EXHIBIT 13


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1996 ANNUAL REPORT
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                                     [LOGO]










                               PS FINANCIAL, INC.
                                Chicago, Illinois









<PAGE>




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TABLE OF CONTENTS
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President's Message .......................................................    1

Selected Consolidated Financial Information ...............................    2

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

Independent Auditors' Report...............................................   19

Consolidated Financial Statements .........................................   20

Corporate Information......................................................   43


                                        i

<PAGE>

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PRESIDENT'S MESSAGE
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                                        1

<PAGE>



                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

         Set forth below are selected  consolidated  financial and other data of
the Company.  The financial  data is derived in part from, and should be read in
conjunction  with, the Consolidated  Financial  Statements and Notes of the Bank
presented elsewhere in this Annual Report.

<TABLE>
<CAPTION>

                                                                                     December 31,
                                                               --------------------------------------------     February 28,
                                                                1996          1995        1994         1993        1993
                                                                ----          ----        ----         ----        ----
                                                                                     (In Thousands)
<S>                                                            <C>         <C>         <C>          <C>         <C>
Selected Financial Condition Data:
----------------------------------
Total assets..............................................     $75,133     $53,520     $51,619      $53,854     $49,974
Cash and cash equivalents.................................       8,758       3,754       1,429        5,874       2,445
Loans receivable, net(2)..................................      35,943      34,525      32,890       30,821      32,716
Mortgage-backed securities(3):
   Held to maturity.......................................         ---         ---       1,792        2,026         ---
   Available for sale.....................................       4,702       4,220       1,694          ---         ---
Securities(3):
   Held to maturity.......................................         ---         ---         201          403         855
   Available for sale.....................................      24,080       9,739       7,326        9,044       8,652
Deposits..................................................      42,203      41,047      40,057       41,139      40,363
Total stockholders' equity................................      32,147      11,724      10,512        9,645       8,833
</TABLE>


                                        2

<PAGE>



<TABLE>
<CAPTION>

                                                                              Year Ended                 10 Months       Year Ended
                                                                              December 31,                 Ended        ------------
                                                                  ----------------------------------     December 31,   February 28,
                                                                   1996          1995           1994         1993          1993
                                                                   ----          ----           ----         ----          ----
                                                                                       (In Thousands)
<S>                                                               <C>           <C>            <C>           <C>            <C>
Selected Operations Data:
-------------------------
Total interest income.....................................        $4,664        $4,268         $3,854        $3,401         $4,183
Total interest expense....................................         1,781         1,632          1,310         1,169          1,734
                                                                  ------        ------         ------        ------         ------
   Net interest income....................................         2,883         2,636          2,544         2,232          2,449
Provision for loan losses(1)..............................            50           ---             42            27             24
                                                                  ------        ------         ------        ------         ------
Net interest income after provision for loan losses.......         2,833         2,636          2,502         2,205          2,425
Fees and service charges..................................            69            58             76            40             39
Gain (loss) on sales of securities(2).....................           (38)          ---           (365)          (28)           ---
                                                                  ------        ------         ------        ------         ------
Total non-interest income.................................            31            58           (289)           12             39
Total non-interest expense................................         1,233         1,009            838           647            820
                                                                  ------        ------         ------        ------         ------
Income before taxes.......................................         1,631         1,685          1,375         1,570          1,644
Income tax provision......................................           629           630            617           628            643
                                                                  ------        ------         ------        ------         ------
Net income................................................        $1,002        $1,055         $  758        $  942         $1,001
                                                                  ======        ======         ======        ======         ======
<FN>
-------------
(1)  The  allowance for loan losses at December 31, 1996,  1995,  1994 and 1993,
     February 28, 1993 and February 29, 1992 was $186,000,  $136,000,  $136,000,
     $94,000, $67,000 and $43,000, respectively.

(2)  The Bank adopted Statement of Financial  Accounting  Standards ("SFAS") No.
     115,  "Accounting for Certain  Investments in Debt and Equity  Securities,"
     effective as of December  31, 1993.  Prior to the adoption of SFAS No. 115,
     investment  securities and  mortgage-backed  securities  held for sale were
     carried at the lower of  amortized  cost or market  value,  as adjusted for
     amortization  of premiums and  accretion of  discounts  over the  remaining
     terms of the securities from the dates of purchase.
</FN>
</TABLE>

                                        3

<PAGE>


<TABLE>
<CAPTION>

                                                                                                           10 Months    Year Ended
                                                                           Year Ended December 31,          Ended       ----------
                                                                       -------------------------------    December 31,  February 28,
                                                                        1996        1995          1994        1993          1993
                                                                        ----        ----          ----        ----          ----
<S>                                                                    <C>         <C>           <C>         <C>           <C>
Selected Financial Ratios and Other Data:
-----------------------------------------
Performance Ratios:
   Return on assets (ratio of net income to average
     total assets)(1) .............................................     1.71%        1.99%        1.46%        1.83%        1.96%
   Return on equity (ratio of net income to average
     total equity)(1) .............................................     6.55         9.42         7.53        10.21        11.82
   Interest rate spread information:
     Average during period(1) .....................................     3.89         4.26         4.38         4.78         3.96
     End of period ................................................     3.30         3.71         4.26         3.92         3.79
   Net interest margin(2)(1) ......................................     5.03         5.13         5.03         5.39         4.88
   Efficiency Ratio(3) ............................................    42.30        37.45        37.16        28.83        32.96
   Ratio of operating expense to average total assets(1) ..........     2.10         1.91         1.61         1.26         1.60
   Ratio of average interest-earning assets to average
        interest-bearing liabilities ..............................   136.86       127.21       125.08       121.78       126.60

Quality Ratios:
   Non-performing assets to total assets at end
     of period ....................................................     0.37         1.45         0.65         0.33         0.21
   Allowance for loan losses to non-performing loans ..............    65.96        17.55        40.72        53.41        63.21
   Allowance for loan losses to total loans .......................     0.51         0.39         0.41         0.30         0.20

Capital Ratios:
   Equity to total assets at end of period ........................    42.79        21.91        20.36        17.91        17.68
   Average equity to average assets ...............................    26.06        21.18        19.32        17.93        16.56

Regulatory Capital Ratios:(4)
   Total capital ..................................................       --        59.05        54.32        38.93        31.37
   Tier 1 capital .................................................       --        58.37        52.79        37.74        30.85
   Leverage ratio .................................................       --        22.19        20.29        18.08        18.01
   Tangible capital ...............................................    32.77           --           --           --           --
   Core capital ...................................................    32.77           --           --           --           --
   Risk-based capital .............................................    92.91           --           --           --           --
<FN>
-------------
(1)  Ratios for the ten month period has been annualized.

(2)  Net interest income divided by average interest earning assets.

(3)  The efficiency  ratio  represents  noninterest  expense as a percent of net
     interest income and noninterest income before provision for loan losses.

(4)  OTS  regulatory  capital  ratios  are shown for the years that the Bank was
     under OTS regulation.  Bank Capital ratios are shown for the years the Bank
     was a state-chartered savings bank.
</FN>
</TABLE>


                                        4

<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

         The Bank is a financial  intermediary  engaged  primarily in attracting
deposits from the general  public and using such  deposits to originate  one- to
four-  family  residential  mortgage  and,  to a  significantly  lesser  extent,
multi-family,  commercial real estate, construction and consumer loans primarily
in its market area. The Bank's  revenues are derived  principally  from interest
earned on loans and, to a lesser extent, from interest earned on investments and
mortgage-backed  and  related  securities.   The  operations  of  the  Bank  are
influenced  significantly  by general  economic  conditions  and by  policies of
financial institution  regulatory agencies,  including the OTS and the FDIC. The
Bank's cost of funds is  influenced by interest  rates on competing  investments
and general market interest rates. Lending activities are affected by the demand
for financing of real estate and other types of loans, which in turn is affected
by the interest rates at which such financings may be offered.

         The  Bank's  net  interest  income  is  dependent  primarily  upon  the
difference or spread between the average yield earned on loans  receivable,  net
and investments  and the average rate paid on deposits,  as well as the relative
amounts  of  such  assets  and   liabilities.   The  Bank,   like  other  thrift
institutions,  is  subject  to  interest  rate  risk  to  the  degree  that  its
interest-bearing  liabilities  mature or reprice  at  different  times,  or on a
different basis, than its interest-earning assets.

Comparison of Financial Condition at December 31, 1996 and December 31, 1995

         Total assets at December 31, 1996 were $75.1 million  compared to $53.5
million at  December  31,  1995,  an increase of $21.6  million,  or 40.4%.  The
increase was  primarily  the result of net proceeds  (less ESOP shares) of $19.4
million  from the sale of  common  stock as a result  of the  conversion  from a
federal  mutual  savings bank to a federal stock savings bank.  The net proceeds
were invested primarily in securities  available-for-sale  and  interest-bearing
deposits  in  other  financial   institutions.   Securities   available-for-sale
increased  $14.4 million from $9.7 million at December 31, 1995 to $24.1 million
at December 31, 1996. Interest-bearing deposits increased $5.4 million from $2.8
million at December 31, 1995 to $8.2 million at December 31, 1996.

         Total  liabilities at December 31, 1996 were $43.0 million  compared to
$41.8 million at December 31, 1995, an increase of $1.2 million,  or 2.9%. Total
deposits  increased  slightly by $1.2 million from $41.0 million at December 31,
1995 to $42.2  million at  December  31,  1996 due to an  increase  in  passbook
savings and money market  accounts as a result of local economic and competitive
factors.

         Total equity at December 31, 1996 was $32.1  million  compared to $11.7
million at December  31,  1995,  an increase  of $20.4  million,  or 174.4% as a
result of the  issuance of common  stock in the  Conversion.  The  Company  sold
2,182,125 shares of common stock at $10 per share and received proceeds of $19.4
million net of conversion expenses and ESOP shares.

                                        5

<PAGE>

Approximately  50% of the gross proceeds were used by the Company to acquire all
of the capital stock of the Bank.

Results of Operations

         The Bank's results of operations depend primarily upon the level of net
interest income,  which is the difference  between the interest income earned on
its interest-earning  assets such as loans and securities,  and the costs of the
Bank's interest-bearing liabilities,  primarily deposits and borrowings. Results
of  operations  are also  dependent  upon the  level of the  Bank's  noninterest
income,  including fee income and service charges,  and affected by the level of
its noninterest expenses, including its general and administrative expenses. Net
interest  income  depends  upon  the  volume  of  interest-earning   assets  and
interest-bearing  liabilities  and the  interest  rate  earned  or paid on them,
respectively.

Comparison of Operating Results for the Years Ended December 31, 1996
and December 31, 1995

         General.  Net  income  for the year ended  December  31,  1996 was $1.0
million, a decrease of $52,000, or 4.9%, from net income of $1.1 million for the
year ended  December 31, 1995.  The decrease was primarily a result of a special
Savings Association  Insurance Fund ("SAIF") assessment of approximately .65% of
all  SAIF-insured  deposit  balances as of March 31, 1995 which totaled $245,000
combined with an increase in the provision for loan losses of $50,000.  This was
partially offset by an increase in net interest income of $247,000.

