SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB
(Mark one)
[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                       OR
[ ]               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

           FOR THE TRANSITION PERIOD FROM ____________TO_____________

                         COMMISSION FILE NUMBER 33-88802

                          PEOPLES FINANCIAL CORP., INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
       PENNSYLVANIA                                          25-1469914
-------------------------------                           -------------------
(State or other jurisdiction of                           (I.R.S. Employer
 Incorporation or organization                            Identification No.)

323 FORD STREET, FORD CITY, PA                                       16226
--------------------------------                                     ------
(Address of principal executive offices)                           (Zip Code)
Registrants telephone number, including area code:               (814) 275-3133

           Securities registered pursuant to Section 12(b) of the Act:

                                                         Name of each exchange
          Title of each class                             on which registered
          -------------------                             -------------------
Common Stock, par value of $0.30 per share                       None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10-KSB. [X]

The Issuer's revenues for the year ended December 31, 1997, were:
$17,506,662.

State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $22,378,048 on March 1, 1998

Indicate the number of shares outstanding of the registrant's common stock,
as of March 1, 1998: Peoples Financial Corp., Inc. Common Stock, par value $0.30
per share: 882,168 shares

                       DOCUMENTS INCORPORATED BY REFERENCE

Excerpts from the following documents have been incorporated by reference
in answer or partial answer to certain Items required herein and are attached
hereto as Exhibits:

1)   Annual Report to Shareholders, Part I - II.
2)   Proxy Statement pursuant to Regulation 14A promulgated by the Securities
     and Exchange Commission under the Securities Exchange Act of 1934, Part
     III.

<PAGE>


DESCRIPTION OF PEOPLES FINANCIAL CORP, INC. AND PFC BANK


                                     Part I

ITEM 1 - DESCRIPTION OF BUSINESS

Peoples Financial Corp, Inc., ("PFC") is a Pennsylvania business
corporation, incorporated in June, 1984. PFC was organized as a holding company
for Peoples Bank of PA. Peoples Bank of PA, in turn owned approximately 53% of
New Bethlehem Bank common stock. Effective April 1, 1995, New Bethlehem merged
with and into Peoples and changed its name to PFC Bank (the "Bank").

The Bank is a Pennsylvania-chartered banking institution and, as successor
to Peoples and New Bethlehem, traces its origins to 1914 and 1895, respectively.
PFC Bank offers a full range of banking services through six banking offices in
Pennsylvania, two of which are located in Ford City, two in New Bethlehem, and
one in each of Clarion and Indiana. As of December 31, 1997, the Bank had total
assets of $240.3 million and shareholders equity of $37.4 million. All of PFC
Bank's outstanding common stock is owned by PFC.

PFC Service Corporation (the "Service Corp") is a Delaware Corporation
which is a wholly owned subsidiary of the Bank. The Service Corp was
incorporated in Delaware, May 16, 1997. The primary purpose of the Service Corp
is to buy and sell equity securities, primarily Pennsylvania bank securities. As
of December 31, 1997, the Service Corp had total assets of $38.1 million and
shareholder's equity of $27.6 million.

Forward-Looking Statements

PFC may include forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters in this and other filings with the Commission. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, PFC notes that
a variety of factors could cause PFC's actual results and experience to differ
materially from the anticipated results or other expectations expressed in PFC's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of PFC's business include the
following: general economic conditions, including their impact on capital
expenditures; business conditions in the banking industry; the regulatory
environment; rapidly changing technology and evolving banking industry
standards; competitive factors, including increased competition with community,
regional and national financial institutions; new service and product offerings
by competitors and price pressures; and similar items.

Employees

As of December 31, 1997, PFC, PFC Bank and PFC Service Corp. had 84
full-time employees and 20 part-time employees.

Competition

The Financial services industry in the Company's service area is extremely
competitive. The Company's competitors within its service area include
multi-bank holding companies, with resources substantially greater than those of
the Company. Many competitor financial institutions have legal lending limits
substantially higher than the Bank's legal lending limit. In addition, the Bank
competes with savings banks, savings and loan associations, credit unions, money
market and other mutual funds, mortgage companies, leasing companies, finance
companies, and other financial services companies that offer products and
services similar to those offered by the Bank on competitive terms. The Bank is
not dependent on one or a few major competitors.


<PAGE>

In September 1994, federal legislation was enacted that is expected to have
a significant effect in restructuring the banking industry in the United States.
As a result, the Company expects the operating environment for
Pennsylvania-based financial institutions to become increasingly competitive.

Additionally, the manner in which banking institutions conduct their
operations may change materially as the activities increase in which bank
holding companies and their banking and nonbanking subsidiaries are permitted to
engage, and funding and investment alternatives continue to broaden, although
the long-range effects of these changes cannot be predicted, with reasonable
certainty, at this time. These changes probably will further narrow the
differences and intensify competition between and among commercial banks, thrift
institutions, and other financial service companies.

Supervision and Regulation of PFC and PFC Bank

PFC is subject to the provisions of the Bank Holding Company Act of 1956
("BHCA"), as amended, and to supervision by the Board of Governors of the
Federal Reserve System (the Federal Reserve Board). Under Federal Reserve Board
policy, PFC, as a holding company, is expected to act as a source of financial
strength to its subsidiaries and to commit resources to support the
subsidiaries. This support may be required at times when, absent such Federal
Reserve Board policy, PFC may not be in a position to provide it. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" (as defined
by regulations) with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency, up to specified limits.

Under the BHCA, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.

The BHCA prohibits the Company from acquiring direct or indirect control of
more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve. Such
a transaction would also require approval of the Pennsylvania Department of
Banking. Pennsylvania law permits Pennsylvania bank holding companies to control
an unlimited number of banks.

Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any company engaged in a nonbanking business unless
such business is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto.

As a bank holding company, PFC is prohibited from engaging in or acquiring
direct or indirect control of more than 5 percent of the voting shares of any
company engaged in non-banking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making this determination, the Federal Reserve Board considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects.

As a bank holding company, PFC is required to file reports with the Federal
Reserve Board and is subject to examinations thereby.


The activities that the Federal Reserve has determined by regulation to be
permissible are:

     (1)  making, acquiring, or servicing loans or other extensions of credit
          for its own account or for the account of others;

     (2)  operating an industrial bank, Morris Plan bank, or industrial loan
          company, in the manner authorized by state law, so long as the
          institution is not a bank;

     (3)  operating as a trust company in the manner authorized by federal or
          state law so long as the institution is not a bank and does not make
          loans or investments or accept deposits, except as may be permitted by
          the Federal Reserve;

     (4)  subject to limitations, acting as an investment or financial advisor
          (i) to a mortgage or real estate investment trust, (ii) to certain
          registered investment companies, (iii) by providing portfolio
          investment advice to other persons, (iv) by furnishing general
          economic information and advice, general economic statistical
          forecasting services, and industry studies, (v) by providing financial
          advice to state and local governments, or (vi) by providing financial
          and transaction advice to corporations, institutions, and certain
          persons in connection with mergers, acquisitions, and other financial
          transactions;

     (5)  subject to limitations, leasing real or personal property or acting as
          agent, broker, or adviser in leasing such property in accordance with
          prescribed conditions;

     (6)  investing in corporations or projects designed primarily to promote
          community welfare;

     (7)  providing to others data processing services and data transmission
          services, data bases, and facilities, within certain limitations;

     (8)  subject to limitations, engaging in certain agency and underwriting
          activities with respect to credit insurance, and certain other
          insurance activities as permitted by the Federal Reserve.

     (9)  owning, controlling, or operating a savings association, if the
          savings association engages only in deposit-taking activities and
          lending and other activities that are permissible for bank holding
          companies under Federal Reserve regulations;

     (10) providing courier services for certain financial documents;

     (11) subject to limitations, providing management consulting advice to
          nonaffiliated bank and nonbank depository institutions;

     (12) retail selling of money orders and similar consumer-type payment
          instruments having a face value of $1,000 or less, selling U.S.
          Savings Bonds, and issuing and selling traveler's checks;

     (13) performing appraisals of real estate and personal property;

     (14) subject to limitations, acting as intermediary for the financing of
          commercial or industrial income-producing real estate by arranging for
          the transfer of the title, control, and risk of such a real estate
          project to one or more investors;

     (15) providing certain securities brokerage services;

     (16) subject to limitations, underwriting and dealing in government
          obligations and certain other instruments;

     (17) subject to limitations, providing foreign exchange and transactional
          services;

     (18) subject to limitations, acting as a futures commission merchant for
          nonaffiliated persons;
<PAGE>

     (19) subject to limitations, providing investment advice on financial
          futures and options to futures;

     (20) subject to limitations, providing consumer financial counseling;

     (21) subject to limitations, tax planning and preparation;

     (22) providing check guaranty services;

     (23) subject to limitations, operating a collection agency; and

     (24) operating a credit bureau.

Federal Reserve approval may be required before the Company or its nonbank
subsidiaries may begin to engage in any such activity and before any such
business may be acquired.

PFC is a legal entity separate and distinct from the Bank. The Company's
revenues (on a parent Company only basis) result almost entirely from dividends
paid to the Company by its subsidiaries. The right of the Company, and
consequently the right of creditors and shareholders of the Company, to
participate in any distribution of the assets or earnings of any subsidiary
through the payment of such dividends or otherwise is necessarily subject to the
prior claims of creditors of the subsidiary (including depositors, in the case
of the Bank), except to the extent that claims of the Company in its capacity as
a creditor may be recognized.

Federal and state laws regulate the payment of dividends by the Company's
subsidiaries.

