<PAGE>
                    U.S. SECURITIES AND EXHCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                  FORM 10-QSB

(Mark One)

     [ X  ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended June 30, 1998

     [    ]    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 small business issuer as specified in its charter)


          Pennsylvania                                   25-1469914
   --------------------------------------------------------------------------
  (State or other jurisdiction of            (IRS Employer Identification No.
   incorporation or organization)

               Ford Street and Fourth Avenue,Ford City, Pa 16226
               --------------------------------------------------
                    (Address of principal executive offices)

                                 (724) 763-1221
                                 --------------
                          (Issuer's telephone number)

               --------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable dates: August 1, 1998
                                                  ---------------

     As of August 1, 1998, there were 882,168 shares of the Registrant's  common
stock, $0.30 par value, outstanding.

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

INDEX                                                                    PAGE

PART I.   FINANCIAL STATEMENTS

ITEM 1.   Consolidated Blance Sheets -
          June 30, 1998 (unaudited) and December 31, 1997                  1

          Consolidated Statements of Income -
          Six months ended June 30, 1998 and 1997 (unaudited)              2

          Consolidated Statement of Cash Flows -
          Six months ended June 30, 1998 and 1997 (unaudited)              3

          Notes to Consolidated Financial Statements                       4

ITEM 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations                    5

PART II.  OTHER INFORMATION

ITEM 1.   Legal Proceedings                                                9

ITEM 2.   Changes in Securities                                            9

ITEM 3.   Defaults Upon Senior Securities                                  9

ITEM 4.   Submission of Matters to a Vote of Security Holders              9

ITEM 5.   Other Information                                                9

ITEM 6.   Exhibits and Reports on Form 8-K                                 9

SIGNATURES                                                                11

<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                   June 30,
                                                    1998          December 31,
ASSET                                            (Unaudited)         1997
-----                                             ----------      ------------
<S>                                               <C>            <C>
     Cash and due from banks                      $ 10,650,978   $  7,003,534
     Federal funds sold                              4,800,000      4,075,000
     Available-for-sale securities                  40,365,087     38,069,171
     Held-to-maturity securities                    31,002,129     32,378,224
     Federal Home Loan Bank stock, at cost             841,500        740,200
     Loans receivable, net                         161,643,384    152,395,769
     Premises and equipment, net                     3,234,893      3,459,173
     Other assets                                    2,527,616      2,149,627
                                                  ------------   ------------

          Total Assets                            $255,065,587   $240,270,698
                                                  ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
     Deposits                                     
          Non-interest bearing                   $  25,154,269  $ 23,343,039                   
          Interest bearing                         176,619,266   167,229,668
                                                  -------------  ------------
          Total deposits                           201,773,535   190,572,707

     Accrued interest and other liabilities         13,232,776    12,285,041
                                                  ------------   -----------

          Total Liabilities                        215,006,311   202,857,748

STOCKHOLDERS' EQUITY
     Common stock, par value                           264,650       264,650
     Surplus                                         3,932,656     3,932,656
     Retained earnings                              16,399,086    15,298,374
     Net unrealized holding gains on
      securities available for sale                 19,462,884    17,917,270
                                                  ------------   -----------
          Total stockholders' equity                40,059,276    37,412,950
                                                  ------------   -----------
          Total Liabilities and 
          Stockholders Equity                     $255,065,587  $240,270,698
                                                  ============  ============ 

</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.

                                     Page 1

<PAGE>

PEOPLES FINANCIAL COPR., INC. AND SUBSIDIARY

<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<CAPTION>
                                                  Six Months Ended June 30,
Interest Income                                    1998             1997
                                                  ---------       ---------
<S>                                               <C>            <C>
     Loans                                        $  6,791,423   $ 5,910,207    
     Investment securities                           1,476,686     1,338,913
     Interest-bearing deposits                         114,937           950
     Federal funds sold                                 89,977       242,399
                                                  ------------   -----------
          Total interest income                      8,473,023     7,492,469

Interest Expense
     Deposits                                        4,076,295     3,598,912
                                                  ------------   -----------

Net Interest Income                                  4,396,728     3,893,557

Provision for Loan Losses                               80,000        25,000
                                                  ------------   -----------