         Interest  Income.  Interest income for the year ended December 31, 1996
was $4.7 million  compared to $4.3 million for the year ended December 31, 1995,
an increase of $396,000, or 9.2%. The increase in interest income was the result
of an  increase  in the average  balance of  interest-earning  assets from $51.3
million for the year ended December 31, 1995 to $57.3 million for the year ended
December  31,  1996.  The  increase in the average  balance of  interest-earning
assets was largely a result of a $1.5 million increase in loans receivable and a
$2.6 million increase in the average balance of securities. The average yield on
interest-earning  assets  decreased  from 8.31% for the year ended  December 31,
1995 to 8.14% for the year ended December 31, 1996. This was largely a result of
a decrease in the yield on securities from 7.05% for the year ended December 31,
1995 to 6.54% for the year ended December 31, 1996 due to securities with higher
interest rates being called during 1996 combined with a decrease in the yield on
other earning assets of 99 basis points.

         Interest Expense. Interest expense for the year ended December 31, 1996
was $1.8 million  compared to $1.6 million for the year ended December 31, 1995,
an increase of $147,000,  or 9.0%. The increase in interest expense was a result
of an increase in average  interest-bearing  liabilities  from $40.4 million for
the year ended  December 31, 1995 to $41.9  million for the year ended  December
31, 1996  combined  with an increase in the average cost of funds from 4.05% for
the year ended  December 31, 1995 to 4.25% for the year ended December 31, 1996.
The increase in the cost of funds was a result of an increase in interest  rates
paid on  certificates  by the Bank in  response  to  higher  market  rates.  The
increased rates paid also resulted in increased average balances of certificates
of deposit.


                                        6

<PAGE>



         Net Interest  Income.  Net interest  income for the year ended December
31, 1996 was $2.9 million  compared to $2.6 million for the year ended  December
31, 1995, an increase of $247,000,  or 9.4%. The increase in net interest income
was a result of an increase in the ratio of average  interest-earning  assets to
average  interest-bearing  liabilities  from 127.21% for the year ended December
31, 1995 to 136.86% for the year ended December 31, 1996.

         Provision for Loan Losses.  The Bank  recorded a $50,000  provision for
loan losses for the year ended  December 31, 1996  compared to no provision  for
the year ended  December  31,  1995.  The  increase  was  primarily  a result of
increased  delinquencies  of  multi-family  and commercial real estate loans. At
December 31, 1996, the Bank's allowance for losses totaled $186,000,  or .51% of
total  loans  and  65.96%  of total  non-performing  loans.  The  amount  of the
provision and  allowance for estimated  losses on loans is influenced by current
economic conditions, actual loss experience,  industry trends and other factors,
such as adverse economic conditions,  including declining real estate values, in
the Bank's market area. In addition, various regulatory agencies, as an integral
part of their examination process,  periodically review the Bank's allowance for
estimated  losses  on loans.  Such  agencies  may  require  the Bank to  provide
additions  to the  allowance  based upon  judgments  which  differ from those of
management.  The loan loss  provision  for the year ended  December  31, 1996 is
indicative of management's  assessment of the adequacy of the allowance for loan
losses,  given the trends in  historical  loss  experience  of the portfolio and
current economic conditions,  as well as the fact that the majority of loans are
single-family  residential loans and the  loan-to-values are generally less than
80%. Although  management uses the best information  available and maintains the
Bank's allowance for loan losses at a level it believes  adequate to provide for
losses,  future  adjustments  to the allowance may be necessary due to economic,
operating,  regulatory  and  other  conditions  that may be  beyond  the  Bank's
control.  In view of the Bank's focus on one-to-four family lending,  management
does not expect the Bank's  provision  to  increase in the future at the rate it
did  for the  most  recent  period,  although  there  can be no  assurance  that
management's expectation will be accurate.

         Noninterest Income.  Noninterest income for the year ended December 31,
1996 was $32,000  compared to $58,000 for the year ended  December  31,  1995, a
decrease of $26,000,  or 44.8%. The decrease was primarily a result of losses on
sales of securities of $38,000 for the year ended  December 31, 1996 compared to
no losses for the year ended December 31, 1995. This was partially  offset by an
increase in service fees collected of $12,000.

         Noninterest Expense.  Noninterest expense was $1.2 million for the year
ended December 31, 1996 compared to $1.0 million for the year ended December 31,
1995, an increase of $224,000,  or 22.2%. The increase was primarily a result of
the one-time special SAIF assessment of $245,000 on all  SAIF-insured  deposits.
This was partially offset by a decrease in compensation  and benefits  resulting
from the termination of the Bank's pension plan during 1996.  However,  the Bank
expects  that  noninterest  expense  will  increase  in  the  future  due to the
implementation of new benefit plans such as the ESOP.

         Income Tax Expense.  The provision for income taxes  totalled  $629,000
for the year ended  December  31, 1996  compared to $630,000  for the year ended
December 31,  1995.  The slight  decrease  was a result of a slight  decrease in
income before income taxes of $53,000.

                                        7

<PAGE>


Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994

         General.  Net  income  for the year ended  December  31,  1995 was $1.1
million  compared to $758,000 for the year ended  December 31, 1994, an increase
of $342,000,  or 45.1%.  The operating  results were  primarily  affected by the
decrease in security losses and the provision for loan losses in 1995, partially
offset by an increase in noninterest expense.

         Interest  Income.  Interest income for the year ended December 31, 1995
was $4.3 million  compared to $3.9 million for the year ended December 31, 1994,
an increase of  $400,000,  or 10.3%.  A  contributing  factor in the increase in
interest   income  was  a  $733,000   increase   in  the   average   balance  of
interest-earning  assets  coupled with a 69 basis point increase in the yield on
average  interest-earning assets from 7.62% for the year ended December 31, 1994
to 8.31% for the year ended  December  31,  1995.  The  increase  in the average
balance of  interest-earning  assets was due to increases in the average balance
of loans  receivable  of $2.4 million and  securities of $1.9 million due to the
investment of proceeds from the repayment of maturing investment certificates of
deposit and excess cash at the FHLB.  The average yield on loans  decreased from
9.56% at  December  31,  1994 to 9.25% at  December  31, 1995 due to the general
decline in  mortgage  rates in 1995 as compared  to 1994.  The average  yield on
investment  securities increased from 4.46% to 7.05% during the same periods due
to the purchase of higher yielding securities and the maturity of lower yielding
securities.  The average balance of other interest earning assets decreased $3.6
million due to the  maturity of  investment  certificates  of deposit  while the
average yield on such assets  increased  from 4.28% to 6.22% due to the maturity
of lower yielding investment certificates of deposit.

         Interest Expense. Interest expense for the year ended December 31, 1995
was $1.6 million  compared to $1.3 million for the year ended December 31, 1994,
an increase of $300,000,  or 23.1%.  The increase in interest expense reflects a
higher  interest  rate  environment,  as the  average  cost of  interest-bearing
liabilities  increased by 81 basis points from 3.24% for the year ended December
31, 1994 to 4.05% for the year ended  December 31, 1995.  Although total average
interest-bearing liabilities remained relatively stable, customers shifted their
deposits from savings accounts to higher yielding  certificates of deposit.  The
average  cost of  savings  accounts  increased  from  2.85%  for the year  ended
December 31, 1994 to 3.02% for the year ended  December  31,  1995.  The average
cost of  certificates  of  deposit  increased  from  3.80% to 5.22% for the same
period.

         Net Interest  Income.  Net interest income of $2.6 million for the year
ended  December 31, 1995  represented a $100,000  increase from the $2.5 million
reported for the year ended  December 31,  1994.  This  increase in net interest
income  was a result  of the  increase  in  average  interest-earning  assets to
average  interest-bearing  liabilities  from 125.08% for the year ended December
31, 1994 to 127.21% for the year ended  December  31,  1995.  This  increase was
partially  offset by a narrowing of the average net  interest  spread from 4.38%
for the year ended  December  31, 1994 to 4.26% for the year ended  December 31,
1995. The narrowing of the net interest  spread was a result of the average cost
of interest-bearing  liabilities  increasing more rapidly than the average yield
on interest-earning assets.


                                        8

<PAGE>

         Provision  for Loan  Losses.  The Bank's  provision  for loan losses on
loans for the year ended  December 31, 1995 was zero compared to $42,000 for the
year December 31, 1994.  The amount of the provision and allowance for estimated
losses on loans is  influenced  by  current  economic  conditions,  actual  loss
experience,  industry  trends  and  other  factors,  such  as  adverse  economic
conditions,  including  declining real estate values, in the Bank's market area.
The decrease in the  provision  for loan losses is  indicative  of  management's
assessment of the adequacy of the allowance for loan losses,  given the positive
trends in  historical  loss  experience of the portfolio and the strength of the
local  economy,  current  economic  conditions,  as well as the  fact  that  the
majority of loans are single-family residential loans and the loan-to-values are
generally  less than 80%. At December 31, 1995,  the Bank's  allowance  for loan
losses   totaled   $136,000   or  .39%  of  total  loans  and  17.55%  of  total
non-performing loans.

         Noninterest Income.  Noninterest income for the year ended December 31,
1995 was $58,000 compared to $(289,000) for the year ended December 31, 1994, an
increase of $347,000. The increase was primarily a result of a $365,000 decrease
in security losses in 1995 from 1994, partially offset by an $18,000 decrease in
other income in 1995.

         Noninterest  Expense.  Noninterest  expense for the year ended December
31, 1995 was $1.0 million  compared to $838,000 for the year ended  December 31,
1994, an increase of $162,000,  or 19.3%. The increase was primarily a result of
a $199,000  increase in compensation and benefits,  partially offset by a $9,000
decrease in  occupancy  and  equipment  expense and a $19,000  decrease in other
operating expenses. The primary increase in compensation and benefits was due to
the  termination  of the Bank's  pension  plan during 1995 which  resulted in an
increase in pension expense of $132,000.

         Income  Taxes.  Income  tax  expense  was  $630,000  for the year ended
December 31, 1995 compared to $617,000 for the year ended  December 31, 1994, an
increase of $13,000.  The increase was largely a result of an increase in income
before  income taxes from $1.4  million for the year ended  December 31, 1994 to
$1.7  million  for the year ended  December  31,  1995,  partially  offset by an
increase in the deferred tax valuation  allowance of $89,000 in 1994. See Note 9
of the Notes to the Consolidated Financial Statements for additional information
on the Bank's income taxes.

Analysis of Net Interest Income

         Net interest income  represents the difference  between interest earned
on interest-earning  assets and interest paid on  interest-bearing  liabilities.
Net  interest  income  depends  on the  volumes of  interest-earning  assets and
interest-bearing liabilities and the interest rates earned or paid on them.