Further, it is the policy of the Federal Reserve that bank holding
companies should pay dividends only out of current earnings. Federal banking
regulators also have the authority to prohibit banks and bank holding companies
from paying a dividend if they should deem such payment to be an unsafe or
unsound practice.

Capital Adequacy

Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. The required minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least half (4%) of the total capital is
required to be "Tier 1 capital," consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock, and minority interests in the equity accounts of
consolidated subsidiaries, less certain intangible assets. The remainder ("Tier
2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance. In addition to the risk-based capital guidelines, the
Federal Reserve requires a bank holding company to maintain a minimum "leverage
ratio." This requires a minimum level of Tier 1 capital (as determined under the
risk-based capital rules) to average total consolidated assets of 3% for those
bank holding companies that have the highest regulatory examination ratings and
are not contemplating or experiencing significant growth or expansion. All other
bank holding companies that have the highest regulatory examination ratings and
are not contemplating or experiencing significant growth or expansion. All other
bank holding companies are expected to maintain a ratio of at least 1% to 2%
above the stated minimum. Further, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 capital leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities. The Federal Reserve has not advised management of
any specific minimum leverage ratio applicable to PFC.


<PAGE>

Pursuant to FDICIA, the federal banking agencies have specified, by
regulation, the levels at which an insured institution is considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or critically undercapitalized." Under these regulations, an
institution is considered "well capitalized" if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, a leverage ratio of 5% or greater, and is not subject to any order or
written directive to meet and maintain a specific capital level. PFC and PFC
Bank, at December 31, 1997, qualify as "well capitalized" under these regulatory
standards.

PFC Bank is subject to supervision, regulation and examination by the
Commonwealth of Pennsylvania Department of Banking (the "Department of Banking")
and the Federal Deposit Insurance Corporation ("FDIC"). In addition, the Bank is
subject to a variety of local, state and federal laws that affect its operation.

The laws of the Department of Banking applicable to PFC Bank include, among
other things, provisions that: (i) require the maintenance of certain reserves
against deposits; (ii) limit the type and amount of loans that may be made and
the interest that may be charged thereon; (iii) restrict investments and other
activities; and, (iv) limit the payment of dividends. The amount of funds that
the Bank may lend to a single borrower is generally limited under Pennsylvania
law to 15 percent of the aggregate of its capital, surplus, undivided profits,
loan loss reserves and capital securities of the Bank, all as defined by statute
and regulation.

Applicable Pennsylvania law also requires that a bank obtain the approval
of the Department of Banking prior to effecting any merger where the surviving
bank would be a Pennsylvania-chartered bank. In reviewing merger applications,
consideration is given, among other things, to whether the merger would be
consistent with adequate and sound banking practices and in the public interest
on the basis of several factors, including the potential effect of the merger on
competition and the convenience and needs of the area primarily to be served by
the bank resulting from the merger.

Applicable Pennsylvania law permits Pennsylvania-chartered banks to engage
in banking activity in other states (interstate banking) provided that such
activity is within a state that permits reciprocal privileges.

The FDIC, which has primary supervisory authority over the Bank, regularly
examines banks in such areas as reserves, loans, investments, management
practices, and other aspects of operations. These examinations are designed for
the protection of the Bank's depositors rather than the Company's shareholders.
The Bank must furnish annual and quarterly reports to the FDIC, which has the
authority under the Financial Institutions Supervisory Act to prevent a state
non-member bank from engaging in an unsafe or unsound practice in conducting its
business.

Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may take, the reserves
against deposits a bank must maintain, the types and terms of loans a bank may
make and the collateral it may take, the activities of a bank with respect to
mergers and consolidations, and the establishment of branches. Pennsylvania law
permits statewide branching.

Under the Federal Deposit Insurance Act, as amended, the Bank is required
to obtain the prior approval of the FDIC for the payment of dividends if the
total of all dividends declared by the Bank in one year would exceed the Bank's
net profits (as defined and interpreted by regulation) for the current year plus
its retained net profits (as defined and interpreted by regulation) for the two
preceding years, less any required transfers to surplus. In addition, the Bank
may only pay dividends to the extent that its retained net profits (including
the portion transferred to surplus) exceed statutory bad debts (as defined by
regulation). Under FDICIA, any depository institution, including the Bank, is
prohibited from paying any dividends, making other distributions or paying any
management fees if, after such payment, it would fail to satisfy its minimum
capital requirements.


<PAGE>

A subsidiary bank of a bank holding company, such as the Bank, is subject
to certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries, and
on taking such stock or securities as collateral for loans. The Federal Reserve
Act and Federal Reserve regulations also place certain limitations and reporting
requirements on extensions of credit by a bank to the principal shareholders of
its parent holding company, among others, and to related interests of such
principal shareholders. In addition, such legislation and regulations may affect
the terms upon which any person becoming a principal shareholder of a holding
company may obtain credit from banks with which the subsidiary bank maintains a
correspondent relationship.

The Bank, and the banking industry in general, are affected by the monetary
and fiscal policies of government agencies, including the Federal Reserve.
Through open market securities transactions and changes in its discount rate and
reserve requirements, the Board of Governors of the Federal Reserve exerts
considerable influence over the cost and unavailability of funds for lending and
investment.

Year 2000 Compliance Law

As the Year 2000 approaches, regulation of both the Corporation and the
Bank with respect to completing Year 2000 modifications is likely to increase. A
brief discussion of the most recent federal banking agency pronouncements that
affect the Corporation and/ or the Bank follows.

In December 1997, the Federal Financial Institutions Examination Council
("FFIEC") issued an interagency statement. The statement indicates that Senior
management and the board of directors should be actively involved in managing
the Corporation's and the Bank's Year 2000 compliance efforts. The statement
also recommended that institutions obtain Year 2000 compliance certification
from vendors followed by comprehensive internal testing. In addition,
contingency plans should be developed for all vendors that service "mission
critical" applications which are applications vital to the successful
continuance of a core business activity.

The Bank is in the process of assessing the cost and extent of
vulnerability of the Bank's computer systems to the "Year 2000 problem."
Modifications or replacements of computer systems to attain Year 2000 compliance
have begun, and the Bank expects to attain Year 2000 compliance and institute
appropriate testing of its modifications and replacements before the Year 2000
date change. The Bank believes that, with modifications to existing software,
the Year 2000 problem will not pose a significant operational problem for the
Bank. However, because most computer systems are, by their very nature,
interdependent, it is possible that noncompliant third party computers could
"reinfect" the Bank's computer systems. The Bank could be adversely affected by
the Year 2000 problem if unrelated parties fail to successfully address this
problem. The Bank has taken steps to communicate with the unrelated parties with
whom it deals to coordinate year 2000 compliance. Most of the costs incurred in
addressing the Year 2000 problem are expected to be expensed as incurred, in
compliance with GAAP.

The financial impact to the Bank of Year 2000 compliance has not been and is not
anticipated  to be  material  to the  Bank's  financial  position  or results of
operations in any given year.

FDIC Insurance

PFC Bank's deposits are insured by the FDIC pursuant to the system of
federal deposit insurance initially established by the Banking Act of 1933. This
insurance covers $100,000 per deposit account. The Bank pays insurance premiums
into a fund according to rates established by the FDIC. The Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted, in part,
to prevent the deposit insurance funds related to savings institutions from
becoming insolvent. FDICIA authorized the FDIC to raise insurance premium
assessments in order to achieve and maintain an adequate level of funds. The
depletion of the deposit insurance funds had been due, in part, to a large
number of failed financial institutions in the 1980's, as well as increases in
coverage per deposit account. As a result, the future cost of deposit insurance
for the Bank is in large part dependent upon the extent of future banking
failures and the amount of insurance coverage provided by the FDIC per deposit
account, neither of which is within the


<PAGE>

Bank's control. Moreover, FDICIA required the FDIC to establish a
risk-based insurance premium assessment system in order to differentiate between
higher and lower risk institutions and to assess lower premiums against
institutions in a lower risk category. As a result, the Bank's future cost of
deposit insurance will depend, in part, upon its risk rating.

Interstate Banking Legislation

In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Banking Act") was enacted. The Interstate
Banking Act facilitates the interstate expansion and consolidation of banking
organizations (i) by permitting bank holding companies that are adequately
capitalized and adequately managed, beginning September 29, 1995, to acquire
banks located in states outside their home states regardless of whether such
acquisitions are authorized under the law of the host state; (ii) by permitting
the interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or "opt out" of this authority before that date;
(iii) by permitting banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host
state; (iv) by permitting, beginning September 29, 1995, a bank to engage in
certain agency relationships (i.e., to receive deposits, renew time deposits,
close loans (but not including loan approvals or disbursements), service loans,
and receive payments on loans and other obligations) as agent for any bank or
thrift affiliate, whether the affiliate is located in the same state or a
different state then the agent bank; and (v) by permitting foreign banks to
establish, with approval of the regulators in the United States, branches
outside their "home" states to the same extent that national or state banks
located in the home state would be authorized to do so. One effect of this
legislation will be to permit the Company to acquire banks and bank holding
companies located in any state and to permit qualified banking organizations
located in any state to acquire banks and bank holding companies located in
Pennsylvania, irrespective of state law.

Since 1995, the Pennsylvania Banking Code has authorized full interstate
banking and branching under Pennsylvania law. Specifically, the legislation (i)
eliminates the "reciprocity" requirement previously applicable to interstate
commercial bank acquisitions by bank holding companies, (ii) authorizes
interstate bank mergers and reciprocal interstate branching into Pennsylvania by
interstate banks, and (iii) permits Pennsylvania institutions to branch into
other states with the prior approval of the Pennsylvania Department of Banking.

