SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999

                                       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

                               PS FINANCIAL, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                                          36-4101473
-------------------------------------         ---------------------------------
(State or Other Jurisdiction                            (I.R.S. Employer
of Incorporation or Organization                         Identification Number)

4800 South Pulaski Road, Chicago, Illinois                   60632-4195
--------------------------------------------------------------------------------
  (Address of Principal Executive Offices)                   (Zip Code)

       Registrant's telephone number, including area code: (773) 376-3800


      Securities Registered Pursuant to Section 12(b) of the Exchange Act:
                                      None
      Securities Registered Pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)


         Indicate  by check mark  whether the  Registrant  (1) filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
Registrant was required to file such reports),  and (2) has been subject to such
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-K (ss.  229.405  of this  chapter)  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 10-KSB or any amendment to this Form 10-K. [X]

         State issuers' revenues for its most recent fiscal year: $8.0 million

         As of March 24, 2000,  the  Registrant  had 1,669,290  shares of Common
Stock issued and outstanding.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  computed by  reference  to the average of the bid and asked
price of such stock as of March 24, 2000, was $20.0 million. (The exclusion from
such amount of the market  value of the shares  owned by any person shall not be
deemed an  admission by the  Registrant  that such person is an affiliate of the
Registrant.)

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part II of Form 10-KSB - Portions of the Annual Report to  Stockholders
for the fiscal year ended December 31, 1999.
         Part III of Form  10-KSB - Portions of The Proxy  Statement  for Annual
Meeting of Stockholders to be held in 2000.


<PAGE>

                                     PART I

Item 1. Description of Business

Forward Looking Statements

         When used in this Form 10-KSB or future filings by the Company with the
Securities  and Exchange  Commission,  in the Company's  press releases or other
public  or  shareholder  communications,  or in oral  statements  made  with the
approval of an authorized  executive  officer,  the words or phrases "would be",
"will  allow",  "intends to",  "will likely  result",  "are expected to",  "will
continue", "is anticipated",  "estimate",  "project", or similar expressions are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private Securities Litigation Reform Act of 1995.

         The Company  wishes to caution  readers not to place undue  reliance on
any such forward-looking  statements,  which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions,  substantial  changes in levels of market interest rates, credit and
other risks of lending and investment  activities and competitive and regulatory
factors,  could affect the Company's  financial  performance and could cause the
Company's  actual  results for future  periods to differ  materially  from those
anticipated or projected.

         The  Company  does  not  undertake,   and  specifically  disclaims  any
obligation,  to update any forward-looking  statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.

General

         PS  Financial,  Inc.  (the  "Company"),  a  Delaware  corporation,  was
organized to act as the holding company for Preferred  Savings Bank  ("Preferred
Savings" or the "Bank") upon  completion  of the Company's  conversion  from the
mutual  to the  stock  form of  organization  (the  "Conversion").  The  Company
received  approval from the Office of Thrift  Supervision (the "OTS") to acquire
all of the Common Stock of the Bank to be  outstanding  upon  completion  of the
Conversion. The Conversion was completed on November 26, 1996. All references to
the Company, unless otherwise indicated, at or before November 26, 1996 refer to
the Company and its subsidiary on a  consolidated  basis.  The Company's  Common
Stock is quoted on the National  Association  of  Securities  Dealers  Automated
Quotation ("Nasdaq") National Market System under the symbol "PSFI."

         At December 31, 1999,  the Company had total assets of $121.4  million,
deposits  of $64.0  million  and  stockholders'  equity  of $18.9  million.  The
executive  offices  of the  Company  are  located at 4800  South  Pulaski  Road,
Chicago,  Illinois  60632,  and its  telephone  number at that  address is (773)
376-3800.

         As a community-oriented  financial  institution,  PS Financial seeks to
serve the  financial  needs of  communities  in its market area.  PS  Financial,
Inc.'s business involves  attracting  deposits from the general public and using
such  deposits,  together  with other  funds,  to  originate  primarily  one- to
four-family residential mortgage loans and, to a lesser extent, multi-family and
commercial  real  estate  in its  market  area.  The  Company  also  invests  in
mortgage-backed and other securities and other permissible investments.

         The  Company  offers a variety of  accounts  having a range of interest
rates and terms.  The Company's  deposits  include  savings  accounts,  checking
accounts,  money market  accounts  and  certificate  accounts  with terms of six
months to five years.  In general,  the Company  solicits  deposits  only in its
primary market area and does not accept brokered deposits. In 1998, in an effort
to increase its deposit base, the Company began  accepting  larger term deposits
from outside its primary market area.

Market Area

         PS Financial  serves  primarily the southwest  side of Chicago and Cook
County,  Illinois  through  its office  located at 4800  South  Pulaski  Road in
Chicago,  Illinois. PS Financial's market area for loans includes primarily Cook
County,  Illinois and, to a lesser extent, portions of DuPage and Will Counties,
Illinois.  The market area for deposits includes primarily the southwest side of
the City of Chicago  including the Garfield  Ridge,  Archer Heights and Brighton
Park  areas of  Chicago.  The  southwest  side of  Chicago  includes  a  diverse
population  of low- and  moderate-income  neighborhoods.  The  housing  in these
neighborhoods  consists  primarily  of two- to  six-unit  apartments  and single
family residences.

         The Company's  market area also includes small strip shopping  centers,
small  retail  and  medical  offices,  and small- to  medium-size  manufacturing
facilities as well as the Chicago  Metropolitan  area's second largest  airport,
Midway Airport. Management believes the economic and demographic characteristics
of its market area to be generally stable.

Lending Activities

         General.  The principal  lending activity of the Company is originating
for its  portfolio  fixed rate  mortgage  loans  secured by one- to  four-family
residences  located  primarily in the  Company's  market area.  To a much lesser
extent,  PS Financial also originates  commercial real estate,  multi-family and
consumer  loans in its market area. At December 31, 1999,  the  Company's  total
loans receivable,  net totaled $72.2 million.  See "- Originations and Purchases
of Loans".

                                       1

<PAGE>

         Loan  Portfolio  Composition.   The  following  table  sets  forth  the
composition of the Company's loan portfolio in dollar amounts and in percentages
as of the dates indicated.
<TABLE>
<CAPTION>

                                                                      December 31,
                               --------------------------------------------------------------------------------------
                                    1999              1998                1997             1996               1995
                               ---------------  ----------------  ---------------  ----------------  ----------------
                               Amount  Percent  Amount   Percent  Amount  Percent  Amount   Percent  Amount   Percent
                               ------- -------  -------  -------  ------- -------  ------- --------  -------  -------
                                                                 (Dollars in Thousands)
<S>                            <C>     <C>     <C>       <C>     <C>      <C>     <C>       <C>     <C>       <C>
Real Estate Loans:
  One- to four-family          $56,408  77.55%  $44,297   77.10%  $29,129  77.07%  $26,998   73.72%  $25,858   73.44%
  Multi-Family                   9,446  12.99     8,006   13.93     5,636  14.91     6,088   16.62     6,094   17.31
  Commercial                     6,380   8.77     5,135    8.94     2,953   7.81     3,183    8.69     2,953    8.39
  Construction                     499   0.68        -      --         67   0.18       336    0.92       286    0.81
                               ------- -------  -------  -------  ------- -------  ------- --------  -------  -------
  Total  real estate loans      72,733  99.99    57,438   99.97    37,785  99.97    36,605   99.95    35,191   99.95

Consumer Loans:
  Deposit Account                    6   0.01        15    0.03        11   0.03        17    0.05        18    0.05
                               ------- -------  -------  -------  ------- -------  ------- --------  -------  -------
    Total loans                 72,739 100.00%   57,453  100.00%   37,796 100.00%   36,622  100.00%   35,209  100.00%
                                       ======            ======           ======            ======            ======
Less:

  Deferred fees anddiscounts       294              373               443              493               548
  Allowance for loan losses        266              258               186              186               136
                               -------          -------           -------          -------           -------
  Total loans receivable, net  $72,179          $56,822           $37,167          $35,943           $34,525
                               =======          =======           =======          =======           =======
</TABLE>

         The  following  table  shows  the  composition  of the  Company's  loan
portfolio by fixed- and adjustable-rate at the dates indicated.