                                        9

<PAGE>

         The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates.  No tax equivalent  adjustments  were made.
All average balances are monthly average balances.  Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                ---------------------------------------------------------------------------------------------
                                            1996                             1995                                 1994
                                --------------------------------  -----------------------  -----------------------------------
                                  Average     Interest              Average      Interest             Average      Interest
                                Outstanding    Earned/    Yield/  Outstanding     Earned/  Yield/    Outstanding   Earned/  Yield/
                                  Balance       Paid      Rate       Balance       Paid    Rate       Balance       Paid    Rate
                                  -------       ----      ----       -------       ----    ----       -------       ----    ----
                                                                   (Dollars in Thousands)
<S>                               <C>          <C>         <C>     <C>          <C>         <C>     <C>          <C>         <C>
Interest-Earning Assets:
 Loans receivable(1)............  $35,608      $3,331      9.35%   $34,131      $3,156      9.25%   $31,685      $3,014      9.56%
 Securities(2)..................   11,947         781      6.54      9,250         652      7.05      7,357         327      4.46
 Mortgage-backed securities.....    4,460         275      6.17      3,549         186      5.24      3,600         172      4.78
 Other..........................    5,295         277      5.23      4,407         274      6.22      7,962         341      4.28
                                 --------      ------             --------      ------             --------      ------
  Total interest-earning
    assets(1)(2)................  $57,310       4,664      8.14%   $51,337       4,268      8.31    $50,604       3,854      7.62
                                  =======       -----              =======       -----              =======       -----

Interest-Earning Liabilities:
 Passbook savings...............  $21,559         690      3.20    $21,512         649      3.02    $23,882         680      2.85
 Certificate accounts...........   20,317       1,091      5.36     18,843         983      5.22     16,576         630      3.80
                                 --------       -----             --------      ------             --------      ------
  Total interest-bearing
    liabilities.................  $41,876       1,781      4.25    $40,355       1,632      4.05    $40,458       1,310      3.24
                                  =======       -----      ----    =======      ------      ----    =======       -----      ----
Net interest income.............               $2,883                           $2,636                           $2,544
                                                =====                           ======                           ======
Net interest rate spread........                           3.89                             4.26%                            4.38%
                                                           ====                             ====                             ====
Net earning assets..............  $15,434                          $10,982                          $10,146
                                  =======                          =======                          =======
Net yield on average interest-
  earning assets................                           5.03%                            5.13%                            5.03%
                                                           ====                             ====                             ====
Average interest-earning assets
  to average interest-bearing
  liabilities...................              136.86%                          127.21%                          125.08%
                                              ======                           ======                           ======
</TABLE>


                                           Ten Months Ended
                                              December 31,
                                                1993(3)
                                   -------------------------------
                                     Average    Interest
                                   Outstanding   Earned/    Yield/
                                     Balance       Paid      Rate
                                     -------       ----      ----
                                         (Dollars in Thousands)

Interest-Earning Assets:
 Loans receivable(1).............    $32,708     $2,783      10.21%
 Securities(2)...................      9,919        391       4.74
 Mortgage-backed securities......        184          2       1.30
 Other...........................      6,909        225       3.91
                                    --------     ------
  Total interest-earning
    assets(1)(2).................    $49,720      3,401       8.21
                                     =======      -----

Interest-Earning Liabilities:
 Passbook savings................    $24,508        575       2.82
 Certificate accounts............     16,320        594       4.37
                                    --------     ------
  Total interest-bearing
    liabilities..................    $40,828      1,169       3.43
                                     =======      -----       ----
Net interest income..............                $2,232
                                                 ======
Net interest rate spread.........                             4.78%
                                                              ====
Net earning assets...............     $8,892
                                      ======
Net yield on average interest-
  earning assets.................                             5.39%
                                                              ====
Average interest-earning assets
  to average interest-bearing
  liabilities....................             121.78%
                                              ======
--------------
(1)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     loss reserves.
(2)  Calculated based on amortized cost.
(3)  Annualized yield/rate.

                                       10

<PAGE>



         The  following  table  presents the weighted  average  yields earned on
loans,  securities and other  interest-earning  assets, and the weighted average
rates paid on savings  deposits and the  resultant  interest rate spreads at the
date indicated. Weighted average balances are based on monthly balances.


                                                        At December 31,
                                                 --------------------------
                                                 1996       1995       1994
                                                 ----       ----       ----
Weighted average yield on:
 Loans receivable .............................  8.57%      8.75%      8.81%
 Mortgage-backed securities ...................  6.84       6.08       5.51
 Securities ...................................  6.05       6.98       6.95
 Other interest-earning assets ................  6.53       5.22       5.18
   Combined weighted average yield
     on interest-earning assets ...............  7.41       7.98       7.87

Weighted average rate paid on:
 Passbook savings deposits ....................  3.01       3.00       3.05
 Certificate accounts .........................  5.31       5.58       4.33
   Combined weighted average rate paid
     on interest-bearing liabilities ..........  4.11       4.27       3.61

Spread ........................................  3.30       3.71       4.26

----------------
(1)  Excluding amortization of deferred loan fees.


                                       11

<PAGE>


         The  following  schedule  presents  the  dollar  amount of  changes  in
interest income and interest  expense for major  components of  interest-earning
assets and interest-bearing  liabilities.  It distinguishes  between the changes
related to outstanding  balances and that due to the changes in interest  rates.
For each category of interest-earning  assets and interest-bearing  liabilities,
information is provided on changes  attributable to (i) changes in volume (i.e.,
changes  in  volume  multiplied  by old rate) and (ii)  changes  in rate  (i.e.,
changes in rate multiplied by old volume).  For purposes of this table,  changes
attributable  to both rate and volume,  which  cannot be  segregated,  have been
allocated  proportionately  to the  change  due to volume  and the change due to
rate.

<TABLE>
<CAPTION>

                                                               Year Ended December 31,               Year Ended December 31,
                                                                    1995 vs. 1996                         1994 vs. 1995
                                                            -------------------------------     ------------------------------------
                                                                  Increase                               Increase
                                                                 (Decrease)                             (Decrease)
                                                                   Due to           Total                 Due to           Total
                                                             -----------------     Increase      ---------------------   Increase
                                                              Volume    Rate      (Decrease)      Volume         Rate   (Decrease)
                                                              ------    ----      ----------      ------         ----   ----------
                                                                                 (Dollars in Thousands)
<S>                                                          <C>         <C>          <C>         <C>           <C>       <C>
Interest-earning assets:
 Loans receivable ...................................        $138        $ 37         $175        $ 228         $ (86)    $ 142
 Mortgage-backed securities .........................          53          36           89           (2)           16        14
 Securities .........................................         179         (50)         129           99           226       325
 Other ..............................................          50         (47)           3         (186)          119       (67)
                                                             ----        ----         ----        -----         -----     -----
   Total interest-earning assets ....................        $420        $(24)         396        $ 139         $ 275       414
                                                             ====        ====         ----        =====         =====     -----
Interest-bearing liabilities:
 Passbook savings deposits ..........................        $  1        $ 40         $ 41        $ (70)        $  39       (31)
 Certificate accounts ...............................          79          29          108           95           258       353
                                                             ----        ----         ----        -----         -----     -----
   Total interest-bearing liabilities ...............        $ 80        $ 69          149        $  25         $ 297       322
                                                             ====        ====         ----        =====         =====     -----
Net interest income .................................                                 $247                                 $ 92
                                                                                      ====                                =====
</TABLE>


                                       12

<PAGE>

Asset/Liability Management

         In an attempt  to manage its  exposure  to changes in  interest  rates,
management  monitors the Bank's interest rate risk. The Board of Directors meets
at least  quarterly  to  review  the  Bank's  interest  rate risk  position  and
profitability.  The  Board of  Directors  also  reviews  the  Bank's  portfolio,
formulates  investment  strategies and oversees the timing and implementation of
transactions to assure attainment of the Bank's objectives in the most effective
manner. In addition,  the Board  anticipates  reviewing on a quarterly basis the
Bank's  asset/liability  position,  including  simulations  of the effect on the
Bank's capital of various interest rate scenarios.

         In managing its  asset/liability  mix, Preferred Savings,  depending on
the relationship  between long- and short-term interest rates, market conditions
and consumer  preference,  often  places more  emphasis on managing net interest
margin than on better  matching the interest rate  sensitivity of its assets and
liabilities  in an effort to enhance net interest  income.  Management  believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased exposure to
sudden and unexpected increases in interest rates.

         Management  has  taken a number  of steps to limit to some  extent  its
interest rate risk.  First, the Bank focuses its fixed rate loan originations on
loans with  maturities of 15 years or less. At December 31, 1996,  $25.8 million
or 95.3% of the Bank's one- to four family residential loan portfolio  consisted
of fixed rate  loans  having  original  terms to  maturity  of 15 years or less.
Second,  the Bank  offers  balloon  loans of 10 years or less in an  attempt  to
decrease its asset/liability  mismatch. Third, the Bank maintains a portfolio of
securities and liquid assets with weighted average lives of three years or less.
At December 31, 1996, the Bank had $24.1 million of securities  with a remaining
average life of 3.19 years.  Fourth,  the Bank has maintained a  mortgage-backed
securities  portfolio with  adjustable-rates.  At December 31, 1996,  adjustable
rate  mortgage-backed  securities totaled $1.5 million which represented 2.0% of
interest-earning  assets.  Finally,  a  substantial  proportion  of  the  Bank's
liabilities  consists  of  passbook  savings  accounts  which  are  believed  by
management  to  be  somewhat  less  sensitive  to  interest  rate  changes  than
certificate accounts.

         The primary objective of Preferred Savings'  investment  strategy is to
provide  liquidity  necessary to meet funding needs as well as to address daily,
cyclical and long-term changes in the asset/liability mix, while contributing to
profitability  by providing a stable flow of  dependable  earnings.  Investments
generally include interest-bearing deposits in other federally insured financial
institutions, FHLB stock and U.S. Government securities.

         Generally,  the investment  policy of the Bank is to invest funds among
various  categories of investments and maturities based upon the Bank's need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize yield, to provide collateral for borrowings,  and to fulfill the Bank's
asset/liability management policies.

         Preferred  Savings' cost of funds responds to changes in interest rates
due to the relatively short-term nature of its deposit portfolio.  Consequently,
the results of  operations  are heavily  influenced  by the levels of short-term
interest rates. Preferred Savings offers a range of

                                       13

<PAGE>


maturities  on its  deposit  products  at  competitive  rates and  monitors  the
maturities on an ongoing basis.

         An approach used by  management  to quantify  interest rate risk is the
net portfolio value ("NPV") analysis.  In essence,  this approach calculates the
difference  between the present value of  liabilities,  expected cash flows from
assets and cash flows from off balance sheet  contracts.  Under OTS regulations,
an  institution's  "normal"  level  of  interest  rate  risk in the  event of an
immediate and  sustained 200 basis point change in interest  rates is a decrease
in the  institution's  NPV in an amount not exceeding 2% of the present value of
its assets.  Pursuant to this regulation,  thrift institutions with greater than
"normal"  interest rate exposure must take a deduction  from their total capital
available  to meet  their  risk-based  capital  requirement.  The amount of that
deduction is one-half of the  difference  between (a) the  institution's  actual
calculated  exposure to the 200 basis point  interest  rate increase or decrease
(whichever  results  in the  greater  pro  forma  decrease  in NPV)  and (b) its
"normal"  level of  exposure  which is 2% of the  present  value of its  assets.
Savings institutions, however, with less than $300 million in assets and a total
capital ratio in excess of 12%, will be exempt from this requirement  unless the
OTS determines  otherwise.  The OTS has postponed the implementation of the rule
until  further  notice.  Based upon its asset size and capital level at December
31,  1996,  the Bank would  qualify for an  exemption  from this rule;  however,
management  believes  that the Bank would be required  to make a deduction  from
capital if it were subject to this rule.

         The  following  table sets forth,  at December 31, 1996, an analysis of
the  Bank's  interest  rate risk as  measured  by the  estimated  changes in NPV
resulting from  instantaneous  and sustained  parallel shifts in the yield curve
(+/-400 basis  points,  measured in 100 basis point  increments)  as compared to
tolerance limits under the Bank's current policy.