Overall, this federal and state legislation has, as was predicted, had the
effect of increasing consolidation and competition and promoting geographic
diversification in the banking industry.

Proposed Legislation and Regulations

From time to time, various federal and state legislation is proposed that
could result in additional regulation of, and restrictions on, the business of
the Company and the Bank, or otherwise change the business environment.

Management cannot predict whether any of this legislation, if enacted, will
have a material effect on the business of the Company.

Environmental Laws

Neither PFC nor the Bank anticipate that compliance with environmental laws
and regulations will have any material effect on capital, expenditures, or
earnings. However, environmentally related hazards have become a source of high
risk and potentially unlimited liability for financial institutions.
Environmentally contaminated properties owned by an institution's borrowers may
result in a drastic reduction in the value of the collateral securing the
institution's loans to such borrowers, high environmental clean up costs to the
borrower affecting its ability to repay the loans, the subordination of any lien
in favor of the institution to a state or federal lien securing clean up costs,
and liability to the institution for clean up costs if it forecloses on the
contaminated property or becomes involved in the management of the borrower. To
minimize this risk, the Bank may require an environmental examination of and
report with respect to the property of any borrower or prospective borrower if
circumstances affecting the property indicate a potential for

<PAGE>

contamination taking into consideration a potential loss to the institution
in relation to the borrower. Such examination must be performed by an
engineering firm experienced in environmental risk studies and acceptable to the
institution, and the cost of such examinations and reports are the
responsibility of the borrower. These costs may be substantial and may deter
prospective borrower from entering into a loan transaction with the Bank. PFC is
not aware of any borrower who is currently subject to any environmental
investigation or clean up proceeding that is likely to have a material adverse
effect on the financial condition or results of operations of the Bank.

In 1995, the Pennsylvania General Assembly enacted the Economic Development
Agency, Fiduciary and Lender Environmental Liability Protection Act which, among
other things, provides protection to lenders from environmental liability and
remediation costs under the environmental laws for releases and contamination
caused by others. A lender who engages in activities involved in the routine
practices of commercial lending, including, but not limited to, the providing of
financial services, holding of security interests, workout practices,
foreclosure or the recovery of funds from the sale of property shall not be
liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by
virtue of the fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it, its employees or agents, directly cause
an immediate release or directly exacerbate a release of regulated substances on
or from the property, or knowingly and willfully compel a borrower to commit an
action which caused such release or violate an environmental act. The Economic
Development Agency, Fiduciary and Lender Environmental Liability Protection Act,
however, does not limit federal liability which still exists under certain
circumstances.


ITEM 2 - DESCRIPTION OF PROPERTIES

PFC Bank occupies approximately 8,300 square feet at 323 Ford Street, Ford
City, Pennsylvania, which serves as its Corporate office facility. This property
was purchased by the Bank on September 30, 1997. PFC Bank also owns the
following five facilities and certain parking facilities which are free and
clear of any lien. The Manor office is in a 1,600 square foot facility. The
Indiana office is located in a 4,000 square foot facility. The New Bethlehem
Drive-Thru occupies a 2,800 square foot facility. The Clarion office is in a
7,101 square foot facility, and the operations center and New Bethlehem office
is located in a 11,867 square foot facility located at 363 Broad Street, New
Bethlehem, Pennsylvania. Substantially, all of the bank's available space is
currently utilized. In management's opinion, the above properties are in good
condition and are adequate for the Bank's purposes.


ITEM 3 - LEGAL PROCEEDINGS

Management believes there are no proceedings pending to which PFC or the
Bank is a party or to which its property is subject, which, if determined
adversely, would be material in relation to its undivided profits or financial
condition. There are no proceedings pending other than routine litigation
incidental to the business of PFC and the Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
PFC or the Bank by governmental authorities.


ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

<PAGE>

                                     Part II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PFC's common stock is held by 374 shareholders of record as of February 20,
1998, and is rarely traded. Management of PFC believes that a few securities
dealers are attempting to form a market for the PFC Common Stock even though
there are very few trades recorded. As of February 20, 1998, there were 882,168
shares outstanding. Quarterly dividends of $0.23 per share were paid in each
quarter during 1996. PFC paid dividends of $0.24 per share the first and second
quarters of 1997 followed by dividends in each of the third and fourth quarters
of 1997 of $0.25 per share. A special dividend of $0.15 per share was paid
December 22, 1997. Because corporate and banking laws limit the amount of
dividends that can be paid generally, there can be no assurance that dividends
will be paid in the future and, if paid, the amount of such dividends. See Note
M, Regulatory Matters, of the attached Exhibit 13.

The following table sets forth quarterly highs and lows of Peoples
Financial Corp., Inc. Common Stock since the merger date, April 1, 1995.
Quotations were received from Elmer Powell and Associates and reflect
inter-dealer prices, without retail markup, mark down or commission and may not
represent actual transactions.

                                  Common Stock
                               Market Performance
                                  (in dollars)


                        ------------------------------
                          Qtr.        High      Low
                        ------------------------------
                          1995
                        ------------------------------
                           2          24.00    24.00
                           3          25.00    24.00
                           4          25.25    24.00
                        ------------------------------
                          1996
                        ------------------------------
                           1          25.25    24.00
                           2          27.00    24.00
                           3          29.75    28.25
                           4          38.25    29.00
                        ------------------------------
                          1997
                        ------------------------------
                           1          38.25    36.50
                           2          38.25    38.25
                           3          38.25    38.25
                           4          38.25    38.25
                        ------------------------------


<PAGE>


ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following is management's discussion and analysis of the consolidated
financial condition and results of operations of PFC and its wholly owned
subsidiary, PFC Bank. This consolidated financial information should be read in
conjunction with the consolidated financial statements appearing as Exhibit 13
to this report. Substantially all of the income and expenses of PFC are
attributable to PFC Bank.

Selected Financial Data

The following table sets forth certain selected historical financial data
for PFC. Dollar amounts are in thousands, except per share data. The average
balances shown consist of daily average balances.

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                     ----------------------------------------
Summary of Operations                                  12/31/97      12/31/96      12/31/95
                                                     ----------------------------------------
<S>                                                   <C>           <C>           <C>
   Total interest income                              $ 15,571      $ 13,933      $ 13,168

   Net interest income                                   8,082         7,457         6,869
   Provision for loan losses                                80            75            60
   Gains on securities                                   1,065         1,053         1,253
   Other operating income                                  870         1,067           661
   Other operating expenses                              5,934         6,830         6,835
   Net income before deducting minority interest         2,997         2,110         1,542
   Net income                                            2,997         2,110         1,378
   Earnings per share                                     3.40          2.40          1.76
   Earnings per share (fully diluted)                     3.40          2.40          1.76

Average Balance Sheet Totals
   Total assets (1)                                    206,871       185,907       180,598
Investment securities (1)                               41,946        41,846        56,678
   Loans & leases (net of unearned income
         and allowance for loan losses)                142,266       123,115       110,803
   Total deposits                                      183,770       164,496       156,450
   Stockholders' equity (1)                             18,505        17,737        19,075
   Historical number of shares outstanding
         at period end                                 882,168       879,990       879,990
   Weighted average number of shares
         outstanding                                   880,563       879,990       785,057
Period End Total assets (2)                            240,271       210,812       186,888
</TABLE>


(1)  Excludes the effect of SFAS No. 115 (Statement of Financial Accounting
     Standards No. 115 - Accounting for Certain Debt and Equity Securities).

(2)  Reflects the effect of SFAS No. 115.

<PAGE>

Financial Condition

The total assets of PFC at December 31, 1997 were $240.3 million, an
increase of $29.5 million, or 13.99% over total assets at December 31, 1996 of
$210.8 million.

The increase in total assets as of December 31, 1997 was comprised
primarily of an increase of over $16.3 million in loan balances in addition to
increases of $12.8 million in securities available-for-sale and $6.7 million in
securities held to maturity. These increases more than offset a decrease of over
$3.2 million in federal funds sold.

The total liabilities of PFC at December 31, 1997 were $202.9 million, an
increase of $18.9 or 10.28% over total liabilities at December 31, 1996 of
$183.9 million.

The increase in liabilities during the 12 months ended December 31, 1997
resulted primarily from interest bearing deposit increases of $11.8 million and
a deferred tax increase of almost $4.6 million due primarily to the tax effects
of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities..


Operations

PFC reported net income, before deducting the income taxes for the 12 month
period ended December 31, 1997 of $4,003,000 as compared to $2,673,000 for the
12 month period ended December 31, 1996, an increase of $1,330,000 or 49.76%. An
increase in interest income of $1,639,000 was offset by an increase in interest
expense of $1,014,000 primarily the result of an increase in interest bearing
deposits. PFC's net income for the period ended December 31, 1997, after
deducting taxes, was $2,996,000 as compared to $2,110,000 for the year ended
December 31, 1996. PFC reported net income, before deducting minority interest
and taxes, for the year ended December 31, 1996 of $2,673,000 which was an
increase of $785,000 or 41.58% higher as compared to $1,888,000 reported for the
year ended December 31, 1995. The increase in net income from 1995 to 1996
resulted primarily from an increase of $588,000 in net interest income. PFC's
net income for the year ended December 31, 1996, after deducting the minority
interest and taxes, was $732,000 higher than for the year ended December 31,
1995.

Earnings per share, after deducting minority interest, for the 12 month
periods ended December 31, 1997, 1996, and 1995, was $3.40, $2.40, and $1.76,
respectively. Fully diluted earnings per share for the 12 month periods ended
December 31, 1997, 1996 and 1995 was $3.40, $2.40, and $1.76, respectively.