Net Interest Income after Provision for Loan Losses  4,316,728     3,868,557

Other Income
     Service fees                                      305,027       321,645
     Net investment gains                              376,544       354,014
     Other                                              26,580       226,304
                                                  ------------   -----------
                                                       708,151       901,963      

Other Expenses
     Salaries                                          980,215      985,210
     Pension and other employee benefits               448,624      358,716
     Occupancy expense                                 527,126      507,823
     Legal and professional                             96,633      127,830
     Regulatory fees                                    28,095       25,603
     Data processing                                    90,620       77,849
     Other                                             793,887      844,695
                                                  ------------   ----------
                                                     2,965,200    2,927,726

Income Before Income Taxes                           2,059,679    1,842,794

Provision for Income Taxes                             517,883      422,357
                                                  ------------   ----------
Net Income                                        $  1,541,796   $1,420,437
                                                  ============   ==========
Net Income per Share of Common Stock              $       1.75   $     1.61
                                                  ============   ==========
Net Income per Share of Common Stock
  (fully diluted)                                 $       1.75   $     1.61
                                                  ============   ==========
Shares Used in Computing Net Income
  per Share of Common Stock                            882,168      879,990
                                                  ============   ==========
</TABLE>

     The  accompanying  notes  are  an  integaral  part  of  these  consolidated
financial statements.

                                     Page 2
<PAGE>

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<CAPTION>

                                                  Six Months Ended June 30,
                                                    1998           1997
                                                   ------         ------
<S>                                               <C>            <C>
CASH FLOWS FROM OPERATING ACTIIVITIES
     Net Income                                   $  1,541,796   $  1,420,437                             
     Adjustments to reconcile net cash from
      operating activities:
     Depreciation and amortization                     277,938        326,111
     Net accretion/amortization of
      premiums and discounts                            (6,798)        (7,205)
     Gain on sale of investments                      (376,545)      (281,054)
     Provision for loan losses                          80,000         25,000
     Loss on sale/disposal of assets                     3,612         22,265
     Reinvestment of stock dividends                   (12,811)       (37,278)
     Increase (decrease) in cash due to changes in
      assets and liabilities:
          Other assets                                (147,803)       (16,274)
          Accrued interest and other liabilities       (80,037)       452,585
                                                  -------------  ------------

     Net Cash From Operating Activities              1,279,352      1,904,587

CASH FLOWS FROMINVESTING ACTIVITIES
     Proceeds from sales of securities available
      for sale                                         410,008        482,754
     Proceeds from maturities of securities held
      to maturity                                    9,745,262      5,315,911
     Purchase of securities held to maturity        (8,328,138)   (10,943,437)
     Net purchases of FHLB Stock                      (101,300)      (170,700)
     Net loans made to customers                    (9,347,591)    (4,416,885)
     Purchases of Premises and equipment               (56,764)      (125,795)
                                                  -------------   ------------

     Net Cash Used By Investing Activities          (7,678,523)    (9,858,152)

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase in deposits                       11,212,698      3,639,004
     Dividends paid                                   (441,084)      (422,395)
                                                  -------------  -------------
Net Cash From Financing Activities                  10,771,614      3,216,609
                                                  -------------  -------------

Net Change in Cash and Cash Equivalents              4,372,443     (4,736,956)

Cash and Cash Equivalents at Beginning of Period    11,078,535     16,269,707
                                                  ------------   -------------
Cash and Cash Equivalents at End of Period         $15,450,978   $ 11,532,751
                                                  ============   =============
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.

                                     Page 3
<PAGE>

PEOPLES FINANCIAL CORP., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION
The accompanying  unaudited  consolidated  financial  statements include Peoples
Financial Corp.,  Inc., (the Corporation) and its wholly owned  subsidiary,  PFC
Bank (the Bank),  and have been prepared in accordance  with generally  accepted
accounting  principles for interim financial information and the instructions to
Form 10-QSB and Article 10 of Regulation S-B.  Accordingly,  they do not include
all of the information and footnotes required by generally  accepted  accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  (consisting  primarily  of normal  recurring  accruals)  considered
necessary for a fair presentation have been included.