                                                                  Target Limit
                                                                      Under
Change in Interest  Estimated  Ratio of NPV  Estimated Increase  Asset/Liability
      Rates            NPV         to        (Decrease) in NPV     Management
 (Basis Points)      Amount    Total Assets  Amount    Percent       Policy
 --------------      ------    ------------  ------    -------       ------
                       (Dollars in Thousands)

        +400        $27,785       37%       $(5,315)     (16)%        (65)%
        +300         29,043       39         (4,059)     (12)         (50)
        +200         30,401       40         (2,700)      (8)         (35)
        +100         31,824       42         (1,277)      (4)         (15)
         ---         33,101       44            ---       ---          ---
        -100         34,037       45            937        3           13
        -200         34,182       45          1,081        3           26
        -300         34,856       46          1,255        4           40
        -400         34,729       46          1,628        5           50

         Certain  assumptions  utilized in assessing  the interest  rate risk of
thrift  institutions  were  employed in preparing  the  preceding  table.  These
assumptions  relate to interest  rates,  loan  prepayment  rates,  deposit decay
rates,  and the market values of certain assets under the various  interest rate
scenarios.  It was also  assumed  that  delinquency  rates  will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's

                                       14

<PAGE>



assets and liabilities  would perform as set forth above. In addition,  a change
in U.S. Treasury rates in the designated amounts  accompanied by a change in the
shape of the Treasury yield curve would cause significantly different changes to
the NPV than indicated above.

Liquidity and Capital Resources

         The  Bank's  primary  sources  of funds  are  deposits,  proceeds  from
principal and interest payments on loans and mortgage-backed  securities.  While
maturities and scheduled  amortization  of loans and securities are  predictable
sources of funds,  deposit flows and mortgage prepayments are greatly influenced
by general  interest  rates,  economic  conditions  and  competition.  Preferred
Savings  generally  manages the pricing of its  deposits to be  competitive  and
increase core deposit relationships.

         Federal  regulations  require  Preferred  Savings to  maintain  minimum
levels of liquid  assets.  The required  percentage has varied from time to time
based upon  economic  conditions  and savings  flows and is  currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the  preceding  calendar  month.  Liquid assets for purposes of this
ratio include cash, certain time deposits,  U.S.  Government,  government agency
and  corporate  securities  and other  obligations  generally  having  remaining
maturities  of  less  than  five  years.   Preferred  Savings  has  historically
maintained its liquidity  ratio for  regulatory  purposes at levels in excess of
those required.  At December 31, 1996,  Preferred  Savings'  liquidity ratio for
regulatory purposes was 49.2%.

         The Bank's cash flows are comprised of three  primary  classifications:
cash  flows  from  operating  activities,  investing  activities  and  financing
activities.  Cash flows provided by operating  activities  were  $868,000,  $1.2
million and $1.1 million for the years ended  December 31, 1996,  1995 and 1994,
respectively.   Net  cash  from  investing  activities  consisted  primarily  of
disbursements  for  loan  originations  and  the  purchase  of  investments  and
mortgage-backed  securities,  offset by principal collections on loans, proceeds
from  maturation  and  sales  of  securities  and  paydowns  on  mortgage-backed
securities.  Net cash from financing  activities consisted primarily of activity
in deposit and escrow accounts. The net increase (decrease) in deposits was $1.2
million,  $990,000 and  $(1,082,000) for the years ended December 31, 1996, 1995
and 1994, respectively.

         The Bank's most liquid assets are cash and short-term investments.  The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At December 31, 1996, cash and
short-term  investments  totaled  $8.8  million.  The Bank has other  sources of
liquidity if a need for additional funds arises,  including  securities maturing
within one year and the  repayment of loans.  The Bank may also utilize the sale
of securities available-for-sale and Federal Home Loan Bank advances as a source
of funds.

         At December 31, 1996, the Bank had outstanding commitments to originate
loans of $401,000,  all of which had fixed interest rates. These loans are to be
secured by properties  located in its market area. The Bank  anticipates that it
will have  sufficient  funds  available  to meet its current  loan  commitments.
Certificates  of deposit  which are scheduled to mature in one year or less from
December 31, 1996 totaled $17.1 million.  Management believes that a significant
portion of such deposits will remain with the Bank.

                                       15

<PAGE>


         Liquidity  management is both a daily and long-term  responsibility  of
management.  Preferred  Savings  adjusts its  investments in liquid assets based
upon management's  assessment of (i) expected loan demand, (ii) expected deposit
flows,  (iii) yields  available  on  interest-earning  deposits  and  investment
securities,  and (iv) the objectives of its asset/liability  management program.
Excess liquidity is invested  generally in  interest-earning  overnight deposits
and short-and  intermediate-term  U.S.  Government  and agency  obligations  and
mortgage-backed  securities of short  duration.  If Preferred  Savings  requires
funds  beyond  its  ability  to  generate  them  internally,  it has  additional
borrowing capacity with the FHLB of Chicago.

         Preferred Savings is subject to various regulatory capital requirements
imposed by the OTS. At December 31, 1996,  Preferred  Savings was in  compliance
with all applicable capital  requirements on a fully phased-in basis. See Note 8
of the Notes to the Consolidated Financial Statements.

         Preferred   Savings'   principal   sources   of  funds  are   deposits,
amortization  and prepayment of loan principal and  mortgage-backed  securities,
maturities  of  investment  securities  and  operations.  While  scheduled  loan
repayments and maturing  investments are relatively  predictable,  deposit flows
and early loan repayments are more influenced by interest rates, floors and caps
on loan rates,  general economic  conditions and competition.  Preferred Savings
generally  manages the pricing of its  deposits to be  competitive  and increase
core deposit relationships, but has from time to time decided not to pay deposit
rates that are as high as those of its competitors.

         Federal  regulations  require  Preferred  Savings to  maintain  minimum
levels of liquid  assets.  The required  percentage has varied from time to time
based upon  economic  conditions  and savings  flows and is  currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the  preceding  calendar  month.  Liquid assets for purposes of this
ratio include cash, certain time deposits,  U.S.  Government,  government agency
and  corporate  securities  and other  obligations  generally  having  remaining
maturities  of  less  than  five  years.   Preferred  Savings  has  historically
maintained its liquidity  ratio for  regulatory  purposes at levels in excess of
those required.  At December 31, 1996,  Preferred  Savings'  liquidity ratio for
regulatory purposes was 49.2%.

Impact of Inflation and Changing Prices

         The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted  accounting  principles
which require the  measurement  of financial  position and operating  results in
terms  of  historical  dollars  without  considering  changes  in  the  relative
purchasing  power of money over time due to  inflation.  The  primary  impact of
inflation on the  operations  of the Bank is  reflected  in increased  operating
costs.  Unlike  most  industrial  companies,  virtually  all of the  assets  and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates,  generally,  have  a more  significant  impact  on a  financial
institution's performance than does inflation. Interest rates do not necessarily
move in the same  direction  or to the same  extent  as the  prices of goods and
services.


                                       16

<PAGE>


Impact of New Accounting Standards

         In March  1995,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed  Of." SFAS No. 121 requires that
long  lived  assets  and  certain  identifiable   intangibles  be  reviewed  for
impairment whenever events or circumstances indicate that the carrying amount of
an  asset  may not be  recoverable.  However,  SFAS No.  121  does not  apply to
financial  instruments,  core deposit intangibles,  mortgage and other servicing
rights or deferred tax assets. The adoption of SFAS No. 121 in 1996 did not have
a material  impact on the results of  operations  or financial  condition of the
Bank.

         In  May  1995,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 122 ("SFAS No. 122"),  "Accounting for Mortgage Servicing Rights."
SFAS No. 122 requires an institution that purchases or originates mortgage loans
and sells or securitizes  those loans with servicing rights retained to allocate
the cost of the mortgage  loans to the mortgage  servicing  rights and the loans
(without the mortgage  servicing rights) based on their relative fair values. In
addition,  institutions  are required to assess  impairment  of the  capitalized
mortgage servicing  portfolio based on the fair value of those rights.  SFAS No.
122 is effective for fiscal years beginning after December 15, 1995. The Bank is
currently not originating mortgage loans for sale and therefore, the adoption of
this  statement  did not have a material  impact on the results of operations or
financial condition of the Bank. SFAS No. 122 will be superseded by Statement of
Financial Accounting Standards No. 125 after December 31, 1996.

         In November  1995,  the FASB issued  Statement of Financial  Accounting
Standards No. 123 ("SFAS No. 123"),  "Accounting for Stock Based  Compensation,"
("SFAS No. 123"). This statement  establishes  financial accounting standard for
stock-based employee compensation plans. SFAS No. 123 permits the Bank to choose
either a new fair value based  method or the  current  APB Opinion 25  intrinsic
value based method or accounting for its stock-based compensation  arrangements.
SFAS No. 123  requires  pro forma  disclosures  of net earnings and earnings per
share  computed as if the fair value based  method had been applied in financial
statements of companies that continue to follow  current  practice in accounting
for such  arrangements  under Opinion 25. The disclosure  provisions of SFAS No.
123 are effective for fiscal years beginning after December 15, 1995. Any effect
that  this  statement  will  have  on the  Bank  will  be  applicable  upon  the
consummation of the Conversion.

         In  June  1996,  the  Financial  Accounting  Standards  Board  released
Statement  of  Financial   Accounting   Standards  No.  125  ("SFAS  No.  125"),
"Accounting  for Transfers and  Extinguishments  of  Liabilities."  SFAS No. 125
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial  assets and  extinguishments  of liabilities.  SFAS No. 125 requires a
consistent  application  of a  financial-components  approach  that  focuses  on
control.  Under that approach,  after a transfer of financial  assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished.  SFAS No. 125 also
supersedes  SFAS No. 122 and requires that servicing  assets and  liabilities be
subsequently  measured by  amortization  in proportion to and over the period of
estimated  net  servicing  income  or loss and  requires  assessment  for  asset
impairment  or increases  obligation  based on their fair  values.  SFAS No. 125
applies to transfers and  extinguishments  occurring after December 31, 1996 and
early or retroactive application is not permitted.

                                       17

<PAGE>


Management  anticipates  that  the  adoption  of SFAS  No.  125  will not have a
material  impact on the financial  condition or operations of the Bank.  Because
the volume and variety of certain  transactions  will make it difficult for some
entities  to  comply,  some  provisions  have  been  delayed  by SFAS  No.  127.
Management  anticipates  that  the  adoption  of SFAS  No.  125  will not have a
material impact on the financial condition or operations of the Bank.

         In March 1997, the accounting requirements for calculating earnings per
share  were  revised.  Basic  earnings  per  share  for 1997 and  later  will be
calculated  solely on average common shares  outstanding.  Diluted  earnings per
share will  reflect the  potential  dilution of stock  options and other  common
stock  equivalents.  All prior calculations will be restated to be comparable to
the new  methods.  As the  Bank  has not had  significant  dilution  from  stock
options,  the new calculation methods will not significantly affect future basic
earnings per share and diluted earnings per share.


                                       18

<PAGE>



                               PS FINANCIAL, INC.
                                Chicago, Illinois

                        CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994






                                    CONTENTS






REPORT OF INDEPENDENT AUDITORS............................................    1


FINANCIAL STATEMENTS

     CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION.......................    2

     CONSOLIDATED STATEMENTS OF INCOME....................................    3

     CONSOLIDATED STATEMENTS OF CHANGES IN
       STOCKHOLDERS' EQUITY...............................................    4

     CONSOLIDATED STATEMENTS OF CASH FLOWS................................    5

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........................    7



<PAGE>


                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
PS Financial, Inc.
Chicago, Illinois


We have audited the accompanying  consolidated statements of financial condition
of PS Financial,  Inc. and its wholly-owned subsidiaries as of December 31, 1996
and  1995  and  the  related  consolidated  statements  of  income,  changes  in
stockholders'  equity,  and cash flows for each of the three years in the period
ended  December  31,  1996.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of PS Financial,  Inc.
and its wholly-owned  subsidiaries at December 31, 1996 and 1995 and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.



