<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the Fiscal Year Ended December 31, 2000

                                       OR

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

    For the transition period from                   to
                                  -------------------  -------------------
    Commission File Number

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

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

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

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


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

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


         Indicate by check mark whether the Registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
         YES [X] NO [ ].

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-K. [X]

         State issuers' revenues for its most recent fiscal year: $8.7 million

         As of March 30, 2001, the Registrant had 1,277,632 shares of Common
Stock issued and outstanding.

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the average of the bid and asked
price of such stock as of March 30, 2001, was $15.2 million. (The exclusion from
such amount of the market value of the shares owned by any person shall not be
deemed an admission by the Registrant that such person is an affiliate of the
Registrant.)

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part II of Form 10-KSB - Portions of the Annual Report to Stockholders
for the fiscal year ended December 31, 2000.
         Part III of Form 10-KSB - Portions of The Proxy Statement for Annual
Meeting of Stockholders to be held in 2001.


<PAGE>

         PART I

Item 1. Description of Business

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

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

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

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

         At December 31, 2000, the Company had total assets of $114.1 million,
deposits of $60.6 million and stockholders' equity of $16.0 million. The
executive offices of the Company are located at 4800 South Pulaski Road,
Chicago, Illinois 60632, and its telephone number at that address is (773)
376-3800.

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

         The Company offers a variety of accounts having a range of interest
rates and terms. The Company's deposits include savings accounts, checking
accounts, money market accounts and certificate accounts with terms of six
months to five years. In general, the Company solicits deposits only in its
primary market area and does not accept brokered deposits.

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

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

Lending Activities
         General. The principal lending activity of the Company is originating
for its portfolio fixed rate mortgage loans secured by one- to four-family
residences located primarily in the Company's market area. To a much lesser
extent, the Company also originates commercial real estate, multi-family and
consumer loans in its market area. At December 31, 2000, the Company's total
loans receivable, net totaled $67.9 million. See "- Originations and Purchases
of Loans".


                                       1
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                            --------------------------------------------------------------------------------------------------------
                                    2000                 1999                  1998                 1997                  1996
                            --------------------------------------------------------------------------------------------------------
                              AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT     AMOUNT    PERCENT     AMOUNT  PERCENT
<S>                            <C>      <C>         <C>       <C>        <C>      <C>          <C>       <C>         <C>       <C>
REAL ESTATE LOANS:                                                    (Dollars in Thousands)
  One- to four-family          $53,661  78.47 %     $56,408   77.55 %    $44,297  77.10 %      $29,129   77.07 %    $26,998  73.72 %
  Multi-Family                   8,763  12.81         9,446   12.99        8,006  13.93          5,636   14.91        6,088  16.62
  Commercial                     5,443   7.96         6,380    8.77        5,135   8.94          2,953    7.81        3,183   8.69
  Home Equity Loans                 49   0.07             -      --            -     --              -      --            -     --
  Construction                     466   0.68           499    0.68            -     --             67    0.18          336   0.92
                                   ---   ----           ---    ----           --    ---             --    ----          ---   ----
    Total  real estate          68,382  99.99        72,733   99.99       57,438  99.97        $37,785   99.97       36,605  99.95
loans

CONSUMER LOANS:
  Deposit Account                    6   0.01             6    0.01           15   0.03             11    0.03           17   0.05
                                     -   ----             -    ----           --   ----             --    ----           --   ----
    Total loans                 68,388 100.00 %      72,739  100.00 %     57,453 100.00 %       37,796  100.00 %     36,622 100.00 %
                                       ======                ======              ======                 ======              ======

LESS:
  Deferred fees and discounts      245                  294                  373                   443                  493
  Allowance for loan losses        281                  266                  258                   186                  186
                                   ---                  ---                  ---                   ---                  ---
    Total loans receivable,
    net                        $67,862              $72,179              $56,822               $37,167              $35,943
                               =======              =======              =======               =======              =======
</TABLE>

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                December 31,
                                    ------------------------------------------------------------------------------------------------
                                            2000                1999                1998                1997                1996
                                    ------------------------------------------------------------------------------------------------
                                     Amount    Percent   Amount    Percent    Amount   Percent   Amount   Percent   Amount  Percent
Fixed Rate Loans:                                                          (Dollars in Thousands)
<S>                                  <C>       <C>       <C>        <C>       <C>       <C>      <C>       <C>      <C>      <C>
Real Estate
  One- to four-family                $53,661   78.47 %   $56,408    77.55 %   $44,297   77.10 %  $29,129   77.07 %  $26,998  73.72 %
  Multi-family                         8,763   12.81       9,446    12.99       8,006   13.93      5,636   14.91      6,088  16.62
  Commercial                           5,443    7.96       6,380     8.77       5,135    8.94      2,953    7.81      3,183   8.69
                                       -----    ----       -----     ----       -----    ----      -----    ----      -----   ----
    Total real estate loans           67,867   99.24      72,234    99.31      57,438   99.97     37,718   99.79     36,269  99.03
Consumer loans                             6    0.01           6     0.01          15    0.03         11    0.03         17   0.05
                                           -    ----           -     ----          --    ----         --    ----         --   ----
    Total fixed-rate loans            67,873   99.25      72,240    99.32      57,453  100.00     37,729   99.82     36,286  99.08