Since most of the assets and liabilities of banks are monetary in nature,
changes in interest rates can have a significant effect on earnings. PFC,
through its asset and liability management, positions itself to react and
compensate for the volatility of interest rates. See additional analysis of
interest rate sensitivity presented on page 21.

<PAGE>

Interest Income and Expenses

Total interest income increased to $15,571,000 in 1997 from 13,933,000 in
1996, an increase of $1,638,000 or 11.76%. This increase is primarily
attributable to an increase in interest earned on loans of $1,432,000 or 13.15%
along with an increase in interest on federal funds sold of $113,000 and
investment securities of $95,000. The average yield on interest-earning assets
decreased from 7.53% for the 12 months period ended December 31, 1996 to 7.31%
for the 12 months period ended December 31, 1997. The increase in total interest
income results from an increase in earning assets of $32.7 million. Total
securities increased by $19.5 million while gross loans increased by over $16.3
million.

Total interest income increased to $13,933,000 in 1996 from $13,168,000 for
the year ended December 31, 1995, an increase of $765,000 or 5.81%. This
increase is primarily attributable to an increase in interest earned on loans.

Total interest expense increased to $7,489,000 in 1997 from $6,475,000 in
1996, an increase of $1,014,000, or 15.66%. This increase is the result of an
environment of increasing interest rates and an increase in interest bearing
deposits of $11.8 million. The average rate on interest-bearing liabilities was
4.66% for the 12 months ended December 31, 1997 and 4.52% for the 12 months
ended December 31, 1996.

Total interest expense increased to $6,475,000 in 1996 from $6,299,000 in
1995, an increase of $176,000 or 2.79%. The increase is primarily a result of an
increase in interest bearing deposits of $16,759,000 or 12.09% for the year
ended December 31, 1996.

Net interest income is the difference between the interest earned on loans
and other investments, including dividends received on equity securities, and
the interest paid on deposits and other sources of funds. Net interest income
for the 12 month period ended December 31, 1997 was $8,082,000 as compared to
$7,457,000 for the 12 month period ended December 31, 1996, an increase of
$625,000 or 8.38%. Net interest income increased $588,000 or 8.56% in 1996 as
compared to $6,869,000 for the year ended December 31, 1995.

PFC obtains a portion of its funds from non-interest bearing deposits.
Therefore, the rate paid for all funds is lower than the rate on interest
bearing funds alone. PFC has been able to retain a significant base of
inexpensive deposits, which consists of checking and savings accounts. These
deposits comprise, approximately 51.01% of the total deposits of PFC at December
31, 1997.

The following tables present the average major asset and liability
categories for the 12 month periods ended December 31, 1997 and 1996 along with
interest income and yields. The average balances shown consist of daily average
balances. Non-performing loans are included in the average balance and yield
calculations.

<PAGE>



Interest Income and Expense (continued)


Average Balance Sheets & Net Interest Analysis for 1997
(in thousands)


<TABLE>
<CAPTION>
Selected Asset Categories                           Average Balances        Interest         Yield/rate
-------------------------                           ----------------        --------         ----------
<S>                                                 <C>                     <C>              <C>
Interest-bearing assets
         Loans & direct lease financing                  $143,529            $12,323             8.59%
           (net of unearned discount)
         Investment securities                             61,864              2,831             4.58%

         Federal funds sold & securities purchased          7,637                417             5.46%
     Non-interest-bearing assets
         Cash and due from banks                            7,100                N/A              N/A
         Premises and equipment                             3,598                N/A              N/A
         Other assets                                       3,047                N/A              N/A


Selected Liability Categories
-----------------------------

     Interest-bearing liabilities
        Demand deposits                                 $  45,058            $ 1,590             3.53%
        Savings deposits                                   28,353                901             3.18%
        Time deposits                                      87,246              4,998             5.73%
        Short-term borrowings                                   0                  0                0
     Non-interest-bearing liabilities
        Demand deposits                                    23,113                N/A              N/A
        Other                                              10,168                N/A              N/A
Net interest income                                     $   8,082
Net interest margin                                          3.79%
Average yield on interest-bearing assets                     7.31%
Average rate on interest-bearing liabilities                 4.66%
</TABLE>

<PAGE>


Interest Income and Expense (continued)



Average Balance Sheets & Net Interest Analysis for 1996
(in thousands)


<TABLE>
<CAPTION>
Selected Asset Categories                           Average Balances        Interest         Yield/rate
-------------------------                           ----------------        --------         ----------
<S>                                                 <C>                     <C>              <C>

     Interest-bearing assets
         Loans & direct lease financing                  $124,380            $10,891             8.76%
          (net of unearned discount)
         Investment securities                             54,657              2,738             5.00%

         Federal funds sold & securities purchased          5,885                304             5.17%
     Non-interest-bearing assets
         Cash and due from banks                            7,101                N/A              N/A
         Premises and equipment                             3,788                N/A              N/A
         Other assets                                       2,907                N/A              N/A


Selected Liability Categories
-----------------------------

     Interest-bearing liabilities
        Demand deposits                                 $  41,665            $ 1,465             3.52%
        Savings deposits                                   29,172                921             3.19%
        Time deposits                                      72,339              4,089             5.64%
        Short-term borrowings                                  27                  2             7.41%
     Non-interest-bearing liabilities
        Demand deposits                                    21,320                N/A              N/A
        Other                                               7,673                N/A              N/A


Net interest income                                     $   7,457
Net interest margin                                          4.03%
Average yield on interest-bearing assets                     7.53%
Average rate on interest-bearing liabilities                 4.52%
</TABLE>

<PAGE>


Other Income

Other income for the twelve month period ended December 31, 1997 totaled
$1,935,000 as compared to $2,121,000 for the same period ended 1996, a decrease
of $186,000 or 8.77%. Other income for the year ended December 31, 1996
increased from the total in 1995 of $1,914,000 by $207,000. Changes in the level
of other income during 1997 is primarily attributable to a net decrease in flood
proceeds of $153,000 from 1996 to 1997.

Other Expenses

Other expenses for the twelve month period ended December 31, 1997 totaled
$5,934,000 as compared to $6,830,000  for the same period in 1996, a decrease of
$896,000 or 13.12%.  The decrease is primarily related to a $544,000 decrease in
early retirement expenses from 1996 to 1997.

Other expenses for the year ended December 31, 1996 were  substantially the same
as 1995.


Allowance/Provision for Loan Losses

An allowance for possible loan losses is maintained at a level that
management considers adequate to provide for potential losses based upon an
evaluation of known and inherent risks in the loan portfolio. Management's
judgment is based upon evaluation of individual loans, past loss experience,
current economic conditions and other relevant factors. While management uses
the best information available to make such evaluations, future adjustments to
the allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluation. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.

The evaluation of the adequacy of the allowance for loan losses includes a
consideration of the following factors: the level and trends in loan
delinquencies and non-accrual loans; the current and anticipated local, regional
and national economic outlook; concentrations of credit risk; historical
charge-off and recovery experience; trends in loan classifications; an
assessment of inherent risk and overall portfolio quality; and, consideration of
PFC Bank's loan origination standards.

Based on this information, management concluded that the Bank's allowance
for loan losses was adequate to provide for known and inherent losses which may
exist in the loan portfolio as of December 31, 1997.

The provision for loan losses was $80,000 for the twelve month period ended
December 31, 1997 and $75,000 for the same period ended December 31. 1996. The
allowance for loan losses was $1,249,000 at December 1997, which was $5,000 less
than the amount at December 31, 1996, of $1,254,000.

The provision for loan losses for the year ended December 31, 1996 as
compared to the year ended December 31, 1995, increased $15,000 from $60,000 or
25.00%. The allowance for loan losses of $1,254,000 at December 31, 1996, was
$10,000 more than the amount reported at December 31, 1995.

Management recognizes the need to maintain an adequate reserve to meet the
ongoing risks associated with a growing loan portfolio and intends to continue
to maintain the allowance at appropriate levels based on ongoing evaluations of
the loan portfolio. Net loan charge-offs were $85,000 for the twelve month
period ended December 31, 1997. Net loan charge-offs were $64,000 for the year
ended December 31, 1996 as compared to $199,000 for 1995.


<PAGE>

Non-performing assets at December 31, 1997 were at 76.62% of the allowance
for possible loan losses at December 31, 1997. At December 31, 1996,
non-performing loans were at 120.89% of allowance for loan losses.
Non-performing assets were at 125.88% of the allowance for possible loan losses
at December 31, 1995. Non-performing assets consist of loans no longer accruing
interest, loans accruing interest past due more than 90 days, restructured loans
and other real estate owned (foreclosed assets).

The following table  summarizes the loan portfolio and loan  charge-offs for the
five years ended December 31, 1997.