                                        Crowe, Chizek and Company LLP

Oak Brook, Illinois
January 31, 1997




                                                                              1.

<PAGE>

                               PS FINANCIAL, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 1996 and 1995

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                      1996           1995
                                                                      ----           ----
<S>                                                               <C>            <C>
ASSETS
Cash on hand and in banks                                         $   579,271    $   916,175
Interest-bearing deposit accounts in other
  financial institutions                                            8,178,521      2,837,617
                                                                  -----------    -----------
     Total cash and cash equivalents                                8,757,792      3,753,792
Interest-bearing term deposits in other financial
  institutions                                                        248,000        248,000
Securities available-for-sale (Note 2)                             24,080,360      9,738,928
Mortgage-backed securities
  available-for-sale (Note 2)                                       4,702,065      4,220,095
Loans receivable, net (Notes 3 and 4)                              35,943,469     34,525,038
Federal Home Loan Bank stock                                          362,100        341,400
Premises and equipment, net (Note 5)                                  460,840        466,647
Accrued interest receivable                                           476,526        180,960
Other assets                                                          101,722         45,456
                                                                  -----------    -----------
     Total assets                                                 $75,132,874    $53,520,316
                                                                  ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
     Deposits (Note 6)                                            $42,203,144    $41,046,705
     Advances from borrowers for taxes and
       insurance                                                      476,623        459,105
     Deferred income taxes                                            109,456        126,974
     Accrued interest payable and other liabilities                   196,456        163,132
                                                                  -----------    -----------
         Total liabilities                                         42,985,679     41,795,916

Commitments and contingencies (Note 11)

Stockholders' equity
     Common stock $ 0.01 par value per share, 2,500,000 shares
      authorized; 2,182,125 shares issued and outstanding              21,821             --
     Additional paid-in capital                                    21,169,750             --
     Retained earnings, substantially restricted
       (Note 8)                                                    12,669,386     11,666,976
     Unearned ESOP shares (Note 10)                                (1,690,716)            --
     Unrealized appreciation (depreciation) on securities
       available-for-sale, net of income taxes (Note 2)               (23,046)        57,424
                                                                  -----------    -----------
         Total stockholders' equity                                32,147,195     11,724,400
                                                                  -----------    -----------
              Total liabilities and stockholders' equity          $75,132,874    $53,520,316
                                                                  ===========    ===========
</TABLE>

--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements.

                                                                              2.

<PAGE>

                               PS FINANCIAL, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

                                              1996         1995         1994
                                              ----         ----         ----
Interest income
  Loans                                    $3,331,305   $3,156,211   $3,013,874
  Securities                                  780,821      651,687      327,052
  Mortgage-backed securities                  274,649      186,495      171,514
  Other interest-earning assets               276,935      274,084      341,281
                                           ----------   ----------   ----------
    Total interest income                   4,663,710    4,268,477    3,853,721

Interest expense on deposits                1,780,483    1,632,593    1,310,243
                                           ----------   ----------   ----------

Net interest income                         2,883,227    2,635,884    2,543,478

Provision for loan losses (Note 4)             50,000           --       41,722
                                           ----------   ----------   ----------

Net interest income after provision for
  loan losses                               2,833,227    2,635,884    2,501,756

Noninterest income
  Net loss on sale of securities (Note 2)     (37,903)        (218)    (365,331)
  Other                                        69,438       58,343       75,922
                                           ----------   ----------   ----------
    Total noninterest income                   31,535       58,125     (289,409)

Noninterest expense
  Compensation and benefits                   550,323      627,651      428,803
  Occupancy and equipment expense             112,891      106,927      116,493
  Data processing                              47,078       42,800       39,730
  Federal deposit insurance premiums           89,668       92,921       94,366
  SAIF special assessment                     245,241           --           --
  Other operating expenses                    187,809      139,069      158,369
                                           ----------   ----------   ----------
    Total noninterest expense               1,233,010    1,009,368      837,761
                                           ----------   ----------   ----------

Income before income tax provision          1,631,752    1,684,641    1,374,586

Provision for income taxes (Note 9)           629,342      630,110      616,799
                                           ----------   ----------   ----------

Net income                                 $1,002,410   $1,054,531   $  757,787
                                           ==========   ==========   ==========

Earnings per share                              $ .06
                                                =====

--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements.

                                                                              3.

<PAGE>

                               PS FINANCIAL, INC.
            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'EQUITY
                 Years ended December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

<TABLE>
                                                                                          Unrealized
                                                                                             Gain
                                                              Retained                    (Loss) on
                                                Additional    Earnings,      Unearned     Securities       Total
                                     Common      Paid-in    Substantially      ESOP       Available-   Stockholders'
                                     Stock       Capital      Restricted      Shares       for-Sale       Equity
                                     -----       -------      ----------      ------       --------       ------
<S>                                  <C>       <C>           <C>           <C>            <C>           <C>
Balance at January 1, 1994           $    --   $        --   $ 9,854,658   $        --    $(209,932)    $ 9,644,726

Change in unrealized gain
  (loss) on securities available-
  for-sale, net of tax                    --            --            --            --      108,990         108,990

Net income                                --            --       757,787            --           --         757,787
                                     -------   -----------   -----------   -----------    ---------     -----------

Balance at December 31, 1994              --            --    10,612,445            --     (100,942)     10,511,503

Reclassification of securities
  from held-to-maturity to
  available-for-sale, net of tax
  of $12,626 (Note 2)                     --            --            --            --      (19,966)        (19,966)

Change in unrealized gain
  (loss) on securities available-
  for-sale, net of tax                    --            --            --            --      178,332         178,332

Net income                                --            --     1,054,531            --           --       1,054,531
                                     -------   -----------   -----------   -----------    ---------     -----------

Balance at December 31, 1995              --            --    11,666,976            --       57,424      11,724,400

Issuance of common stock,
  net of conversion costs
  of $639,301                         21,821    21,160,128            --    (1,745,700)          --      19,436,249

ESOP shares released                      --         9,622            --        54,984           --          64,606

Change in unrealized gain
  (loss) of securities available-
  for-sale, net of tax of $142,313        --            --            --            --      (80,470)        (80,470)

Net income                                --            --     1,002,410            --           --       1,002,410
                                     -------   -----------   -----------   -----------    ---------     -----------

Balance at December 31, 1996         $21,821   $21,169,750   $12,669,386   $(1,690,716)   $ (23,046)    $32,147,195
                                     =======   ===========   ===========   ===========    =========     ===========
</TABLE>

--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements.

                                                                              4.

<PAGE>

                               PS FINANCIAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                            1996           1995            1994
                                                            ----           ----            ----
<S>                                                     <C>             <C>            <C>
Cash flows from operating activities
  Net income                                            $  1,002,410    $ 1,054,531    $    757,787
  Adjustments to reconcile net income to
    net cash from operating activities
      Depreciation                                            32,784         34,570          34,188
      Amortization of discounts and
        premiums on securities                                22,239         89,163         (29,971)
      Provision for loan losses                               50,000             --          41,722
      Net loss on sale of securities available-
        for-sale                                              37,903            218         365,331
      Stock dividends received on Federal Home
        Loan Bank stock                                           --         (4,700)             --
      ESOP compensation expense                               64,606             --              --
      Change in
        Deferred loan origination fees                       (54,915)         6,292          20,556
        Accrued interest receivable and
          other assets                                      (351,832)        44,653         (69,294)
        Other liabilities and deferred
          income taxes                                        65,126         (6,251)         22,233
                                                        ------------    -----------    ------------
            Net cash provided by operating activities        868,321      1,218,476       1,142,552

Cash flows from investing activities
  Proceeds from sales of securities available-
    for-sale                                                      --      1,018,903      10,889,706
  Proceeds from sale of mortgage-backed
    securities available-for-sale                          1,282,899        814,194              --
  Purchase of Federal Home Loan Bank stock                   (20,700)       (28,100)             --
  Proceeds from sale of Federal Home Loan
    Bank stock                                                    --             --          39,000
  Proceeds from repayments of securities
    held-to-maturity                                              --        238,070         226,271
  Proceeds from repayments of securities
    available-for-sale                                       672,792        238,257         210,905
  Proceeds from maturities of securities
    available-for-sale                                     6,500,000      4,900,000       3,000,000
  Proceeds from maturity of securities
    held-to-maturity                                              --             --         200,000
  Purchase of securities available-for-sale              (21,011,040)    (8,046,167)    (12,312,033)
  Purchase of mortgage-backed securities
    available-for-sale                                    (2,457,985)    (1,939,739)     (4,072,879)
  Net (increase) decrease in interest-bearing
    term deposits in other financial institutions                 --      5,002,818        (579,818)
  Net change in loans                                     (1,413,516)    (1,641,313)     (2,131,081)
  Capital expenditures, net                                  (26,977)       (44,088)        (25,377)
                                                        ------------    -----------    ------------
      Net cash provided by (used in) investing
        activities                                       (16,474,527)       512,835      (4,555,306)
</TABLE>

--------------------------------------------------------------------------------

                                  (Continued)

                                                                              5.

<PAGE>

                               PS FINANCIAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                           1996          1995           1994
                                                           ----          ----           ----
<S>                                                     <C>           <C>            <C>
Cash flows from financing activities
  Net increase (decrease) in deposits                   $ 1,156,439   $   989,496    $(1,082,199)
  Net increase (decrease) in advances from
    borrowers for taxes and insurance                        17,518      (395,696)        49,422
  Net proceeds from stock issuance                       19,436,249            --             --
                                                        -----------   -----------    -----------
      Net cash provided by (used in)
        financing activities                             20,610,206       593,800     (1,032,777)
                                                        -----------   -----------    -----------
Net change in cash and cash equivalents                   5,004,000     2,325,111     (4,445,531)

Cash and cash equivalents, beginning of year              3,753,792     1,428,681      5,874,212
                                                        -----------   -----------    -----------
Cash and cash equivalents, end of year                  $ 8,757,792   $ 3,753,792    $ 1,428,681
                                                        ===========   ===========    ===========
Supplemental disclosures of cash flow information
  Cash paid during the year for
     Interest                                           $ 1,788,739   $ 1,605,763    $ 1,301,692
     Income taxes                                           631,233       640,734        612,000

Supplemental schedule of noncash investing activities
  Transfer of securities from held-to-maturity
    to available-for-sale on December 1, 1995                    --     1,571,423             --
</TABLE>

--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements.

                                                                              6.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of PS  Financial,  Inc.  (the  Company),  its  wholly-owned
subsidiary  Preferred  Savings  Bank  (the  Bank)  and the  Bank's  wholly-owned
subsidiary,  Preferred Service  Corporation,  which engages in limited insurance
activities.  All significant  intercompany  balances and transactions  have been
eliminated.

Business:  The only  business of the Company is the  ownership of the Bank.  The
Bank is a  federally-chartered  stock savings bank. Through its main office, the
Bank offers a variety of financial  services to customers in Chicago,  Illinois.
Financial  services  consist  primarily of consumer loans secured by residential
real estate and savings and certificate of deposit accounts.

Use of Estimates in the Preparation of Financial Statements:  The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
income and expenses  during the reporting  period.  Actual  results could differ
from those  estimates  The  collectibility  of loans,  fair  value of  financial
instruments, and status of contingencies are particularly subject to change.

