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                                TABLE OF CONTENTS
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President's Message                                                          1
Selected Consolidated Financial Information                                  2
Management's Discussion and Analysis of
      Financial Condition and Results of Operations                          5
Report of Independent Auditors                                              19
Consolidated Financial Statements                                           20
Stockholder Information                                                     46




















                                        I

<PAGE>

--------------------------------------------------------------------------------
                               PRESIDENT'S MESSAGE
--------------------------------------------------------------------------------


<PAGE>

                                                                  March 31, 1999

To Our Fellow Stockholders:

         On behalf of your  Directors,  Officers and  Employees of PS Financial,
Inc., and its wholly owned subsidiary,  Preferred Savings Bank FSB, I am pleased
to present to our stockholders our fourth annual report as a public corporation.

         PS  Financial,  Inc.  enjoyed a successful  1999 with  earnings of $1.6
million.  Diluted earnings per share increased 23.2% over 1998 and an average of
50.7%  annually since 1997. One of our goals for 1999 was to increase our return
on equity. We are pleased to report that our return on equity for 1999 was 8.1%,
compared to 6.7% for 1998,  an increase of 20.9%.  Since 1997,  return on equity
has  increased at an average  annual rate of 73.2%.  In addition,  our return on
average assets for 1999 was 1.44%,  while our efficiency ratio was 41.86%.  Both
of these ratios are near the top of industry peer group standards.

         Since the conversion,  the Company has been focusing on ways to enhance
shareholder value,  including the payment of cash dividends and the continuation
of a stock  repurchase  program.  In 1999, PS Financial,  Inc.  continued to pay
quarterly  dividends.  The first two  dividends  of $0.13 per share were paid in
February  and May and  dividends  of $0.14  per share  were  paid in August  and
November.  The company  completed two share repurchases in 1999. In all, 151,544
shares were repurchased during 1999. In view of the price level of the Company's
common stock and the strong capital position of the Bank,  subject to regulatory
limitations,  the Board of Directors believes the stock repurchase program to be
in the best  interests of the Company as we continue to work on  leveraging  our
capital.

         The Company is pleased to report the positive direction our institution
has  taken  over  the  past  year  in  nearly  every  phase  of  our  operation.
Specifically,  our loan  portfolio  grew  from  $56.8  million  in 1998 to $72.2
million in 1999,  a 27.1%  increase.  During  the same  period,  deposit  growth
reflected an $8.6 million, or 15.5%, increase.  Since 1997, our loan and deposit
portfolios have grown at an average annual rate of 39.9% and 24.8% respectively.

         As a way to increase the scope and variety of the products and services
our Company can offer, PS Financial,  Inc.  converted to a new data processor in
February  of l999.  In 1999,  we  installed  our first ATM  machine.  One of the
exciting  new  changes we will be  instituting  in the first half of 2000 is the
introduction of telephone banking.

         Year 2000 continues to offer many challenges and  opportunities  for PS
Financial,  Inc.  Customer  service  remains  our  top  priority.  We can  still
effectively  compete  against  our  larger  regional  competitors  by  enhancing
existing customer relationships and building new ones. Furthermore,  the size of
the Bank and our  knowledge  of our  market  area  allow us to react  quickly to
changing customer needs. The Company continues its significant growth due to the
dedication and competency of its directors,  officers and staff, whom we wish to
thank.

         Our  plans for the  future  will  emphasize  continued  enhancement  of
stockholder  value.  The management and directors of PS Financial,  Inc.  remain
committed to ensure that your  investment  in the Company will  continue to be a
sound one.

                                                     Sincerely,

                                                     /s/ Kimberly P. Rooney

                                                     Kimberly P Rooney
                                                     President

<PAGE>

                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

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

                                                 December 31,
                                   -------------------------------------------
                                      1999    1998      1997    1996     1995
                                   -------- --------  -------  ------- -------
                                                  (In Thousands)
Selected Financial Condition Data:
----------------------------------
Total assets                       $121,356 $102,784  $87,922  $75,133 $53,520
Cash and cash equivalents             3,305    4,237    6,290    8,758   3,754
Loans receivable, net (1):           72,179   56,822   37,167   35,943  34,525
Mortgage-backed securities -
     available for sale               5,636   11,354    8,095    4,702   4,220
Securities - available for sale      35,550   27,596   33,459   24,080   9,739
Deposits                             63,983   55,429   41,275   42,203  41,047
FHLB advances                        37,405   23,764   13,750       --      --
Total stockholders' equity           18,872   21,026   23,109   32,147  11,724

                                              Year ended December 31,
                                      ---------------------------------------
                                       1999     1998    1997    1996    1995
                                      ------  ------  ------  ------   ------
                                                  (In Thousands)
Selected Operations Data:
-------------------------
Total interest income                 $8,005  $6,757  $6,062  $4,664   $4,268
Total interest expense                 4,181   3,101   2,084   1,781    1,632
                                      ------  ------  ------  ------   ------
   Net interest income                 3,824   3,656   3,978   2,883    2,636
Provision for loan losses(1)              15      80      --      50       --
                                          --      --      --      --       --
Net interest income after provision
     for loan losses                   3,809   3,576   3,978   2,833    2,636
Fees and service charges                  89      94      77      69       58
Gain (loss) on sales of securities       (86)     43      --     (38)      --
                                      ------  ------  ------  ------   ------
Total non-interest income                  3     137      77      31       58
Total non-interest expense             1,602   1,489   2,187   1,233    1,009
                                      ------  ------  ------  ------   ------
Income before taxes                    2,210   2,224   1,868   1,631    1,685
Income tax provision                     606     724     947     629      630
                                      ------  ------  ------  ------   ------
Net income                            $1,604  $1,500  $  921  $1,002   $1,055
                                      ======  ======  ======  ======   ======

Basic earnings per share              $1.01    $0.83    $0.47 $0.06(2)   NA
Diluted earnings per share            $1.01    $0.82    $0.46 $0.06(2)   NA

                                       2

(1)      The allowance for loan losses at December 31, 1999,  1998,  1997,  1996
         and 1995 was  $266,000,  $258,000,  $186,000,  $186,000  and  $136,000,
         respectively.
(2)      From date of initial public offering, November 26, 1996.

<PAGE>
<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                        --------------------------------------------
                                                                        1999     1998       1997      1996      1995
                                                                        ----     ----       ----      ----      ----
<S>                                                                    <C>      <C>       <C>       <C>        <C>
Selected Financial Ratios and Other Data:
----------------------------------------
Performance Ratios:
Return on assets (ratio of net income to average total assets)          1.44%     1.66%     1.12%     1.71%      1.99%
Return on equity (ratio of net income to average total equity)          8.10      6.69      2.97      6.55       9.42
Interest rate spread information:
Average during year                                                     2.68      2.95      3.23      3.89       4.26
End of year                                                             2.51      2.74      2.92      3.30       3.71
Net interest margin (1)                                                 3.52      4.14      5.01      5.03       5.13
Efficiency Ratio (2)                                                   41.86     39.25     53.92     42.30      37.45
Ratio of operating expense to average total assets                      1.44      1.65      2.67      2.10       1.91
Ratio of average interest-earning assets to average interest-bearing  121.80    135.19    167.82    136.86     127.21
     liabilities

Quality Ratios:
Non-performing assets to total assets at end of year                    1.40      1.11      0.97      0.37       1.45
Allowance for loan losses to non-performing loans                      21.06     26.71     20.84     65.96      17.55
Allowance for loan losses to total loans                                0.37      0.45      0.50      0.51       0.39

Capital Ratios:
Equity to total assets at end of year                                  15.55     20.45     26.28     42.79      21.91
Average equity to average assets                                       17.76     24.84     37.94     26.06      21.18

Regulatory Capital Ratios: (3)
Total capital                                                             --        --        --        --      59.05
Tier 1 capital                                                            --        --        --        --      58.37
Leverage ratio                                                            --        --        --        --      22.19
Tangible capital                                                       11.80     15.40     25.86     32.77         --
Core capital                                                           11.80     15.40     25.86     32.77         --
Risk-based capital                                                     24.80     31.40     65.39     92.91         --

<FN>

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

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

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

                                       3
<PAGE>

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

General

         PS Financial,  Inc.  (the  "Company")  is a Delaware  corporation.  The
Company is a savings  and loan  holding  company  which has as its wholly  owned
subsidiary,  Preferred Savings Bank.  Financial and other information  presented
herein after  November 26, 1996, the date of the Company's  public  offering and
the date the  Company  became  the  holding  company  of the  Bank,  relates  to
consolidated  information  of the  Company  and the  Bank.  Financial  and other
information prior to November 26, 1996, relates only to the Bank.

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

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

Comparison of Financial Condition at December 31, 1999 and December 31, 1998

         Total  assets at  December  31, 1999 were  $121.4  million  compared to
$102.8  million at December 31, 1998,  an increase of $18.6  million,  or 18.1%.
Increases   in  the   loan   portfolio   of   $15.4   million   and   securities
available-for-sale  of $8.0 million were the largest  components of the increase
in total assets.  These increases were primarily funded by increases in advances
from the Federal Home Loan Bank of $13.6 million and deposits of $8.6 million.

         In order to increase  the size of the loan  portfolio,  the Company has
utilized  the  services of a local  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.  During 1999 and 1998, the Company  originated $16.8 million and
$17.9  million of loans  through this  broker.  Because all of these loans carry
fixed interest rates, the Company's interest rate risk has increased as a result
of the purchases.  See  "Quantitative  and Qualitative  Disclosures About Market
Risk."

         Total  liabilities at December 31, 1999 were $102.5 million compared to
$81.8  million at December 31,  1998,  an increase of $20.7  million,  or 25.3%.
Total deposits increased by $8.6 million, or 15.4%, to $64.0 million at December
31, 1999 from $55.4 million at December 31, 1998. The increase in total deposits
was due to an increase in time deposits as a result of the Company continuing to
use marketing  resources to attract new deposit  customers.  Total advances from
the Federal Home Loan Bank  increased to $37.4 million at December 31, 1999 from
$23.8 million at December 31, 1998, to provide for additional  liquidity to help
fund the increase in the loan portfolio.

                                       4

<PAGE>

         Total equity at December 31, 1999 was $18.9  million  compared to $21.0
million at December 31, 1998, a decrease of $2.1  million,  or 10%. The decrease
in total  equity was a result of the  repurchase  of 151,544  shares of treasury
stock for $1.7 million, regular dividends of $883,000, or $0.54 per share, and a
change in  unrealized  loss on  securities  available-for-sale  of $1.5 million,
offset by net income of $1.6 million for the year ending December 31, 1999.

Results of Operations

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

Comparison  of  Operating  Results  for the Years  Ended  December  31, 1999 and
December 31, 1998

         General.  Net  income  for the year ended  December  31,  1999 was $1.6
million  compared  to $1.5  million for the year ended  December  31,  1998,  an
increase of $104,000, or 6.9%.