<PAGE>


Allowance/Provision for Loan Losses (continued)
Loan Loss Summary
(in thousands)


<TABLE>
<CAPTION>
                                                                             Years Ended
                                                 --------------------------------------------------------------------
                                                 12/31/97       12/31/96       12/31/95      12/31/94        12/31/93
                                                 --------       --------       --------      --------        --------
<S>                                              <C>            <C>            <C>           <C>            <C>
Amount of loans outstanding at end
   of period, net of unearned income             $153,645       $137,304       $114,845       $112,818       $103,867
                                                 ========       ========       ========       ========       ========
Daily average amounts of loans                   $143,529       $124,380       $111,927       $107,758       $101,990
                                                 ========       ========       ========       ========       ========
Allowance for loan losses
   at the beginning of period                    $  1,254       $  1,244       $  1,383       $  1,311       $  1,214
Loans Charged-off:
   Commercial, financial, agriculture                   4              0            113            164             80
   Real - estate construction                           0              0              0              0              0
   Real - estate mortgage                               0              0              0              0             34
   Consumer                                           101            107            110            136            135
   Leasing and other                                    0              0              0              0              0
                                                 --------       --------       --------       --------       --------

         Totals                                       105            107            223            300            215
Recoveries of loans previously charged-off:
   Commercial, financial, agriculture                   8              9             10            148             13
   Real estate - construction                           0              0              0              0              0
   Real estate - mortgage                               0             28              2              2             12
   Consumer                                            12              5             12             30             15
   Leasing and other                                    0              0              0              0              0
                                                 --------       --------       --------       --------       --------
         Totals                                        20             42             24            180             40
                                                 --------       --------       --------       --------       --------
Net loans charged off                            $     85       $     65       $    199       $    120       $    175

Additions to allowance charged
   to operations                                       80             75             60            192            272
                                                 --------       --------       --------       --------       --------
Allowance for loan losses                        $  1,249       $  1,254       $  1,244       $  1,383       $  1,311
                                                 ========       ========       ========       ========       ========
Ratio of net charge-offs during period
   to average loans outstanding                      0.06%          0.05%          0.17%          0.11%          0.17%
Ratio of reserves to net loans at end
   of period                                         0.81%          0.91%          1.08%          1.23%          1.26%

Allocation of Allowance for Loan Losses

Loan Type
   Commercial, financial, agriculture            $    421       $    600       $    600       $    439       $    481
   Real estate - construction/mortgage                100            100            164            193            175
   Consumer and other                                 505            118            140            189            159
   Not allocated                                      223            436            340            562            496
                                                 --------       --------       --------       --------       --------
       Totals                                    $  1,249       $  1,254       $  1,244       $  1,383       $  1,311
                                                 ========       ========       ========       ========       ========
</TABLE>

<PAGE>


Investment Securities

Investments are second only to the loan portfolio when analyzing the source
of PFC's earning assets. In addition to generating revenue, securities provide
the primary source of liquidity and also serve as collateral for public
deposits. PFC historically invests in U.S. Treasury securities, obligations of
U.S. government agencies, obligations of state and political subdivisions,
selected corporate notes and equity securities of other local and regional
financial institutions. Effective January 1, 1994, PFC adopted SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which requires
PFC to classify investment securities as either held to maturity, available for
sale or trading. Management has the ability and intent to hold held-to-maturity
securities until maturity. PFC has classified all equity securities as available
for sale. Certain of these securities are held in PFC Service Corporation, Inc.
There are no securities held in PFC's investment portfolio which are considered
trading securities. Under SFAS No. 115, PFC is required to adjust the carrying
value of its available-for-sale securities to market value. These unrealized
gains (losses) are recognized as an increase (decrease) to the carrying value of
such securities; the offset of which is an increase (decrease) to PFC's
Stockholder's equity, adjusted for the deferred income tax effects thereof. For
the period ended December 31, 1997, PFC's net unrealized gain on
available-for-sale securities was $27.1 million. As of December 31, 1996, the
net unrealized gain was $14.2 million.

PFC's average securities balance for the twelve month period ended December
31, 1997, was $61.9 million, a $7.2 million or 13.19% increase over the period
ended December 31, 1996. After electing to deploy funds available primarily from
loan repayments, increases in deposit activity and security maturities into the
loan area in 1995 and 1996, management chose to increase the investment
portfolio due to pledge needs.

Average federal funds sold and securities sold under agreement to
repurchase were $7.6 million and $5.9 million for the year ended December 31,
1997 and 1996, respectively.

<PAGE>


Investment Securities (continued)

Maturity Distribtution of Investment Securities for 1997
(in thousands and excluding SFAS No. 115)


<TABLE>
<CAPTION>

                               No Maturity   Yield  Within 1 Year  Yield   1 to 5 Years   Yield    5 to 10 Years  Yield  Total
                               -----------   -----  -------------  -----   ------------   -----    -------------  -----  -----
<S>                            <C>            <C>   <C>             <C>    <C>            <C>       <C>            <C>    <C>
U.S. Treasuries/Agencies                              $ 8,097       5.31%    $18,373       6.44%       $2,014      6.55% $28,484
State/Municipal                                           675       3.97%      1,014       4.17%          205      5.44%   1,894
Other Securities                                        1,250       7.67%        750       7.28%            0         0    2,000
Equity Securities                $ 11,662    8.27%                                                                        11,662
                               --------------------------------------------------------------------------------------------------

Totals                           $ 11,662    8.27%    $10,022       5.52%    $20,137       6.35%       $2,219      6.45% $44,040
                                 ========    ====     =======       ====     =======       ====        ======      ====  =======


Short-term Borrowings
(in thousands)


<CAPTION>
For each period:                             1997                   1996
                                             ----                   ----
<S>                                         <C>                  <C>

Balance at period end                        $  0                   $  0
Weighted average interest rate                  0                   5.67%
Maximum amount outstanding                      0                  2,100
Maximum amount at any month end                 0                      0
Average amount outstanding                      0                     27

</TABLE>


<PAGE>



Loans

As of December 31, 1997, the net loan portfolio of PFC Bank comprised
63.43% of total consolidated assets as compared with 64.54% for the year ending
December 31, 1996.

Traditionally, PFC Bank has been highly dependent on home mortgage lending.
While this type of loan comprises a large portion of the loan portfolio, PFC
Bank has a wide range of other loans.

While the Bank offers a variety of loans to individual and corporate
customers in Armstrong, Clarion and Indiana Counties of Pennsylvania, they
concentrate their lending activities in residential mortgages in their local
market area. These loans comprised approximately 66.53% of PFC Bank's gross loan
portfolio as of December 31, 1997. As of that date, the remainder of the
portfolio was made up of real estate construction loans comprising loans of
1.28%, commercial and agricultural loans of 11.19%, consumer loans of 18.65%;
and, other loans comprising 2.35% of the loan portfolio. Although PFC Bank has a
significant concentration of residential and commercial mortgage loans
collateralized by first mortgage liens located in the Bank's lending areas,
there is no concentration of loans to borrowers engaged in similar economic
activities which exceed 10% of the loans at December 31, 1997.

The risks associated with the various types of loans placed by PFC Bank are
varied. The practices employed by the Bank in addressing these risks constantly
evolves in response to economic conditions.

With respect to secured real estate lending, PFC Bank has traditionally
placed heavy reliance on collateral value but has tightened its lending policies
and is placing more reliance on the borrower's ability to repay. Because the
Bank's market is comprised largely of an outlying but moderately prosperous
section of Pennsylvania, PFC Bank has been somewhat cushioned from the real
estate recessions as well as real estate booms, leaving values at very
conservative levels through the years. The Bank experienced a decrease in
non-performing assets from 1996 to 1997 of $559,000 or 36.87%. Foreclosed
assets, non-accrual loans and loans 90 days or more past-due decreased by
36.96%, 34.64% and 43.55%, respectively. The tightening of lending policies has
not decreased loan demand. In fact, total loans as of December 31, 1997, have
increased over the balances at December 31, 1996, but management believes that
the composition of the portfolio has improved. The Bank intends to continue its
policy of performing formal credit analyses in support of loan requests.

PFC's total consolidated loans (net of unearned income and the allowance
for loan losses) at December 31, 1997, were $152,396,000, an increase of
$16,346,000 or 12.01% as compared to $136,050,000 at December 31, 1996. The
December 31, 1996, balance increased $22,449,000 or 19.76% over the year ended
December 31, 1995. The increase in 1997 was due primarily to increases in
residential loans and commercial loans. The increase in 1996 over 1995 was due
primarily to an increase in residential loans, changes in PFC's pricing
structure relative to the marketplace, and a general increase in loan demand due
to the economic environment.

<PAGE>

Loans (continued)

(in thousands and net of unearned income, but not the allowance for loan losses)



<TABLE>
<CAPTION>
                                        12/31/97      12/31/96      12/31/95      12/31/94      12/31/93
                                        ----------------------------------------------------------------
<S>                                     <C>           <C>           <C>           <C>           <C>
Commercial, financial, agriculture      $ 17,200      $ 13,859      $  9,918      $  7,555      $  7,871
Real estate - construction                 1,966         2,558           947         1,002         1,368
Real estate - mortgage                   102,222        90,129        71,038        73,992        65,509
Consumer                                  28,646        27,774        30,303        28,403        25,974
Other                                      3,611         2,984         2,639         1,866         3,145
                                        --------      --------      --------      --------      --------
   Totals                               $153,645      $137,304      $114,845      $112,818      $103,867
                                        ========      ========      ========      ========      ========
</TABLE>

Percent of loan Categories to Total Loans

<TABLE>
<CAPTION>
                                           12/31/97     12/31/96     12/31/95     12/31/94     12/31/93
                                           ------------------------------------------------------------
<S>                                         <C>          <C>           <C>          <C>          <C>
Commercial, financial, agriculture          11.19%       10.09%        8.63%        6.70%        7.58%
Consumer/Other                              21.00%       22.40%       28.69%       26.83%       28.03%
Real estate                                 67.81%       67.51%       62.68%       66.47%       64.39%
                                           ------       ------       ------       ------       ------
                                           100.00%      100.00%      100.00%      100.00%      100.00%
                                           ======       ======       ======       ======       ======
</TABLE>

Maturity Table as of December 31, 1997

                        Due
                   1 year or less     1 - 5 years    After 5 years   Totals
                  -----------------------------------------------------------

Floating rate          $  2,044         $      0       $      0     $  2,044
Fixed rate               31,182           61,739         58,680      151,601
                       --------         --------       --------     --------
                       $ 33,226         $ 61,739       $ 58,680     $153,645


<PAGE>


Non-Performing Assets

The table below presents non-performing assets at December 31, 1997, 1996,
1995, 1994 and 1993. Management is not aware of any significant loans
outstanding which are current, but for which there is a serious doubt as to
whether the customer can comply with loan repayment terms.