Allowance  for Loan  Losses:  Because  some loans may not be repaid in full,  an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses  charged to expense.  Estimating  the risk of the
loss and the amount of loss on any loan is necessarily subjective.  Accordingly,
the allowance is maintained  by  management  at a level  considered  adequate to
cover  possible  losses  that  are  currently  anticipated  based  on past  loss
experience,  general economic  conditions,  information  about specific borrower
situations  including their financial  position and collateral values, and other
factors and estimates  which are subject to change over time.  While  management
may  periodically  allocate  portions of the allowance for specific problem loan
situations,  including  impaired loans discussed  below,  the whole allowance is
available for any charge-offs  that occur.  Loans are charged off in whole or in
part when management's estimate of the undiscounted cash flows from the loan are
less than the  recorded  investment  in the loan,  although  collection  efforts
continue and future recoveries may occur.

In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial  Accounting  Standards  (SFAS) No. 114,  "Accounting  by Creditors for
Impairment of a Loan". SFAS No. 114, as modified by SFAS No. 118,  effective for
the Bank beginning  January 1, 1995,  requires the measurement of impaired loans
based on the  present  value of  expected  cash flows  discounted  at the loan's
effective interest rate or, as a practical  expedient,  at the loan's observable
market  price  or the  fair  value  of  collateral  if the  loan  is  collateral
dependent. Under

--------------------------------------------------------------------------------

                                   (Continued)

                                                                              7.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

these  standards,  loans  considered  to be impaired  are reduced to the present
value of  expected  future  cash  flows or to the fair value of  collateral,  by
allocating a portion of the  allowance  for loan losses to such loans.  If these
allocations  cause the  allowance  for loan  losses to  require  increase,  such
increase  is reported as a  provision  for loan  losses.  The effect of adopting
these  Statements  was not  material  to the  Company's  consolidated  financial
position or results of operations during 1996 and 1995.

Smaller  balance  homogeneous  loans are defined as  residential  first mortgage
loans secured by one-to-four-family residences,  residential construction loans,
and share loans and are evaluated  collectively for impairment.  Commercial real
estate loans are evaluated  individually for impairment.  Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment.  In general,  loans  classified as
doubtful or loss are considered  impaired while loans  classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship,  late or insufficient  payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for  consideration  for measurement of
impairment, or nonaccrual, are similar, the measurement considerations differ. A
loan is impaired when the economic  value  estimated to be received is less than
the  value  implied  in the  original  credit  agreement.  A loan is  placed  in
nonaccrual  when  payments  are more  than 90 days past due  unless  the loan is
adequately  collateralized  and in the process of collection.  Although impaired
loan and  nonaccrual  loan  balances are  measured  differently,  impaired  loan
disclosures under SFAS Nos. 114 and 118 are not expected to differ significantly
from nonaccrual and renegotiated loan disclosures.

Interest  Income:  Interest on loans is accrued over the term of the loans based
upon the principal  outstanding.  Management reviews loans delinquent 90 days or
more to determine if the interest accrual should be discontinued. Under SFAS No.
114 as  amended by SFAS No.  118,  the  carrying  values of  impaired  loans are
periodically adjusted to reflect cash payments, revised estimates of future cash
flows,  and  increases  in the present  value of expected  cash flows due to the
passage of time.  Cash  payments  representing  interest  income are reported as
such.  Other cash payments are reported as reductions in carrying  value,  while
increases or decreases due to changes in estimates of future payments and due to
the  passage of time are  reported  as  adjustments  to the  provision  for loan
losses.

Loan Fees: Loan origination fees, net of certain direct loan origination  costs,
are deferred and  recognized  over the  contractual  life of the loan as a yield
adjustment.

Securities:  Securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold those  securities to maturity.  Accordingly,
they are stated at cost,  adjusted for amortization of premiums and accretion of
discounts.  All other securities are classified as available-for-sale  since the
Bank may decide to sell those securities in response to changes in

--------------------------------------------------------------------------------

                                   (Continued)

                                                                              8.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

market  interest  rates,  liquidity  needs,  changes  in yields  or  alternative
investments, and for other reasons. These securities are carried at market value
with unrealized gains and losses charged or credited,  net of income taxes, to a
valuation  allowance included as a separate component of equity.  Realized gains
and  losses  on  disposition  are  based on the net  proceeds  and the  adjusted
carrying  amounts of the  securities  sold,  using the  specific  identification
method.

Premises  and  Equipment:  Premises  and  equipment  are  stated  at  cost  less
accumulated  depreciation.   Depreciation  is  computed  using  principally  the
straight-line method over the estimated useful lives of the assets. The cost and
accumulated  depreciation  of assets  retired  or sold are  eliminated  from the
financial statements, and the gain or loss on disposition is credited or charged
to operations when it is realized.

Income Taxes:  The Company and its subsidiaries  file a consolidated  income tax
return.  The  provision  for  income  taxes is based on an asset  and  liability
approach in  accordance  with SFAS No.  109.  The asset and  liability  approach
requires the recognition of deferred tax liabilities and assets for the expected
future tax  consequences of temporary  differences  between the carrying amounts
and the tax bases of assets and liabilities.

Employee  Stock  Ownership  Plan:  The Company  accounts for its employee  stock
ownership plan (ESOP) in accordance with American  Institute of Certified Public
Accountants (AICPA) Statement of Position 93-6. The cost of shares issued to the
ESOP but not yet allocated to  participants  are  presented in the  consolidated
balance sheet as a reduction of stockholders'  equity.  Compensation  expense is
recorded  based on the market  price of the shares as they are  committed  to be
released for allocation to  participant  accounts.  The  difference  between the
market price and the costs of shares  committed to be released is recorded as an
adjustment to paid-in  capital.  Dividends on allocated ESOP shares are recorded
as a reduction of retained  earnings;  dividends on unallocated  ESOP shares are
reflected as a reduction of debt.

Shares are considered  outstanding  for earnings per share  calculations as they
are committed to be released; unallocated shares are not considered outstanding.

Cash and Cash  Equivalents:  Cash and  cash  equivalents  include  cash on hand,
amounts due from banks,  and federal funds sold. The Bank reports net cash flows
for customer loan transactions, deposit transactions, and time deposits in other
financial institutions.

Earnings Per Common Share:  Earnings per share is calculated by dividing the net
earnings by the weighted average number of common shares  outstanding and common
stock equivalents  attributable to outstanding stock options,  when dilutive. In
1996,  earnings per share is computed using net earnings from November 26, 1996,
the date that the Bank converted to stock ownership. The weighted average number
of the Company's  shares of common stock used to calculate the 1996 earnings per
share was 2,010,304.

--------------------------------------------------------------------------------

                                   (Continued)

                                                                              9.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 2 - SECURITIES

Securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                 December 31, 1996
                                                ---------------------------------------------------
                                                   Gross        Gross
                                                 Amortized    Unrealized   Unrealized      Fair
                                                   Cost         Gains        Losses        Value
                                                   ----         -----        ------        -----
<S>                                            <C>           <C>          <C>          <C>
Securities available-for-sale
  U.S. Treasury securities and
    obligations of U.S. government agencies     $24,132,467    $ 28,151     $(80,258)   $24,080,360
                                                -----------    --------     --------    -----------
Mortgage-backed securities available-for-sale
  Federal Home Loan Mortgage Corporation          2,301,466      11,412       (8,432)     2,304,446
  Federal National Mortgage Association           1,726,046      11,238       (1,493)     1,735,791
  Government National Mortgage Association          659,618       2,210           --        661,828
                                                -----------    --------     --------    -----------
                                                  4,687,130      24,860       (9,925)     4,702,065
                                                -----------    --------     --------    -----------
                                                $28,819,597    $ 53,011     $(90,183)   $28,782,425
                                                ===========    ========     ========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                 December 31, 1995
                                                ---------------------------------------------------
                                                   Gross        Gross
                                                 Amortized    Unrealized   Unrealized      Fair
                                                   Cost         Gains        Losses        Value
                                                   ----         -----        ------        -----
<S>                                             <C>          <C>          <C>          <C>
Securities available-for-sale
  U.S. Treasury securities and
    obligations of U.S. government agencies     $ 9,633,725    $111,766     $ (6,563)   $ 9,738,928
                                                -----------    --------     --------    -----------
Mortgage-backed securities available-for-sale
  Federal Home Loan Mortgage Corporation          1,023,209       4,548           --      1,027,757
  Federal National Mortgage Association           2,445,030       4,935      (23,986)     2,425,979
  Government National Mortgage Association          764,440       1,919           --        766,359
                                                -----------    --------     --------    -----------
                                                  4,232,679      11,402      (23,986)     4,220,095
                                                -----------    --------     --------    -----------
                                                $13,866,404    $123,168     $(30,549)   $13,959,023
                                                ===========    ========     ========    ===========
</TABLE>

The Bank holds $1,500,000 and $1,000,000 of U.S.  government  agency bonds which
are  structured  notes issued by the Federal Home Loan Bank at December 31, 1996
and 1995, respectively.

Sales of securities are summarized as follows:

                                     For the Year Ended December 31,
                                  -------------------------------------
                                     1996         1995         1994
                                     ----         ----         ----
     Proceeds from sales          $1,282,899   $1,833,097   $10,889,706
     Gross realized gains                 --       11,799            --
     Gross realized losses            37,903       12,017       365,331

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             10.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 2 - SECURITIES

On December 1, 1995, the Bank reclassified its only held-to-maturity security as
available-for-sale  in accordance with "A Guide to  Implementation  of Statement
115 on Accounting for Certain  Investments in Debt and Equity  Securities."  The
amortized cost and unrealized loss on the security  transferred  were $1,571,423
and $32,592, respectively.

The amortized cost and estimated market value of debt securities, by contractual
maturity,  are shown  below.  Expected  maturities  may differ from  contractual
maturities  because  borrowers may have the right to call or prepay  obligations
with or without call or prepayment penalties.

                                                  December 31, 1996
                                             ---------------------------
                                              Amortized         Fair
                                                 Cost           Value
                                                 ----           -----
Securities available-for-sale
  Due in less than one year                  $ 8,761,136     $ 8,767,985
  Due after one year through five years       11,972,062      11,928,594
  Due after five years                         3,399,269       3,383,781
                                             -----------     -----------
                                              24,132,467      24,080,360
  Mortgage-backed securities                   4,687,130       4,702,065
                                             -----------     -----------
                                             $28,819,597     $28,782,425
                                             ===========     ===========

NOTE 3 - LOANS RECEIVABLE

Loans receivable consist of the following at:

                                                         December 31,
                                                 ----------------------------
                                                    1996             1995
                                                    ----             ----
First mortgage loans
  Principal balances
    Secured by one-to-four family residences     $26,998,328      $25,858,435
    Secured by other properties                    6,088,322        6,094,352
    Secured by commercial real estate              3,182,716        2,951,752
    Construction loans                               335,830          286,076
                                                 -----------      -----------
                                                  36,605,196       35,190,615

  Less net deferred loan origination fees           (493,122)        (548,037)
                                                 -----------      -----------
    First mortgage loans, net                     36,112,074       34,642,578

Share loans                                           17,395           18,460

Less allowance for loan losses                      (186,000)        (136,000)
                                                 -----------      -----------
                                                 $35,943,469      $34,525,038
                                                 ===========      ===========

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             11.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 3 - LOANS RECEIVABLE

The  principal  balance of loans  greater than 90 days  delinquent on nonaccrual
status at December 31, 1996 and 1995 was  approximately  $282,000 and  $775,000,
respectively.  The  interest  income  that  would have been  recorded  under the
original  terms of such loans  approximated  $23,000  and  $69,000 for the years
ended December 31, 1996 and 1995, respectively.