         Interest  Income.  Interest income for the year ended December 31, 1999
was $8.0 million  compared to $6.8 million for the year ended December 31, 1998,
an increase of $1.2 million,  or 17.6%.  The increase in interest income was the
result of an  increase  in the  average  balance of  interest-earning  assets to
$108.7  million for the year ended  December 31, 1999  compared to $88.8 million
for the year ended  December  31,  1998,  primarily  due to an  increase  in the
average balance of net loans receivable and securities  available-for-sale.  The
increase in  interest-earning  assets was partially  offset by a decrease in the
yield on interest-earning assets. The yield on interest-earning assets decreased
25 basis points to 7.36% for the year ended  December 31, 1999 compared to 7.61%
for the year ended  December 31,  1998.  The  decrease  was  primarily  due to a
decrease in the yield on net loans  receivable of 48 basis points and a decrease
in the yield on securities  available-for-sale  of 39 basis points. The decrease
in the  yield  on  loans  and  securities  is  reflective  of the  current  rate
environment.

         Interest Expense. Interest expense for the year ended December 31, 1999
was $4.2 million  compared to $3.1 million for the year ended December 31, 1998,
an increase of $1.1 million,  or 35.5%.  The increase in interest  expense was a
result of an increase in average  interest-bearing  liabilities to $89.3 million
for the year ended  December  31, 1999  compared  to $65.4  million for the year
ended December 31, 1998. The increase in interest-bearing liabilities was offset
partially by a decrease in the average cost of funds to 4.68% for the year ended
December 31, 1999  compared to 4.74% for the year ended  December 31, 1998.  The
decrease in the average  cost of funds was  primarily  the result of the Company
replacing  specific  advances  from the  Federal  Home Loan Bank with lower cost
advances in the current  year,  in  addition  to a decrease  in  certificate  of
deposit rates offered to customers.

         Net Interest  Income.  Net interest  income for the year ended December
31, 1999 was $3.8 million  compared to $3.7 million for the year ended  December
31, 1998,  an increase of $168,000,  or 4.6%.  Although the Company  reduced the
average cost of funds by replacing  specific advances from the Federal Home Loan
Bank with lower cost  advances,  the net interest  spread  decreased by 19 basis
points as the average yield on  interest-earning  assets decreased more than the
average  cost  of  interest-bearing  liabilities.  The  slight  increase  in net
interest  income was a result of the increase in the volume of  interest-earning
assets and interest-bearing liabilities.

                                       5

<PAGE>

         Provision for Loan Losses. The Company recorded a $15,000 provision for
loan  losses  for the year  ended  December  31,  1999  compared  to an  $80,000
provision for the year ended  December 31, 1998. The amount of the provision and
allowance  for  estimated  losses on loans is  influenced  by  current  economic
conditions,  actual loss experience,  industry trends and other factors, such as
adverse economic  conditions in the Company's market area. In addition,  various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review the Company's allowance for estimated losses on loans. Such
agencies  may require the Company to provide  additions to the  allowance  based
upon judgments  which differ from those of  management.  The loan loss provision
for the year ended December 31, 1999 is indicative of management's assessment of
the adequacy of the  allowance  for loan losses,  given the trends in historical
loss experience of the portfolio and current economic conditions, as well as the
fact that the  majority  of loans are  single-family  residential  loans and the
loan-to-values  are generally less than 80%.  Although  management uses the best
information available and maintains the Company's allowance for loan losses at a
level it believes  adequate to provide for  losses,  future  adjustments  to the
allowance  may be necessary  due to economic,  operating,  regulatory  and other
conditions that may be beyond the Company's control.

         Noninterest Income.  Noninterest income for the year ended December 31,
1999 was $3,000  compared to $137,000  for the year ended  December  31, 1998, a
decrease of $134,000. The decrease was primarily a result of net losses on sales
of  securities  of $86,000 for the year ended  December 31, 1999 compared to net
gains of $43,000 for the year ended December 31, 1998.

         Noninterest Expense.  Noninterest expense was $1.6 million for the year
ended December 31, 1999 compared to $1.5 million for the year ended December 31,
1998,  an increase of $113,000,  or 7.5%.  The increase was primarily due to the
increase in data processing  expense of $62,000.  The additional data processing
expense for the year ended  December 31, 1999 was due to the Company  converting
to a new data processor in February 1999. The system conversion was done as part
of the Company's preparation for year 2000 computer issues.

         Income Tax Expense. The provision for income taxes totaled $606,000 for
the year  ended  December  31,  1999  compared  to  $724,000  for the year ended
December 31, 1998.  The decrease was a result of an increase in interest  income
from municipal securities, which are exempt for federal tax purposes.

Comparison  of  Operating  Results  for the Years  Ended  December  31, 1998 and
December 31, 1997

         General.  Net  income  for the year ended  December  31,  1998 was $1.5
million, an increase of $579,000,  or 62.9%, from net income of $921,000 for the
year ended December 31, 1997. The increase was primarily a result of the absence
of additional  ESOP expense of $981,000 due to the  declaration of the $4.00 per
share  special  dividend  which  resulted  in a paydown of the ESOP debt and the
release of additional  shares to participants in 1997. Also  contributing to the
increase  in net  income  was an  increase  of  $43,000  in  gains  on  sale  of
securities.  This was  partially  offset  by an  increase  in  compensation  and
benefits of $303,000  due to a full year of RRP  expenses  and a decrease in net
interest income of $322,000 due to a reduction in the ratio of average  interest
earning  assets to  average  interest  bearing  liabilities  resulting  from the
payment of the special dividend.

         Interest  Income.  Interest income for the year ended December 31, 1998
was $6.8 million  compared to $6.1 million for the year ended December 31, 1997,
an increase  of  $695,000,  or 11.5%.  The  increase in interest  income was the
result of an  increase in the average  balance of  interest-earning  assets from
$79.5 million for the year ended December 31, 1997 to $88.8 million for the year
ended December 31, 1998. The increase in the average balance of interest-earning
assets was largely a result of an $11.4  million  increase in the average  loans
receivable partially offset by a $5.5 million decrease in the average balance of
securities.  The average yield on  interest-earning  assets decreased from 7.63%
for the year ended  December  31, 1997 to 7.61% for the year ended  December 31,
1998.  This was largely a result of a decrease  in the yield on  mortgage  loans
from  8.99% for the year  ended  December  31,  1997 to 8.54% for the year ended
December 31, 1998 due to a general  decline in loan rates, as well as a decrease
in the yield on securities and mortgage-backed securities of 66 basis points.

                                       6

<PAGE>

         Interest Expense. Interest expense for the year ended December 31, 1998
was $3.1 million  compared to $2.1 million for the year ended December 31, 1997,
an increase of $1.0 million,  or 47.6%.  The increase in interest  expense was a
result of an increase in average interest-bearing liabilities from $47.4 million
for the year  ended  December  31,  1997 to  $65.4  million  for the year  ended
December  31, 1998  combined  with an increase in the average cost of funds from
4.40% for the year ended  December 31, 1997 to 4.74% for the year ended December
31, 1998.  The increase in the average cost of funds was primarily the result of
the  increased  use of FHLB advances at higher rates than the bank deposit rates
and an increase in the ratio of time deposits to total deposits.

         Net Interest  Income.  Net interest  income for the year ended December
31, 1998 was $3.7 million  compared to $4.0 million for the year ended  December
31,  1997,  a decrease of  $322,000,  or 7.5%.  Although  the  Company's  use of
borrowings  to increase  its  financial  leverage  contributes  to net  interest
income, because its cost of borrowings was significantly higher than the cost of
the Company's other liabilities, the utilization of borrowings had the effect of
reducing the Company's net interest spread.  The decrease in net interest income
was a result of a decrease  in the ratio of average  interest-earning  assets to
average  interest-bearing  liabilities  from 167.82% for the year ended December
31, 1997 to 135.19% for the year ended December 31, 1998.

         Provision for Loan Losses.  The Company  recorded an $80,000  provision
for loan losses for the year ended  December  31, 1998  compared to no provision
for the year ended  December 31, 1997, due to the increase in the loan portfolio
in 1998.  At December 31,  1998,  the  Company's  allowance  for losses  totaled
$258,000,  or .45% of total loans and 25.10% of total non-performing  loans. The
amount  of the  provision  and  allowance  for  estimated  losses  on  loans  is
influenced by current  economic  conditions,  actual loss  experience,  industry
trends and other factors,  such as adverse economic  conditions in the Company's
market area. In addition,  various regulatory  agencies,  as an integral part of
their  examination  process,  periodically  review the  Company's  allowance for
estimated  losses on loans.  Such  agencies  may  require the Company to provide
additions  to the  allowance  based upon  judgments  which  differ from those of
management.  The loan loss  provision  for the year ended  December  31, 1998 is
indicative of management's  assessment of the adequacy of the allowance for loan
losses,  given the trends in  historical  loss  experience  of the portfolio and
current economic conditions,  as well as the fact that the majority of loans are
single-family  residential loans and the  loan-to-values are generally less than
80%. Although  management uses the best information  available and maintains the
Company's  allowance for loan losses at a level it believes  adequate to provide
for  losses,  future  adjustments  to  the  allowance  may be  necessary  due to
economic,  operating,  regulatory  and other  conditions  that may be beyond the
Company's control.

         Noninterest Income.  Noninterest income for the year ended December 31,
1998 was $137,000  compared to $77,000 for the year ended  December 31, 1997, an
increase of $60,000,  or 77.9%.  The increase was primarily a result of gains on
sales of securities of $43,000 for the year ended  December 31, 1998 compared to
nominal losses for the year ended December 31, 1997.
Service fees collected in 1998 also increased by $17,000.

         Noninterest Expense.  Noninterest expense was $1.5 million for the year
ended December 31, 1998 compared to $2.2 million for the year ended December 31,
1997, a decrease of $698,000,  or 31.8%.  The decrease was primarily a result of
the  absence  of  the  additional  ESOP  expense  incurred  in  1997  due to the
declaration  of the $4.00 per share special  dividend in that year. The ESOP was
required to use the dividend  received for the benefit of participants  therein.
Accordingly,  the ESOP trustee elected to use the dividend  proceeds to pay down
the ESOP debt  which  caused  the  mandatory  release  of  additional  shares to
participants  with a value at December  31, 1997 of  $981,000.  The  decrease in
noninterest  expense was partially  offset by an increase in other  compensation
and benefits, due to the full year of RRP expense, of $303,000.

         Income Tax Expense. The provision for income taxes totaled $724,000 for
the year  ended  December  31,  1998  compared  to  $947,000  for the year ended
December  31,  1997.  The  decrease in  non-interest  expense was a result of an
increase in  interest  income from  municipal  securities,  which are exempt for
federal tax purposes.