Adjustable-Rate Loans:
  Real estate - construction             466    0.68         499     0.68           -      --         67    0.18        336   0.92
  Home Equity Loans                       49    0.07           -       --           -      --          -      --          -     --
                                          --    ----          --      ---          --     ---         --     ---         --    ---
    Total adjustable-rate loans          515    0.75         499     0.68           -      --         67    0.18        336      0
                                         ---    ----         ---     ----          --     ---         --    ----        ---      -
Total loans                           68,388  100.00 %    72,739   100.00 %    57,453  100.00 %   37,796  100.00 %   36,622  99.08 %
                                              ======               ======              ======             ======            ======

LESS:
  Deferred fees and discounts            245                 294                  373                443                493
  Allowance for loan losses              281                 266                  258                186                186
                                         ---                 ---                  ---                ---                ---
    Total loans receivable, net      $67,862             $72,179              $56,822            $37,167            $35,943
                                     =======             =======              =======            =======            =======

</TABLE>

                                       3
<PAGE>

         The following schedule illustrates the interest rate sensitivity of the
Company's loan portfolio at December 31, 2000. Mortgages which have adjustable
or renegotiable interest rates are shown as maturing in the period during which
the contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                                REAL ESTATE
                            --------------------------------------------------------------------------------------------------------
                                ONE- TO FOUR-FAMILY             MULTI-FAMILY                 COMMERCIAL             CONSTRUCTION
                                             WEIGHTED                     WEIGHTED                   WEIGHTED               WEIGHTED
                                              AVERAGE                     AVERAGE                     AVERAGE                AVERAGE
                                AMOUNT         RATE          AMOUNT         RATE         AMOUNT        RATE       AMOUNT        RATE
                            --------------------------------------------------------------------------------------------------------
        Due During                                                      (DOLLARS IN THOUSANDS)
       Period Ending
       December 31,
----------------------------
<S>                              <C>             <C>          <C>            <C>          <C>          <C>         <C>        <C>
2001                             $210            8.43 %       $114           8.48 %       $206         7.99 %      $466       9.74 %
2002                              223            7.88            -              -            -            -           -          -
2003 and 2004                   1,550            7.90        1,285           8.42          487         8.60           -         --
2005 to 2009                   27,518            7.85        4,724           8.27        3,967         8.73           -         --
2010 to 2024                   24,160            7.70        2,640           8.35          783         8.42           -         --
                               ------                        -----                         ---                       --
                              $53,661            7.78 %     $8,763           8.32 %     $5,443         8.64 %      $466       9.74 %
                              =======                       ======                      ======                     ====
<CAPTION>

                                  CONSUMER                   HOME EQUITY LOANS                   TOTAL
                            --------------------------------------------------------------------------------------
                                             WEIGHTED                     WEIGHTED                    WEIGHTED
                                              AVERAGE                      AVERAGE                     AVERAGE
                                AMOUNT         RATE          AMOUNT         RATE         AMOUNT         RATE
                            --------------------------------------------------------------------------------------
        Due During
       Period Ending
       December 31,
----------------------------
<S>                                <C>           <C>            <C>           <C>         <C>            <C>
2001                               $6            6.00 %         $-              -- %       $1,002         8.89 %
2002                                -              --            -              --            223         7.90
2003 and 2004                       -              --            -              --          3,322         8.20
2005 to 2009                        -              --           49            9.50         36,258         8.00
2010 to 2024                        -              --            -              --         27,583         7.78
                                   --             ---           --             ---         ------         ----
Total                              $6            6.00 %         49            9.50 %      $68,388         7.93 %
                                   ==                           ==                        =======

</TABLE>

         The total amount of loans due after December 31, 2001 which have
predetermined interest rates is $67.3 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is
$86,000.

                                       4
<PAGE>

         Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to 15% of unimpaired
capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At
December 31, 2000, based on the above, the Bank's regulatory loans-to-one
borrower limit was approximately $2.1 million. On the same date, the Bank had no
borrowers with outstanding balances in excess of this amount. As of December 31,
2000, the largest dollar amount outstanding or committed to be lent to one
borrower, or group of related borrowers, was four loans to one borrower totaling
$1.3 million, secured by multi-family real estate. The second largest group of
loans outstanding to one borrower was three loans totaling $746,000 secured by
commercial and one- to four-family real estate. At December 31, 2000, these
loans, except for one $254,000 loan on a single family residence which was two
months delinquent, and one $194,000 loan on a six unit apartment which was one
month delinquent, were performing in accordance with their terms

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

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

         One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Company's lending program is the origination of loans secured by mortgages
on owner-occupied one- to four-family residences. Historically, the Company
focused on fixed rate loans with 15 year terms and 25 year amortization
schedules. In 1999, in an effort to reduce its interest rate risk, the Company
reduced their production of 15 year balloon loans and instead offered 7 year and
10 year terms with 25 year amortization periods. Substantially all of the
Company's one- to four-family residential mortgage originations are secured by
properties located in its market area. All mortgage loans originated by the
Company are retained and serviced by it.

         As of December 31, 2000, $7.9 million or 14.6% of the Company's one- to
four-family residential loan portfolio were secured by properties with two or
more units. At that date, the average outstanding residential loan balance was
approximately $90,000.

         The Company currently offers fixed-rate mortgage loans with maturities
from 15 to 20 years and balloon loans with terms of up to 15 years with 25 year
amortization schedules. Interest rates and fees charged on these fixed-rate
loans are established on a regular basis according to market conditions. See "-
Originations and Purchases of Loans".