The Bank did not have any impaired  loans for the years ended  December 31, 1996
or 1995.

The Company has granted  loans to certain bank  officers,  directors,  and other
related interests. Related party loans are made on substantially the same terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions  with  unrelated  persons and do not involve  more than
normal  risk of  collectibility.  All loans  are  current  in their  contractual
payments for both principal and interest.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses is summarized as follows:

                                                   For the Year Ended
                                            .............December 31,..........
                                              1996         1995           1994
                                              ----         ----           ----
Balance, beginning of period .........      $136,000      $136,000      $ 94,278
Provision for loan losses ............        50,000            --        41,722
                                            --------      --------      --------
    Balance, end of period ...........      $186,000      $136,000      $136,000
                                            ========      ========      ========

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment consist of the following at:
                                                     ........December 31,.......
                                                         1996             1995
                                                         ----             ----
Land .......................................          $ 95,052          $ 95,052
Building and improvements ..................           508,557           504,590
Furniture and equipment ....................           307,618           286,563
                                                      --------          --------
    Total cost .............................           911,227           886,205
Accumulated depreciation ...................           450,387           419,558
                                                      --------          --------
                                                      $460,840          $466,647
                                                      ========          ========

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             12.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 6 - DEPOSITS

The aggregate amount of short-term jumbo  certificates of deposit with a minimum
denomination of $100,000 was  approximately  $1,011,000 at December 31, 1996 and
$1,052,000 at December 31, 1995. Deposits greater than $100,000 are not insured.

At December 31, 1996,  scheduled  maturities of  certificates  of deposit are as
follows:

                  1997                           $17,123,625
                  1998                             1,994,209
                  1999                               566,264
                  2000                               253,319
                  Thereafter                         278,424
                                                 -----------
                                                 $20,215,841

NOTE 7 - RETIREMENT BENEFITS

During 1995,  The Board of Directors  authorized  the  termination of the Bank's
defined  benefit  pension  plan  which  covered   substantially  all  full  time
employees.  The termination was effective June 30, 1995, and participants in the
plan became fully vested on that date.  Accordingly,  the Bank recorded a pretax
curtailment loss of $62,715.  The settlement of the vested  accumulated  benefit
obligation by the purchase of annuity  contracts  for, or lump-sum  payments to,
each covered employee was completed during 1996.

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             13.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 7 - RETIREMENT BENEFITS (Continued)

The following  table sets forth the plan's funded status and amounts  recognized
in the Company's  consolidated  statement of financial condition at December 31,
1995.

Actuarial present value of benefit obligations:
    Accumulated benefit obligation
         Vested ...............................................       $(463,184)
         Nonvested ............................................              --
                                                                      ---------
                                                                      $(463,184)
                                                                      =========
Projected benefit obligation ..................................       $(463,184)

Plan assets at fair value, primarily certificates
  of deposit at PS Financial, Inc. and mutual funds ...........         463,184
                                                                        -------

Plan assets in excess of (less than) projected
  benefit obligation ..........................................              --
                                                                      ---------
      Prepaid pension cost ....................................       $      --
                                                                      =========
Net pension cost consists of the following:

                                                             Year Ended
                                                       .......December 31,......
                                                         1995           1994
                                                         ----           ----
Service costs - benefits earned during
  the period ...................................       $ 10,077        $ 17,104
Interest cost on projected benefit
  obligation ...................................         33,118          29,929
Actual return on plan assets ...................        (17,930)        (17,303)
Net amortization and deferral ..................        (10,720)         (7,178)
Curtailment loss ...............................         62,715              --
                                                       --------        --------
                                                       $ 77,260        $ 22,552
                                                       ========        ========

                                                              Year Ended
                                                       .......December 31,......
                                                          1995           1994
                                                          ----           ----
Assumptions used to develop the net periodic
  pension cost were:
   Discount rate .......................................    7.00%       8.00%
   Expected long-term rate of return on assets .........    7.00        6.50
   Rate of increase in compensation levels
     through date of curtailment .......................    4.00        4.00

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             14.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 8 - REGULATORY CAPITAL

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory,  and possibly additional  discretionary,  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting practices.

The Bank's capital  amounts and  classification  are also subject to qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and ratios of Total and Tier I
capital as defined in the regulations to risk-weighted  assets as defined and of
Tier I capital to average  assets as defined.  As of December 31, 1996, the most
recent  notification from the Office of Thrift Supervision  categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be  categorized  as well  capitalized,  the Bank must maintain  minimum Total
risk-based,  Tier  I  risk-based,  and  Tier I  leverage  ratios.  There  are no
conditions  or events since that  notification  that  management  believes  have
changed the institution's category.

At December  31,  1996,  the Bank is  required to have a minimum  Tier 1 capital
(retained    earnings,    excluding    valuation    allowance   on    securities
available-for-sale) ratio to "risk-weighted" assets of 4.00% and a total capital
ratio (retained earnings plus general loan loss allowance,  excluding  valuation
allowance on securities  available-for-sale to "risk-weighted" assets) of 8.00%.
The Bank's actual ratios on December 31, 1996 were 92.15% and 92.92%. The Bank's
leverage ratio (retained  earnings,  excluding valuation allowance on securities
available-for-sale,  as a percent of total average  assets) at December 31, 1996
was 33.53%, compared to minimum required amounts of 4.00% to 5.00%.

Current regulations also require savings institutions to have minimum regulatory
tangible  capital equal to 1.5% of total  assets,  a core capital ratio of 3.0%,
and a risk-based capital ratio equal to 8.0% of risk-adjusted  assets as defined
by regulation.  The following is a summary of regulatory capital at December 31,
1996.

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             15.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 8 - REGULATORY CAPITAL (Continued)
<TABLE>
<CAPTION>

                                                                                % of                         % of
                                                   % of                       Adjusted         Risk-         Risk-
                                    Tangible     Tangible          Core       Tangible         Based       Adjusted
                                     Capital      Assets          Capital      Assets         Capital       Assets
                                     -------      ------          -------      ------         -------       ------
<S>                                <C>             <C>         <C>              <C>         <C>              <C>
Regulatory capital                 $  22,105       32.77%      $   22,105       32.77%      $  22,288        92.91%
Adequacy capital
  requirement                          1,012        1.50            2,023        3.00           1,919         8.00
                                   ---------     -------       ----------     -------       ---------      -------
    Excess over
      regulatory capital           $  21,093       31.27%      $   20,082       29.77%      $  20,369        84.91%
                                   =========     =======       ==========     =======       =========       ======
</TABLE>

Accordingly,  management  considers the capital  requirements  to have been met.
Regulations also include restrictions on loans to one borrower; certain types of
investments and loans; loans to officers, directors, and principal stockholders;
brokered deposits; and transactions with affiliates.

Federal regulations require the Company to comply with a Qualified Thrift Lender
(QTL) test which  requires that 65% of assets be  maintained in  housing-related
finance and other specified  assets. If the QTL is not met, limits are placed on
growth,  branching,  new  investment,   FHLB  advances,  and  dividends  or  the
institution must covert to a commercial bank charter.  Management  considers the
QTL test to have been met.

On May 21, 1996, the Board of Directors of the Bank adopted a Plan of Conversion
to convert from a federal  mutual  savings bank to a federal  stock savings bank
with the  concurrent  formation of a holding  company.  On November 26, 1996 the
Company  sold  2,182,125  shares of common  stock at $10 per share and  received
proceeds  of   $19,436,249   net  of   conversion   expenses  and  ESOP  shares.
Approximately  50% of the gross proceeds were used by the Company to acquire all
of the capital stock of the Bank.

At the time of  conversion,  the Bank  established a  liquidation  account in an
amount  equal to its total net worth as of the  latest  statement  of  financial
condition  appearing  in the final  prospectus.  The balance as of that date was
$12,332,000.  The  liquidation  account  will be  maintained  for the benefit of
eligible  depositors  who continue to maintain  their accounts at the Bank after
the conversion.  The liquidation  account will be reduced annually to the extent
that eligible  depositors  have reduced their  qualifying  deposits.  Subsequent
increases  will  not  restore  an  eligible  account  holder's  interest  in the
liquidation  account.  In the event of a  complete  liquidation,  each  eligible
depositor  will be  entitled  to  receive a  distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for accounts then held.  The  liquidation  account  balance is not available for
payment of dividends.

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             16.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 9 - INCOME TAXES

The provision for income taxes consists of the following:

                                                  For the Year Ended
                                        ...............December 31,.............
                                           1996           1995           1994
                                           ----           ----           ----
Current
     Federal ......................     $ 536,629      $ 582,286      $ 528,090
     State ........................        60,910         90,155         95,347
                                        ---------      ---------      ---------
                                          597,539        672,441        623,437
Deferred ..........................        33,957        (42,331)       (95,393)
Change in valuation allowance .....        (2,154)            --         88,755
                                        ---------      ---------      ---------
                                        $ 629,342      $ 630,110      $ 616,799
                                        =========      =========      =========

The net deferred tax liability included in other liabilities in the accompanying
consolidated statements of financial condition consists of the following at:

                                                      ........December 31,......
                                                         1996            1995
                                                         ----            ----
Gross deferred tax liabilities
     Deferred loan fees ........................      $ (11,789)      $ (33,928)
     Accrual to cash ...........................       (106,887)        (40,098)
     Accumulated depreciation ..................        (60,601)        (56,649)
     FHLB stock dividend .......................        (13,790)        (13,790)
     Net unrealized gain on securities
       available-for-sale ......................             --         (35,195)
                                                      ---------       ---------
                                                       (193,067)       (179,660)

Gross deferred tax assets
     Loan loss reserve .........................         65,091          52,686
     Capital loss carryforward .................        101,071         103,225
     Net unrealized loss on securities
       available-for-sale ......................         14,126              --
     Other .....................................          4,394              --
                                                      ---------       ---------
                                                        184,682         155,911
     Valuation allowance .......................       (101,071)       (103,225)
                                                      ---------       ---------
         Net deferred tax liability ............      $(109,456)      $(126,974)
                                                      =========       =========

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             17.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 9 - INCOME TAXES (Continued)

The income tax  provision  differs from the amounts  determined  by applying the
statutory U.S. federal income tax rate as a result of the following items:

                                                               Year Ended
                                                          ..December 31, 1996...
                                                            Amount       Percent
                                                            ------       -------
Income tax computed at the statutory rate ...........     $ 554,795       34.0%
Deferred tax valuation ..............................        (2,154)      (0.1)
Other ...............................................        36,501        2.2
                                                          ---------       ----
     Total federal income tax .......................       589,142       36.1
State income tax, net of federal tax benefit ........        40,200        2.5
                                                          ---------       ----
                                                          $ 629,342       38.6%
                                                          =========       ====


                                                       Year Ended
                                         ..............December 31,.............
                                                 1995                1994
                                         ------------------- -------------------
                                          Amount     Percent   Amount    Percent
Income tax computed at the
  statutory rate .....................   $572,778      34.0% $ 467,359     34.0%
Deferred tax valuation allowance .....         --      --       88,755      6.5
Other ................................      1,522       0.1        (54)      --
                                         --------    ----    ---------     ----
    Total federal income tax .........    574,300      34.1    556,060     40.5
State income tax, net of
  federal tax benefit ................     55,810       3.3     60,739      4.4
                                         --------    ----    ---------     ----
                                         $630,110      37.4% $ 616,799     44.9%
                                         ========    ====    =========     ====

Under the  Internal  Revenue  Code,  the Bank may,  for tax  purposes,  deduct a
provision for bad debts in excess of such  provisions  recorded in the financial
statements.  Tax  legislation  passed in August  1996 now  requires  all  thrift
institutions  to deduct a  provision  for bad debts  for tax  purposes  based on
actual loss experience and recapture the excess bad debt reserve  accumulated in
the tax years after 1987.  The related  amount of deferred tax  liability  which
must be recaptured is $6,965 and is payable over a six-year period  beginning in
1996. Retained earnings at December 31, 1996 includes approximately  $1,514,000,
consisting  of bad  debt  deductions  accumulated  prior  to  1988,  on which no
provision  for  federal  income  taxes  has been  made.  The  related  amount of
unrecognized deferred tax liability was approximately $587,000.