Analysis of Net Interest Income

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

7

<PAGE>

         The following  table presents for the years  indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates.  No tax equivalent  adjustments  were made.
All average balances are monthly average balances.  Non-accruing loans have been
included in the table as loans carrying a zero yield.

                                             Year Ended December 31,
                                ------------------------------------------------
                                           1999                     1998
                                ------------------------ -----------------------
                                 Average                  Average
                                  Outst- Interest         Outst-  Interest
                                 anding  Earned/  Yield/  anding  Earned/ Yield/
                                 Balance  Paid     Rate   Balance  Paid    Rate
                                -------- -------- ------ -------- ------- ------
                                           (Dollars in Thousands)
Interest-Earning Assets:
  Loans Receivable (1)          $ 63,264  $5,100    8.06%  $47,509 $4,055  8.54%
  Securities (2)                  31,359   1,945    6.20    26,399  1,739  6.59
  Equity securities                2,914     241    8.28     1,668    150  8.98
  Mortgage-Backed Securities       7,865     468    5.96     8,726    603  6.90
  Other                            3,347     251    7.50     4,469    210  4.70
                                --------  ------             -----    ---
    Total interest-earning
      assets                    $108,749   8,005    7.36%  $88,771  6,757  7.61%
                                ========  ------           =======  -----

Interest-Earning Liabilities:
  Savings accounts              $ 21,143     555    2.62   $20,412    589  2.88
  Certificate accounts            36,670   1,870    5.10    24,793  1,339  5.40
  FHLB Advances                   31,474   1,756    5.58    20,154  1,173  5.82
                                --------  ------            ------  -----
    Total interest-bearing
      liabilities               $ 89,287   4,181    4.68   $65,359  3,101  4.74
                                ========  ------    ----   =======  -----  ----

Net interest income                       $3,824                   $3,656
                                          ======                   ======
Net interest rate spread                            2.68                   2.87
                                                    ====                   ====
Net earning assets              $ 19,462                   $23,412
                                ========                   =======
Net yield on average interest-
  earning assets                                    3.52%                  4.12%
                                                    ====                   ====
Average interest-earning assets
  to average interest-bearing
    liabilities                           121.80%                  135.82%
                                          ======                   ======

(1) Calculated net of deferred loan fees, loan  discounts,  loan in process
    and loss reserves.
(2) Calculated based on amortized cost.

                                       8
<PAGE>

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

                                                          At December 31,
                                                          -------------
                                                          1999    1998
                                                          ----   ------
Weighted average yield on:
   Loans receivable (1)                                   8.06%   7.99%
   Mortgage-backed securities                             5.95    6.06
   Securities                                             6.20    6.90
   Other interest-earning assets                          7.50    4.73
      Combined weighted average yield on
      interest-earning assets                             7.36    7.33

Weighted average rate paid on:
   Savings deposits                                       2.62    2.50
   Certificate accounts                                   5.10    5.32
   FHLB Advances                                          5.58    5.48
      Combined weighted average rate
      paid on interest-bearing liabilities                4.68    4.61

Spread                                                    2.68    2.72

(1) Excluding amortization of deferred loan fees.

                                       9

<PAGE>

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

<TABLE>
<CAPTION>
                                                  Year Ended December 31,           Year Ended December 31,
                                                       1999 vs. 1998                    1998 vs. 1997
                                            ---------------------------------- ---------------------------------
                                                   Increase                         Increase
                                                  (Decrease)                       (Decrease)
                                                    Due to            Total          Due to              Total
                                            ----------------------   Increase  ----------------------  Increase
                                             Volume        Rate     (Decrease)  Volume       Rate     (Decrease)
                                            ----------------------  ---------- ---------------------- ----------
                                                                   (Dollars in Thousands)
<S>                                          <C>           <C>       <C>         <C>          <C>      <C>
Interest-earning assets:
   Loans receivable                          $1,281        $(236)    $1,045      $  984       $(173)   $  811
   Mortgage-backed securities                   (56)         (78)      (134)         55         (19)       36
   Securities                                   312         (106)       206        (363)         56      (307)
   Equity securities                            104          (13)        91         150           0       150
   Other                                        (62)         103         41          47         (42)        5
                                             ------        -----     ------      ------       -----    ------

      Total interest-earning assets          $1,579        $(330)    $1,249      $  873       $(178)   $  695
                                             ======        =====     ======      ======       =====    ======

Interest-bearing liabilities:
   Savings deposits                          $   21        $ (55)      ($34)     $  (21)       ($28)   $  (49)
   Certificate accounts                         609          (78)       531         228           8       236
   FHLB Advances                                633          (50)       583         843         (13)      830
                                             ------        -----     ------      ------       -----    ------

      Total interest-bearing liabilities     $1,263        $(183)     1,080      $1,050       $ (33)    1,017
                                             ======        =====     ======      ======       =====    ======

Net interest income                                                  $  169                            $ (322)
                                                                     ======                            ======
</TABLE>

                                       10

<PAGE>

Quantitative and Qualitative Disclosures About Market Risk

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

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

         The  Company's  interest rate risk  increased  during the twelve months
ended December 31, 1999 due to the large increase in fixed rate loans, funded by
fixed rate time  deposits and FHLB  advances.  However,  management  has taken a
number of steps to limit to some  extent  its  interest  rate risk.  First,  the
Company focuses its fixed rate loan  originations on loans with maturities of 15
years or less.  At December 31, 1999,  $53.4  million or 94.7% of the  Company's
one- to four-family  residential  loan  portfolio  consisted of fixed rate loans
having  original  terms to  maturity  of 15 years or less.  Second,  the Company
offers  balloon  loans  of 10  years  or  less in an  attempt  to  decrease  its
asset/liability  mismatch.  Third, the Company has maintained a  mortgage-backed
securities  portfolio with  adjustable-rates.  At December 31, 1999,  adjustable
rate  mortgage-backed  securities totaled $5.6 million which represented 4.8% of
interest-earning  assets.  Fourth,  the Company has  attempted  to reinvest  the
proceeds  of most of its  borrowings  into  assets  with  maturities  which  are
anticipated  to be similar to those of its  borrowings.  Finally,  a substantial
proportion of the Company's  liabilities  consists of passbook  savings accounts
which are believed by management to be somewhat less  sensitive to interest rate
changes than certificate accounts.

         Generally,  the  investment  policy of the  Company is to invest  funds
among various  categories of investments and maturities based upon the Company's
need for liquidity, to achieve the proper balance between its desire to minimize
risk and maximize  yield, to provide  collateral for borrowings,  and to fulfill
the Company's asset/liability management policies. Investments generally include
interest-bearing  deposits in other federally  insured  financial  institutions,
FHLB stock, U.S. Government securities and municipal securities.

         PS Financial's  cost of funds responds to changes in interest rates due
to the relatively short-term nature of its deposit portfolio.  Consequently, the
results  of  operations  are  heavily  influenced  by the  levels of  short-term
interest  rates.  PS  Financial  offers a range  of  maturities  on its  deposit
products at competitive rates and monitors the maturities on an ongoing basis.

         An approach used by  management  to quantify  interest rate risk is net
portfolio  value ("NPV")  analysis.  In essence,  this approach  calculates  the
difference  between the present value of  liabilities,  expected cash flows from
assets and cash flows from off balance sheet contracts. The following tables set
forth,  at December 31, 1999 and 1998,  an analysis of the Bank's  interest rate
risk as measured by the estimated  changes in NPV resulting  from  instantaneous
and sustained parallel shifts in the yield curve (+/-300 basis points,  measured
in 100 basis point increments).

                                       11

<PAGE>

December 31, 1999

                                                     Estimated Increase
   Change in Interest  Estimated Ratio of NPV        (Decrease) in NPV
          Rates           NPV         To       -------------------------------
     (Basis Points)      Amount  Total Assets     Amount             Percent
---------------------- --------- ------------- ---------------  --------------
                   (dollars in thousands)
          +300           $5,194       4.8%         ($11,027)        (68)%
          +200            8,779       7.9           (7,443)         (46)
          +100           12,498      10.8           (3,724)         (23)
           ---           16,222      13.5             ---           ---
          -100           19,757      15.9            3,536           22
          -200           23,569      18.3            7,347           45
          -300           27,830      20.7           11,608           72

December 31, 1998

                                                     Estimated Increase
   Change in Interest  Estimated Ratio of NPV        (Decrease) in NPV
          Rates           NPV         To       -------------------------------
     (Basis Points)      Amount  Total Assets     Amount             Percent
---------------------- --------- ------------- ---------------  --------------
                 (dollars in thousands)
          +300           12,327        13%         (7,425)          (38)%
          +200           14,828        15          (4,924)          (25)
          +100           17,313        17          (2,439)          (12)
           ---           19,752        19            ---             ---
          -100           22,419        21           2,667             14
          -200           25,427        23           5,675             29
          -300           28,833        25           9,082             32

         Certain  assumptions  utilized  in  assessing  interest  rate risk were
employed in preparing the preceding table.  These assumptions relate to interest
rates,  loan  prepayment  rates,  deposit  decay rates and the market  values of
certain assets under the various  interest rate  scenarios.  It was also assumed
that delinquency  rates will not change as a result of changes in interest rates
although there can be no assurance that this will be the case.  Even if interest
rates  change in the  designated  amounts,  there can be no  assurance  that the
Bank's assets and liabilities  would perform as set forth above. In addition,  a
change in U.S. Treasury rates in the designated amounts  accompanied by a change
in the shape of the  Treasury  yield curve would cause  significantly  different
changes to the NPV than indicated above.

Liquidity and Capital Resources

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

                                       12
<PAGE>

         Federal  regulations  require  the Bank to maintain  minimum  levels of
liquid assets.  The required  percentage has varied from time to time based upon
economic  conditions  and savings flows and is currently 4% of net  withdrawable
savings deposits and borrowings  payable on demand or in one year or less during
the preceding  calendar month.  Liquid assets for purposes of this ratio include
cash, certain time deposits,  U.S.  Government,  government agency and corporate
securities and other obligations  generally having remaining  maturities of less
than five years.  The Bank has  historically  maintained its liquidity ratio for
regulatory purposes at levels in excess of those required. At December 31, 1999,
the Bank's liquidity ratio for regulatory purposes was 34.4%.

         The   Company's   cash   flows   are   comprised   of   three   primary
classifications:  cash flows from operating activities, investing activities and
financing activities. Cash flows provided by operating activities were $411,000,
$1.8  million and $1.9 million for the years ended  December 31, 1999,  1998 and
1997,  respectively.  Net cash from investing  activities consisted primarily of
disbursements  for  loan  originations  and  the  purchase  of  investments  and
mortgage-backed  securities,  offset by principal collections on loans, proceeds
from  maturation  and  sales  of  securities  and  paydowns  on  mortgage-backed
securities.  Net cash used in financing  activities  consisted  primarily of the
purchase of treasury  stock of $1.7 million and $2.9 million for the years ended
December  31,  1999 and 1998,  respectively,  net  proceeds  from FHLB  advances
totaling  $13.6 million and $10.0 million for the years ended  December 31, 1999
and 1998,  as well as  payment  of  dividends  of  $883,000  for the year  ended
December 31, 1999.  The net increase  (decrease)  in deposits was $8.6  million,
$14.1 million and ($1.0)  million for the years ended  December 31, 1999,  1998,
and 1997, respectively.