<TABLE>
<CAPTION>
                                                                      December 31,
                               --------------------------------------------------------------------------------------
                                    1999              1998                1997             1996               1995
                               ---------------  ----------------  ---------------  ----------------  ----------------
                               Amount  Percent  Amount   Percent  Amount  Percent  Amount   Percent  Amount   Percent
                               ------- -------  -------  -------  ------- -------  ------- --------  -------  -------
                                                                 (Dollars in Thousands)
<S>                            <C>      <C>     <C>       <C>     <C>      <C>     <C>       <C>     <C>       <C>
Fixed Rate Loans:
Real Estate
  One- to four-family           $56,408   77.55% $44,297    77.10% $29,129   77.07% $26,998    73.72%  $25,858    73.44%
  Multi-family                    9,446   12.99    8,006    13.93    5,636   14.91    6,088    16.62     6,094    17.31
  Commercial                      6,380    8.77    5,135     8.94    2,953    7.81    3,183     8.69     2,953     8.39
                                ------- -------  -------  -------  ------- -------  -------  -------   -------  -------
    Total real estate loans      72,234   99.31   57,438    99.97   37,718   99.79   36,269    99.03    34,905    99.14
Consumer loans                        6    0.01       15     0.03       11    0.03       17     0.05        16     0.05
                                ------- -------  -------  -------  ------- -------  -------  -------   -------  -------
    Total fixed-rate loans       72,240   99.32   57,453   100.00   37,729   99.82   36,286    99.08    34,921    99.19

Adjustable-Rate Loans:
  Real estate - construction        499    0.68        -       --       67    0.18      336     0.92       286     0.81
  Consumer loans                      -     --         -      --         -     --        -       --          2      --
                                ------- -------  -------  -------  ------- -------  -------  -------   -------  -------
    Total adjustable-rate loans     499    0.68        -      --        67    0.18      336     0.92       288     0.81
                                ------- -------  -------  -------  ------- -------  -------  -------   -------  -------
Total loans                      72,739  100.00%  57,453   100.00%  37,796  100.00%  36,622   100.00%   35,209   100.00%
                                         ======            ======           ======            ======            ======
Less:
  Deferred fees and discounts       294              373               443              493                548
  Allowance for loan losses         266              258               186              186                136
                                -------          -------           -------          -------            -------
    Total loans receivable, net $72,179          $56,822           $37,167          $35,943            $34,525
                                =======          =======           =======          =======            =======
</TABLE>

                                       2

<PAGE>


         The following schedule illustrates the interest rate sensitivity of the
Company's loan portfolio at December 31, 1999.  Mortgages  which have adjustable
or renegotiable  interest rates are shown as maturing in the period during which
the  contract  is due.  The  schedule  does not  reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>

                                                               Real Estate
                          ---------------------------------------------------------------------------------
                            One- to Four-Family    Multi-family            Commercial       Construction
                          ---------------------- --------------------- ------------------ -----------------
        Due During                 Weighted                  Weighted           Weighted          Weighted
       Period Ending                Average                  Average             Average           Average
       December 31,         Amount   Rate         Amount       Rate      Amount   Rate    Amount    Rate
------------------------- -------- ------------- --------- ----------- -------- --------- ------- ---------
                                                  (Dollars in Thousands)

<S>                       <C>       <C>         <C>           <C>      <C>       <C>        <C>     <C>
2000                      $   173      8.11%    $   --           --%    $  365    9.90%     $ --      --%
2001                          268      8.20        138         8.86        311    8.08       499    9.50
2002 and 2003                 606      8.24        480         8.26        320    8.44         -      --
2004 to 2008               23,157      7.74      5,697         8.44      3,112    8.78         -      --
2009 to 2023               32,204      7.69      3,131         8.29      2,272    8.51         -      --
                          -------               ------                  ------              ----
                          $56,408      7.72%    $9,446         8.39%    $6,380    8.70%     $499    9.50%
                          =======               ======                  ======              ====
</TABLE>

                                    Consumer                    Total
                          ------------------------- ---------------------------
        Due During                       Weighted                    Weighted
       Period Ending                      Average                     Average
       December 31,         Amount         Rate         Amount         Rate
------------------------- ------------ ------------ ------------- -------------

2000                            $6         6.00%      $   544         9.28%
2001                             -           --         1,216         8.78
2002 and 2003                    -           --         1,406         8.29
2004 to 2008                     -           --        31,966         7.96
2009 to 2023                     -           --        37,607         7.79
                                --                    -------
Total                           $6         6.00%      $72,739         7.90%
                                ==                    =======


         The total  amount  of loans due after  December  31,  2000  which  have
predetermined  interest rates is $71.7 million,  while the total amount of loans
due after such  dates  which  have  floating  or  adjustable  interest  rates is
$499,000.

                                       3

<PAGE>


         Under  federal  law,  the  aggregate  amount of loans  that the Bank is
permitted to make to any one borrower is generally  limited to 15% of unimpaired
capital  and  surplus  (25%  if  the  security  for  such  loan  has a  "readily
ascertainable"  value or 30% for  certain  residential  development  loans).  At
December  31,  1999,  based on the  above,  the Bank's  regulatory  loans-to-one
borrower limit was approximately $1.9 million. On the same date, the Bank had no
borrowers with outstanding balances in excess of this amount. As of December 31,
1999,  the largest  dollar  amount  outstanding  or  committed to be lent to one
borrower, or group of related borrowers, was five loans to one borrower totaling
$1.4 million,  secured by multi-family and one- to four-family real estate.  The
second  largest  group of loans  outstanding  to one  borrower  was three  loans
totaling  $816,000 secured by commercial and one- to four-family real estate. At
December 31, 1999, these loans were performing in accordance with their terms.

         All of the  Company's  lending is subject to its  written  underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed  applications and property valuations  (consistent
with the  Company's  appraisal  policy).  The  loan  applications  are  designed
primarily to determine the borrower's  ability to repay and the more significant
items on the application are verified  through use of credit reports,  financial
statements,  tax returns or confirmations.  All loans originated by PS Financial
are approved by the full board.

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

         One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Company's  lending  program is the origination of loans secured by mortgages
on  owner-occupied  one- to four-family  residences.  Historically,  the Company
focused  on  fixed  rate  loans  with 15  year  terms  and 25 year  amortization
schedules.  Substantially  all of the Company's one- to four-family  residential
mortgage  originations are secured by properties located in its market area. All
mortgage loans originated by the Company are retained and serviced by it.

         As of December 31, 1999, $9.4 million or 12.9% of the Company's one- to
four-family  residential  loan portfolio were secured by properties  with two or
more units. At that date, the average  outstanding  residential loan balance was
approximately $95,000.

         The Company currently offers fixed-rate  mortgage loans with maturities
from 15 to 25 years and balloon  loans with terms of up to 15 years with 25 year
amortization  schedules.  Interest  rates and fees  charged on these  fixed-rate
loans are established on a regular basis according to market conditions.  See "-
Originations and Purchases of Loans".

                                       4

<PAGE>


         The  Company  also  originates  a limited  number of loans  secured  by
condominiums  located  in  its  market  area.  Condominium  loans  are  made  on
substantially the same terms as one- to four-family loans. At December 31, 1999,
the Company had $6.0 million of condominium loans.

         PS  Financial  will  generally  lend  up to  80%  (or  up to  85%  on a
case-by-case  basis) of the lesser of the sales price or appraised  value of the
security property on owner occupied one- to four-family loans. The loan-to-value
ratio on non-owner  occupied,  one- to four-family loans is generally 80% of the
lesser of the sales price or appraised value of the security property. Non-owner
occupied one- to  four-family  loans may pose a greater risk to the Company than
traditional  owner occupied one- to four-family  loans. In underwriting  one- to
four-family  residential real estate loans, the Company currently  evaluates the
borrower's ability to make principal, interest and escrow payments, the value of
the property that will secure the loan and debt to income ratios.

         Residential loans do not currently include  prepayment  penalties,  are
non-assumable and do not produce negative amortization. Properties securing one-
to four-family  residential real estate loans made by PS Financial are appraised
by independent appraisers.

         Since under its current  policy,  the Company  originates  all mortgage
loans for its  portfolio,  the Company's  loans are not  underwritten  to permit
their sale in the secondary market.