         Beginning in the fall of 2000, the Company began offering home equity
lines of credit. These adjustable rate loans are secured by mortgages on
owner-occupied one- to four-family residences and require monthly interest
payments with a balloon payment in seven years.

                                       5
<PAGE>

         The Company also originates a limited number of loans secured by
condominiums located in its market area. Condominium loans are made on
substantially the same terms as one- to four-family loans. At December 31, 2000,
the Company had $5.9 million of condominium loans.

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

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

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

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

         Multi-family and Commercial Real Estate Lending. In recognition of the
many small apartment buildings and businesses in the Company's market area and
in order to increase the interest rate sensitivity and yield of its loan
portfolio and to complement residential lending opportunities, the Company has
originated permanent multi-family and commercial real estate loans. At December
31, 2000, the Company had $5.4 million in commercial real estate loans,
representing 8.0% of the total loan portfolio, and $8.8 million in multi-family
loans, or 12.8% of the Company's total loan portfolio.

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

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

                                       6
<PAGE>

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

         The table below sets forth, by type of security property, the number
and amount of the Company's commercial and multi-family real estate loans at
December 31, 2000. Substantially all of the loans referred to in the table below
are secured by properties located in the Company's market area.

<TABLE>
<CAPTION>

                                                                                        Outstanding               Amount
                                                                     Number of           Principal            Non-Performing
                                                                       Loans              Balance              or of Concern
                                                                 -----------------------------------------------------------------
                                                                                      (Dollars in Thousands)
<S>                                                                        <C>                <C>                      <C>
Commercial Real Estate
          Small business facilities                                        40                 $4,866                   -
          Office Buildings                                                  4                    577                   -
Multi-family                                                               45                  8,763                   -
                                                                           --                  -----                   -
          Total multi-family and commercial real estate loans              89                $14,206                   -
                                                                           ==                =======                   =
</TABLE>

         At December 31, 2000, the Company's largest commercial real estate or
multi-family loan outstanding totaled $555,000 and was secured by a 12 unit
apartment complex located in Darien, Illinois. At December 31, 2000, this loan
was performing according to its contractual terms.

         Multi-family and commercial real estate loans may present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. At December 31, 2000, there were
no multi-family or commercial real estate loans greater than 90 days delinquent.

         Construction Lending. The Company occasionally purchases participation
interests in construction loans to builders or developers for the construction
of small residential or commercial properties. Such properties are generally
located in Illinois. At December 31, 2000, the Company's construction lending
portfolio consisted of a participation interest in a construction loan of
$466,000, or 0.68% of the Company's real estate loan portfolio.

         Consumer Lending. Federally chartered savings institutions may invest
up to 35% of assets in consumer loans (including any investment in investment
grade and commercial paper and corporate debt securities). The Company
originates consumer loans secured by deposit accounts, as well as home equity
loans secured by a second mortgage on residential real estate. At December 31,
2000, consumer loans totaled $55,000, or 0.08% of the Company's total loan
portfolio.

                                       7
<PAGE>

Originations and Purchases of Loans

         Real estate loans are originated by PS Financial's staff through
referrals from existing customers or real estate agents. In order to increase
the size of the loan portfolio, the Company has utilized the services of an area
mortgage broker who receives a fee for each mortgage originated for the Company.
The broker serves the same market area as the Company, and the loans share the
same characteristics as the Company's existing loans. For the year ended
December 31, 2000, the Company originated $3.5 million loans through this
broker.

         The Company's ability to originate loans is dependent upon customer
demand for loans in its market and to a limited extent, various marketing
efforts. Demand is affected by both the local economy and the interest rate
environment. As a result of the Company's Asset Liability strategy to slow the
erosion of the Company's net interest margin by offering loan rates higher than
the general market, loan originations decreased. See "- Market Area". Under
current policy, all loans originated by PS Financial are retained in the
Company's portfolio.

         In the past, the Company has purchased participation interests in
construction loans originated by a local financial institution. All such loans
are secured. At December 31, 2000, the Company had $466,000 of participation
interests in construction loans. The Company intends to continue to purchase
such loans in the future, subject to market conditions.

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

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

<TABLE>
<CAPTION>
                                                                         Year Ended
                                                                        December 31,
                                                           ---------------------------------------
                                                                  2000                1999
                                                           ---------------------------------------
                                                                       (In Thousands)
<S>                                                              <C>                <C>
Originations by type:
         Real estate    - one- to four-family                    $6,558            $21,612
                        - multi-family                              508              2,899
                        - commercial                                423              2,754
         Passbook                                                     -                  -
                                                                     --                 --
             Total loans originated                               7,489             27,265
                                                                  -----             ------
Purchases
         Real estate - construction                                  15                435

Repayments
         Principal repayment                                     11,977             12,233
         (Increase) decrease in other items, net (1)               (156)               110
                                                                   -----               ---
                                                                 ($4,317)          $15,357
                                                                 ========          =======

</TABLE>

Footnotes
---------

(1) Other items consist primarily of deferred fees and the allowance for loan
losses.

                                       8
<PAGE>

Delinquencies and Non-Performing Assets

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

         Other real estate acquired by PS Financial as a result of foreclosure
or by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired by foreclosure or deed in lieu of foreclosure,
it is recorded at the lower of cost or estimated fair value less estimated
selling costs. After acquisition, all costs incurred in maintaining the property
are expensed. Costs relating to the development and improvement of the property,
however, are capitalized. In 2000, four single family residences, which were
acquired through foreclosure in 1999 were sold. The Company had no real estate
acquired as a result of foreclosure during 2000.

