
            
            
            
            15,204,495Loans
                receivable from ESOP
            
            
            306,064
            
            
            
            408,086Total
                assets
            
            $
            16,939,081
            
            
            $
            17,263,680Liabilities
                and shareholders’ equityOther
                liabilities
            
            $
            3,525
            
            
            $
            7,339Common
                stock in ESOP subject to repurchase obligation
            
            
            1,677,238
            
            
            
            1,756,829Shareholders’
                equity
            
            
            15,258,318
            
            
            
            15,499,512Total
                liabilities and shareholders’ equity
            
            $
            16,939,081
            
            
            $
            17,263,680





CONDENSED
      STATEMENTS OF INCOME


Years
      Ended June 30, 2007, 2006 and 2005





2007
            
            
            2006
            
            
            2005IncomeDividend
                income from subsidiary
            
            $
            2,950,000
            
            
            $
            2,000,000
            
            
            $
            --Interest
                on loans
            
            
            28,466
            
            
            
            35,583
            
            
            
            42,7002,978,466
            
            
            
            2,035,583
            
            
            
            42,700Other
                expenses
            
            
            101,337
            
            
            
            100,675
            
            
            
            94,330Income
                (loss) before taxes and undistributed earnings of
                subsidiary
            
            
            2,877,129
            
            
            
            1,934,908
            
            
            
            (51,630
            )Income
                tax benefit
            
            
            (24,800
            )
            
            
            (22,200
            )
            
            
            (17,600
            )Income
                (loss) before undistributed earnings of subsidiary
            
            
            2,901,929
            
            
            
            1,957,108
            
            
            
            (34,030
            )Equity
                in undistributed earnings of subsidiary (distributions in excess
                of
                earnings)
            
            
            (1,881,954
            )
            
            
            (917,718
            )
            
            
            1,011,903Net
                income
            
            $
            1,019,975
            
            
            $
            1,039,390
            
            
            $
            977,873


(Continued)


50.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


June
      30,
      2007, 2006 and 2005







**NOTE
      18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION******(Continued)





CONDENSED
      STATEMENTS OF CASH FLOWS


Years
      Ended June 30, 2007, 2006 and 2005





2007
            
            
            2006
            
            
            2005Cash
                flows from operating activitiesNet
                income
            
            $
            1,019,975
            
            
            $
            1,039,390
            
            
            $
            977,873Adjustments
                to reconcile net income to cash provided by operations:(Equity
                in undistributed income of subsidiary)distributions
                in excess of earnings
            
            
            1,881,954
            
            
            
            917,718
            
            
            
            (1,011,903
            )Net
                change in other assets and liabilities
            
            
            (3,814
            )
            
            
            800
            
            
            
            (575
            )Net
                cash from operating activities
            
            
            2,898,115
            
            
            
            1,957,908
            
            
            
            (34,605
            )Cash
                flows from investing activitiesProceeds
                from loan principal repayments
            
            
            102,022
            
            
            
            102,021
            
            
            
            102,022Net
                cash from investing activities
            
            
            102,022
            
            
            
            102,021
            
            
            
            102,022Cash
                flows from financing activitiesPurchase
                of treasury shares
            
            
            (473,044
            )
            
            
            (611,562
            )
            
            
            --Cash
                dividends paid
            
            
            (989,411
            )
            
            
            (977,769
            )
            
            
            (918,358
            )Dividends
                on unallocated ESOP shares
            
            
            (28,857
            )
            
            
            (36,138
            )
            
            
            (41,517
            )Net
                cash from financing activities
            
            
            (1,491,312
            )
            
            
            (1,625,469
            )
            
            
            (959,875
            )Net
                change in cash and cash equivalents
            
            
            1,508,825
            
            
            
            434,460
            
            
            
            (892,458
            )Cash
                and cash equivalents at beginning of year
            
            
            1,651,099
            
            
            
            1,216,639
            
            
            
            2,109,097Cash
                at end of year
            
            $
            3,159,924
            
            
            $
            1,651,099
            
            
            $
            1,216,639




51.
 *Table
              of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION




**SHAREHOLDER
      INFORMATION**






**ANNUAL
      MEETING**





The
      Annual Meeting of Shareholders will be held at 11:00 a.m., Sidney, Ohio on
      October 12, 2007, at the Holiday Inn, I-75 and S.R. 47, Sidney,
      Ohio.  Further information with regard to the meeting can be found in
      the proxy statement.




**STOCK
      LISTING**




Peoples-Sidney
      Financial Corporation common stock is traded on the OTC Bulletin Board under
      the
      symbol “PSFC.”








**SHAREHOLDERS
                AND GENERAL INQUIRIES**
            
            **TRANSFER
                AGENT**Douglas
                Stewart, President
            
            Registrar
                and Transfer Co.Peoples-Sidney
                Financial Corporation
            
            10
                Commerce Drive101
                East Court Street
            
            Cranford,
                NJ  07016P.O.
                Box 727Sidney,
                Ohio 45365-3021(937)
                492-6129





**ANNUAL
      AND OTHER REPORTS**





A
      copy of
      Peoples-Sidney Financial Corporation’s Annual Report on Form 10-KSB for the year
      ended June 30, 2007, as filed with the Securities and Exchange Commission,
      may
      be obtained without charge by contacting Douglas Stewart, President and Chief
      Executive Officer, Peoples-Sidney Financial Corporation, 101 East Court Street,
      P.O. Box 727, Sidney, Ohio 45365-3021.


52.
 *Table
          of Contents*


PEOPLES-SIDNEY
      FINANCIAL CORPORATION




**CORPORATE
      INFORMATION**







**CORPORATION
      AND ASSOCIATION ADDRESS**





101
                East Court Street
            Telephone:
            (937)
                492-6129


P.O.
                Box 727
            Fax:
            (937)
                498-4554


Sidney,
                Ohio 45365-3021








**BOARD
      OF DIRECTORS**





Douglas
                Stewart
              *President
                and Chief Executive Officer of Peoples Federal Savings and Loan
                Association*
            
            Harry
                N. Faulkner
              *Partner
                in the law firm of Faulkner, Garmhausen, Keister & Shenk
                LPA*Jeffery
                S. Sargeant
              *Owner
                and President of Community Insurance Group, Ltd., a full line insurance
                company*
            
            James
                W. Kerber
              *Owner
                of James W. Kerber CPA, a private practice accounting
                firm*Richard
                T. Martin (Chairman of the Board)
              *Certified
                Public Accountant, in the CPA firm of McCrate, Delaet &
                Company***OFFICERS
                OF THE CORPORATION AND THE ASSOCIATION**
              
              Douglas
                Stewart, President & CEO
              David
                R. Fogt, VP Financial Services and Operations
              Gary
                N. Fullenkamp, VP Mortgage Loans and Corporate Secretary
              Debra
                A. Geuy, Chief Financial Officer and Treasurer**SPECIAL
                COUNSEL**
            
            **INDEPENDENT
                AUDITORS**Katten
                Muchin Rosenman LLP
              1025
                Thomas Jefferson Street, N.W.
              East
                Lobby, Suite 700
              Washington,
                D.C. 20007-5201
            
            Crowe
                Chizek and Company LLC
              One
                Columbus
              10
                West Broad Street
              Columbus,
                Ohio  43215






53.