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

         Multi-family and Commercial Real Estate Lending.  In recognition of the
many small apartment  buildings and businesses in the Company's  market area and
in order  to  increase  the  interest  rate  sensitivity  and  yield of its loan
portfolio and to complement residential lending  opportunities,  the Company has
originated permanent  multi-family and commercial real estate loans. At December
31,  1999,  the  Company  had $6.4  million in  commercial  real  estate  loans,
representing 8.8% of the total loan portfolio,  and $9.4 million in multi-family
loans, or 13.0% of the Company's total loan portfolio.

         The Company's  multi-family  and commercial  real estate loan portfolio
includes loans secured by small apartment buildings,  office buildings and other
income producing properties located in its market area.

         The Company's  permanent  multi-family and commercial real estate loans
generally carry a maximum term of 15 years and have fixed rates. These loans are
generally  made in amounts of up to 80% of the lesser of the appraised  value or
the  purchase  price  of  the  property.   Appraisals  on  properties   securing
multi-family  and  commercial  real estate loans are performed by an independent
appraiser designated by the Company at the time the loan is made. All appraisals
on  multi-family  or commercial  real estate loans are reviewed by the Company's
board.

                                       5

<PAGE>


         In addition, the Company's underwriting procedures require verification
of the  borrower's  credit  history,  income and financial  statements,  banking
relationships,  references and income projections for the property.  The Company
obtains personal guarantees on these loans.

         The table below sets forth,  by type of security  property,  the number
and amount of the Company's  multi-family  and  commercial  real estate loans at
December 31, 1999. Substantially all of the loans referred to in the table below
are secured by properties located in the Company's market area.

                                                Outstanding     Amount
                                     Number of   Principal  Non-Performing
                                       Loans      Balance   or of Concern
                                     --------- ------------ -------------
                                            (Dollars in Thousands)
Commercial Real Estate
  Small business facilities           40           $ 5,555        $ 158
  Office Buildings                     5               825            -
Multi-family                          47             9,446            -
                                    ----           -------        -----
  Total multi-family and
  commercial real estate loans        92           $15,826        $ 158
                                    ====           =======        =====

         At December 31, 1999, the Company's  largest  commercial real estate or
multi-family  loan  outstanding  totaled  $577,000  and was secured by a 12 unit
apartment complex located in Darien, Illinois.

         Multi-family  and  commercial  real  estate  loans may present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several  factors,  including the  concentration of principal in a
limited  number  of  loans  and  borrowers,  the  effects  of  general  economic
conditions  on income  producing  properties  and the  increased  difficulty  of
evaluating and monitoring these types of loans. At December 31, 1999, there were
no multi-family or commercial real estate loans delinquent 90 days or more.

         Construction Lending. The Company occasionally purchases  participation
interests in construction  loans to builders or developers for the  construction
of small  residential or commercial  properties.  Such  properties are generally
located in Illinois.  At December 31, 1999, the Company's  construction  lending
portfolio  consisted  of a  participation  interest  in a  construction  loan of
$499,000, or 0.68% of the Company's real estate loan portfolio.

         Consumer Lending.  Federally chartered savings  institutions may invest
up to 35% of assets in consumer  loans  (including  any investment in investment
grade  and  commercial  paper  and  corporate  debt  securities).   The  Company
originates  consumer  loans secured by deposit  accounts.  At December 31, 1999,
consumer loans totaled  $6,000,  or 0.01% of the Company's total loan portfolio.
In order to  increase  the  yield  and  interest  rate  sensitivity  of its loan
portfolio,  management is also considering offering various types of home equity
loans.

                                       6

<PAGE>


Originations and Purchases of Loans

         Real  estate  loans are  originated  by PS  Financial's  staff  through
referrals from existing  customers or real estate  agents.  In order to increase
the size of the loan portfolio, the Company has utilized the services of an area
mortgage broker who receives a fee for each mortgage originated for the Company.
The broker  serves the same market area as the Company,  and the loans share the
same characteristics as the Company's existing loans. Through December 31, 1999,
the Company originated $16.8 million loans through this broker.

         The  Company's  ability to originate  loans is dependent  upon customer
demand  for loans in its  market  and to a  limited  extent,  various  marketing
efforts.  Demand is affected by both the local  economy  and the  interest  rate
environment.  See "- Market Area". Under current policy, all loans originated by
PS Financial are retained in the Company's portfolio.

         In the past,  the  Company has  purchased  participation  interests  in
construction loans originated by a local financial  institution.  All such loans
are secured.  At December 31,  1999,  the Company had $499,000 of  participation
interests in  construction  loans.  The Company  intends to continue to purchase
such loans in the future, subject to market conditions.

         From  time to time,  in  order to  supplement  loan  originations,  the
Company  has  acquired  mortgage-backed  and  other  securities  which are held,
depending   on   the   investment   intent,   in   the   "held-to-maturity"   or
"available-for-sale" portfolios. See "- Investment Activities - Mortgage- Backed
Securities" and Note 2 to the Notes to Consolidated  Financial Statements in the
Annual Report included herein as exhibit 13.

         The  following  table shows the loan  origination,  purchase,  sale and
repayment activities of the Company for the periods indicated.


                                                              Year Ended
                                                              December 31,
                                                           ------------------
                                                             1999      1998
                                                           ------------------
                                                              (In Thousands)
Originations by type:
         Real estate    - one- to four-family              $21,612     22,733
                        - multi-family                       2,899      4,314
                        - commercial                         2,754      2,696
         Passbook                                                -         12
                                                           -------     ------
             Total loans originated                         27,265     29,755
                                                           -------     ------
Purchases
         Real estate - construction                            435          0

Repayments
         Principal repayment                                12,233     10,098
         (Increase) decrease in other items, net (1)           110          2
                                                           -------     ------
                                                           $15,357    $19,655
                                                           =======     ======
Footnotes
---------
(1)      Other items  consist  primarily of deferred  fees and the allowance for
         loan losses.

                                       7

<PAGE>


Delinquencies and Non-Performing Assets

         Delinquency  Procedures.  When a  borrower  fails  to  make a  required
payment on a loan,  the Company  attempts to cure the  delinquency by contacting
the borrower.  Generally, Company personnel work with the delinquent borrower on
a case by case basis to solve the delinquency.  Generally, a late notice is sent
on all delinquent loans over 20 days delinquent.  Additional  written and verbal
contacts  may be made with the  borrower  between  30 and 60 days  after the due
date.  If the loan is  contractually  delinquent  for 90 days,  the  Company may
institute  appropriate action to foreclose on the property. If a borrower agrees
to a payment  plan to bring a delinquent  loan  current,  a  designated  lending
officer  monitors  the  loan  for  compliance  with the  payment  agreement.  If
foreclosed,  the  property  is sold at public sale and may be  purchased  by the
Company.

         Real estate  acquired by PS Financial as a result of  foreclosure or by
deed in lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired by foreclosure or deed in lieu of  foreclosure,  it is
recorded at the lower of cost or  estimated  fair value less  estimated  selling
costs.  After  acquisition,  all costs incurred in maintaining  the property are
expensed.  Costs relating to the  development  and  improvement of the property,
however,  are capitalized.  In 1999, four single family residences were acquired
through  foreclosure,  with two  properties  subsequently  sold in the spring of
2000.


                                       8

<PAGE>


         The following  table sets forth the  Company's  loan  delinquencies  by
type, by amount and by percentage of type at December 31, 1999.