         The Company's most liquid assets are cash and  short-term  investments.
The levels of these assets are dependent on the Company's operating,  financing,
lending and investing  activities during any given period. At December 31, 1999,
cash and  short-term  investments  totaled $3.3  million.  The Company has other
sources of liquidity if a need for additional funds arises, including securities
maturing  within  one year and the  repayment  of loans.  The  Company  may also
utilize the sale of  securities  available-for-sale  and Federal  Home Loan Bank
advances as a source of funds.

         At  December  31,  1999,  the Company had  outstanding  commitments  to
originate loans of $377,800,  all of which had fixed interest rates. These loans
are to be  secured  by  properties  located  in its  market  area.  The  Company
anticipates  that it will have  sufficient  funds  available to meet its current
loan  commitments.  Certificates of deposit which are scheduled to mature in one
year or less from December 31, 1999 totaled $36.4 million.  Management  believes
that a significant portion of such deposits will remain with the Company.

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

         The Bank is subject to various regulatory capital  requirements imposed
by the OTS. At December 31, 1999, the Bank was in compliance with all applicable
capital  requirements  and was considered  well  capitalized.  See Note 9 of the
Notes to the Consolidated Financial Statements.

                                       13
<PAGE>

Impact of Inflation and Changing Prices

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

Impact of New Accounting Standards

         In June 1998, the FASB issued SFAS No. 133,  "Accounting for Derivative
Instruments and Hedging  Activities."  SFAS No. 133  standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other  contracts.  Under  the  standard,  entities  are  required  to carry  all
derivative instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e.  gains or losses) of a derivative
instrument  depends on whether it has been designated and qualifies as part of a
hedging  relationship  and,  if so, on the  reason  for  holding  it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposure to change in fair value, cash flows, or foreign currencies. If
the hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is  recognized in earnings in the period of change  together with the
offsetting  loss or gain on the  hedged  item  attributable  to the  risk  being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the  gain  or loss on the  derivative  instrument  is  reported  initially  as a
component of other  comprehensive  income  (outside  earnings) and  subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amount  excluded  from  the  assessment  of hedge  effectiveness  as well as the
ineffective  portion of the gain or loss is reported  in  earnings  immediately.
Accounting for foreign  currency  hedges is similar to accounting for fair value
and cash flow hedges. If the derivative instrument is not designated as a hedge,
the gain or loss is  recognized  in  earnings  in the  period  of  change.  This
Statement will have no effect on the Company.

Year 2000

         The Company successfully completed its Year 2000 changeover without any
problems or  disruptions  to operations.  While  management  believes that it is
unlikely,  there can be no  assurance  that  problems  not yet  apparent  to the
Company or its vendors will not arise as the year  progresses.  Management  will
continue to monitor all business  processes and relationships with third parties
to ensure that all processes continue to function  properly.  Total expenditures
on the Year 2000  project  through  December  31,  1999 were  $10,500,  which is
consistent with the amount that management estimated for the project.

Safe Harbor Statement

         This report  contains  certain  forward-looking  statements  within the
meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E
of the  Securities  Exchange Act of 1934, as amended.  The Company  intends such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for  purposes  of these  safe  harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe future plans,  strategies,  and  expectations  of the Company,  are
generally  identifiable  by use  of the  words  "believe",  "expect",  "intend",
"anticipate",  "estimate",  "project"  or  similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse effect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions, the
legislative/regulatory  situation,  monetary  and  fiscal  policies  of the U.S.
Government,  including  policies of the U.S.  Treasury  and the Federal  Reserve
Board, the quality or composition of the loan or investment  portfolios,  demand
for loan products, deposit flows, competition,  demand for financial services in
the Company's  market area and accounting  principles,  policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such  statements.  Further
information  concerning  the  Company  and its  business,  including  additional
factors  that  could  materially  affect the  Company's  financial  results,  is
included in the Company's filings with the Securities and Exchange Commission.

                                       14
<PAGE>








                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
PS Financial, Inc.
Chicago, Illinois


We have audited the accompanying  consolidated statements of financial condition
of PS Financial,  Inc. and its  wholly-owned  subsidiary as of December 31, 1999
and  1998 and the  related  consolidated  statements  of  income,  stockholders'
equity,  and cash flows for each of the three years in the period ended December
31, 1999. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of PS Financial,  Inc.
and its wholly-owned subsidiary at December 31, 1999 and 1998 and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles.




                                           Crowe, Chizek and Company LLP

Oak Brook, Illinois
January 28, 2000

                                       15

<PAGE>

                               PS FINANCIAL, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 1999 and 1998
                 (In thousands, except share and per share data)
--------------------------------------------------------------------------------

                                                                1999      1998
                                                              -------- --------
ASSETS
Cash on hand and in banks                                     $    868 $    448
Interest-bearing deposit accounts in other financial
  institutions                                                   2,437    3,789
                                                              -------- --------
     Total cash and cash equivalents                             3,305    4,237
Interest-bearing term deposits in other financial
  institutions                                                     159      159
Securities available-for-sale                                   35,550   27,596
Mortgage-backed securities available-for-sale                    5,636   11,354
Loans receivable, net                                           72,179   56,822
Federal Home Loan Bank stock                                     1,927    1,319
Premises and equipment, net                                        477      426
Accrued interest receivable                                      1,051      803
Deferred income taxes                                              531        -
Other real estate owned                                            454        -
Other assets                                                        87       68
                                                              -------- --------
     Total assets                                             $121,356 $102,784
                                                              ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
     Deposits                                                 $ 63,983 $ 55,429
     Advances from borrowers for taxes and insurance               733      578
     Advances from the Federal Home Loan Bank                   37,405   23,764
     Deferred income taxes                                           -      418
     Accrued interest payable and other liabilities                363    1,569
                                                              -------- --------
         Total liabilities                                     102,484   81,758

Stockholders' equity
     Common stock $ 0.01 par value per share, 2,500,000
       shares authorized; 2,182,125 shares issued                   22       22
     Additional paid-in capital                                 21,644   21,638
     Unearned ESOP shares                                         (981)  (1,077)
     Unearned stock awards                                        (767)    (941)
     Retained earnings, substantially restricted                 6,862    6,141
     Treasury stock, at cost, 488,681 shares in 1999 and
       337,137 shares in 1998                                   (6,425)  (4,759)
     Accumulated other comprehensive income (loss)              (1,483)       2
                                                              -------- --------
         Total stockholders' equity                             18,872   21,026
                                                              -------- --------

              Total liabilities and stockholders' equity      $121,356 $102,784
                                                              ======== ========

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             15.
<PAGE>

                               PS FINANCIAL, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 1999, 1998, and 1997
                 (In thousands, except share and per share data)
--------------------------------------------------------------------------------

                                                    1999       1998       1997
                                                 -------   --------   --------
Interest income
    Loans                                        $ 5,100   $  4,055   $  3,244
    Securities
       Taxable                                     1,531      1,599      2,046
       Tax-exempt                                    414        140          -
    Dividend income on equity investments            241        150          -
    Mortgage-backed securities                       468        603        568
    Other interest-earning assets                    251        210        204
                                                 -------   --------   --------
       Total interest income                       8,005      6,757      6,062

Interest expense
    Deposits                                       2,425      1,928      1,741
    Federal Home Loan Bank advances                1,756      1,173        343
                                                 -------   --------   --------
       Total interest expense                      4,181      3,101      2,084
                                                 -------   --------   --------

Net interest income                                3,824      3,656      3,978

Provision for loan losses                             15         80          -
                                                 -------   --------   --------

Net interest income after provision for
  loan losses                                      3,809      3,576      3,978

Noninterest income
    Gain (loss) on sales of securities               (86)        43          -
    Other operating income                            89         94         77
                                                 -------   --------   --------
       Total noninterest income                        3        137         77

Noninterest expense
    Compensation and benefits                      1,011        994      1,672
    Occupancy and equipment expense                  136        123        125
    Data processing services                         122         60         54
    Federal deposit insurance premiums                34         26         27
    Professional fees                                 68         88         97
    Other operating expense                          231        198        212
                                                 -------   --------   --------
       Total noninterest expense                   1,602      1,489      2,187
                                                 -------   --------   --------

Income before income tax expense                   2,210      2,224      1,868

Income tax expense                                   606        724        947
                                                 -------   --------   --------
Net income                                       $ 1,604   $  1,500   $    921
                                                 =======   ========   ========

Basic earnings per share                         $  1.01   $    .83   $    .47
                                                 =======   ========   ========
Diluted earnings per share                       $  1.01   $    .82   $    .46
                                                 =======   ========   ========

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             15.
<PAGE>

                               PS FINANCIAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 Years ended December 31, 1999, 1998, and 1997
                 (In thousands, except share and per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                         Accumulated
                                                                                             Other
                                   Additional    Unearned  Unearned                      Comprehensive     Total
                            Common  Paid-in        ESOP      Stock   Retained   Treasury    Income    Stockholders' Comprehensive
                             Stock  Capital       Shares    Awards   Earnings     Stock     (Loss)         Equity     Income
                             -----  -------       ------    ------   --------     -----      -----         ------     ------

<S>                          <C>    <C>         <C>        <C>        <C>        <C>         <C>           <C>        <C>
Balance at January 1, 1997    $22    $21,170     $(1,691)   $     -    $12,669    $     -     $(23)         $32,147

Comprehensive income
    Net income                  -          -           -          -        921          -        -              921    $  921
    Change in fair value
      of securities, net of
      reclassifications and
      tax effects               -          -           -          -          -          -      176              176       176
                                                                                                                       ------

       Total comprehensive
         income                                                                                                        $1,097
                                                                                                                       ======
Purchase of treasury stock      -          -           -          -          -     (3,173)       -           (3,173)
ESOP shares released            -        487         518          -          -          -        -            1,005
Stock awards issued             -        (55)          -     (1,222)         -      1,277        -                -
Stock awards earned             -          -           -        105          -          -        -              105
Dividends declared
    ($4.28 per share)           -          -           -          -     (8,072)         -        -           (8,072)
                              ---    -------     -------    -------    -------    -------     ----          -------

Balance at December 31, 1997   22     21,602      (1,173)    (1,117)     5,518     (1,896)     153           23,109
</TABLE>

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             16.