                                       9
<PAGE>

         The following table sets forth the Company's loan delinquencies by
type, by amount and by percentage of type at December 31, 2000.

<TABLE>
<CAPTION>
                                                                          Loans Delinquent For:
                                    ------------------------------------------------------------------------------------------------
                                               30-59 Days                       60-89 Days                    90 Days and Over
                                    ------------------------------------------------------------------------------------------------
                                                           Percent                          Percent                        Percent
                                                           of Loan                          of Loan                        of Loan
                                      Number    Amount     Category    Number    Amount    Category    Number     Amount   Category
                                    ------------------------------------------------------------------------------------------------
                                                                          (Dollars in Thousands)
<S>                                         <C>     <C>      <C>              <C>    <C>     <C>         <C>       <C>      <C>
Real estate:
     One- to Four-family                    17      $955     1.78 %           6      $585    1.09 %      5         $643     1.20 %
     Multi-family                            3       545     6.22             2       278    3.17        -            -       --
     Commercial real estate                  -         -       --             -         -      --        -            -       --
     Construction or development             -         -       --             -         -      --        -            -       --
     Consumer                                -         -       --             -         -      --        -            -       --

Consumer                                     -         -       --             -         -      --        -            -       --
                                            --        --                      -        --                -           --      ---
         Total                              20    $1,500     2.19 %           8      $863    1.26 %      5         $643     0.94 %
                                            ==    ======                      =      ====                =         ====
<CAPTION>
                                             Total Delinquent Loans
                                        ----------------------------------
                                                                Percent
                                                                of Loan
                                         Number     Amount     Category
                                        ----------------------------------
<S>                                            <C>    <C>        <C>
Real Estate:
     One- to Four-family                       28     $2,183     4.07 %
     Multi-family                               5        823     9.39
     Commercial real estate                     -          -       --
     Construction or development                -          -       --
     Consumer                                   -          -       --

Consumer                                        -          -       --
                                               --         --
         Total                                 33     $3,006     4.40 %
                                               ==     ======

</TABLE>

                                       10
<PAGE>

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

         On the basis of management's review of its assets, at December 31,
2000, the Company had classified a total of $827,000 of its loans.


                                                         December 31, 2000
                                                         -----------------
                                                          (In Thousands)

Substandard...................................................   $827
Doubtful......................................................    ---
Loss..........................................................    ---
                                                                 ----
     Total....................................................   $827
                                                                 ====

                                       11
<PAGE>

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


                                                             December 31,
                                                     ---------------------------
                                                       2000               1999
                                                        (Dollars in Thousands)
Non-accruing loans over 90 days delinquent:
     One- to four-family                                   $237           $876
     Multi-family                                             -              -
     Commercial real estate                                   -            158
                                                             --            ---
         Total                                              237          1,034
                                                            ---          -----

Accruing loans delinquent more than 90 days                 406            221
Foreclosed assets                                             -            454
                                                             --            ---

Total non-performing assets                                $643         $1,709
                                                           ====         ======
Total as a percentage of total assets                      0.56 %         1.40 %
                                                           ====           ====

         For the year ended December 31, 2000, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $43,000. The amounts that were included in
interest income on such loans were $40,000.

         Other Assets of Concern. In addition to the non-performing assets set
forth in the table above, as of December 31, 2000, there were no loans or other
assets with respect to which known information about the possible credit
problems of the borrowers or the cash flows of the security properties have
caused management to have concerns as to the ability of the borrowers to comply
with present loan repayment terms and which may result in the future inclusion
of such items in the non-performing asset categories.

                                       12
<PAGE>

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


                                                    Year Ended December 31,
                                                --------------------------------
                                                      2000            1999
                                                      (Dollars in Thousands)
Balance at beginning of year                              $266           $258
Charge-offs                                                  -             (7)
Recoveries                                                   -              -
Net charge-offs                                              0             (7)
Additions charged to operations                             15             15
                                                            --             --
Balance at end of year                                    $281           $266
                                                          ====           ====

Ratio of net charge-offs during the year to
average loans outstanding during the year                    - %         0.01 %
                                                             =           ====

Ratio of net charge-offs during the year to
average non-performing assets                                - %         0.01 %
                                                             =           ====

Ratio of allowance for loan losses to total loans         0.41 %         0.37 %
                                                          ====           ====


THE DISTRIBUTION OF THE COMPANY'S ALLOWANCE FOR LOAN LOSSES AT THE DATES
INDICATED IS SUMMARIZED AS FOLLOWS:

<TABLE>
<CAPTION>
                                                           December 31,
                              -----------------------------------------------------------------------
                                             2000                                1999
                              -----------------------------------------------------------------------
                                                       Percent                            Percent
                                                       of Loans                           of Loans
                                           Loan        in Each                Loan        in Each
                               Amount of    Amounts    Category    Amount of   Amounts    Category
                               Loan Loss      by       to Total    Loan Loss     by       to Total
                               Allowance   Category     Loans      Allowance  Category     Loans
                                                          (IN THOUSANDS)
<S>                                    <C>   <C>        <C>               <C>   <C>         <C>
One- to four-family                    $54   $53,661    78.47 %           $56   $56,408     77.55 %
Multi-family                            26     8,763    12.81              28     9,446     12.99
Commercial real estate                  14     5,443     7.97              15     6,380      8.77
Construction                             6       466     0.68               7       499      0.68
Home equity loans                        -        49     0.07               -         -         -
Consumer                                 -         6     0.00               -         6      0.01
Unallocated                            181         -       --             160         -        --
                                       ---        --      ---             ---        --       ---
     Total                            $281   $68,388   100.00 %          $266   $72,739    100.00 %
                                      ====   =======   ======            ====   =======    ======