<TABLE>
<CAPTION>

                                                                          Loans Delinquent For:
                                    ----------------------------------------------------------------------------------------------
                                               30-59 Days                       60-89 Days                    90 Days and Over
                                    -------------------------------- ------------------------------- -----------------------------
                                                           Percent                          Percent                        Percent
                                                           of Loan                          of Loan                        of Loan
                                      Number    Amount     Category    Number    Amount    Category    Number   Amount    Category
                                    --------- ----------- ---------- --------- ---------- ---------- --------- -------- ----------
                                                                          (Dollars in Thousands)
Real Estate:
<S>                                       <C>   <C>        <C>          <C>    <C>        <C>            <C>  <C>        <C>
     One- to Four-Family                    10    $1,029     1.82%        3      $306       0.54%          11   $1,097     1.95%
     Multi-family                            -         -       --         -         -         --            -        -       --
     Commercial real estate                  -         -       --         -         -         --            1      158     2.48
     Construction or development             -         -       --         -         -         --            -        -       --
     Consumer                                -         -       --         -         -         --            -        -       --
     Commercial Business                     -         -       --         -         -         --            -        -       --

Consumer                                     -         -       --         -         -         --            -        -       --
                                          ----    ------               ----      ----                    ----   ------
         Total                              10    $1,029     1.41%        3      $306       0.42%          12   $1,255     1.73%
                                          ====    ======               ====      ====                    ====   ======
</TABLE>

                                             Total Delinquent Loans
                                        --------------------------------
                                                               Percent
                                                               of Loan
                                         Number     Amount     Category
                                        --------- ----------  ----------
Real Estate:
     One- to Four-Family                     24     $2,432     4.31%
     Multi-family                             -          -       --
     Commercial real estate                   1        158     2.48
     Construction or development              -          -       --
     Consumer                                 -          -       --
     Commercial Business                      -          -       --
Consumer                                      -          -       --
                                           ----     ------
         Total                               25     $2,590     3.56
                                           ====     ======

                                        9
<PAGE>





         Classification of Assets. Federal regulations require that each savings
institution  classify  its own  assets  on a  regular  basis.  In  addition,  in
connection  with  examinations of savings  institutions,  OTS and FDIC examiners
have authority to identify  problem assets and, if appropriate,  require them to
be classified.  There are three classifications for problem assets: Substandard,
Doubtful and Loss.  Substandard  assets have one or more defined  weaknesses and
are characterized by the distinct possibility that the Company will sustain some
loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses
of substandard assets, with the additional  characteristics  that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable,  and there is a high possibility of loss. An
asset classified loss is considered  uncollectible and of such little value that
continuance  as an  asset  on  the  balance  sheet  of  the  institution  is not
warranted.  Assets classified as substandard or doubtful require the institution
to establish prudent general  allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss  allowance.  If an  institution  does not agree with an examiner's
classification  of an asset,  it may appeal this  determination  to the District
Director of the OTS.

         On the basis of  management's  review of its assets,  at  December  31,
1999,  the  Company  had  classified  a total of $1.1  million  of its loans and
$454,000 of foreclosed one- to four-family real estate.


                                                         December 31, 1999
                                                         -----------------
                                                          (In Thousands)

Substandard................................................... $1,537
Doubtful......................................................    ---
Loss..........................................................    ---
                                                                -----
     Total.................................................... $1,537
                                                               ======

                                       10


<PAGE>


         Non-Performing  Assets.  The table  below  sets forth the  amounts  and
categories of  non-performing  assets in the Company's loan  portfolio.  For all
years  presented,  the Company has had no troubled  debt  restructurings  (which
involve  forgiving  a portion of interest  or  principal  on any loans or making
loans at a rate  materially less than that of market rates).  Foreclosed  assets
include assets acquired in settlement of loans.


                                                              December 31,
                                                        ------------------------
                                                           1999           1998
                                                        ----------- ------------
                                                         (Dollars in Thousands)
Non-accruing loans over 90 days delinquent:
     One- to four-family                                 $  876          $  777
     Multi-family                                             -               -
     Commercial real estate                                 158               -
     Commercial business                                      -               -
         Total                                            1,034             777
                                                         ------          ------
Accruing loans delinquent more than 90 days                 221             372
Foreclosed assets                                           454               -
                                                         ------          ------
Total non-performing assets                              $1,709          $1,149
                                                         ======          ======
Total as a percentage of total assets                      1.40%           1.11%
                                                         ======          ======

         For the year ended December 31, 1999, gross interest income which would
have been recorded had the  non-accruing  loans been current in accordance  with
their  original  terms  amounted to $106,000.  The amounts that were included in
interest income on such loans were $83,000.

         At December 31, 1999, the Company's  non-accruing loans greater than 90
days included nine loans secured by single-family  real estate totaling $876,000
and one loan secured by commercial  real estate  totaling  $158,000.  Foreclosed
assets  consisted  of  four  single  family   residences,   two  of  which  were
subsequently sold in 2000.

         Other Assets of Concern.  In addition to the non-performing  assets set
forth in the table above, as of December 31, 1999,  there were no loans or other
assets  with  respect  to which  known  information  about the  possible  credit
problems of the  borrowers  or the cash flows of the  security  properties  have
caused  management to have concerns as to the ability of the borrowers to comply
with present loan repayment  terms and which may result in the future  inclusion
of such items in the non-performing asset categories.

                                       11

<PAGE>



         The following  table sets forth an analysis of the Company's  allowance
for loan losses.




                                                       Year Ended December 31,
                                                      ------------------------
                                                       1999            1998
                                                      ----------- ------------
                                                       (Dollars in Thousands)
Balance at beginning of year                             $258           $186
Charge-offs                                                (7)           (19)
Recoveries                                                  -             11
                                                        -----          -----
Net charge-offs                                            (7)            (8)
Additions charged to operations                            15             80
                                                        -----          -----
Balance at end of year                                   $266           $258
                                                        =====          =====
Ratio of net charge-offs during the year to
average loans outstanding during the year                0.01%          0.01%
                                                        =====          =====
Ratio of net charge-offs during the year to
average non-performing assets                            0.01%          0.01%
                                                        =====          =====
Ratio of allowance for loan losses to total loans        0.37%          0.45%
                                                        =====          =====

The  distribution  of the  Company's  allowance  for loan  losses  at the  dates
indicated is summarized as follows:

                                               December 31,
                       ---------------------------------------------------------
                                    1999                         1998
                       ---------------------------- ----------------------------
                                            Percent                     Percent
                                           of Loans                     of Loans
                                  Loan      in Each             Loan    in Each
                       Amount of   Amounts Category  Amount of Amounts  Category
                       Loan Loss     by    to Total  Loan Loss    by    to Total
                       Allowance  Category   Loans   Allowance Category  Loans
                       --------- --------- -------- ---------- -------- --------
                                              (In Thousands)
One- to four-family      $ 56    $56,408    77.55%     $ 44    $44,297    77.10%
Multi-family               28      9,446    12.99        24      8,006    13.93
Commercial real estate     15      6,380     8.77        12      5,135     8.94
Construction                7        499     0.68         -          -        -
Consumer                    -          6     0.01         -         15     0.03
Unallocated               160          -        -       178          -        -
                         ----    -------   ------      ----    -------   ------
     Total               $266    $72,739   100.00%     $258    $57,453   100.00%
                         ====    =======   ======      ====    =======   ======


                                       12

<PAGE>


         The  allowance for loan losses is  established  through a provision for
loan losses  charged to earnings  based on  management's  evaluation of the risk
inherent in its entire loan portfolio. Such evaluation,  which includes a review
of all  loans  of  which  full  collectibility  may not be  reasonably  assured,
considers the market value of the underlying collateral,  growth and composition
of the loan portfolio,  delinquency  trends,  adverse situations that may affect
the borrower's ability to repay,  prevailing and projected  economic  conditions
and  other  factors  that  warrant  recognition  in  providing  for an  adequate
allowance  for loan losses.  In  determining  the general  reserves  under these
policies,  historical charge-offs and recoveries,  changes in the mix and levels
of  the  various  types  of  loans,  net  realizable  values,  the  current  and
prospective loan portfolio and current economic conditions are considered.

         While management  believes that it uses the best information  available
to  determine  the  allowance  for loan losses,  unforeseen  economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly  affected, if circumstances differ substantially
from the assumptions used in making the final determination.

         Investment Activities

         General.  PS Financial must maintain  minimum levels of investments and
other assets that qualify as liquid assets under OTS regulations.  Liquidity may
increase or decrease  depending upon the  availability  of funds and comparative
yields on  investments  in  relation  to the return on loans.  Historically,  PS
Financial has maintained liquid assets at levels significantly above the minimum
requirements  imposed by the OTS regulations and above levels believed  adequate
to meet the  requirements  of normal  operations,  including  potential  deposit
outflows.  At December  31,  1999,  the Bank's  liquidity  ratio for  regulatory
purposes was 24.8%.