NOTE B - EARNINGS PER SHARE
Shares used in the  earnings  per share  computation  are the  weighted  average
number of shares outstanding during the periods in question.

NOTE C - RECLASSIFICATIONS
Certain  previously  reported items have been  reclassified  to conform with the
current  period's  classifications.  These  reclassifications  have no effect on
total assets, total liabilities, stockholders' equity, and net income.

                                     Page 4

<PAGE>

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

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

FINANCIAL CONDITION

For the six months ended June 30, 1998, the Corporation's total assets increased
over  December  31,  1997 by  nearly  $14.8  million  resulting  primarily  from
increases  of  approximately  $9.2 million in net loans and $3.6 million in cash
and due from banks.

The increase in total  liabilities of approximately  $12.1 million from December
31, 1997 to June 30, 1998 is primarily  attributable to increases in deposits of
over $11.2 million in the six-month period ended June 30, 1998.

As of June 30, 1998, PFC Bank, the Corporation's wholly owned subsidiary,  had a
ratio of non-performing loans to total assets of 0.26% as compared to a ratio of
0.40%  as of the end of  December  31,  1997.  Included  in the  first  quarter,
non-performing  loan totals were loans  totaling  $662,000 that were  delinquent
more  than 90 days  and  held on  non-accrual  status.  At June  30,  1998,  the
allowance for possible loan losses was $1,122,000,  which  represented  0.69% of
net  loans  as  compared  to  0.81% at the end of the  previous  calendar  year.
Non-performing  loans totaled  16.22% of the allowance for possible loan losses,
as compared to 17.37% at December 31, 1997.

In management's opinion, the allowance for possible loan losses at June 30, 1998
is adequate to absorb future loan losses based on information  presently  known.
Management cannot assure,  however,  that additions to the allowance will not be
required in the future to cover losses that are presently unforeseen.

RESULTS OF OPERATIONS

Net Income

For the six-month  period ended June 30, 1998,  the  Corporation  recognized net
income of $1,542,000,  an increase of $121,000 over the same period of the prior
year.

The operating  results of the  Corporation  are largely  dependent  upon the net
income generated by its subsidiary, PFC Bank. PFC Bank also has the benefit of a
substantially appreciated  available-forsale investment portfolio, the strategic
liquidation  of portions of which enable the  Corporation to absorb the negative
effects of interest rate fluctuation and still maintain profitable operations.

Net Interest Income

Interest  income for the six-month  period ended June 30, 1998 was $8.5 million,
an increase of $981,000  from the  six-month  period ended June 30,  1997.  This
increase  is  attributed  to an  $881,000  increase  in  interest  on  the  loan
portfolio.  Interest  expense for the  six-month  period ended June 30, 1998 was
approximately  $4.4 million,  a $448,000 increase over the same six-month period
ended June 30, 1997.  Management  attributes this increase primarily to the $9.4
million increase in interest bearing deposits since December 31, 1997.

                                     Page 5

<PAGE>

Provision for Loan Losses

The provision for loan losses is based upon management's  ongoing  assessment of
the inherent risk of loss in the outstanding loan portfolio.  Management's  risk
assessment is based on the 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 for possible loan losses may be necessary.  PFC Bank  continues to
monitor its loan  portfolio  on a regular  basis and will make  additions to its
allowance  based on its  determination  of the necessary level of the allowance.
For the six-month  period ended June 30, 1998, PFC Bank recorded  $80,000 to the
provision  for loan  losses as  compared  to $25,000  for the same period in the
previous  year.  Net  charge-offs  for the six-month  period ended June 30, 1998
amounted to $206,000 as compared to $31,000 for the six month  period ended June
30, 1997.  This increase was attributed to a single loan  charge-off of $151,000
arising  from a  successor  letter of  credit,  derived  from a letter of credit
originally issued in 1985 by past management.

Other Income

Other  income for the  six-month  period  ended June 30, 1998 was  approximately
$708,000,  a decrease of approximately  $194,000 over the six-month period ended
June 30,  1997.  This  decrease  is  directly  attributable  to flood  insurance
proceeds of $206,000 received in the six month period ended June 30, 1997.