</TABLE>

                                       13
<PAGE>

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

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

         Investment Activities

         General. PS Financial must maintain minimum levels of investments and
other assets that qualify as liquid assets under OTS regulations. Liquidity may
increase or decrease depending upon the availability of funds and comparative
yields on investments in relation to the return on loans. Historically, PS
Financial has maintained liquid assets at levels significantly above the minimum
requirements imposed by the OTS regulations and above levels believed adequate
to meet the requirements of normal operations, including potential deposit
outflows. At December 31, 2000, the Bank's liquidity ratio for regulatory
purposes was 35.1%.

         Generally, the investment policy of the Bank is to invest funds among
categories of investments and maturities based upon the Company's
asset/liability management policies, investment quality, loan and deposit
volume, liquidity needs and performance objectives. At December 31, 2000, the
Company had no securities which were classified as trading and no securities
classified as held-to-maturity. Available-for-sale securities are reported at
fair value with unrealized gains and losses included, on an after-tax basis, as
a separate component of stockholders' equity. At December 31, 2000, $36.1
million of securities and $4.6 million of mortgage-backed securities were
classified as available-for-sale.

                                       14
<PAGE>

         Securities. In order to supplement loan volume, invest excess
liquidity, and increase holdings of short and medium term assets; the Company
invests in liquid, high-quality investments, such as U.S. Treasury and agency
obligations. At December 31, 2000 and December 31, 1999, the Company's
securities portfolio totaled $36.1 million and $35.6 million, respectively. At
December 31, 2000, the Company did not own any investment securities of a single
issuer which exceeded 10% of stockholders' equity, other than U.S. government
securities and federal agency obligations. See Note 2 of the Notes to the
Consolidated Financial Statements in the Annual Report attached hereto as
Exhibit 13 for additional information regarding the Company's securities
portfolio.

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

<TABLE>
<CAPTION>
                                                                    December 31,
                                                   ------------------------------------------------
                                                             2000                    1999
                                                   ------------------------------------------------
                                                    Carrying      % of      Carrying      % Of
                                                     Value        Total       Value      Total
<S>                                                   <C>        <C>          <C>        <C>
Securities available-for-sale
     U. S. Treasury securities and obligations of
         U. S. government agencies
                                                      $26,500     73.43 %     $25,630    72.10 %
     Municipal securities                               8,577     23.77         8,003    22.51
     Equity securities                                  1,011      2.80         1,917     5.39
                                                        -----      ----         -----     ----
         Total securities                             $36,088    100.00 %     $35,550   100.00 %
                                                      =======    ======       =======   ======

Average remaining life of securities                    10.30 YRS.              11.30 YRS.

Other earning assets:
     Interest-bearing deposits in other financial
         institutions
                                                       $1,161     36.34 %      $2,596    57.40 %
     Federal home loan bank stock                       2,034     63.66         1,927    42.60
                                                        -----     -----         -----    -----
         Total                                         $3,195    100.00 %      $4,523   100.00 %
                                                       ======    ======        ======   ======

</TABLE>

                                       15
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     December 31, 2000
                                  -----------------------------------------------------------------------------------------
                                   Less Than           1 to 5           5 to 10            Over
                                     1 Year            Years             Years           10 Years        Total Securities
                                  -----------------------------------------------------------------------------------------
                                   Amortized Cost    Amortized Cost    Amortized Cost   Amortized Cost    Amortized Cost
                                  -----------------------------------------------------------------------------------------
                                                                (Dollars in Thousands)
<S>                                   <C>              <C>              <C>                <C>               <C>
U.S. government securities and
                                      $-               $2,498           $22,269            $2,065            $26,832
Municipal securities                   -                  250             2,152             6,527              8,929
Equity securities                      -                  598                 -               523              1,121
                                      --                  ---                --               ---              -----
Total investment securities          $ -               $3,346           $24,421            $9,115            $36,882
                                     ===               ======           =======            ======            =======
Weighted average yield                                  6.36%              6.73%             7.22%              6.81 %

</TABLE>

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

         Consistent with its asset/liability management strategy, at December
31, 2000, $4.6 million, or 100.0% of the Company's mortgage-backed securities
have adjustable interest rates. For information regarding the Company's
mortgage-backed securities portfolio, see Note 2 of the Notes to the
Consolidated Financial Statements in the Annual Report attached hereto as
Exhibit 13.

         As of December 31, 2000, all of the mortgage-backed securities owned by
the Company were issued, insured or guaranteed either directly or indirectly by
a federal agency. As a result, the Company did not have any mortgage-backed
securities in excess of 10% of stockholders' equity except for federal agency
obligations.

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

<TABLE>
<CAPTION>
                                                              December 31,
                                             -----------------------------------------------
                                                      2000                    1999
                                             -----------------------------------------------
                                             Carrying      % of      Carrying      % of
                                              Value        Total      Value        Total
                                              -----        -----      -----        -----
                                                         (Dollars in Thousands)
<S>                                             <C>        <C>          <C>        <C>
Mortgage-backed securities available for sale:
GNMA                                            $1,359     29.50 %      $1,825     32.38 %
FNMA                                             2,207     47.90         2,656     47.13
FHLMC                                            1,041     22.60         1,155     20.49
                                                 -----     -----         -----     -----
Total mortgage-backed securities                $4,607    100.00 %      $5,636    100.00 %
                                                ======    ======        ======    ======
</TABLE>

                                       16
<PAGE>

         The following table sets forth the contractual maturities of the
Company's mortgage-backed securities at December 31, 2000.