         Generally,  the investment  policy of the Bank is to invest funds among
categories   of   investments   and   maturities   based   upon  the   Company's
asset/liability  management  policies,  investment  quality,  loan  and  deposit
volume,  liquidity needs and performance  objectives.  At December 31, 1999, the
Company had no  securities  which were  classified  as trading and no securities
classified as  held-to-maturity.  Available-for-sale  securities are reported at
fair value with unrealized gains and losses included,  on an after-tax basis, as
a separate  component of  stockholders'  equity.  At December  31,  1999,  $35.5
million of  securities  and $5.6  million  of  mortgage-backed  securities  were
classified as available-for-sale.

                                       13

<PAGE>

         Securities. In order to supplement loan volume, invest excess liquidity
and increase  holdings of short and medium term assets,  the Company  invests in
liquidity investments and in high-quality investments, such as U.S. Treasury and
agency  obligations.  At December 31, 1999 and December 31, 1998,  the Company's
securities portfolio totaled $35.6 million and $27.6 million,  respectively.  At
December 31, 1999, the Company did not own any investment securities of a single
issuer which exceeded 10% of stockholders'  equity,  other than U.S.  government
securities  and  federal  agency  obligations.  See  Note 2 of the  Notes to the
Consolidated  Financial  Statements  in the  Annual  Report  attached  hereto as
Exhibit  13  for  additional  information  regarding  the  Company's  securities
portfolio.

         The  following  table  sets  forth  the  composition  of the  Company's
securities and other earning assets, other than  mortgage-backed  securities and
loans receivable, at the dates indicated.



                                                       December 31,
                                        ------------------------------------
                                                 1999             1998
                                        ----------------- ------------------
                                        Carrying   % of   Carrying    % of
                                         Value     Total    Value    Total
                                        --------- ------- --------- --------
Securities available-for-sale
     U.S. government securities           $     -   0.00%   $     -   0.00%
     Federal agency obligations            25,630  72.10     14,951  54.18
     Municipal securities                   8,003  22.51      9,367  33.94
     Equity securities                      1,917   5.39      3,278  11.88
                                          ------- ------    ------- ------
         Total securities                 $35,550 100.00%   $27,596 100.00%
                                          ======= ======    ======= ======
Average remaining life of securities          11.30 yrs.       13.12 yrs.

Other earning assets:
     Interest-bearing deposits
          with other banks                $ 2,596  57.40%   $ 3,948  74.96%
     Federal Home Loan Bank stock           1,927  42.60      1,319  25.04
                                          ------- ------    ------- ------
         Total                            $ 4,523 100.00%   $ 5,267 100.00%
                                          ======= ======    ======= ======


                                       14

<PAGE>


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

<TABLE>
<CAPTION>

                                                                         December 31, 1999
                              -----------------------------------------------------------------------------------------------------
                               Less Than           1 to 5           5 to 10            Over
                                 1 Year            Years             Years           10 Years                Total Securities
                              -----------------------------------------------------------------------------------------------------
                               Amortized Cost    Amortized Cost    Amortized Cost   Amortized Cost    Amortized Cost     Fair Value
                              -----------------------------------------------------------------------------------------------------
                                                                       (Dollars in Thousands)
<S>                               <C>              <C>              <C>               <C>                <C>             <C>
U.S. government securities        $-               $    -           $     -           $     -            $     -         $     -
Federal agency securities          -                2,498            22,267             2,065             26,830          25,630
Municipal securities               -                    -             1,537             7,306              8,843           8,003
Equity securities                  -                  598                 -             1,537              2,135           1,917
                                 ---               ------           -------           -------            -------         -------
Total investment securities        -               $3,096           $23,804           $10,908            $37,808         $35,550
                                 ===               ======           =======           =======            =======         =======
Weighted average yield                              6.40%             6.75%             7.12%              6.20%

</TABLE>

         See Note 2 of the Notes to the Consolidated Financial Statements in the
Annual  Report  attached  hereto as Exhibit 13 for a discussion of the Company's
securities portfolio.

         Mortgage-Backed  Securities. In order to supplement loan and investment
activities, the Company invests in mortgage-backed securities.

         Consistent with its asset/liability  management  strategy,  at December
31, 1999, $5.6 million,  or 100.0% of the Company's  mortgage-backed  securities
have  adjustable  interest  rates.  For  information   regarding  the  Company's
mortgage-backed   securities  portfolio,   see  Note  2  of  the  Notes  to  the
Consolidated  Financial  Statements  in the  Annual  Report  attached  hereto as
Exhibit 13.

         As of December 31, 1999, all of the mortgage-backed securities owned by
the Company were issued,  insured or guaranteed either directly or indirectly by
a federal  agency.  As a result,  the Company  did not have any  mortgage-backed
securities in excess of 10% of  stockholders'  equity except for federal  agency
obligations.

         The  following  table  sets  forth  the  composition  of the  Company's
mortgage-backed securities at the dates indicated.


                                                 December 31,
                                   ----------------------------------------
                                            1999               1998
                                   ------------------- --------------------
                                   Carrying   % of      Carrying    % of
                                     Value    Total       Value    Total
                                   --------- --------- ---------- ---------
                                             (Dollars in Thousands)
Mortgage-backed securities
    available for sale:
GNMA                                  $1,825  32.38%     $ 3,053   26.89%
FNMA                                   2,656  47.13        4,757   41.90
FHLMC                                  1,155  20.49        3,544   31.21
                                      ------ ------      -------  ------
Total mortgage-backed securities      $5,636 100.00%     $11,354  100.00%
                                      ====== ======      =======  ======

                                       15

<PAGE>


         The  following  table  sets  forth the  contractual  maturities  of the
Company's mortgage-backed securities at December 31, 1999.
<TABLE>
<CAPTION>

                                                             Due In             December 31,
                                            -----------------------------------   1999
                                            Less Than  1 to    5 to 10   Over   Amortized
                                              1 Year  5 Years   Years  10 Years    Cost
                                            --------- -------- ------- -------- ----------
                                                            (In Thousands)
<S>                                            <C>       <C>      <C>  <C>        <C>
Federal Home Loan Mortgage Corporation         $-        $-       $-   $1,155     $1,215
Federal National Mortgage Association           -         -        -    2,656      2,707
Government National Mortgage Association        -         -        -    1,825      1,852
                                               --        --       --   ------     ------
         Total                                  -        $0       $0   $5,636     $5,774
                                                         ==       ==   ======     ======
</TABLE>

         At December 31, 1999,  all  mortgage-backed  securities had floating or
adjustable rates.


Sources of Funds

         General. The Company's primary sources of funds are deposits,  payments
(including  prepayments)  of  loan  principal,  interest  earned  on  loans  and
securities,  repayments  of  securities,  borrowings  and  funds  provided  from
operations.

         Deposits.  PS Financial  offers deposit accounts having a wide range of
interest  rates and terms.  The  Company's  deposits  consist of savings,  money
market,  non-interest bearing checking,  and various certificate  accounts.  The
Company  solicits  deposits in its market area and, in an effort to increase its
deposit base, the Company began  accepting time deposits from outside its market
area in 1998.

         The variety of deposit  accounts  offered by the Company has allowed it
to be competitive in obtaining funds and to respond with  flexibility to changes
in consumer  demand.  As a result,  as customers  have become more interest rate
conscious, the Company has become more susceptible to short-term fluctuations in
deposit flows.

         Management  believes that the "core"  portion of the Company's  regular
savings and money market accounts can have a lower cost and be more resistant to
interest  rate  changes  than  certificate  accounts.  The Company  continues to
utilize customer service and marketing  initiatives in an effort to maintain and
increase  the volume of such  deposits.  However,  the ability of the Company to
attract and maintain these  accounts (as well as certificate  accounts) has been
and will be affected by market conditions.

         The following  table sets forth the savings flows at the Company during
the periods indicated.

                                        Year Ended December 31,
                              ---------------------------------------------
                               1999               1998               1997
                              -------            -------            -------
                                          (Dollars in Thousands)
Opening balance               $55,429            $41,275            $42,203
Deposits                       56,272             45,699             33,220
Withdrawals                   (49,084)           (33,662)           (35,634)
Interest Credited               1,366              2,117              1,486
                              -------            -------            -------
Ending balance                $63,983            $55,429            $41,275
                              =======            =======            =======
Net increase (decrease)        $8,554            $14,154              $(928)
                              =======            =======            =======
Percent increase (decrease)     15.43%             34.29%             (2.20)%
                              =======            =======            =======

                                       16

<PAGE>


         The following  table sets forth the dollar  amount of savings  deposits
and the various types of deposit programs offered by the Company as of the dates
indicated.