<PAGE>
                               PS FINANCIAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 Years ended December 31, 1999, 1998, and 1997
                 (In thousands, except share and per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                             Other
                                   Additional    Unearned  Unearned                      Comprehensive     Total
                            Common  Paid-in        ESOP      Stock   Retained   Treasury    Income    Stockholders' Comprehensive
                             Stock  Capital       Shares    Awards   Earnings     Stock     (Loss)         Equity     Income
                             -----  -------       ------    ------   --------     -----      -----         ------     ------

<S>                          <C>    <C>         <C>        <C>        <C>        <C>         <C>           <C>        <C>
Comprehensive income
 Net income                   $ -    $     -     $     -    $     -    $ 1,500    $     -     $     -      $ 1,500    $ 1,500
 Change in fair value of
 securities, net of reclassi-
 fications and tax effects      -          -           -          -          -          -        (151)        (151)      (151)
                                                                                                                      -------

    Total comprehensive
      income                                                                                                          $ 1,349
                                                                                                                      =======

Purchases of treasury stock     -          -           -          -          -     (2,863)          -       (2,863)
ESOP shares released            -         36          96          -          -          -           -          132
Stock awards earned             -          -           -        176          -          -           -          176
Dividends declared
    ($.49 per share)            -          -           -          -       (877)         -           -         (877)
                              ---    -------     -------    -------    -------    -------     -------      -------

Balance at December 31, 1998   22     21,638      (1,077)      (941)     6,141     (4,759)          2       21,026

Comprehensive income
 Net income                     -          -           -          -      1,604          -           -        1,604    $ 1,604
 Change in fair value of
 securities, net of reclassi-
 fications and tax effects      -          -           -          -          -          -      (1,485)      (1,485)    (1,485)
                                                                                                                      -------

    Total comprehensive
      income                                                                                                          $   119
                                                                                                                      =======

Purchases of treasury stock     -          -           -          -          -     (1,666)          -       (1,666)
ESOP shares released            -          6          96          -          -          -           -          102
Stock awards earned             -          -           -        174          -          -           -          174
Dividends declared
    ($.54 per share)            -          -           -          -       (883)         -           -         (883)
                              ---    -------     -------    -------    -------    -------     -------      -------

Balance at December 31, 1999  $22    $21,644     $  (981)   $  (767)   $ 6,862    $(6,425)    $(1,483)     $18,872
                              ===    =======     =======    =======    =======    =======     =======      =======

</TABLE>
--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             17.


<PAGE>
                               PS FINANCIAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended December 31, 1999, 1998, and 1997
                                 (In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                               1999        1998          1997
                                                                           ----------   ----------   ----------
<S>                                                                        <C>          <C>          <C>
Cash flows from operating activities
    Net income                                                             $    1,604   $    1,500   $      921
    Adjustments to reconcile net income to net cash
      from operating activities
       Depreciation                                                                58           47           46
       Amortization of discounts and premiums on securities                       (39)           4           34
       Provision for loan losses                                                   15           80            -
       Net (gain) loss on sale of securities available-for-sale                    86          (43)           -
       ESOP compensation expense                                                  102          132        1,005
       Stock awards expense                                                       174          176          105
       Change in
          Deferred loan origination fees                                          (79)         (70)         (50)
          Accrued interest receivable and other assets                           (267)         673         (294)
          Other liabilities and deferred income taxes                          (1,243)        (741)         176
                                                                           ----------   ----------   ----------
              Net cash from operating activities                                  411        1,758        1,943

Cash flows from investing activities
    Proceeds from sales of securities available-for-sale                        2,390        4,716       14,990
    Proceeds from sale of mortgage-backed securities available-for-sale         3,373        1,083        1,671
    Purchase of Federal Home Loan Bank stock                                     (608)        (619)        (338)
    Proceeds from repayments of securities                                      3,120        2,787        1,186
    Proceeds from maturities of securities                                      4,650       19,380       11,650
    Purchase of securities available-for-sale                                 (17,226)     (17,293)     (35,339)
    Purchase of mortgage-backed securities available-for-sale                    (987)      (7,215)      (6,180)
    Net decrease in interest-bearing term deposits in other financial
      institutions                                                                  -           50           39
    Net increase in loans                                                     (15,747)     (19,665)      (1,173)
    Capital expenditures, net                                                    (109)         (15)         (43)
                                                                           ----------   ----------   ----------
       Net cash from investing activities                                     (21,144)     (16,791)     (13,537)

Cash flows from financing activities
    Net increase (decrease) in deposits                                         8,554       14,154         (928)
    Net increase in advances from borrowers for taxes and insurance               155           80           21
    Proceeds from Federal Home Loan Bank advances                              29,930       21,814       13,750
    Repayments of Federal Home Loan Bank advances                             (16,289)     (11,800)           -
    Purchases of treasury stock                                                (1,666)      (2,863)      (3,173)
    Dividends paid                                                               (883)      (8,405)        (544)
                                                                           ----------   ----------   ----------
       Net cash from financing activities                                      19,801       12,980        9,126
                                                                           ----------   ----------   ----------
</TABLE>

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             18.


<PAGE>
                               PS FINANCIAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended December 31, 1999, 1998, and 1997
                                 (In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                               1999        1998          1997
                                                                           ----------   ----------   ----------
<S>                                                                        <C>          <C>          <C>


Net change in cash and cash equivalents                                    $     (932)  $   (2,053)  $   (2,468)

Cash and cash equivalents, beginning of year                                    4,237        6,290        8,758
                                                                           ----------   ----------   ----------

Cash and cash equivalents, end of year                                     $    3,305   $    4,237   $    6,290
                                                                           ==========   ==========   ==========

Supplemental disclosures of cash flow information
    Cash paid during the year for
       Interest                                                            $    4,029   $    2,966   $    2,004
       Income taxes                                                               315        1,045          707

Supplemental schedule of noncash investing activities
    Amount due to broker for purchase of securities                                 -        1,558          499
    Dividends declared                                                              -            -        7,528
    Transfers from loans to real estate owned                                     454            -            -

</TABLE>

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             19.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION:  The accompanying consolidated financial statements
include the accounts of PS Financial,  Inc.  (the Company) and its  wholly-owned
subsidiary,  Preferred  Savings Bank (the Bank).  On November 1, 1999,  the Bank
sold its  wholly-owned  subsidiary,  Preferred  Service  Corporation,  which had
engaged in limited  insurance  activities to an unrelated party. All significant
intercompany balances and transactions have been eliminated.

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

SECURITIES:  Securities are classified as held-to-maturity  when the Company has
the  positive  intent  and  ability  to  hold  those   securities  to  maturity.
Accordingly,  they are stated at cost, adjusted for amortization of premiums and
accretion   of   discounts.    All   other    securities   are   classified   as
available-for-sale  since the  Company  may decide to sell those  securities  in
response to changes in market interest rates, liquidity needs, changes in yields
or alternative investments,  and for other reasons. These securities are carried
at market value with  unrealized  gains and losses  charged or credited,  net of
income taxes, to a valuation allowance included as a separate component of other
comprehensive income (loss).  Realized gains and losses on disposition are based
on the net proceeds and the adjusted  carrying  amounts of the securities  sold,
using the specific identification method.

LOANS RECEIVABLE: Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses,  and net of deferred  loan  origination  fees and
discounts.

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

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             20.


<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impaired  loans are measured  based on the present  value of expected cash flows
discounted at the loan's effective  interest rate or, as a practical  expedient,
at the loan's  observable  market price or the fair value of  collateral  if the
loan is collateral dependent. Loans considered to be impaired are reduced to the
present value of expected  future cash flows or to the fair value of collateral,
by allocating a portion of the allowance for loan losses to such loans. If these
allocations  cause the  allowance  for loan  losses to  require  increase,  such
increase is reported as a provision for loan losses.

Smaller  balance  homogeneous  loans are defined as  residential  first mortgage
loans secured by one-to-four-family residences,  residential construction loans,
and share loans and are evaluated  collectively for impairment.  Commercial real
estate loans are evaluated  individually for impairment.  Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment.  In general,  loans  classified as
doubtful or loss are considered  impaired while loans  classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship,  late or insufficient  payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for  consideration  for measurement of
impairment, or nonaccrual, are similar, the measurement considerations differ. A
loan is impaired when the economic  value  estimated to be received is less than
the  value  implied  in the  original  credit  agreement.  A loan is  placed  in
nonaccrual  when  payments  are more  than 90 days past due  unless  the loan is
adequately collateralized and in the process of collection.

INTEREST  INCOME:  Interest on loans is accrued over the term of the loans based
upon the principal  outstanding.  Management reviews loans delinquent 90 days or
more to  determine  whether the interest  accrual  should be  discontinued.  The
carrying  values of impaired  loans are  periodically  adjusted to reflect  cash
payments,  revised  estimates of future cash flows, and increases in the present
value  of  expected  cash  flows  due to the  passage  of  time.  Cash  payments
representing  interest  income are  reported as such.  Other cash  payments  are
reported as reductions in carrying  value,  while  increases or decreases due to
changes  in  estimates  of future  payments  and due to the  passage of time are
reported as adjustments to the provision for loan losses.

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

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

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             21.


<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

INCOME TAXES:  The Company and its subsidiaries  file a consolidated  income tax
return.  The  provision  for  income  taxes is based on an asset  and  liability
approach which requires the  recognition of deferred tax  liabilities and assets
for the expected future tax  consequences of temporary  differences  between the
carrying amounts and the tax bases of assets and liabilities.

EMPLOYEE STOCK OWNERSHIP PLAN: The cost of shares issued to the ESOP but not yet
allocated to participants are presented in the  consolidated  balance sheet as a
reduction of stockholders' equity. Compensation expense is recorded based on the
market price of the shares as they are  committed to be released for  allocation
to participant  accounts.  The difference between the market price and the costs
of shares  committed  to be released is  recorded  as an  adjustment  to paid-in
capital.  Dividends  on  allocated  ESOP shares are  recorded as a reduction  of
retained  earnings;  dividends  on  unallocated  ESOP shares are  reflected as a
reduction of debt.

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

EARNINGS PER COMMON SHARE:  Amounts reported as basic earnings per share reflect
the  earnings  available  to common  stockholders  for the year  divided  by the
weighted average number of common shares  outstanding  during the year.  Diluted
earnings  per  share  shows the  dilutive  effect of  additional  common  shares
issuable under stock option and stock award plans.

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

STATEMENT  OF CASH  FLOWS:  For the  purpose  of this  statement,  cash and cash
equivalents are defined to include the Company's cash on hand,  demand balances,
and interest-bearing  deposits with other financial institutions and investments
in certificates of deposit with maturities of less than three months.

COMPREHENSIVE INCOME (LOSS):  Comprehensive income (loss) consists of net income
and  other  comprehensive  income  (loss).  Other  comprehensive  income  (loss)
includes unrealized gains and losses on securities  available-for-sale which are
also recognized as separate components of equity.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             22.