<TABLE>
<CAPTION>
                                                                                  Due In
                                                       --------------------------------------------------------------
                                                          Less Than         1 to         5 to 10          Over
                                                            1 Year         5 Years        Years         10 Years
                                                       --------------------------------------------------------------
                                                                              (In Thousands)
<S>                                                             <C>           <C>            <C>         <C>
Federal Home Loan Mortgage Corporation                          $-            $-             $-          $1,070
Federal National Mortgage Association                            -             -              -           2,289
Government National Mortgage Association                         -             -              -           1,353
                                                                --            --             --           -----
         Total                                                  $-            $0             $0          $4,712
                                                                ==            ==             ==          ======
</TABLE>

         At December 31, 2000, all mortgage-backed securities had floating or
adjustable rates.

                                       17
<PAGE>

Sources of Funds

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

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

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

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

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

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                          ---------------------------------------------------------
                                                 2000               1999               1998
                                                 ----               ----               ----
                                                           (Dollars in Thousands)
<S>                                             <C>                <C>                <C>
Opening alance                                 $63,983            $55,429            $41,275
Deposits                                         45,187             56,272             45,699
Withdrawals                                     (50,616)           (49,084)           (33,662)
Interest credited                                 2,040              1,366              2,117
                                                  -----              -----              -----
Ending balance                                  $60,594            $63,983            $55,429
                                                =======            =======            =======
Net increase (decrease)                         ($3,389)            $8,554            $14,154
                                                ========            ======            =======
Percent increase (decrease)                       (5.30) %           15.43 %            34.29 %
                                                  ======             =====              =====

</TABLE>

                                       18
<PAGE>

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

<TABLE>
<CAPTION>
                                                           December 31,
                                         -------------------------------------------------
                                                  2000                     1999
                                         -------------------------------------------------
                                                     Percent                  Percent
                                          Amount     of Total     Amount      of Total
                                          ------     --------     ------      --------
                                                      (Dollars in Thousands)
<S>                                        <C>         <C>         <C>          <C>
TRANSACTIONS AND SAVINGS DEPOSITS
---------------------------------
Savings Accounts - 2.50% (1)               $18,161     29.97 %     $18,944      29.61 %
Transaction Accounts  - 0.00% (1)              529      0.87           326       0.51
Money Market Accounts - 3.25% (1)            1,113      1.84         1,141       1.78
                                             -----      ----         -----       ----
Total Non-Certificates                      19,803     32.68        20,411      31.90
                                            ------     -----        ------      -----
Certificates
     4.00 - 5.99%                           15,516     25.61        27,014      42.22
     6.00 - 7.99%                           25,275     41.71        16,558      25.88
                                            ------     -----        ------      -----
Total Certificates                          40,791     67.32        43,572      68.10
                                            ------     -----        ------      -----
Total Deposits                             $60,594    100.00 %     $63,983     100.00 %
                                           =======    ======       =======     ======
</TABLE>

--------------------------
(1)  At December 31, 2000.

                                       19
<PAGE>

         The following table shows rate and maturity information for the
Company's certificates of deposit as of December 31, 2000.

<TABLE>
<CAPTION>
                       Less Than       1 to 2       2 to 3       3 to 4       4 to 5
                         1 Year        Years        Years        Years        Years         Total
                     ---------------------------------------------------------------------------------
                                                  (Dollars in Thousands)
<S>                    <C>             <C>          <C>         <C>           <C>        <C>
4.00 - 4.99%            $6,396          $73          $13         $105            -        $6,587
5.00 - 5.99%             7,236          991          631            -           71         8,929
6.00 - 6.99%            17,470        1,036          279            -          100        18,885
7.00 - 7.99%             5,608          485         $297            -            -         6,390
                         -----          ---         ----            -            -         -----
                       $36,710       $2,585       $1,220         $105         $171       $40,791
                       =======       ======       ======         ====         ====       =======

</TABLE>

         The following table indicates the amount of the Company's certificates
of deposit and other deposits by time remaining until maturity as of December
31, 2000.

<TABLE>
<CAPTION>
                                                                                Maturity
                                                     ---------------------------------------------------------------
                                                                           Over           Over
                                                        3 Months          3 to 6         6 to 12         Over
                                                         or Less          Months         Months        12 Months         Total
                                                         -------          ------         ------        ---------         -----
<S>                                                      <C>              <C>            <C>            <C>            <C>
Certificates of deposit of less than $100,000            $8,521           $9,766         $10,644        $3,681         $32,612
Certificates of deposit of $100,000 or more               2,626            1,857           3,296           400           8,179
                                                          -----            -----           -----           ---           -----
TOTAL CERTIFICATES OF DEPOSIT                           $11,147          $11,623         $13,940        $4,081         $40,791
                                                        =======          =======         =======        ======         =======
</TABLE>

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

                                       20
<PAGE>

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

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

                                                        December 31,
                                             -----------------------------------
                                                    2000              1999
                                             -----------------------------------
                                                   (Dollars in Thousands)

Maximum Balance                                    $38,228          $37,405
Average Balance                                    $36,324          $31,474
Weighted average interest rate for the year           5.90 %           5.58 %


                                       21
<PAGE>

Subsidiary Activities

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

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

                                       22
<PAGE>

REGULATION

General

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

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

Federal Regulation of Savings Associations

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

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

                                       23
<PAGE>

         The Bank's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 2000, the Bank's lending limit under this restriction was $2.1
million. The Bank is in compliance with the loans-to-one-borrower limitation.