                                                December 31,
                                   -------------------------------------
                                           1999                 1998
                                   ------------------ ------------------
                                            Percent             Percent
                                   Amount  of Total     Amount  of Total
                                   ------- ---------- --------- --------
                                          (Dollars in Thousands)
Transactions and Savings Deposits
---------------------------------
  Savings Accounts - 3.00% (1)      $18,944  29.61%     $19,577  35.33%
  Transaction Accounts  - 0.00% (1)     326   0.51          156   0.28
  Money Market Accounts - 3.25% (1)   1,141   1.78        1,477   2.66
                                    ------- ------      ------- ------
Total Non-Certificates               20,411  31.90       21,210  38.27
                                    ------- ------      ------- ------
Certificates
     4.00 - 5.99%                    27,014  42.22       33,708  60.81
     6.00 - 7.99%                    16,558  25.88          511   0.92
                                    ------- ------      ------- ------
Total Certificates                   43,572  68.10       34,219  61.73
                                    ------- ------      ------- ------
Total Deposits                      $63,983 100.00%     $55,429 100.00%
                                    ======= ======      ======= ======

--------------------------
(1)  At December 31, 1999.

                                       17

<PAGE>


         The  following  table  shows  rate  and  maturity  information  for the
Company's certificates of deposit as of December 31, 1999.



              Less Than   1 to 2   2 to 3   3 to 4  4 to 5
                1 Year    Years    Years    Years   Years   Total
              -----------------------------------------------------
                             (Dollars in Thousands)

4.00 - 4.99%  $11,408   $1,012     $ 70     $ 12    $104   $12,606
5.00 - 5.99%   12,510    1,542      197      159       -    14,408
6.00 - 6.99%   12,411    3,503      302      255       -    16,471
7.00 - 7.99%       87        -        -        -       -        87
              -------   ------     ----     ----    ----   -------
              $36,416   $6,057     $569     $426    $104   $43,572
              =======   ======     ====     ====    ====   =======

         The following table indicates the amount of the Company's  certificates
of deposit and other  deposits by time  remaining  until maturity as of December
31, 1999.
                                                 Maturity
                                 -------------------------------------------
                                            Over    Over
                                 3 Months  3 to 6  6 to 12   Over
                                  or Less  Months  Months  12 Months  Total
                                 -------------------------------------------
Certificates of deposit
     of less than $100,000        $7,493  $13,528  $12,676  $7,045   $40,742
Certificates of deposit
     of $100,000 or more             825      470    1,424     111     2,830
                                  ------  -------  -------  ------   -------
Total certificates of deposit     $8,318  $13,998  $14,100  $7,156   $43,572
                                  ======  =======  =======  ======   =======

         For additional  information  regarding the composition of the Company's
deposits,  see Note 6 of the Notes to the Consolidated  Financial  Statements in
the Annual Report attached hereto as Exhibit 13.

         Borrowings.  PS Financial's available sources of funds include advances
from the FHLB of Chicago and other borrowings.  The Bank's FHLB advances to date
have primarily consisted of borrowings to fund security  purchases.  As a member
of the FHLB of Chicago, the Company is required to own capital stock in the FHLB
of Chicago and is  authorized  to apply for  advances  from the FHLB of Chicago.
Each  FHLB  credit  program  has its own  interest  rate,  which may be fixed or
variable,  and  range of  maturities.  The FHLB of  Chicago  may  prescribe  the
acceptable  uses for these  advances,  as well as limitations on the size of the
advances and repayment  provisions.  For  additional  information  regarding the
Company's  FHLB  advances,  see Note 7 of the  Notes to  Consolidated  Financial
Statements in the Annual Report attached hereto as Exhibit 13.

         The following table set forth the maximum month-end balance and average
balance of FHLB advances as of the dates indicated.

                                                        December 31,
                                             --------------------------------
                                                    1999              1998
                                             --------------------------------
                                                   (Dollars in Thousands)

Maximum Balance                                    $37,405          $23,764
Average Balance                                    $31,474          $20,154
Weighted average interest rate for the year           5.58%            5.82%

                                       18

<PAGE>


Subsidiary Activities

         On November 1, 1999,  PS Financial  sold its one wholly  owned  service
corporation,  Preferred Service Corporation (the "Subsidiary").  The Subsidiary,
an Illinois corporation, was incorporated in 1969 and sold casualty,  disability
and credit life insurance on an agency basis.

         The  Subsidiary  had nominal net income for the ten month  period ended
October  31,  1999.  At October  31,  1999,  PS  Financial's  investment  in the
Subsidiary totaled $1,696.

Competition

         PS Financial faces strong  competition  both in originating real estate
loans  and in  attracting  deposits.  Competition  in  originating  loans  comes
primarily  from  commercial  banks,  credit  unions  mortgage  bankers and other
savings  institutions,  which also make loans secured by real estate  located in
Cook County,  Illinois. PS Financial competes for loans principally on the basis
of the interest rates and loan fees it charges, the types of loans it originates
and the quality of services it provides to borrowers.

         Competition for deposits is principally from commercial  banks,  credit
unions, mutual funds, securities firms and other savings institutions located in
the same communities.  The ability of the Company to attract and retain deposits
depends on its ability to provide an investment  opportunity  that satisfies the
requirements  of investors  as to rate of return,  liquidity,  risk,  convenient
locations and other factors. The Company competes for these deposits by offering
competitive rates, convenient business hours and a customer oriented staff.

Employees

         At  December  31,  1999,  the  Company  had a  total  of  17  full-time
employees.  None of the Company's  employees are  represented  by any collective
bargaining agreement. Management considers its employee relations to be good.

                                       19

<PAGE>


                                   REGULATION

General

         PS Financial is a federally  chartered  savings  bank,  the deposits of
which are  federally  insured  and  backed by the full  faith and  credit of the
United States Government.  Accordingly, PS Financial is subject to broad federal
regulation  and  oversight  extending to all its  operations.  PS Financial is a
member of the FHLB of Chicago and is subject to certain  limited  regulation  by
the Board of Governors of the Federal Reserve System ("Federal  Reserve Board").
Prior to August,  1996, the Company was a state  chartered  savings bank and was
subject  to the  regulation  of the State of  Illinois  Office of Banks and Real
Estate (the "Illinois Office of Banks"). As the savings and loan holding company
of Preferred Savings,  the Holding Company also is subject to federal regulation
and oversight.  The purpose of the  regulation of the Holding  Company and other
holding companies is to protect subsidiary savings associations. PS Financial is
a member of the Savings Association  Insurance Fund ("SAIF") and the deposits of
PS  Financial  are  insured  by the  FDIC.  As a  result,  the FDIC has  certain
regulatory and examination authority over PS Financial.

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

Federal Regulation of Savings Associations

         The  OTS  has  extensive  authority  over  the  operations  of  savings
associations.  As part of this  authority,  PS  Financial  is  required  to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. When these examinations are conducted by the OTS and the FDIC, the
examiners  may require Ps  financial  to provide for higher  general or specific
loan loss  reserves.  All  savings  associations  are  subject to a  semi-annual
assessment,  based upon the  savings  association's  total  assets,  to fund the
operations of the OTS.

         The OTS also  has  extensive  enforcement  authority  over all  savings
institutions and their holding  companies,  including  Preferred Savings and the
Holding Company.  This enforcement  authority includes,  among other things, the
ability to assess civil money penalties,  to issue  cease-and-desist  or removal
orders and to initiate injunctive actions.





                                       20
<PAGE>


         The Bank's general permissible lending limit for  loans-to-one-borrower
is equal to the  greater of $500,000  or 15% of  unimpaired  capital and surplus
(except for loans fully secured by certain  readily  marketable  collateral,  in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1999,  the Bank's  lending  limit under this  restriction  was $1.9
million. The Bank is in compliance with the loans-to-one-borrower limitation.