<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FAIR VALUE OF FINANCIAL  INSTRUMENTS:  Fair values of financial  instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate footnote. Fair value estimates involve uncertainties and
matters  of  significant   judgment  regarding  interest  rates,   credit  risk,
prepayments,  and other factors,  especially in the absence of broad markets for
particular  items.   Changes  in  assumptions  or  in  market  conditions  could
significantly affect the estimates.


NOTE 2 - SECURITIES AVAILABLE-FOR-SALE

Securities available-for-sale are summarized as follows:
<TABLE>
<CAPTION>

                                                                              December 31, 1999
                                                                 -----------------------------------------------
                                                                                  Gross       Gross
                                                                   Amortized   Unrealized  Unrealized     Fair
                                                                     Cost         Gains      Losses       Value
                                                                 ----------   ---------   ---------    ---------
<S>                                                              <C>          <C>         <C>          <C>
   U.S. Treasury securities and obligations of U.S.
     government agencies                                         $   26,830   $       -   $  (1,200)   $  25,630
   Municipal securities                                               8,843           -        (840)       8,003
   Equity securities                                                  2,135           -        (218)       1,917
                                                                 ----------   ---------   ---------    ---------
                                                                     37,808           -      (2,258)      35,550
   Mortgage-backed securities available-for-sale
     Federal Home Loan Mortgage Corporation                           1,213           -         (58)       1,155
     Federal National Mortgage Association                            2,707           -         (51)       2,656
     Government National Mortgage Association                         1,852           -         (27)       1,825
                                                                 ----------   ---------   ---------    ---------
                                                                      5,772           -        (136)       5,636
                                                                 ----------   ---------   ---------    ---------

                                                                 $   43,580   $       -   $  (2,394)   $  41,186
                                                                 ==========   =========   =========    =========
</TABLE>

<TABLE>
<CAPTION>

                                                                              December 31, 1998
                                                                 -----------------------------------------------
                                                                                  Gross       Gross
                                                                   Amortized   Unrealized  Unrealized     Fair
                                                                     Cost         Gains      Losses       Value
                                                                 ----------   ---------   ---------    ---------
<S>                                                              <C>          <C>         <C>          <C>
   U.S. Treasury securities and obligations of U.S.
     government agencies                                         $   14,840   $     120   $      (9)   $  14,951
   Municipal securities                                               9,377          81         (91)       9,367
   Equity securities                                                  3,407           7        (136)       3,278
                                                                 ----------   ---------   ---------    ---------
                                                                     27,624         208        (236)      27,596
   Mortgage-backed securities available-for-sale
     Federal Home Loan Mortgage Corporation                           3,513          31           -        3,544
     Federal National Mortgage Association                            4,756          12         (11)       4,757
     Government National Mortgage Association                         3,054           8          (9)       3,053
                                                                 ----------   ---------   ---------    ---------
                                                                     11,323          51         (20)      11,354
                                                                 ----------   ---------   ---------    ---------

                                                                 $   38,947   $     259   $    (256)   $  38,950
                                                                 ==========   =========   =========    =========
</TABLE>

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             23.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 2 - SECURITIES (Continued)

The Bank held $1,000,000 and $500,000 of U.S.  government agency bonds which are
structured  notes  issued by the Federal Home Loan Bank at December 31, 1999 and
1998.

Sales of securities are summarized as follows:

                                              For the Years Ended December 31,
                                            ----------------------------------
                                                1999      1998       1997
                                            ---------- ---------- ------------
     Proceeds from sales                       $5,763    $5,799    $16,661
     Gross realized gains                          22        43         14
     Gross realized losses                       (108)        -        (14)

Contractual  maturities  of securities  available-for-sale  at December 31, 1999
were  as  follows.  Securities  not due at a  single  maturity  date,  primarily
mortgage-backed and equity securities, are shown separately.

                                                   December 31, 1999
                                              --------------------------
                                               Amortized          Fair
                                                 Cost             Value
                                              -----------    -----------
Securities available-for-sale
    Due from one to five years                $     2,748    $     2,656
    Due after five years through ten years         23,554         22,419
    Due after ten years                             9,371          8,558
    Equity securities                               2,135          1,917
    Mortgage-backed securities                      5,772          5,636
                                              -----------    -----------

                                              $    43,580    $    41,186
                                              ===========    ===========


NOTE 3 - LOANS RECEIVABLE

Loans receivable consist of the following at:
                                                       December 31, 1999
                                                   --------------------------
                                                      1999            1998
                                                   -----------    -----------
First mortgage loans
    Principal balances
         Secured by one-to-four-family residences  $    56,408    $    44,297
         Secured by other properties                     9,446          8,006
         Secured by commercial real estate               6,380          5,135
         Construction loans                                499              -
                                                   -----------    -----------
                                                        72,733         57,438

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             24.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 3 - LOANS RECEIVABLE (Continued)

                                                     December 31, 1999
                                                --------------------------
                                                   1999            1998
                                                -----------    -----------
    Less net deferred loan origination fees     $      (294)   $      (373)
                                                -----------    -----------
         First mortgage loans, net                   72,439         57,065
Share loans                                               6             15
Less allowance for loan losses                         (266)          (258)
                                                -----------    -----------

                                                $    72,179    $    56,822
                                                ===========    ===========

The  principal  balance of loans  greater than 90 days  delinquent on nonaccrual
status at December 31, 1999 and 1998 was approximately  $1,255,000 and $777,000.
The interest  income that would have been recorded  under the original  terms of
such loans  approximated  $106,000 and $70,000 for the years ended  December 31,
1999 and 1998.

The Bank did not have any impaired loans during 1999, 1998, or 1997.


NOTE 4 - ALLOWANCE FOR LOAN LOSSES

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

                                            Years Ended December 31,
                                  ----------- -----------------------------
                                     1999           1998            1997
                                  -----------    -----------    -----------
     Balance, beginning of year   $       258    $       186    $       186
     Provision for loan losses             15             80              -
     Charge-offs                           (7)           (19)             -
     Recoveries                             -             11              -
                                  -----------    -----------    -----------

         Balance, end of year     $       266    $       258    $       186
                                  ===========    ===========    ===========

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             25.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment consist of the following at:

                                         December 31,
                                  --------------------------
                                     1999            1998
                                  -----------    -----------
     Land                         $        95    $        95
     Building and improvements            541            530
     Furniture and equipment              360            319
                                  -----------    -----------
         Total cost                       996            944
     Accumulated depreciation             519            518
                                  -----------    -----------

                                  $       477    $       426
                                  ===========    ===========

NOTE 6 - DEPOSITS

The aggregate amount of short-term jumbo  certificates of deposit with a minimum
denomination of $100,000 was  approximately  $2,830,000 at December 31, 1999 and
$3,261,000 at December 31, 1998.

At December 31, 1999,  scheduled  maturities of  certificates  of deposit are as
follows:

          2000                                              $    36,416
          2001                                                    6,057
          2002                                                      569
          2003                                                      426
          2004 and thereafter                                       104
                                                            -----------
                                                            $    43,572
                                                            ===========

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             26.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 7 - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank of Chicago were as follows:

                                                             December 31,
                                                         --------------------
   Description                                            1999         1998
---------------------------------------------            -------     --------

Structured repayment; matures July 1999;
  6.04% interest rate                                    $     -     $  1,950

Amortizing; matures July 2005; 6.4% interest rate          2,167        2,261

Amortizing; matures July 2005; 5.76% interest rate         4,414        4,618

Amortizing; matures August 2005; 5.81% interest rate         894          935

Fixed terms;  mature March 2000 through
  October  2009;  range of rates
  5.00% to 5.75%;
  average rate 5.19%                                      29,930            -

Fixed terms; mature November 1999 through
  December 2003; range of rates
  4.78% to 6.04%;
  average rate 5.13%                                           -       14,000
                                                         -------     --------

                                                         $37,405     $ 23,764
                                                         =======     ========

Scheduled repayments and maturities at December 31, 1999 are as follows:

       2000                                              $     2,900
       2001                                                    1,000
       2002                                                    1,030
       2003                                                    2,000
       2004 and thereafter                                    30,475
                                                         -----------
                                                         $    37,405
                                                         ===========

The  Company  will incur a penalty  if the  advances  are repaid  prior to their
maturity dates.

The Company  maintains a collateral  pledge agreement  covering secured advances
whereby the  Company has agreed to at all times keep on hand,  free of all other
pledges,  liens,  and  encumbrances,  whole  first  mortgage  loans on  improved
residential  property not more than 90-days delinquent  aggregating no less than
167% of the  outstanding  secured  advances  from the Federal  Home Loan Bank of
Chicago.  The  Company  also  pledges  securities  that it owns to secure  these
advances.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             27.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 8 - EARNINGS PER SHARE

A  reconciliation  of the  numerators and  denominators  for earnings per common
share  computations  for the years ended  December 31, 1999,  1998,  and 1997 is
presented below.
<TABLE>
<CAPTION>

                                                             Years Ended December 31,
                                                   ------------------------------------------
                                                       1999            1998           1997
                                                   ------------   ------------   ------------
<S>                                                <C>            <C>            <C>
Basic earnings per share
    Net income                                     $      1,604   $      1,500   $        921
                                                   ============   ============   ============

    Weighted average common shares outstanding        1,590,171      1,798,464      1,955,356
                                                   ============   ============   ============

    Basic earnings per share                          $   1.01       $     .83       $    .47
                                                      ========       =========       ========

Earnings per share assuming dilution
     Net income                                    $      1,604   $      1,500   $        921
                                                   ============   ============   ============

    Weighted average common shares outstanding        1,590,171      1,798,464      1,955,356
    Add dilutive effect of assumed exercises:
       Incentive stock options                            1,596         21,647         25,684
       Stock awards                                           -          1,125          1,994
                                                   ------------   ------------   ------------
    Weighted average common and dilutive
      potential common shares outstanding             1,591,767      1,821,236      1,983,034
                                                   ============   ============   ============

       Diluted earnings per share                     $   1.01       $     .82       $    .46
                                                      ========       =========       ========

</TABLE>

NOTE 9 - REGULATORY CAPITAL

The Bank is subject to regulatory capital  requirements  administered by federal
regulatory  agencies.  Capital adequacy  guidelines and prompt corrective action
regulations involve quantitative  measures of assets,  liabilities,  and certain
off-balance-sheet   items  calculated  under  regulatory  accounting  practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators  about  components,  risk  weightings,  and  other  factors,  and the
regulators can lower  classifications in certain cases.  Failure to meet various
capital  requirements  can initiate  regulatory  action that could have a direct
material effect on the financial statements.