PFC Bank's non-performing assets consist of: (i) non-accrual loans; (ii)
loans past due 90 or more days as to interest or principal and still accruing
interest; (iii) restructured loans; and, (iv) other real estate acquired through
foreclosure, including in-substance foreclosures.

As part of its policy, PFC Bank places all loans that are past due 90 days or
more on non-accrual status, unless they are adequately capitalized and in the
process of collection.

Properties acquired by foreclosure, or deed in lieu of foreclosure, and
properties classified as in-substance foreclosed are transferred to other real
estate and recorded at the lower of cost or fair value, less estimated disposal
costs. This method of accounting is consistent with the American Institute of
Certified Public Accountants' Statement of Position 92-3, Accounting for
Foreclosed Assets (SOP 92-3). Management of PFC believes that the adoption of
SOP 92-3 has not had a material impact on the financial statements of PFC Bank



Non-Performing Assets
(in thousands)



<TABLE>
<CAPTION>
                                           12/31/97    12/31/96    12/31/95    12/31/94    12/31/93
                                           --------------------------------------------------------
<S>                                          <C>         <C>         <C>         <C>         <C>
Non-accrual loans                            $  217      $  332      $  498      $  518      $  718
Accruing loans past due 90 days or more         451         799         819         416         418
Restructured loans                              144         155         167          83         176
Other real estate                               145         230          82         271         163
                                             ------      ------      ------      ------      ------
   Totals                                    $  957      $1,516      $1,566      $1,288      $1,475
                                             ======      ======      ======      ======      ======
</TABLE>


<TABLE>
<CAPTION>
                                         12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
                                         --------------------------------------------
<S>                                      <C>      <C>      <C>      <C>      <C>
Interest income which would have been
recorded under original terms               $26      $27      $32      $34      $65
Interest income recorded during period        4        9       14       21       34
Commitments to lend additional funds        N/A      N/A      N/A      N/A      N/A
</TABLE>


<PAGE>

Deposits

PFC Bank continues to rely upon deposits as its primary source of funds.
Deposits consist of interest bearing and non-interest bearing demand deposits,
savings deposits and time deposits.

The table below presents average daily deposits and interest rates and
maturities of time deposits of $100,000 or more for the years ended December 31,
1997, and 1996.

(in thousands)


Deposits
<TABLE>
<CAPTION>
                                              Average Amount             Average Rate
                                          ----------------------------------------------
                                            1997          1996        1997       1996
                                          ----------------------------------------------
<S>                                       <C>           <C>          <C>        <C>
Non-interest bearing demand deposits      $ 23,113      $ 21,320      --         --
Interest bearing demand deposits            45,058        41,665      3.53%      3.52%
Savings deposits                            28,353        29,172      3.18%      3.19%
Time deposits                               87,246        72,339      5.73%      5.64%
                                          --------       -------
   Totals                                 $183,770       164,496
</TABLE>
                                          ========       =======

Maturities of Time Deposits of $100,000 or more

                                                     1997              1996
                                                    -------          -------
Three months or less                                $12,626          $ 6,710
Over three through twelve months                     13,246            6,393
Over 1 year through 5 years                           7,208            9,898
Over 5 years                                           --                100
                                                    -------          -------

   Totals                                           $33,080          $23,101

PFC's consolidated deposits balance as of December 31, 1997 was $190,573,000,
which was a $14,308,000 increase over December 31, 1996's balance of
$176,265,000. The majority of the deposit growth experienced in 1997 occurred in
time deposits.

Liquidity

PFC Bank's liquidity is a measure of its ability to fund loans, withdrawals
of deposits and other cash outflows in a cost effective and timely manner.

PFC Bank's principal sources of funds are deposits, scheduled payments and
pre-payments of loan principal, maturities of investment securities and
short-term investments, and other funds provided by operations. While loan
payments and maturing investments are a relatively predictable source of funds,
deposit flows are greatly influenced by general interest rates, economic
conditions and competition. In order to meet the cash needs for 1997, PFC Bank
maintained an average balance of federal funds sold of $7.6 million for the 12
months ended December 31, 1997, as compared to $5.9 million at December 31,
1996. At December 31, 1997, PFC held $10.0 million of investment securities and
$31.2 million of loans maturing in less than one year. PFC Bank has the option
to borrow funds from the Federal Home Loan Bank and the Federal Reserve Bank.
The Bank also relies on the sale of bank equities as a secondary source of
liquidity through the planned taking of capital gains. Management believes that
the Bank's liquidity position is adequate at the present time.


<PAGE>

Interest Rate Sensitivity

The objective of interest rate sensitivity management is to minimize the
Bank's risks associated with changing interest rates by managing interest
sensitive assets and liabilities in such a manner that they can be repriced in
response to changes in market interest rates. PFC Bank's objective is to
maintain a reasonable balance between rate sensitive assets and rate sensitive
liabilities.

The difference between interest sensitive assets and liabilities (i.e.,
balance sheet gap) cannot solely be used to control interest rate sensitivity.
Interest rates themselves must be monitored and adjusted to maintain an
acceptable return on assets. Management's ability to forecast and simulate rate
movements allows changes to be made quickly and advantageously. Although
management recognizes PFC Bank's short-term, highly liability sensitive
position, it continues to evaluate its earning assets versus liabilities to
reduce this gap. Management believes the gap ratio, as indicated in the table
below, is acceptable. Management's study of the Bank's primary core deposit base
revealed that even in times of interest rate fluctuation, the base has remained
stable. As a result, management believes that these core deposits (demand, NOW
and savings accounts) are not necessarily tied to interest rate sensitivity


Interest Sensitivity Cumulative Gap Analysis
(in thousands)

<TABLE>
<CAPTION>
                                                                   December 31, 1997
                                              0-3                0-6                0-12               0-5
Assets:                                     Months              Months             Months             Years
                                           --------            --------           --------           --------
<S>                                         <C>                 <C>               <C>                <C>
Investment Securities                       $ 7,890             $ 9,640           $ 10,022           $ 30,244
Loans                                         9,539              17,704             31,182             95,304
Federal Funds sold                            4,075               4,075              4,075              4,075
Other                                            35                  35                 35                 35
                                           --------            --------           --------           --------
   Total Earning Assets                    $ 21,539            $ 31,454           $ 45,314           $129,658
                                           ========            ========           ========           ========

Liabilities:
NOW Accounts                               $  7,693            $  7,693           $  7,693           $  7,693
MMDA                                         14,961              14,961             14,961             14,961
> $100,000                                   12,626              19,704             25,872             33,080
< $100,000                                   13,862              29,744             39,050             58,921
                                           --------            --------           --------           --------
Total interest-bearing liabilities         $ 49,142             $72,102           $ 87,576           $114,655
                                           ========            ========           ========           ========


Cumulative gap                              (27,603)            (40,648)           (42,262)            15,003
Cumulative gap ratio                            .44                 .44                .52               1.13
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Peoples Financial Corp., Inc.
Changes in Interest Income/Expense
(in thousands)                                                                  December 31
                                                                               1997  vs. 1996
                                                                             Increase/Decrease due
                                                                               to change in
                                                               -------------------------------------------------
Interest income on:                                              Volume                 Rate               Net
                                                               ----------             --------          --------
<S>                                                            <C>                    <C>               <C>
     Loans                                                     $    1,677             $   (245)         $  1,432
     Investment securities                                            357                 (263)              94
     Tax-free investment securities                                     0                    0                0
     Federal funds sold and securities purchased                       91                   22              113
                                                               ----------             --------          --------
Total interest-earning assets                                  $    2,125             $   (486)         $  1,639
                                                               ==========             ========          =======
Interest expense on:
     Demand deposits                                           $      120             $      5          $    125
     Savings deposits                                                 (17)                  (3)              (20)
     Time deposits                                                    822                   87               909
Short-term borrowings                                                   0                    0                 0
                                                               ----------             --------          --------
         Total interest-bearing liabilities                    $      925             $     89          $  1,014
                                                               ==========             ========          ========

<CAPTION>
                                                                                December 31
                                                                               1996  vs. 1995
                                                                             Increase/Decrease due
                                                                               to change in
                                                               -------------------------------------------------
Interest income on:                                              Volume                 Rate               Net
                                                               ----------             --------          --------
<S>                                                            <C>                    <C>               <C>
     Loans                                  `                  $   1, 106             $   (159)         $    945
     Investment securities                                            235                 (347)             (112)
     Tax-free investment securities                                     0                    0                 0
     Federal funds sold and securities purchased                      (30)                 (40)              (70)
                                                               ----------             --------          --------
         Total interest-earning assets                         $      328             $    427          $    765
                                                               ==========             ========          ========
Interest expense on:
 Demand deposits                                               $      106             $    (17)         $     89
     Savings deposits                                                 (20)                  (9)              (29)
     Time deposits                                                    197                  (51)              146
     Short-term borrowings                                            (48)                  20               (28)
                                                               ----------             --------          --------
         Total interest-bearing liabilities                    $      235             $    (57)         $    178
                                                               ==========             ========          ========

<CAPTION>
                                                                                December 31
                                                                               1995  vs. 1994
                                                                             Increase/Decrease due
                                                                               to change in
                                                               -------------------------------------------------
Interest income on:                                              Volume                 Rate               Net
                                                               ----------             --------          --------
<S>                                                            <C>                    <C>               <C>
     Loans                                                     $      188             $    318          $    506
     Investment securities                                           (203)                 (52)             (255)
     Tax-free investment securities                                     0                    0                 0
     Federal funds sold and securities purchased                      243                 (118)              125
                                                               ----------             --------          --------
         Total interest-earning assets                         $      228             $    148          $    376
                                                               ==========             ========          ========
     Interest expense on:
     Demand deposits                                           $       (9)            $      0          $     (9)
     Savings deposits                                                 (85)                  31               (54)
     Time deposits                                                    527                  605             1,132
     Short-term borrowings                                            (55)                   0               (55)
                                                               ----------             --------          --------
         Total interest-bearing liabilities                    $      378             $    636          $  1,014
                                                               ==========             ========          ========
</TABLE>


<PAGE>



Capital Resources

Capital resources are provided by common stock, capital surplus and
retained earnings. The objective of management is to emphasize current and
future capital needs based upon anticipated growth.