Insurance of Accounts and Regulation by the FDIC

         As  insurer,  the  FDIC  imposes  deposit  insurance  premiums  and  is
authorized to conduct  examinations of and to require  reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC  determines  by regulation or order to pose a serious risk
to the FDIC.  The FDIC also has the  authority to initiate  enforcement  actions
against savings  associations,  after giving the OTS an opportunity to take such
action,  and may  terminate  the deposit  insurance  if it  determines  that the
institution  has  engaged in unsafe or unsound  practices  or is in an unsafe or
unsound condition.

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.

Regulatory Capital Requirements

         Federally insured institutions are required to maintain minimum capital
capital  standards,  including  a tangible  capital,  a leverage  ratio (or core
capital) and a risk-based capital requirement.

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets as defined by  regulation.  At December 31, 1999, the Bank
had tangible capital of $14.0 million, or 11.8% of adjusted total assets,  which
is approximately $12.2 million above the minimum requirement of 1.5% of adjusted
total assets in effect on that date.

         The capital standards also require core capital equal to at least 3%-4%
of adjusted total assets, depending on an institution's supervisory rating. Core
capital generally  consists of tangible capital plus certain  intangible assets,
including a limited amount of purchased credit card  relationships.  At December
31, 1999, the Bank had core capital equal to $14.0 million, or 11.8% of adjusted
total assets, which is $9.3 million above the minimum leverage ratio requirement
of 4% as in effect on that date.

         The OTS risk-based  requirement  requires savings  associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital.

                                       21

<PAGE>


         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal holdings of qualifying capital instruments.

         In  determining  the  amount  of  risk-weighted   assets,  all  assets,
including certain  off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%,  based on the risk  inherent in the type of asset.  For
example,  the OTS has assigned a risk weight of 50% for  prudently  underwritten
permanent  one- to  four-family  first lien mortgage loans not more than 90 days
delinquent  and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.

         On  December  31,  1999,  the Bank had total  capital of $14.2  million
(including   $14.0   million  in  core  capital  and   $266,000  in   qualifying
supplementary  capital)  and  risk-weighted  assets of $57.4  million;  or total
capital of 24.8% of risk-weighted assets. This amount was $9.6 million above the
8% requirement in effect on that date.

         The OTS is also authorized to impose capital  requirements in excess of
these standards on individual  associations on a case-by-case basis. The OTS and
the FDIC are  authorized  and,  under certain  circumstances  required,  to take
certain  actions against  savings  associations  that fail to meet their capital
requirements. These actions may include submission of a capital restoration plan
and various  restrictions on an institution's  growth and operations.  In severe
cases  the FDIC of the OTS may  appoint  a  conservator  or a  receiver  for the
institution.

         The OTS is also generally  authorized to reclassify an institution into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound  practices or is in an unsafe
or unsound condition.

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

Limitations on Dividends and Other Capital Distributions

         OTS regulations  impose various  restrictions  on savings  associations
with respect to their ability to make  distributions  of capital,  which include
dividends,  stock  redemptions  or  repurchases,   cash-out  mergers  and  other
transactions  charged to the capital  account.  OTS regulations  also prohibit a
savings  association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result,  the  regulatory  capital  of the  association
would be reduced below the amount  required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.

Qualified Thrift Lender Test

         All savings institutions,  including PS Financial, are required to meet
a qualified  thrift lender ("QTL") test to avoid certain  restrictions  on their
operations. This test requires a savings institution to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly  average  for nine out of every 12  months  on a  rolling  basis.  As an
alternative,  the savings  institution  may  maintain 60% of its assets in those
assets  specified in Section  7701(a)(19)  of the Internal  Revenue  Code.  Such
assets primarily  consist of residential  housing related loans and investments.
At December 31, 1999,  the Bank met the test with 85.9% of its portfolio  assets
in  qualified  thrift  investments  and  has  always  met  the  test  since  its
effectiveness.

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is

                                       22

<PAGE>

limited to national bank branching  rights in its home state.  In addition,  the
association is immediately  ineligible to receive any new FHLB borrowings and is
subject to national  bank limits for payment of dividends.  If such  association
has not requalified or converted to a national bank within three years after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See "Holding Company Regulation."

Community Reinvestment Act

         Under the  Community  Reinvestment  Act  ("CRA"),  every  FDIC  insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking  practices to help meet the credit needs of its entire  community,
including low and moderate  income  neighborhoods.  The CRA requires the OTS, in
connection  with the  examination of PS Financial,  to assess the  institution's
record of meeting the credit needs of its community and to take such record into
account  in its  evaluation  of  certain  applications,  such as a merger or the
establishment of a branch, by PS Financial. An unsatisfactory rating may be used
as the basis for the  denial of an  application  by the OTS.  PS  Financial  was
examined  for  CRA  compliance  in  November  1999  and  received  a  rating  of
satisfactory.

Holding Company Regulation

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

         As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan  holding  company,  and the  activities  of the  Company and any of its
subsidiaries  (other  than  PS  financial  or  any  other  SAIF-insured  savings
association) would generally become subject to additional restrictions.

         If PS Financial fails the QTL test, within one year of such failure the
Company  must  register  as,  and  will  become  subject  to,  the   significant
restrictions applicable to bank holding companies.

Recent Legislation

         On November 12,1999, the  Gramm-Leach-Bliley  Act, which modernizes the
financial  services  industry  by,  among  other  things,   permitting  banking,
insurance  and  securities  companies  to  combine,  was signed  into law. It is
unclear what impact this legislation  will have on our operations,  although the
anticipated creation of larger and stronger financial services competitors could
materially affect our operations.

Federal Securities Law

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

         Company stock held by persons who are affiliates  (generally  executive
officers,  directors  and 10%  stockholders)  of the  Company  may not be resold
without   registration   or  unless  sold  in  accordance  with  certain  resale
restrictions.   If  the  Company  meets  specified  current  public  information
requirements,  each  affiliate  of the  Company  is able  to sell in the  public
market,  without  registration,  a limited  number of shares in any  three-month
period.

                                       23

<PAGE>


Federal Home Loan Bank System

         PS  Financial  is a member of the FHLB of  Chicago,  which is one of 12
regional FHLBs,  that  administers the home financing credit function of savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its  assigned  region.  It makes  loans to members  (i.e.,  advances)  in
accordance with policies and  procedures,  established by the board of directors
of the FHLB,  which are subject to the oversight of the Federal  Housing Finance
Board. All advances from the FHLB are required to be fully secured by sufficient
collateral as determined  by the FHLB. In addition,  all long-term  advances are
required to be used for residential home financing.

         As a member, PS Financial is required to purchase and maintain stock in
the FHLB of Chicago. At December 31, 1999, PS Financial had $1.9 million in FHLB
stock,  which was in  compliance  with this  requirement.  Dividends on the FHLB
stock were 6.75% for 1999.

Federal and State Taxation

         Savings  associations  such as the  Bank  are  permitted  to  establish
reserves for bad debts using an experience  method and to make annual  additions
which may, within specified formula limits, be taken as a deduction in computing
taxable income for federal income tax purposes.

         In addition to the regular income tax, corporations,  including savings
institutions, generally are subject to a minimum tax. An alternative minimum tax
is imposed at a minimum tax rate of 20% on alternative  minimum  taxable income,
which  is the  sum of a  corporation's  regular  taxable  income  (with  certain
adjustments)  and tax  preference  items,  less  any  available  exemption.  The
alternative  minimum tax is imposed to the extent it exceeds  the  corporation's
regular  income  tax and net  operating  losses  can  offset no more than 90% of
alternative minimum taxable income. The Company does not expect to be subject to
the alternative minimum tax.

         PS Financial and its subsidiary  file  consolidated  federal income tax
returns on a fiscal year basis using the accrual method of accounting.

         PS Financial and its  consolidated  subsidiary have not been audited by
the IRS with respect to consolidated federal income tax returns in the past five
years.  With respect to years examined by the IRS, either all deficiencies  have
been satisfied or sufficient  reserves have been established to satisfy asserted
deficiencies.

         Illinois  Taxation.  For Illinois  income tax purposes,  the Company is
taxed at an effective rate equal to 7.18% of Illinois taxable income.  For these
purposes,  "Illinois  Taxable  Income"  generally  means federal taxable income,
subject to certain  adjustments  (including  the addition of interest  income on
state and municipal  obligations  and the exclusion of interest income on United
States Treasury obligations).