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

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             28.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 9 - REGULATORY CAPITAL (Continued)

At year end, actual capital levels of the Bank and minimum required levels were:
<TABLE>
<CAPTION>

                                                                                               Minimum Required
                                                                                                  to Be Well
                                                                         Minimum Required      Capitalized Under
                                                                            for Capital        Prompt Corrective
                                                         Actual          Adequacy Purposes    Action Regulations
                                                 --------------------  --------------------  -------------------
                                                  Amount      Ratio     Amount      Ratio     Amount      Ratio
                                                 ---------- ---------  ----------- --------  ---------- --------
1999
----
<S>                                              <C>          <C>      <C>           <C>     <C>          <C>
Total capital (to risk-weighted assets)          $  14,233    24.8%    $   4,592     8.0%    $  5,740     10.0%
Tier 1 (core) capital (to risk-weighted assets)     13,967    24.3         2,296     4.0        3,444      6.0
Tier 1 (core) capital (to adjusted total assets)    13,967    11.8         4,748     4.0        5,935      5.0
Tangible capital (to adjusted total assets)         13,967    11.8         1,781     1.5          N/A      N/A

1998
----
Total capital (to risk-weighted assets)          $  15,437    31.4%    $   3,930     8.0%    $  4,913     10.0%
Tier 1 (core) capital (to risk-weighted assets)     15,179    30.9         1,965     4.0        2,948      6.0
Tier 1 (core) capital (to adjusted total assets)    15,179    15.4         3,945     4.0        4,930      5.0
Tangible capital (to adjusted total assets)         15,179    15.4         1,479     1.5          N/A      N/A
</TABLE>

As of December 31, 1999, the most recent  notification from the Office of Thrift
Supervision  categorized  the  Bank as well  capitalized  under  the  regulatory
framework for prompt corrective action.  There are no conditions or events since
that notification that management believes have changed the Bank's category.

NOTE 10 - INCOME TAXES

The provision for income taxes consists of the following:

                                            Years Ended December 31,
                                        --------------------------------
                                          1999        1998        1997
                                        --------    --------    --------
     Current
         Federal                        $    598    $    450    $    940
         State                                45          (5)         43
                                        --------    --------    --------
                                             643         445         983
     Deferred                                (37)        279        (164)
     Change in valuation allowance             -           -        (128)
                                        --------    --------    --------

         Income tax expense             $    606    $    724    $    947
                                        ========    ========    ========


--------------------------------------------------------------------------------
                                  (Continued)

                                                                             29.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES (Continued)

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

                                                                December 31,
                                                              ----------------
                                                               1999       1998
                                                              ------    ------
Gross deferred tax liabilities
    Deferred loan fees                                        $ (163)   $ (114)
    Accrual to cash                                             (102)     (153)
    Accumulated depreciation                                     (49)      (57)
    FHLB stock dividend                                          (14)      (14)
    ESOP expense                                                 (28)      (42)
    Other                                                        (33)      (40)
    Net unrealized gain on securities available-for-sale           -        (1)
                                                              ------    ------
                                                                (389)     (421)
Gross deferred tax assets
    Loan loss reserve                                             99        94
    Capital loss carryforward                                    100        99
    Stock awards                                                  39        39
    Unrealized net loss on securities available-for-sale         911         -
                                                              ------    ------
                                                               1,149       232
    Valuation allowance                                         (229)     (229)
                                                              ------    ------

         Net deferred tax asset (liability)                   $  531    $ (418)
                                                              ======    ======

The valuation  allowance relates to capital loss  carryforwards,  unrealized net
losses on equity securities, and other items that may not be recoverable.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             30.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES (Continued)

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

                                                      Years Ended Dec. 31,
                                              ---------------------------------
                                                   1999             1998
                                              ----------------  ---------------
                                               Amount  Percent  Amount Percent
                                              -------  -------   -----  -------

Income tax computed at the statutory rate     $   751     34.0%  $ 756   34.0%
Tax exempt income, net of disallowed
  interest expense                               (116)    (5.3)    (30)  (1.3)
Other                                             (58)    (2.6)    (26)  (1.2)
                                              -------  -------   -----  -----
    Total federal income tax                      577     26.1     700   31.5
State income tax, net of federal tax benefit       29      1.3      24    1.1
                                              -------  -------   -----  -----

                                              $   606     27.4%  $ 724   32.6%
                                              =======  =======   =====  =====


                                                               Year Ended
                                                            December 31, 1997
                                                       ------------------------
                                                          Amount        Percent
                                                       -----------     --------
         Income tax computed at the
           statutory rate                              $       635        34.0%
         Deferred tax valuation allowance                      128         6.9
         ESOP                                                  111         5.9
         Other                                                  45         2.4
                                                       -----------     -------
              Total federal income tax                         919        49.2
         State income tax, net of federal
           tax benefit                                          28         1.5
                                                       -----------     -------

                                                       $       947        50.7%
                                                       ===========     =======

Under the  Internal  Revenue  Code,  the Bank may,  for tax  purposes,  deduct a
provision for bad debts in excess of such  provisions  recorded in the financial
statements.  Retained  earnings at  December  31,  1999  includes  approximately
$1,514,000,  consisting  of bad debt  deductions  accumulated  prior to 1988, on
which no provision for federal income taxes has been made. The related amount of
unrecognized deferred tax liability was approximately $587,000.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             31.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 11 - STOCK-BASED COMPENSATION PLANS

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

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

During 1999 and 1998,  9,602  shares of stock in each year with an average  fair
value of $10.68 and $13.75 per share were committed to be released  resulting in
ESOP compensation  expense of $102,587 and $132,070.  During 1997, 51,799 shares
of stock,  including 50,941 resulting from a special  dividend,  with an average
fair value of $19.39 per share were committed to be released,  resulting in ESOP
compensation expense of $1,004,667. ESOP shares have been reduced by 1,756 as of
December 31, 1999 because of terminations.

Shares held by the ESOP at December 31 are as follows:

                                                1999             1998
                                            ------------    ------------

     Allocated shares                             74,745          66,899
     Unallocated shares                           98,069         107,671
                                            ------------    ------------

         Total ESOP shares                       172,814         174,570
                                            ============    ============

     Fair value of unallocated shares       $      1,165    $      1,077
                                            ============    ============

The Company has a stock option plan under the terms of which  470,000  shares of
the  Company's  common stock were  reserved  for  issuance.  The options  become
exercisable on a cumulative basis in equal  installments over a five-year period
from the date of grant. The options expire ten years from the date of grant.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             32.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 11 - STOCK-BASED COMPENSATION PLANS (Continued)

A summary of the status of the  Company's  stock option plan and changes  during
the year are presented below:

<TABLE>
<CAPTION>
                                          1999                          1998                         1997
                               ---------------------------   -------------------------    --------------------------
                                               Weighted-                     Weighted-                    Weighted-
                                                Average                       Average                      Average
                                               Exercise                      Exercise                     Exercise
                                  Shares         Price         Shares          Price         Shares         Price
                               -----------    -----------    -----------   -----------    -----------    -----------
    Outstanding at
<S>                           <C>              <C>           <C>            <C>           <C>             <C>
      beginning of year            167,350     $  11.02          173,750    $   11.02               -     $      -
    Granted                              -                             -                      181,750        11.02
    Exercised                            -                             -                            -
    Forfeited                            -                        (6,400)                      (8,000)
                               -----------                   -----------                  -----------

       Outstanding at
         end of year               167,350                       167,350                      173,750
                               ===========                   ===========                  ===========

    Options exercisable
      at end of year                68,220                        34,750                            -

</TABLE>

All of the outstanding options at December 31, 1999 relate to options granted in
1997 at an exercise  price of $14. In January  1998,  the Company paid a special
dividend which resulted in a change in equity structure.  This event allowed the
Company to modify the stock option  agreements  to adjust the exercise  price to
$11 which was an  adjustment  in direct  proportion  to the decrease in exercise
price as compared to market value as a result of the change in equity structure.
The 1997 amounts have been  restated to reflect this  modification.  The options
have a remaining  life of 7.5 years before  expiration and are not fully vested.
The  exercise  price  equaled  the  market  value on the date the  options  were
granted.

The Company applies APB Opinion 25 and related Interpretations in accounting for
its stock option plan. Accordingly,  no compensation cost has been recognized at
the date of grant. Had compensation cost been determined based on the fair value
at the grant dates in 1997 for awards under the plan  consistent with the method
of SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  the Company's net
income and earnings  per share would have been reduced to the pro forma  amounts
in the table below.  For purposes of pro forma  disclosure,  the estimated  fair
value of the options is amortized to expense over the options' vesting period.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             33.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 11 - STOCK-BASED COMPENSATION PLANS (Continued)

                                           1999           1998            1997
                                       -----------    -----------    -----------

     Net income as reported            $     1,604    $     1,500    $       921
     Pro forma net income                    1,506          1,394            851
     Earnings per share as reported
         Basic                               1.01             .83            .47
         Diluted                             1.01             .82            .46
     Pro forma earnings per share
         Basic                                .95             .78            .44
         Diluted                              .95             .77            .43

The $4.76 per share fair value of options  granted in 1997 was  estimated at the
date of grant using the  Black-Scholes  option pricing model using the following
assumptions:  expected  volatility  factor of the  expected  market price of the
Company's  common stock of 15.75%,  risk-free  interest rate of 6.74%,  expected
option term of 8 years, and a dividend yield of 0%.

The  Black-Scholes  option  pricing  valuation  model was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because changes in the subjective input  assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

In connection  with the  conversion to stock  ownership,  the Company  adopted a
Management   Recognition   and  Retention  Plan  (MRP).  In  1997,  the  Company
contributed  $1.3 million  allowing the MRP to acquire  87,285  shares of common
stock of the Company, at an average cost of $14.00 per share, with 64,006 shares
awarded to directors and key employees.  1,600 shares were forfeited in 1998 and
an  additional  725 were  awarded in 1999.  These  shares  vest over a five-year
period.  The unamortized cost of shares not yet earned (vested) is reported as a
reduction of stockholders'  equity.  MRP compensation  expense totaled $174,453,
$175,951, and $104,543 for the years ended December 31, 1999, 1998, and 1997.