Net investment  gains were $377,000 for the six-month period ended June 31, 1998
as compared to $354,000 for the same six-month  period the previous year.  These
net gains  were  primarily  the  result of the  liquidation  of a portion of PFC
Bank's available-for-sale investment portfolio.

Other Expenses

Total other  expenses  increased by $37,000 for the six-month  period ended June
30, 1998 when  compared to the same period in the prior year.  This increase was
primarily  the result of increases in pension  expense of $90,000 and  occupancy
expense of  $19,000.  These  increases  were  offset by  decreases  in legal and
professional  expenses  of  $31,000  and  miscellaneous  operating  expenses  of
$51,000.

Maintaining a focus on operating cost control has become increasingly  important
and the  Corporation  has succeeded in maintaining a relatively  stable overhead
burden.

Provision for Income Taxes

The  Corporation  incurred a  provision  for income  taxes of  $518,000  for the
six-month  period  ended June 30,  1998,  as compared  to $422,000  for the same
period ended June 30, 1997. State tax liabilities are incurred both by PFC Bank,
in the form of  Pennsylvania  Bank  Shares  tax,  and by the  Corporation,  as a
separate entity.

                                     Page 6
<PAGE>

Regulatory Activity
-------------------

Recently,   Pennsylvania  enacted  a  law  to  permit  state  chartered  banking
institutions  to sell insurance.  This follows a U.S.  Supreme Court decision in
favor of nationwide insurance sales by banks. The decision also bars states from
blocking  insurance sales by national banks in towns with populations of no more
than 5,000. PFC Bank is currently  evaluating its options  regarding the sale of
insurance.

Congress is currently considering legislative reforms to modernize the financial
services industry,  including  repealing the Glass Steagall Act, which prohibits
commercial banks from engaging in the securities industry. Consequently,  equity
underwriting  activities of banks may increase in the near future.  However, the
Corporation does not currently anticipate entering into these activities.

Management  estimates that changes in PFC Bank's FDIC assessment rate, resulting
from the enactment of the Deposit  Insurance  Funds Act of 1996,  will adversely
impact the results of operations,  net of income taxes, in the amount of $23,200
in the year ended December 31, 1998. The act also provides  regulatory relief to
the financial  services industry relative to environmental  risks,  frequency of
examinations, and simplification of forms and disclosures.

From time to time,  various  types of federal  and state  legislation  have been
proposed that could result in additional regulation of, and restrictions on, the
business of the Corporation and of PFC Bank.  Management  cannot predict whether
such  legislation  will be adopted or, if adopted,  how such  legislation  would
affect the business of the  Corporation  and PFC Bank. As a  consequence  of the
extensive  regulation of commercial banking activities in the United States, the
Corporation's  and PFC Bank's  business is  particularly  susceptible to federal
legislation  and  regulations  that may  increase  the costs of doing  business.
Except as specifically  described above,  Management believes that the affect of
the  provisions  of  the  aforementioned   legislation  on  liquidity,   capital
resources,  and results of  operation  of the  Corporation  will be  immaterial.
Management  is not  aware  of any  other  current  specific  recommendations  by
regulatory authorities or proposed legislation, which, if they were implemented,
would have a material  adverse  effect upon  liquidity,  capital  resources,  or
results of operation,  although the general cost of compliance with the numerous
and multiple federal and state laws and regulations does have, and in the future
may have, a negative impact on the Corporation's results of operations.

Further,  the business of the  Corporation  is also affected by the state of the
financial  services  industry  in  general.  As a result of legal  and  industry
changes, Management expects the industry will continue to experience an increase
in  consolidations  and mergers as the financial  services  industry strives for
greater cost  efficiencies and market share.  Management also expects  increased
diversification  of financial  products and services offered by the Bank and its
competitors.  Management  believes  that such  consolidations  and mergers,  and
diversification  of products  and  services  may enhance PFC Bank's  competitive
position as a community bank.