PFC Bank has historically maintained an adequate capital position. The
regulations of the FDIC require it to maintain a Leverage Ratio, Tier I Capital
to Risk-Weighted Assets Ratio, and a Total Capital to Risk-Weighted Asset Ratio
of 3%, 4%, and 8%, respectively. PFC Bank exceeds each of these ratios as shown
in the following table representing PFC Bank at December 31, 1997, not including
SFAS No. 115.

                                    PFC Bank

Leverage Ratio                        8.33%

Tier I Capital to Risk
Weighted Assets                      12.30%

Total Capital to Risk
Weighted Assets                      13.10%


Return on Equity and Assets
(not including SFAS No. 115)

<TABLE>
<CAPTION>
                                                     12/31/97    12/31/96    12/31/95   12/31/94
                                                     --------    --------    --------   --------
<S>                                                  <C>         <C>         <C>        <C>
Return on Assets
 (net income divided by avg total assets)              1.45%       1.13%       0.76%       0.98%

Return on Equity
  (net income divided by average equity)              16.19%      11.90%       7.22%       7.49%

Equity to assets ratio
 (average equity divided by avg total assets)          9.15%       9.54%      10.56%      13.15%
</TABLE>



ITEM 7 - FINANCIAL STATEMENTS

The financial statements required by this Item are set forth at Exhibit 13,
and incorporated herein by reference.


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

No changes or significant disagreements occurred in 1997.



<PAGE>

                                    Part III

ITEM 9 -  DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS

     The following information details the age, principal business experience
during the past five years, the period during which the person has served, the
position and office that each person has held with PFC or PFC Bank, a
description of the family relationships among the directors and the executive
officers, and any material legal proceedings involving the director within the
last five years. Each director was elected in 1997 to serve a one-year term.

     Frank T. Baker, Ph.D. (Age 62). Dr. Baker is Chairman of PFC and PFC Bank.
He has served as a director of PFC since its formation in 1984, a director of
Peoples since 1973 and as a director of PFC Bank since 1995. Dr. Baker retired
as a professor at Indiana University of Pennsylvania in 1996.

     Marlin F. Foreman (Age 94). Mr. Foreman has been retired for more than five
years. He has served as a director of PFC since its formation in 1984 and has
served as a director of Peoples since 1977. Mr. Foreman has served as a director
of PFC Bank since 1995.

     Darl Hetrick (Age 75). Mr. Hetrick is a partner of Hetrick Farm Supply. He
has served as a director of Peoples since 1993. He also served as director of
the merged New Bethlehem Bank since 1983 and as Vice President of New Bethlehem
Bank from 1986 until its merger. Mr. Hetrick has served as a director of PFC
Bank since 1995.

     Francis E. Kane (Age 78). Mr. Kane has been retired for more than five
years. He has served as a director of PFC since its formation in 1984 and has
served as a director of Peoples since 1955. Mr. Kane has served as a director of
PFC Bank since 1995.

     Raleigh B. Robertson (Age 69). Mr. Robertson is President and CEO of PFC
and PFC Bank. He has served as a director of PFC and Peoples since 1993. He has
served as a director of PFC Bank since 1995. He also served as director of the
merged New Bethlehem Bank. Mr. Robertson is the father of Raleigh B. Robertson,
Jr.

     William H. Toy (Age 68). Mr. Toy is self-employed in the dry cleaning and
wholesale linen business. He has served as a director of PFC and Peoples since
1992. He has served as a director of PFC Bank since 1995.

     Brian Henry (Age 44). Mr. Henry is self-employed in the health care
industry. He serves as Secretary of PFC and PFC Bank. He has served as a
director of PFC and PFC Bank since 1995. He also served as a director of the
merged New Bethlehem Bank.

     Raleigh B. Robertson, Jr. (Age 46). Mr. Robertson is a partner in R.B.
Robertson & Son, a gas and oil business. He has served as a director of PFC and
PFC Bank since 1995. He also served as a director of the merged New Bethlehem
Bank. He is the son of Raleigh B. Robertson.

     J. Jack Sherman ( Age 60). Mr. Sherman is President of Sherman Enterprises,
Inc. He has served as a director of PFC and PFC Bank since 1995. He also served
as a director of the merged New Bethlehem Bank.


<PAGE>

     Howard H. Shreckengost (Age 60). Mr. Shreckengost is employed by the
Char-Val Candy Company. He has served as a director of PFC and PFC Bank since
1995. He also served as a director of the merged New Bethlehem Bank.

     James L. Kifer (Age 36). Mr. Kifer is Executive Vice President of PFC and
PFC Bank. He has been employed with PFC Bank since 1995 and New Bethlehem Bank
since 1984.


Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers and directors, and persons who own more than 10
percent of the registered class of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10 percent shareholders
are required by SEC regulation to furnish the Corporation with copies of all
Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Corporation believes that during the period
January 1, 1997 through December 31, 1997, its officers and directors were in
compliance with all filing requirements applicable to them.


ITEM 10 - EXECUTIVE COMPENSATION

     The following table provides information concerning the aggregate annual
remuneration of the highest paid persons (exceeding $100,000) who were officers
or directors of PFC and PFC Bank during 1996.

                           Summary Compensation Table
                         Annual Compensation 1995 - 1997

         NAME             TITLE        YEAR   SALARY       BONUS      OTHER
         ----             -----        ----   ------       -----      -----

Raleigh B. Robertson   Chairman/CEO    1997   130,893    72,000.00   83,308 (1)
                                       1996    62,330    40,000.00   47,084 (2)
                                       1995       --     42,000.00   86,977 (3)


(1)  Contingent compensation based on a three (3) year employment agreement

(2)  Includes $38,000 appraisal fees and $9,084 in Directors fees.

(3)  Includes $36,000 Consulting Fee, $32,914 appraisal fees, and $18,063 in
     Directors Fees.

Employment Contract

On September 1, 1997, the Corporation, the Bank and R.B. Robertson,
President and Chief Executive Officer of the Corporation and the Bank, entered
into an employment agreement for a term of three (3) years, after which term Mr.
Robertson shall be a consultant to the Corporation and the Bank for up to three
(3) years (the "Agreement"). The Agreement specifies Mr. Robertson's position
and duties, compensation and benefits. The Agreement also sets forth certain
indemnification and termination provisions and contains a non-competition clause
and a confidentiality provision.


<PAGE>

Under the terms of his Agreement, Mr. Robertson serves as the President and
Chief Executive Officer of the Corporation and of the Bank and as a member of
the Boards of Directors of the Corporation and of the Bank. In 1997, and
pursuant to the Agreement, Mr. Robertson was entitled to an annual direct salary
of $130,893, contingent compensation of $83,333.33, and was entitled to purchase
up to 6,536 shares of common stock of the Corporation at $38.25 per share,
pursuant to the terms of a stock option agreement. In addition, the Boards of
Directors of the Corporation and the Bank have discretion to pay a periodic
bonus to Mr. Robertson. Mr. Robertson is not entitled to receive director's fees
or other compensation for serving on the Corporation's and the Bank's Boards of
Directors or the committees thereof. Mr. Robertson is also entitled to receive
the employee benefits made available by the Bank to its employees.

The Agreement also provides that if Mr. Robertson's employment is
terminated by the Corporation or the Bank, due to death, disability or for cause
(as defined therein), then he is entitled to the full annual direct salary
through the date of termination. If Mr. Robertson's employment is terminated by
the Corporation or the Bank, other than pursuant to death, disability or for
cause (as defined therein), then he is entitled to his full annual direct salary
from the date of termination through the last day of the term of the Agreement,
or an amount equal to his current annual direct salary, whichever is greater. If
Mr. Robertson terminates his employment for good reason (as defined therein)
then he is entitled to an amount equal to his direct annual salary. If Mr.
Robertson's employment is terminated as a result of a change in control (as
defined therein), then he is entitled to receive a lump sum payment equal to
2.99 times his then current direct annual salary (as defined therein) and will
continue his eligibility to participate in all employee benefit plans and
programs in which he was previously entitled to participate.

PFC Bank provides life insurance for all of its employees at the rate of
two times their annual salaries.

<PAGE>


The following  table  provides  information  concerning  Board of Director fees,
bonuses  and  committee  fees for the  year  ended  December  31,  1997,  of all
directors of PFC and PFC Bank.