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             18.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 10 - STOCK-BASED COMPENSATION PLANS

As part of the conversion transaction, the Company established an employee stock
ownership plan (ESOP) for the benefit of substantially  all employees.  The ESOP
borrowed  $1,745,700  from the Company  and used those funds to acquire  174,570
shares of the Company's stock at $10 per share.

Shares issued to the ESOP are allocated to ESOP participants  based on principal
and interest repayments made by the ESOP on the loan from the Company.  The loan
is secured by shares  purchased with the loan proceeds and will be repaid by the
ESOP with funds from the Company's  discretionary  contributions to the ESOP and
earnings  on ESOP  assets.  Principal  payments  are  scheduled  to occur over a
twenty-year period. However, in the event the Company's contributions exceed the
minimum debt service requirements, additional principal payments will be made.

During  1996,  5,498  shares of stock with a fair value of $11.75 per share were
committed to be released,  resulting  in ESOP  compensation  expense of $64,606.
Shares held by the ESOP at December 31, 1996 are as follows:

        Allocated shares ........................         5,498
        Unallocated shares ......................       169,072
                                                        -------
            Total ESOP shares ...................       174,570
                                                        =======
        Fair value of unallocated shares ........    $1,986,596
                                                     ==========

NOTE 11 - FINANCIAL INSTRUMENTS AND COMMITMENTS

The Bank is party to financial  instruments with  off-balance-sheet  risk in the
normal  course of  business  to meet  financing  needs of its  customers.  These
financial  instruments include commitments to fund loans and previously approved
unused  lines of credit.  The  Bank's  exposure  to credit  loss in the event of
nonperformance  by the parties to these financial  instruments is represented by
the contractual amount of the instruments.  The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet  items. At December 31, 1996 and
1995,  these  financial  instruments  consist of  commitments  to extend  credit
totaling $401,250 and $612,000,  respectively. All 1996 commitments had variable
rates of prime plus one and terms up to 30 days.

Since many  commitments  expire  without  being used,  the amount above does not
necessarily represent a future cash commitment.  Collateral may be obtained upon
exercise of a  commitment.  The amount of collateral is determined by management
and may include  residential  real estate.



--------------------------------------------------------------------------------

                                   (Continued)

                                                                             19.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 11 - FINANCIAL  INSTRUMENTS AND COMMITMENTS (Continued)

Interest-bearing  deposit accounts in other financial  institutions  potentially
subject the Bank to  concentrations  of credit risk.  At December 31, 1996,  the
Bank had a deposit  account  at the  Federal  Home Loan Bank of  Chicago  with a
balance totaling approximately $8,735,000. At December 31, 1995, the balance was
approximately $2,838,000.

Other primary  financial  instruments  where  concentrations  of credit risk may
exist are securities  and loans.  Securities are discussed in Note 2. The Bank's
principal  loan  customers are located in Chicago and the  southwest  portion of
Cook  County  including  Cicero and  Berwyn.  Most loans are secured by specific
collateral, including residential and commercial real estate.

The deposits of savings  associations  such as the Bank are presently insured by
the  Savings  Association  Insurance  Fund  (SAIF),  which,  along with the Bank
Insurance  Fund (BIF),  is one of the two insurance  funds  administered  by the
Federal   Deposit   Insurance   Corporation   (FDIC).   Due  to  the  inadequate
capitalization  of the SAIF,  a  recapitalization  plan was  signed  into law on
September 30, 1996 which required a special  assessment of approximately .65% of
all SAIF-insured  deposit  balances as of March 31, 1995. The Bank's  assessment
totaled $150,235, net of taxes.

NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107 defines the fair value of a financial  instrument  as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.

<TABLE>
<CAPTION>

                                              December 31, 1996      December 31, 1995
                                             -------------------   ---------------------
                                              Carrying    Fair      Carrying       Fair
                                                Value     Value       Value        Value
                                                -----     -----       -----        -----
                                                            (In thousands)
Financial Assets
<S>                                          <C>         <C>         <C>         <C>
   Cash on hand and in banks .............   $    579    $    579    $    916    $    916
   Interest-bearing deposits in other
     financial institutions ..............      8,179       8,179       2,838       2,838
   Interest-bearing term deposits in other
     financial institutions ..............        248         248         248         248
   Securities available-for-sale .........     28,782      28,782      13,959      13,959
   Loans receivable, net .................     35,943      36,228      34,525      35,280
   Federal Home Loan Bank stock ..........        362         362         341         341
   Accrued interest receivable ...........        477         477         181         181

Financial Liabilities
   Money market and passbook savings .....    (21,987)    (21,987)    (21,010)    (21,010)
   Certificates of deposits ..............    (20,216)    (20,230)    (20,037)    (20,076)
   Accrued interest payable ..............        (63)        (63)        (72)        (72)
</TABLE>

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             20.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

For purposes of the above,  the following  assumptions  were used. The estimated
fair value for cash,  interest-bearing  deposits  with  financial  institutions,
Federal  Home Loan Bank stock,  accrued  interest  receivable,  money market and
savings  deposits,  and accrued  interest  payable are considered to approximate
their   carrying    values.    The   estimated   fair   value   for   securities
available-for-sale   is  based  on  quoted  market  values  for  the  individual
securities or for equivalent  securities.  The estimated fair value for loans is
based on  estimates  of the rate the Bank  would  charge  for  similar  loans at
December 31, 1996 and 1995, applied for the time period until estimated payment.
The estimated fair value of certificates of deposit is based on estimates of the
rate the Bank would pay on such deposits at December 31, 1996 and 1995,  applied
for the time period until  maturity.  Loan  commitments  are not included in the
table above as their estimated fair value is immaterial.

Other  assets and  liabilities  of the Bank that are not  defined  as  financial
instruments,  such as  property  and  equipment,  are not  included in the above
disclosures.

While  the  above  estimates  are  based on  management's  judgment  of the most
appropriate  factors,  there is no assurance that were the Bank to have disposed
of these items on December  31, 1996 and 1995,  the fair values  would have been
achieved,  because the market value may differ  depending on the  circumstances.
The estimated  fair values at December 31, 1996 and 1995 should not  necessarily
be considered to apply at subsequent dates.


--------------------------------------------------------------------------------

                                   (Continued)

                                                                             21.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed statement of financial condition, statement of
income,  and  statement  of cash flows for PS  Financial,  Inc.  The Company was
formed on November  26, 1996.  Accordingly,  the  statements  of income and cash
flows reflect the period November 26, 1996 through December 31, 1996.

                   CONDENSED STATEMENT OF FINANCIAL CONDITION
                                December 31, 1996


ASSETS
Cash and cash equivalents ......................................   $  2,226,099
Securities available-for-sale ..................................      5,989,000
ESOP loan ......................................................      1,702,058
Investment in bank subsidiary ..................................     22,086,459
Accrued interest receivable and other assets ...................        151,182
                                                                   ------------
                                                                   $ 32,154,798

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities .........................   $      7,603
Stockholders' equity
     Common stock ..............................................         21,821
     Additional paid-in capital ................................     21,169,750
     Retained earnings .........................................     12,669,386
     Unearned ESOP shares ......................................     (1,690,716)
     Unrealized depreciation on securities available-for-sale ..        (23,046)
                                                                   ------------
                                                                   $ 32,154,798
                                                                   ============

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             22.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                      CONDENSED STATEMENT OF INCOME For the
                  period November 26, 1996 to December 31, 1996


Income
  Securities ......................................................     $ 27,604
  ESOP loan .......................................................       11,711
  Interest-bearing deposits with other financial institutions .....       15,935
                                                                        --------
      Total income ................................................       55,250

Other expenses ....................................................        9,611
                                                                           -----
Income before income taxes and equity in
  undistributed earnings of bank subsidiary .......................       45,639

Income taxes ......................................................       18,269
                                                                          ------

Income before equity in undistributed earnings
  of bank subsidiary ..............................................       27,370

Equity in undistributed earnings of bank subsidiary ...............       94,074
                                                                        --------

Net income ........................................................     $121,444
                                                                        ========

--------------------------------------------------------------------------------

                                   (Continued)

                                                                             23.

<PAGE>

                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996, 1995, and 1994

--------------------------------------------------------------------------------

NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                      CONDENSED STATEMENT OF CASH FLOWS For
                the period November 26, 1996 to December 31, 1996

Operating activities
     Net income ................................................   $    121,444
     Adjustments to reconcile net income to net cash
       provided by operating activities
         Amortization of discounts and premiums on securities ..            139
         Equity in undistributed earnings of bank subsidiary ...        (94,074)
         Change in
              Other assets .....................................       (148,480)
              Other liabilities ................................          7,603
                                                                          -----
                  Net cash used in operating activities ........       (113,368)

Investing activities
     Purchase of bank subsidiary stock .........................    (11,144,174)
     Purchase of securities available-for-sale .................     (5,996,250)
                                                                     ----------
         Net cash used in investing activities .................    (17,140,424)

Financing activities
     Net proceeds from sale of common stock ....................     19,436,249
     Payment received on loan to ESOP ..........................         43,642
                                                                         ------
         Net cash provided by financing activities .............     19,479,891
                                                                   ------------

Net change in cash and cash equivalents ........................      2,226,099
Cash and cash equivalents at beginning of period ...............             --
                                                                   ------------
Cash and cash equivalents at end of period .....................   $  2,226,099
                                                                   ============

--------------------------------------------------------------------------------

                                                                             24.



<PAGE>




                               PS FINANCIAL, INC.
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

         The Annual Meeting of Stockholders  will be held on May 28, 1997 at the
main office of PS Financial,  Inc., 4800 South Pulaski Road,  Chicago,  Illinois
60632.

STOCK LISTING

         PS Financial,  Inc. common stock is traded on the National  Association
of Securities Dealers, Inc. National Market under the symbol "PSFI."

PRICE RANGE OF COMMON STOCK

         The per share price range of the common  stock for each  quarter  since
the common stock began trading on November 26, 1996 was as follows:


FISCAL 1996                    HIGH                LOW           DIVIDENDS
-----------                    ----                ---           ---------
Fourth Quarter(1)             $12.50             $11.25           $ ---
-------

(1)  Reflects the period from November 26, 1996 through December 31, 1996.


         The stock price  information  set forth in the table above was provided
by the National  Association of Securities  Dealers,  Inc.  Automated  Quotation
System.  The average of the bid and asked prices of PS  Financial,  Inc.  common
stock on March 25, 1997 was $14.00.

         At March 25, 1997,  there were 2,182,125  shares of PS Financial,  Inc.
common  stock issued and  outstanding  (including  unallocated  ESOP shares).


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