                                     Page 7
<PAGE>

Year 2000 Compliance
--------------------

The  Corporation  is in  the  process  of  assessing  the  cost  and  extent  of
vulnerability  of the  Bank's  computer  systems  to the  "Year  2000  problem."
Modification or  replacements  of computer  systems to attain Year 2000 internal
compliance  have  begun,  and the Bank  expects  to attain  Year  2000  internal
compliance  and  institute   appropriate   testing  of  its   modifications  and
replacements  before  December 31, 1998. The  Corporation  believes  that,  with
modifications  to existing  software and  conversions to new software,  the Year
2000  problem  will  not  pose  a  significant   operational   problem  for  the
Corporation.  However,  because most computer systems are, by their very nature,
interdependent,  it is possible that  noncompliant  third party  computers could
impact the Bank's computer systems.  The Bank could be adversely affected by the
Year 2000 problem if it or unrelated  parties fail to  successfully  address the
problem. The Bank has taken steps to communicate with the unrelated parties with
whom it deals to coordinate Year 2000 compliance. Additionally, we are dependent
on  external  suppliers,  such as, wire  transfer  systems,  telephone  systems,
electric companies, and other utility companies for continuation of service. The
Bank is also  assessing the impact,  if any, the century date change may have on
its credit risk.  The Bank is contacting  its large  commercial  loan  customers
concerning their level of readiness for Year 2000.

The financial impact to the Corporation of Year 2000 internal compliance has not
been  and is not  anticipated  to be  material  to the  Corporation's  financial
position or results of operations.  If major external suppliers of services fail
to  provide  services,   such  failures  may  have  a  material  impact  to  the
Corporation's financial position of results of operations. The Corporation is in
the process of obtaining  back up service  providers and assessing the potential
adverse risk to the Corporation.


Forward-Looking Statements
--------------------------

From  time to time,  the  Corporation  may  publish  forward-looking  statements
relating  to  such  matters  as  anticipated  financial  performance,   business
prospects,  technological  developments,  new products, research and development
activities and similar matters. 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,  the  Corporation  notes  that a variety  of
factors could cause the  Corporation's  actual  results and experience to differ
materially from the anticipated  results or other expectations  expressed in the
Corporation's  forward-looking  statements. The risks and uncertainties that may
affect the operations, performance, development and results of the Corporation'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.

                                     Page 8
<PAGE>

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings
           Not applicable

ITEM 2. Changes in Securities
           Not applicable

ITEM 3. Defaults Upon Senior Securities
           Not applicable

ITEM 4.  Submission  of  Matters  to a Vote of  Security  Holders
            There  was no submission of matters  brought to a vote of security
            holders in the second quarter of 1998.

ITEM 5.  Other Information
              Not applicable.

ITEM 6.  Exhibits and Reports on Form 8-K

          (a)  Exhibits


               3(i) Registrant's  Articles of  Incorporation.  (Incorporated  by
                    reference in Registrant's  January 27, 1995,  filing of Form
                    S-4).

               3(ii)Registrant's   By-Laws.   (Incorporated   by   reference  in
                    Registrant's January 27, 1995, filing of Form S-4).

               10(i)Agreement between R.B. Robertson and Bank.  (Incorporated by
                    Reference in the  Registrant's  September 30, 1997 filing of
                    Form 10-QSB).

               10(ii) Settlement  Agreement.  (Incorporated  by Reference in the
                    Registrant's December 31, 1996 filing of Form 10KSB).

                                     Page 9
<PAGE>

PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY

PART II.          OTHER INFORMATION (cont.)

ITEM 6. Exhibits and Reports on Form 8-K (cont.)

          10(iii) General Release
                  (Incorporated by Reference in the Registrant's
                  December 31, 1996 filing of Form 10KSB).

          11      Statement re: Computation of Earnings Per Share.
                  (included herein at Part I, Item 1, Page 2 of this
                  Form 10-QSB).

          27      Financial Data Schedule


     (b)  Reports on Form 8-K

          The registrant filed the following  current reports on Form 8-K during
          the quarter ended June 30, 1998:

          No 8-K reports filed in the quarter ended June 30, 1998.

                                    Page 10

<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Dated:   August  7, 1998
         ---------------

                                                  PEOPLES FINANCIAL CORP., INC.
                                                  (Registrant)

/s/ R.B. Robertson
___________________________________
R.B. Robertson
President & Chief Executive Officer


/s/ James L. Kifer
___________________________________
James L. Kifer
Executive Vice President & Asst. Secretary