A summary of the activity under the MRP is presented below:

                             1999                 1998               1997
                      -------------------  ------------------ ------------------
                      Unearned  Unawarded Unearned  Unawarded Unearned Unawarded
                       Shares    Shares     Shares    Shares    Shares   Shares
                      --------- ---------  --------  -------- -------- ---------
Number of shares at
  beginning of year      49,605    24,879    64,006    23,279        -        -
Acquired                      -         -         -         -        -   87,285
Awarded                     725      (725)        -         -   64,006  (64,006)
Earned                  (12,401)        -   (12,801)        -        -        -
Forfeited                     -         -    (1,600)    1,600        -        -
                      --------- ---------  --------  -------- -------- --------

Number of shares at
  end of year            37,929    24,154    49,605    24,879   64,006   23,279
                      ========= =========  ========  ======== ======== ========

Unearned  shares  and  unawarded   shares  under  the  MRP  are  not  considered
outstanding for earnings per share calculations.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             34.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 12 - FINANCIAL INSTRUMENTS AND COMMITMENTS

The Bank is party to financial  instruments with  off-balance-sheet  risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments include commitments to fund loans and previously approved
unused  lines of credit.  The  Bank's  exposure  to credit  loss in the event of
nonperformance  by the parties to these financial  instruments is represented by
the contractual amount of the instruments.  The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet  items. At December 31, 1999 and
1998,  these  financial  instruments  consist of  commitments  to extend  credit
totaling  $377,800 and  $1,949,000.  Fixed rate  mortgage  loan  commitments  at
December 31, 1999 have rates ranging from 7.75% to 8.63% and terms  generally up
to 31 days.

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

Interest-bearing  deposit accounts in other financial  institutions  potentially
subject the Bank to  concentrations  of credit risk.  At December 31, 1999,  the
Bank had a deposit  account  at the  Federal  Home Loan Bank of  Chicago  with a
balance totaling approximately $1,474,000. At December 31, 1998, the balance was
approximately $3,272,000.

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


NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The   approximate   carrying  amount  and  estimated  fair  value  of  financial
instruments is as follows:

<TABLE>
<CAPTION>

                                               December 31, 1999   December 31, 1998
                                             -------------------- ---------------------
                                             Carrying     Fair     Carrying     Fair
                                              Value      Value      Value      Value
                                             ---------- --------- ----------- ---------
<S>                                          <C>         <C>        <C>        <C>
Financial assets
   Cash on hand and in banks                 $   868     $   868    $   448    $   448
   Interest-bearing deposits in other
     financial institutions                    2,437       2,437      3,789      3,789
   Interest-bearing term deposits in other
     financial institutions                      159         159        159        159
   Securities available-for-sale              41,186      41,186     38,950     38,950
   Loans receivable, net                      72,179      71,170     56,822     57,368
   Federal Home Loan Bank stock                1,927       1,927      1,319      1,319
   Accrued interest receivable                 1,051       1,051        803        803
</TABLE>

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             35.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS  (Continued)
<TABLE>
<CAPTION>

                                             December 31, 1999    December 31, 1998
                                            ------------------- -------------------
                                             Carrying   Fair     Carrying   Fair
                                              Value    Value      Value     Value
                                            --------- --------- --------- ---------
<S>                                         <C>       <C>       <C>       <C>
Financial liabilities
   Non-interest-bearing deposits            $   (326) $   (326) $   (147) $   (147)
   Money market and passbook savings         (20,085)  (20,085)  (21,063)  (21,063)
   Certificates of deposits                  (43,572)  (43,778)  (34,219)  (34,434)
   Advances from borrowers for taxes and
     insurance                                  (733)     (733)     (578)     (578)
   Advances from the Federal Home Loan Bank  (37,405)  (33,092)  (23,764)  (23,798)
   Accrued interest payable                     (430)     (430)     (278)     (278)
</TABLE>

For purposes of the above,  the following  assumptions  were used. The estimated
fair value for cash,  interest-bearing  deposits  with  financial  institutions,
Federal  Home Loan Bank stock,  accrued  interest  receivable,  money market and
savings  deposits,  and accrued  interest  payable are considered to approximate
their   carrying    values.    The   estimated   fair   value   for   securities
available-for-sale   is  based  on  quoted  market  values  for  the  individual
securities or for equivalent  securities.  The estimated fair value for loans is
based on  estimates  of the rate the Bank  would  charge  for  similar  loans at
December 31, 1999 and 1998, applied for the time period until estimated payment.
The estimated fair values of certificates of deposit and FHLB advances are based
on estimates of the rates the Bank would pay on such  financial  instruments  at
December  31, 1999 and 1998,  applied for the time period until  maturity.  Loan
commitments are not included in the table above as their estimated fair value is
immaterial.

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

While  the  above  estimates  are  based on  management's  judgment  of the most
appropriate  factors,  there is no assurance that were the Bank to have disposed
of these items on December  31, 1999 and 1998,  the fair values  would have been
achieved,  because the market value may differ  depending on the  circumstances.
The estimated  fair values at December 31, 1999 and 1998 should not  necessarily
be considered to apply at subsequent dates.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             36.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 14 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows.

                                               1999       1998     1997
                                              -------    -----    ------
Unrealized holding gains (losses) on
  securities available-for-sale               $(2,483)   $(201)   $  284
Less reclassification adjustments for gains
  (losses) recorded in income                     (86)      43         -
                                              -------    -----    ------
Net unrealized gains and (losses)              (2,397)    (244)      284
Tax effect                                        912       93      (108)
                                              -------    -----    ------

Other comprehensive income (loss)             $(1,485)   $(151)   $  176
                                              =======    =====    ======


NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed statements of financial condition, income, and
cash flows for PS Financial, Inc.

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 1999 and 1998

                                                     1999            1998
                                                  -----------    -----------
ASSETS
Cash and cash equivalents                         $     3,250    $     1,331
Securities available-for-sale                           1,916          3,278
ESOP loan                                                 903            973
Investment in bank subsidiary                          12,620         15,260
Accrued interest receivable and other assets              183            184
                                                  -----------    -----------

                                                  $    18,872    $    21,026
                                                  ===========    ===========

Stockholders' equity                              $    18,872    $    21,026
                                                  ===========    ===========

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             37.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)


                         CONDENSED STATEMENTS OF INCOME
             For the years ended December 31, 1999, 1998, and 1997

                                                     1999       1998       1997
                                                   -------    -------   -------
Income
     Interest on deposit with Bank                 $    17    $     -   $     -
     Securities interest income                        288        263       423
     ESOP loan interest income                          56         80       117
     Dividend income from subsidiary                 3,000      7,120     3,951
     Gain (loss) on sales of securities                (30)        33         -
                                                   -------    -------   -------
         Total income                                3,331      7,496     4,491

Other expenses                                         203        199       155
                                                   -------    -------   -------

Income before income taxes and equity (excess) in
  undistributed earnings of bank subsidiary          3,128      7,297     4,336

Income taxes (benefit)                                 (21)        16        96
                                                   -------    -------   -------

Income before equity (excess) in undistributed
  earnings of bank subsidiary                        3,149      7,281     4,240

Excess undistributed earnings of bank subsidiary    (1,545)    (5,781)   (3,319)
                                                   -------    -------   -------

Net income                                         $ 1,604    $ 1,500   $   921
                                                   =======    =======   =======


--------------------------------------------------------------------------------
                                  (Continued)

                                                                             38.

<PAGE>
                               PS FINANCIAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
         (Table amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------

NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
             For the years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>

                                                                  1999            1998         1997
                                                               -----------   -----------   -----------
<S>                                                            <C>           <C>           <C>
Cash flows from operating activities
    Net income                                                 $     1,604   $     1,500   $       921
    Adjustments to reconcile net income to net cash
     from operating activities
       Amortization of discounts and premiums on securities              -             2            (1)
       Excess undistributed earnings of bank subsidiary              1,545         5,781         3,319
       (Gain) loss on sale of securities                                30           (33)            -
       Change in
          Other assets                                                  35            (9)           31
          Other liabilities                                              -          (690)            -
                                                               -----------   -----------   -----------
              Net cash from operating activities                     3,214         6,551         4,270

Cash flows from investing activities
    Purchase of securities available-for-sale                            -        (4,299)       (1,690)
    Proceeds from sale of securities available-for-sale                 92         5,172         1,000
    Proceeds from repayment of securities                                -            14            95
    Proceeds from maturities of securities                           1,150           330         2,000
    Capital contribution to subsidiary                                 (58)          (83)            -
                                                               -----------   -----------   -----------
       Net cash from investing activities                            1,184         1,134         1,405

Cash flows from financing activities
    Purchases of treasury stock                                     (1,666)       (2,863)       (3,172)
    Payment received on loan to ESOP                                    70           720             9
    Dividends paid                                                    (883)       (8,405)         (544)
                                                               -----------   -----------   -----------
       Net cash from financing activities                           (2,479)      (10,548)       (3,707)
                                                               -----------   -----------   -----------

Net change in cash and cash equivalents                              1,919        (2,863)        1,968

Cash and cash equivalents at beginning of year                       1,331         4,194         2,226
                                                               -----------   -----------   -----------

Cash and cash equivalents at end of year                       $     3,250   $     1,331   $     4,194
                                                               ===========   ===========   ===========
</TABLE>


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

                                                                             39.

<PAGE>


                               PS FINANCIAL, INC.
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

The Annual Meeting of Stockholders will be held at 11:00 a.m., Chicago, Illinois
time on May 3, 2000 at the main office of PS Financial, Inc., 4800 South Pulaski
Road, Chicago, Illinois 60632.

MARKET PRICE AND DIVIDEND INFORMATION

The following information relates to the dividends paid and closing price of the
Company's $.01 par value common stock,  which is traded on the  over-the-counter
market and is quoted on the NASDAQ National Market under the symbol "PSFI."

--------------- -------------------------------- ---------------------------
                              1999                          1998
--------------- -------------------------------- ---------------------------
--------------- -------- ----------- ----------- -------- -------- ---------
QUARTER ENDED     HIGH       LOW       DIVIDEND    HIGH     LOW    DIVIDEND
--------------- -------- ----------- ----------- -------- -------- ---------
--------------- -------- ----------- ----------- -------- -------- ---------
March 31         $10.38      $9.50      $0.13     $23.00   $13.50    $4.12*
June 30           11.38       9.75       0.13      14.88    12.75     0.12
September 30      11.50      10.50       0.14      13.50    10.75     0.12
December 31       13.13      10.19       0.14      12.00     8.50     0.13
--------------- -------- ----------- ----------- -------- -------- ---------

* includes  special  dividend of $4.00 per share declared  December 30, 1997 and
paid on January 30, 1998.

At March 24, 2000 there were 1,669,290 shares of PS Financial, Inc. common stock
issued and outstanding  (including  unallocated  ESOP shares) and there were 141
holders of record.  The closing sale price for the Company's  stock on March 24,
2000 was $12.00 per share.


STOCKHOLDER AND GENERAL INQUIRIES                  TRANSFER AGENT
Kimberly P. Rooney, President                      First Bankers Trust Co.
PS Financial, Inc.                                 1201 Broadway
4800 South Pulaski Road                            Quincy, Illinois 62301
Chicago, Illinois  60632
(773) 376-3800

ANNUAL AND OTHER REPORTS

A copy of PS  Financial,  Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 1999, as filed with the Securities and Exchange Commission,  may be
obtained without charge by contacting Jeffrey Przybyl,  Chief Financial Officer,
PS Financial, Inc., 4800 South Pulaski Road, Chicago, Illinois 60632-4195.

                                       40