Insurance of Accounts and Regulation by the FDIC

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

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

Regulatory Capital Requirements

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

         The capital regulations require tangible capital of at least 1.5% of
adjusted total assets as defined by regulation. At December 31, 2000, the Bank
had tangible capital of $14.3 million, or 12.6% of adjusted total assets, which
is approximately $12.6 million above the minimum requirement of 1.5% of adjusted
total assets in effect on that date.

         The capital standards also require core capital equal to at least 3% to
4% of adjusted total assets, depending on an institution's supervisory rating.
Core capital generally consists of tangible capital plus certain intangible
assets, including a limited amount of purchased credit card relationships. At
December 31, 2000, the Bank had core capital equal to $14.3 million, or 12.6% of
adjusted total assets, which is $9.8 million above the minimum leverage ratio
requirement of 4.0% as in effect on that date.

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

                                       24
<PAGE>

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

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

         On December 31, 2000, the Bank had total capital of $15.6 million
(including $14.3 million in core capital and $1.3 million in qualifying
supplementary capital) and risk-weighted assets of $57.5 million; or total
capital of 27.1% of risk-weighted assets. This amount was $11.3 million above
the 8% requirement in effect on that date.

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

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

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

Limitations on Dividends and Other Capital Distributions

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

Qualified Thrift Lender Test

         All savings institutions, including PS Financial, are required to meet
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings institution to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the savings institution may maintain 60% of its assets in those
assets specified in Section 7701(a)(19) of the Internal Revenue Code. Such
assets primarily consist of residential housing related loans and investments.
At December 31, 2000, the Bank met the test with 83.5% of its portfolio assets
in qualified thrift investments and has always met the test since its
effectiveness.

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within

                                       25
<PAGE>

three years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank. In addition, it must repay
promptly any outstanding FHLB borrowings, which may result in prepayment
penalties. If any association that fails the QTL test is controlled by a holding
company, then within one year after the failure, the holding company must
register as a bank holding company and become subject to all restrictions on
bank holding companies. See "- Holding Company Regulation."

Community Reinvestment Act

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

Holding Company Regulation

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

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

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

Federal Securities Law

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

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

Federal Home Loan Bank System

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


                                       26
<PAGE>

         As a member, PS Financial is required to purchase and maintain stock in
the FHLB of Chicago. At December 31, 2000, PS Financial had $2.0 million in FHLB
stock, which was in compliance with this requirement. Dividends on the FHLB
stock were 7.48% for 2000.

Federal and State Taxation

         Savings associations such as the Bank are permitted to establish
reserves for bad debts using an experience method and to make annual additions
which may, within specified formula limits, be taken as a deduction in computing
taxable income for federal income tax purposes. Under the experience method, the
bad debt reserve deduction is an amount determined under a formula based
generally upon the bad debts actually sustained by the savings association over
a period of years.

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

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

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

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

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

Competition

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

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

                                       27
<PAGE>

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

         The following information as to the business experience during the last
five years is supplied with respect to executive officers who are not directors
of the Company's or the Bank's Board of Directors.

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

         At December 31, 2000, the Company had a total of 15 full-time and 4
part-time employees. None of the Company's employees are represented by any
collective bargaining agreement. Management considers its employee relations to
be good.

Certain Supplemental Financial Information

         The Company's dividend payout ratio was 67.45% for the year ended 2000
and 53.47% for the year ended 1999. The Company's return on average assets was
1.04% for the year ended 2000, compared to 1.44% for the year ended 1999. Return
on equity was 7.75% for 2000, compared to 8.10% for 1999. Average equity to
average assets was 13.36% for the year ended 2000, compared to 17.76% for the
year ended 1999.

                                       28
<PAGE>

Item 2. Properties

         PS Financial conducts its business at its stand-alone office located at
4800 South Pulaski Road, Chicago, Illinois. The Company's 5,000 square foot
office was acquired in 1980 and had a net book value of $256,000 at December 31,
2000. At December 31, 2000, the total net book value of PS Financial's premises
and equipment (including land, building and leasehold improvements, and
furniture, fixtures and equipment) was approximately $494,000. The Company
believes that its current facilities are adequate to meet the present and
foreseeable future needs of the Bank and the Company.

         The Company's depositor and borrower customer files are maintained by
an independent data processing company. The net book value of the data
processing and computer equipment utilized by the Company at December 31, 2000
was approximately $45,000.

Item 3. Legal Proceedings

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

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

         No matter was submitted to a vote of Security holders, through the
solicitation of proxies or otherwise during the quarter ended December 31, 2000.

                                       29
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

      Page 44 of the Company's 2000 Annual Report to stockholders attached
hereto as Exhibit 13 is herein incorporated by reference.

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

         Pages 5 through 17 of the Company's 2000 Annual Report to stockholders
attached hereto as Exhibit 13 is herein incorporated by reference.

Item 7. Financial Statements

         The following information appearing in the Company's Annual Report to
Stockholders for the year ended December 31, 2000, is incorporated by reference
in this Annual Report on Form 10-KSB as Exhibit 13.