         Delaware  Taxation.  As a  Delaware  holding  company,  the  Company is
exempted  from Delaware  corporate  income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware.  The Company is also
subject to an annual franchise tax imposed by the State of Delaware.

Executive Officers of the Holding Company and the Bank Who Are Not Directors

         Jeffrey  Przybyl,  age 34. Mr.  Przybyl is  currently  serving as Chief
Financial  Officer of the  Company  and the Bank,  a position  he has held since
1993. As Chief Financial Officer,  Mr. Przybyl is responsible for overseeing the
accounting and financial reporting functions of the Company and the Bank.

Certain Supplemental Financial Information

         The Company's  dividend payout ratio was 53.47% for the year ended 1999
and 548.78% for the year ended 1998.  The  Company's  return on assets was 1.44%
for the year ended 1999,  compared  to 1.66% for the year ended 1998.  Return on
equity was 8.10% for 1999, compared to 6.69% for 1998. Average equity to average
assets was 17.76% for the year ended 1999, compared to 24.84% for the year ended
1998.

                                       24

<PAGE>

         Item 2. Properties

         PS Financial conducts its business at its stand-alone office located at
4800 South  Pulaski Road,  Chicago,  Illinois.  The Company's  5,000 square foot
office was acquired in 1980 and had a net book value of $277,000 at December 31,
1999. At December 31, 1999, the total net book value of PS Financial's  premises
and  equipment  (including  land,  building  and  leasehold  improvements,   and
furniture,  fixtures and  equipment)  was  approximately  $477,000.  The Company
believes  that its  current  facilities  are  adequate  to meet the  present and
foreseeable future needs of the Bank and the Company.

         The Company's  depositor and borrower  customer files are maintained by
an  independent  data  processing  company.  The  net  book  value  of the  data
processing and computer  equipment  utilized by the Company at December 31, 1999
was approximately $71,000.

Item 3. Legal Proceedings

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


Item 4. Submissions of Matters to a Vote of Securities Holders

         No matter was  submitted  to a vote of  Security  holders,  through the
solicitation of proxies or otherwise during the quarter ended December 31, 1999.



                                       25

<PAGE>


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

         Page 45 of the Company's  1999 Annual Report to  stockholders  attached
hereto as Exhibit 13 is herein incorporated by reference.

Item 6. Management's Discussion and Analysis of Financial Condition  and Results
        of Operations

         Pages 5 through 19 of the Company's 1999 Annual Report to  stockholders
attached hereto as Exhibit 13 is herein incorporated by reference.

Item 7. Financial Statements

         The following  information  appearing in the Company's Annual Report to
Stockholders  for the year ended December 31, 1999, is incorporated by reference
in this Annual Report on Form 10-KSB as Exhibit 13.

                                                                      Pages in
Annual Report Section                                              Annual Report
----------------------------                                       -------------
Selected Consolidated Financial Information                              2-4
Management's Discussion and Analysis of Financial                        5-18
  Condition and Results of Operations
Report of Independent Auditors                                             19
Consolidated Statements of Financial Condition as of December 31,          20
  1999 and 1998
Consolidated Statements of Income for the Years                            21
  Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders'                                22-23
  Equity for the Years Ended December 31, 1999,
  1998 and 1997
Consolidated Statements of Cash Flows for the                           24-25
  Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements                              26-45

         With the  exception of the  aforementioned  information,  the Company's
Annual  Report to  Stockholders  for the year ended  December 31,  1999,  is not
deemed filed as part of this Annual Report on Form 10-KSB.

Item 8. Changes  in and Disagreements with  Accountants on  Accounting  and
        Financial Disclosure

         There has been no  current  report  on Form 8-K filed  within 24 months
prior to the date of the most recent financial  statements reporting a change in
accountants and/or reporting disagreements on any matter of accounting principle
or financial  statement  disclosure  nor has there been a change of  accountants
within the past 24 months.

                                       26
<PAGE>


                                    PART III

Item 9. Directors, Promoters and Control Persons;  Compliance with Section 16(a)
        of the Exchange Act

Directors

         Information  concerning directors of the Company is incorporated herein
by  reference  from the  Company's  definitive  Proxy  Statement  for the Annual
Meeting of  Stockholders  for the fiscal year ended December 31, 1999, a copy of
which will be filed not later than 120 days after the close of the fiscal year.

Executive Officers

         Information regarding the business experience of the executive officers
of the Company and the Bank  contained in Part I of this 10-KSB is  incorporated
herein by reference.

Item 10. Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from the  Company's  definitive  Proxy  Statement for the fiscal year
ended  December  31, 1999, a copy of which will be filed not later than 120 days
after the close of the fiscal year.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         Information  concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy  Statement  for the fiscal year ended  December  31, 1999, a copy of which
will be filed not later than 120 days after the close of the fiscal year.

Item 12. Certain Relationships and Related Transactions

         Information  concerning certain  relationships and related transactions
is  incorporated  herein  by  reference  from  the  Company's  definitive  Proxy
Statement  for the Annual  Meeting  of  Stockholders  for the fiscal  year ended
December  31,  1999, a copy of which will be filed not later than 120 days after
the close of the fiscal year.


                                       27

<PAGE>


                                     PART IV

Item 13. Exhibits and Reports on Form 8-K

(a)      Exhibits
                                                                 Reference to
Regulation                                                      Prior Filing or
S-K Exhibit                                                     Exhibit Number
   Number   Document                                            Attached Hereto
--------------------------------------------------------------------------------
      2     Plan of acquisition, reorganization, arrangement,              None
            liquidation or succession
     3(i)   Articles of Incorporation                                       *
    3(ii)   By-Laws                                                         *
      4     Instruments defining the rights of security holders,            *
            including debentures
      9     Voting Trust Agreement                                         None
     10     Material contracts                                             None
    10.1    Employment agreement with Kimberly P. Rooney                    *
    10.2    Change-in-control severance agreements
               with certain executive officers                              *
    10.3    Stock Option and Incentive Plan                                 *
    10.4    Recognition and Retention Plan                                  *
     11     Statement regarding computation of per share                   None
            earnings
     13     Annual Report to Security Holders                               13
     16     Letter regarding change in certifying accountants              None
     18     Letter regarding change in accounting principles               None
     21     Subsidiaries of Registrant                                      21
     22     Published report regarding matters submitted to vote           None
            of security holders
     23     Consents of Experts and Counsel                                None
     24     Power of Attorney                                              None
     27     Financial Data Schedule                                         27
     28     Information from reports furnished to state
               insurance regulatory authorities                            None
     99     Additional Exhibits                                            None

Footnotes
---------

*        Filed as exhibits to the Company's S-1 registration  statement filed on
         August  30,  1996  (file No.  333-11211)  pursuant  to Section 5 of the
         Securities  Act of 1933.  All of such  previously  filed  documents are
         hereby  incorporated herein by reference in accordance with item 601 of
         regulation S-B,



<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, thereunto duly authorized.


                                             PS FINANCIAL, INC.
Date:     March 30, 2000                 By: Kimberly P. Rooney
          ----------------------             -----------------------------------
                                             Kimberly P. Rooney (Duly
                                             Authorized Representative)

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.


By:    Kimberly P. Rooney                By:   S. J. Ptak
       -------------------------------         ---------------------------------
       Kimberly P. Rooney, President,          S. J. Ptak, Chairman of the Board
         Chief Executive Officer and
         Director (Principal Executive
         and Operating Officer)

Date:  March 30, 2000                    Date: March 30, 2000
       ------------------------                ------------------------

By:    Edward Wolak                      By:   L. G. Ptak
       -------------------------------         ---------------------------------
       Edward Wolak, Director                  L.G. Ptak, Director and Secretary

Date:  March 30, 2000                    Date: March 30, 2000
       ------------------------                ------------------------

By:    Rocco Di Iorio                    By:   By: Jeanine M. McInerney
       -------------------------------         ---------------------------------
       Rocco Di Iorio Director                 Jeanine M. McInerney, Director

Date:  March 30, 2000                    Date: March 30, 2000
       ------------------------                ------------------------

By:    Jeffrey Przybyl
       -------------------------------
       Jeffrey Przybyl, Treasurer
         and Chief Financial Officer
         (Principal Financial and
         Accounting Officer)

Date:  March 30, 2000
       ------------------------



                                       29