Directors Compensation 1997

<TABLE>
<CAPTION>
                         DIRECTOR        OFFICER  LOAN COMMITTEE                TOTAL
      NAME                 FEE             FEE         FEE        BONUS         FEES
      ----                 ---             ---         ---        -----         ----
<S>                     <C>              <C>      <C>             <C>          <C>
Frank T. Baker             7,560            0        7,008        9,000       23,568

Frank L. Doverspike        5,670            0        5,256            0       10,926

C. Edward Dunmire          1,890            0            0            0        1,890

E. Andrew Dunmire          1,890            0            0            0        1,890

David P. Fennell           1,890            0            0            0        1,890

Marlin Foreman             7,560            0            0        4,000       11,560

Brian Henry                7,560       12,000            0       11,000       30,560

Darl Hetrick               7,560        3,600        7,008        8,000       26,168

Francis Kane               7,560            0            0        4,000       11,560

R.B. Robertson                 0            0            0            0            0

R.B. Robertson, Jr         7,560            0        7,008        8,000       22,568

Howard Shreckengost        7,560            0        7,008        2,000       16,568

J. Jack Sherman            7,560            0            0        7,000       14,560

William H. Toy             7,560            0        7,008        9,000       23,568
                         -------      -------      -------      -------      -------
                          79,380       15,600       40,296       62,000      197,276
</TABLE>


Additional information required by this Item 10 is set forth on pages 6
through 8 of PFC's Proxy Statement, which is [attached hereto, as Exhibit 99,
and] incorporated herein by reference.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 1, 1998, the name and address
of each person who owns of record or who is known by the management of PFC to be
the beneficial owner of more than five percent of the PFC Common Stock
outstanding, the number of shares beneficially owned by such person and the
percentage of PFC Common Stock owned. As of December 31, 1997 and March 1, 1998,
there were 882,168 shares of PFC Common Stock outstanding.


                                                                Percent of
                                           Number of           Outstanding
                                             Shares             PFC Common
                                          Beneficially       Stock Beneficially
         Name and Address                    Owned                 Owned
         ----------------                    -----                 -----

J. Jack Sherman                              99,351                11.26%
PO Box 324
Tionesta, Pennsylvania  16353

C. Edward Dunmire                            67,304                 7.63%
425 Pine Hill Road
Kittanning, Pennsylvania  16201

Howard H. Shreckengost                       61,466                 6.97%
406 Vine St.
New Bethlehem, Pennsylvania  16242


<PAGE>

The following table sets forth, as of March 1, 1998, the amount and
percentage of PFC Common Stock outstanding and beneficially owned by each
director and executive officer of PFC and by all such persons as a group. The
address for each is Ford Street and Fourth Avenue, Ford City, Pennsylvania,
16226. R.B. Robertson and R.B. Robertson, Jr. are father and son. R.B. Robertson
is President and Chief Executive Officer, Frank T. Baker is Chairman of the
Board and James L. Kifer is Executive Vice President. As a group, these persons
own collectively 297,121 shares or approximately 33.68% of the PFC Common Stock
outstanding as of March 1, 1998.

<TABLE>
<CAPTION>
  Name of Individual                 Amount and Nature
   or Identity of                       of Beneficial        Percent
        Group                             Ownership         Ownership
        -----                             ---------         ---------
<S>                                           <C>           <C>

Frank T. Baker                           37,665               4.27%

Marlin F. Foreman                        10,440               1.18%

Brian Henry                                 100               0.01%

Darl Hetrick                             31,520               3.57%

Francis E. Kane                           6,111               0.69%

James L. Kifer                              233               0.03%

Raleigh B. Robertson                     14,189 (1)           1.61%

Raleigh B. Robertson, Jr                 27,294 (1)           3.09%

J. Jack Sherman                          99,351              11.26%

Howard H. Shreckengost                   61,466               6.97%

William H. Toy                           20,860               2.36%

(All Officers and Directors as          297,121              33.68%
a Group, 11 Persons in Total)
</TABLE>

Additional information on stock ownership is set forth in the footnotes on
Page 4 of PFC's Proxy Statement, which is [attached hereto, as Exhibit 99, and]
incorporated herein by reference.

<PAGE>

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PFC Bank has a policy of granting loans to eligible directors, officers,
employees and members of their immediate families. Loans are made in the
ordinary course of business and on the same terms, including collateral
requirements and interest rates, as those prevailing at the time for comparable
transactions and do not involve more than the normal risk of collection. The
table below sets forth information concerning each loan made by PFC Bank to
executive officers, directors and major shareholders, for which a loan balance
was outstanding at any time since January 1, 1997.



<TABLE>
<CAPTION>
                                                   LARGEST AMOUNT
                                      DATE OF        OUTSTANDING           BALANCE
NAME                 POSITION          LOAN       SINCE JAN. 1, 1997    DEC. 31, 1997
----                 --------          ----       ------------------    -------------
<S>                 <C>                    <C>
C. Edward Dunmire    Major Shareholder various          73,186                -0-
Frank T. Baker       Chairman          1993             52,003              45,989
Brian Henry          Secretary         1995            197,100             188,228(1)
Darl Hetrick         Director          various         186,385             156,192(2)
</TABLE>

(1)  Includes loans to Ray-War Holdings, Inc., of $137,120 and $51,108
(2)  Comprised primarily of third party receivables associated with equipment
     sales by Mr. Hetrick's farm supply business. The receivables were purchased
     by PFC Bank from Mr. Hetrick with recourse to Mr. Hetrick in the event of
     non-payment by the equipment purchaser.

ITEM 13 - EXHIBIT AND REPORTS ON FORM 8-K.

         (a)    The following  Exhibits are filed  herewith,  or incorporated by
                reference as a part of this Report:
                  3(i)     Registrant's Articles of Incorporation.
                           (Incorporated  by Reference to  Registrant's  January
                           27, 1995, filing of Form S-4.)
                  3(ii)    Registrant's By-Laws.
                           (Incorporated  by Reference to  Registrant's  January
                           27, 1995, filing of Form S-4.)
                  10(i)    Agreement between R.B. Robertson and Bank.
                           (Incorporated by Reference to the Registrant's
                           September 30, 1997 filing of Form 10-QSB.)
                  10(ii)   Settlement Agreement.
                           (Incorporated by Reference to the Registrant's
                           December 31, 1996 filing of Form 10-KSB.)
                  10(iii)  General Release.
                           (Incorporated by Reference to the Registrant's
                           December 31, 1996 filing of Form 10-KSB.)
                  11       Statement re:  Computation of Earnings Per Share.
                           (Refer to Exhibit 13, page 3, Consolidated Statement
                           of Income.)
                  13       Annual report to Security Holders.
                           (Included with Financial Statements, which are
                           attached as Exhibit 13 hereto.)
                  21       Subsidiaries of the Registrant.
                  23       Consent of Independent Auditors.
                  27       Financial Data Schedule.
                  99       Proxy Statement.
<PAGE>


Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

                                            Peoples Financial Corp., Inc.
                                              (Registrant)


March 23, 1998                                   By  /s/  R.B. Robertson
                                                     --------------------------
                                                          R.B. Robertson
                                                          President/CEO

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

<TABLE>
<CAPTION>
Signature                           Title                                       Date
<S>                                 <C>                                         <C>

/s/ R.B. Robertson                  President/CEO                               March 23, 1998
-------------------------------     and Director
R.B. Robertson

/s/ Darl Hetrick                    Vice President and Director                 March 23, 1998
-------------------------------
Darl Hetrick

/s/ William H. Toy                  Director                                    March 23, 1998
-------------------------------
William H. Toy

/s/ Howard H. Shreckengost          Director                                    March 23, 1998
-------------------------------
Howard H. Shreckengost

/s/ Francis E. Kane                 Director                                    March 23, 1998
-------------------------------
Francis E. Kane

/s/ Brian Henry                     Secretary and                               March 23, 1998
-------------------------------     Director
Brian Henry

/s/ Marlin  Foreman                 Director                                    March 23, 1998
-------------------------------
Marlin  Foreman

/s/ R.B. Robertson, Jr.             Director                                     March 23, 1998
-------------------------------
R.B. Robertson, Jr.

/s/ Frank T. Baker                  Chairman/Director                           March 23, 1998
-------------------------------
Frank T. Baker

/s/ J. Jack Sherman                 Director                                    March 23, 1998
-------------------------------
J. Jack Sherman

/s/ James L. Kifer                  Executive Vice President                    March 23, 1998
-------------------------------     Principal Financial Officer
James L. Kifer                      Principal Accounting Officer
</TABLE>


<PAGE>

                                  EXHIBIT INDEX

                                                                       PAGE NO.
                                                                    IN MANUALLY
                                                                         SIGNED
                                                                    EXHIBIT NO.
                                                                       ORIGINAL



3(i)     Registrant's Articles of Incorporation.
         (Incorporated  by Reference to Registrant's  January 27, 1995,
         Filing of Form S-4.)
3(ii)    Registrant's By-Laws.
         (Incorporated by Reference to  Registrant's  January 27, 1995,
          filing of Form S-4.)
10(i)    Agreement  between R.B.  Robertson and Bank.  (Incorporated by
         Reference  to the  Registrant's  September  30, 1997 filing of
         Form 10-QSB.)
10(ii)   Settlement Agreement.
         (Incorporated  by Reference to the  Registrant's  December 31,
         1996 filing of Form 10-KSB.)
10(iii)  General Release.
         (Incorporated  by Reference to the  Registrant's  December 31,
         1996 filing of Form 10-KSB.)
 11      Statement re:  Computation of Earnings Per Share.
         (Refer to Exhibit 13, page 3, Consolidated Statement of Income.)
 13      Annual report to Security Holders.                                   36
         (Included with Financial Statements, which are attached as
         Exhibit 13 hereto.)
 21      Subsidiaries of the Registrant.                                      66
 23      Consent of Independent Auditors.                                     67
 27      Financial Data Schedule.                                             68
 99      Proxy Statement.                                                     70