<TABLE>
<CAPTION>
                                                                                                              Pages in
ANNUAL REPORT SECTION                                                                                       ANNUAL REPORT
---------------------                                                                                       -------------
<S>                                                                                                              <C>
Selected Consolidated Financial Information                                                                      2-4
Management's Discussion and Analysis of Financial                                                               5-17
  Condition and Results of Operations
Report of Independent Auditors                                                                                    18
Consolidated Statements of Financial Condition as of December 31,                                                 19
  2000 and 1999
Consolidated Statements of Income for the Years                                                                   20
  Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders'                                                                       21-22
  Equity for the Years Ended December 31, 2000,
  1999 and 1998
Consolidated Statements of Cash Flows for the                                                                  23-24
  Years Ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements                                                                     25-44

</TABLE>

         With the exception of the aforementioned information, the Company's
Annual Report to Stockholders for the year ended December 31, 2000, is not
deemed filed as part of this Annual Report on Form 10-KSB.

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

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


                                       30
<PAGE>

                                    PART III

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

Directors

         Information concerning directors of the Company is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders for the fiscal year ended December 31, 2000, a copy of
which will be filed not later than 120 days after the close of the fiscal year.

Executive Officers

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

Item 10. Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the fiscal year
ended December 31, 2000, a copy of which will be filed not later than 120 days
after the close of the fiscal year.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy Statement for the fiscal year ended December 31, 2000, a copy of which
will be filed not later than 120 days after the close of the fiscal year.

Item 12. Certain Relationships and Related Transactions

         Information concerning certain relationships and related transactions
is incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders for the fiscal year ended
December 31, 2000, a copy of which will be filed not later than 120 days after
the close of the fiscal year.

                                       31
<PAGE>

                                     PART IV

Item 14. Exhibits and Reports on Form 8-K

(a)      Exhibits

<TABLE>
<CAPTION>
                                                                                                                  Reference to
       Regulation                                                                                               Prior Filing or
      S-K Exhibit                                                                                                Exhibit Number
         Number                                              Document                                           Attached Hereto
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                                                                          <C>
            2            Plan of acquisition, reorganization, arrangement,                                            None
                         liquidation or succession

          3 (i)          Articles of Incorporation                                                                     *

          3(ii)          By-Laws                                                                                       *

            4            Instruments defining the rights of security holders,                                          *
                         including debentures

            9            Voting Trust Agreement                                                                       None

           10            Material contracts                                                                           None

          10.1           Employment agreement with Kimberly P. Rooney                                                  *

          10.2           Change-in-control severance agreements with certain executive officers                        *

          10.3           Stock Option and Incentive Plan                                                               *

          10.4           Recognition and Retention Plan                                                                *

           11            Statement regarding computation of per share                                                 None
                         earnings

           13            Annual Report to Security Holders                                                             13

           16            Letter regarding change in certifying accountants                                            None

           18            Letter regarding change in accounting principles                                             None

           21            Subsidiaries of Registrant                                                                    21

           22            Published report regarding matters submitted to vote                                         None
                         of security holders

           23            Consents of Experts and Counsel                                                              None

           24            Power of Attorney                                                                            None

           28            Information from reports furnished to state insurance regulatory authorities                 None

           99            Additional Exhibits                                                                          None

</TABLE>

Footnotes
---------

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

                                       32
<PAGE>

                                   EXHIBIT 21



                         SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
                                                                                                          State of
                                                                              Percentage of             Incorporation
       Parent                             Subsidiary                            Ownership              or Organization
---------------------    ----------------------------------------------    ---------------------   ------------------------

<S>                      <C>                                                       <C>                     <C>
PS Financial, Inc.       Preferred Savings Bank                                    100%                    Federal

</TABLE>

                                       33
<PAGE>

                                   SIGNATURES

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

                                               PS FINANCIAL, INC.
Date:     March 30, 2001                    By: Kimberly P. Rooney
          ----------------------                --------------------------------
                                                Kimberly P. Rooney (Duly
                                                Authorized Representative)

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

<TABLE>
<CAPTION>

<S>       <C>                                                                  <C>
By:       Kimberly P. Rooney                                                   By: S. J. Ptak
          --------------------------------------------------------                 -------------------------------------------------
          Kimberly P. Rooney, President,                                           S. J. Ptak, Chairman of the Board
            Chief Executive Officer and
            Director (Principal Executive
            and Operating Officer)
Date:     March 30, 2001                                                     Date: March 30, 2001
          ------------------------                                                 ------------------------

By:       Edward Wolak                                                         By: L. G. Ptak
          --------------------------------------------------------                 -------------------------------------------------
          Edward Wolak, Director                                                   L.G. Ptak, Director and Secretary
Date:     March 30, 2001                                                     Date: March 30, 2001
          ------------------------                                                 ------------------------

By:       Paul J. Duggan                                                       By: By: Jeanine M. McInerney
          --------------------------------------------------------                 -------------------------------------------------
          Paul J. Duggan Director                                                  Jeanine M. McInerney, Director
Date:     March 30, 2001                                                     Date: March 30, 2001
          ------------------------                                                 ------------------------

By:       Jeffrey Przybyl
          --------------------------------------------------------
          Jeffrey Przybyl, Treasurer and
            Chief Financial Officer (Principal
            Financial and Accounting Officer)
Date:     March 30, 2001
          ------------------------
</TABLE>


                                       34