FORM 10-QSB

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

 (Mark One)

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

                  For Quarterly Period ended December 31, 1998

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

           For the transition period from __________ to ____________.

                         Commission File Number 0-22223

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

             Delaware                                         31-1499862
--------------------------------------------------------------------------------
(State or other jurisdiction of                             (IRS Employer
  incorporation or organization)                            Identification No.)

                     101 E. Court Street, Sidney, Ohio 45365
                     ---------------------------------------
                    (Address of principal executive offices)

                                 (937) 492-6129  
                                 --------------  
                           (Issuer's telephone number)

Check whether the small business issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act during the past 12
months (or for such shorter period that the small  business  issuer was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.

                            Yes   [ X ]     No  [   ]


As of February 5, 1999, the latest  practicable  date,  1,696,106  shares of the
issuer's common shares, $.01 par value, were outstanding.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION



                                      INDEX



                                                                                

PART I - FINANCIAL INFORMATION

  Item 1.   Financial Statements (Unaudited)

            Consolidated Balance Sheets
 
            Consolidated Statements of Income  

            Consolidated Statements of Comprehensive Income 

            Condensed Consolidated Statements of Changes in Shareholders' Equity

            Consolidated Statements of Cash Flows    

            Notes to Consolidated Financial Statements    

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


PART II - OTHER INFORMATION

  Item 1.     Legal Proceedings 

  Item 2.     Changes in Securities and Use of Proceeds 

  Item 3.     Defaults Upon Senior Securities 

  Item 4.     Submission of Matters to a Vote of Security Holders 

  Item 5.     Other Information 

  Item 6.     Exhibits and Reports on Form 8-K 


SIGNATURES  

<PAGE>
<TABLE>
<CAPTION>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)



Item 1.  Financial Statements
                                                               December 31,           June 30,
                                                                   1998               1998
                                                              -------------      -------------
<S>                                                           <C>                <C>          
ASSETS
Cash and amounts due from depository institutions             $     845,462      $     655,188
Interest-bearing deposits in other financial institutions         2,419,819          2,292,065
Overnight deposits                                                     --            2,000,000
                                                              -------------      -------------
     Total cash and cash equivalents                              3,265,281          4,947,253

Time deposits in other financial institutions                       600,000            100,000
Securities available for sale                                     3,511,870          4,015,890
Federal Home Loan Bank stock available for sale                     877,100            846,500
Loans receivable, net                                            97,284,460         94,052,531
Accrued interest receivable                                         745,776            722,401
Premises and equipment, net                                       2,025,188            973,403
Other real estate owned                                              62,643               --
Other assets                                                         88,190            245,339
                                                              -------------      -------------

     Total assets                                             $ 108,460,508      $ 105,903,317
                                                              =============      =============


LIABILITIES
Deposits                                                      $  81,888,861      $  79,053,686
Borrowed funds                                                    7,700,000          7,000,000
Accrued expense and other liabilities                               383,252            223,615
                                                              -------------      -------------
     Total liabilities                                           89,972,113         86,277,301

SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares
  authorized, none issued and outstanding
Common stock, $.01 par value, 3,500,000 shares
  authorized, 1,785,375 shares issued                                17,854             17,854
Additional paid-in capital                                       10,765,951         10,717,991
Retained earnings                                                10,589,312         10,581,096
Treasury stock, 72,500 shares at cost                            (1,283,437)              --
Unearned employee stock-ownership plan shares                    (1,609,595)        (1,702,114)
Unrealized gain on securities available for sale                      8,310             11,189
                                                              -------------      -------------
     Total shareholders' equity                                  18,488,395         19,626,016
                                                              -------------      -------------

     Total liabilities and shareholders' equity               $ 108,460,508      $ 105,903,317
                                                              =============      =============
</TABLE>

          See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  CONSOLIDATED STATEMENTS OF INCOME
                                             (Unaudited)

                                               Three Months Ended            Six Months Ended
                                                   December 31,                  December 31,
                                            -------------------------     -------------------------
                                               1998           1997           1998           1997
                                            ----------     ----------     ----------     ----------
<S>                                         <C>            <C>            <C>            <C>       
Interest income
     Loans, including fees                  $1,929,743     $1,866,886     $3,802,046     $3,702,996
     Securities                                 57,509         62,725        121,542        126,288
     Interest-bearing demand and
       overnight deposits                       25,251         89,931         73,978        170,715
     Dividends on Federal Home
       Loan Bank stock                          15,207         14,188         30,676         28,122
                                            ----------     ----------     ----------     ----------
         Total interest income               2,027,710      2,033,730      4,028,242      4,028,121

Interest expense
     Deposits                                  978,473      1,013,726      1,956,414      1,992,991
     Other borrowings                          111,838           --          220,152           --
                                            ----------     ----------     ----------     ----------
         Total interest expense              1,090,311      1,013,726      2,176,566      1,992,991
                                            ----------     ----------     ----------     ----------

Net interest income                            937,399      1,020,004      1,851,676      2,035,130
Provision for loan losses                       16,139          9,677         52,919         35,760
                                            ----------     ----------     ----------     ----------

Net interest income after provision for
  loan losses                                  921,260      1,010,327      1,798,757      1,999,370
                                            ----------     ----------     ----------     ----------

Noninterest income
     Service fees and other charges             20,123         15,253         34,414         31,121
                                            ----------     ----------     ----------     ----------
Noninterest expense
     Compensation and benefits                 405,330        244,787        788,364        467,800
     Occupancy and equipment                    73,348         42,245        120,650         81,671
     Computer processing expense                41,303         37,002         84,185         73,928
     FDIC deposit insurance premiums            11,424         12,121         23,334         24,831
     State franchise taxes                      76,100         35,080        144,456         70,161
     Other                                     149,507        129,743        304,498        263,444
                                            ----------     ----------     ----------     ----------
         Total noninterest expense             757,012        500,978      1,465,487        981,835
                                            ----------     ----------     ----------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  CONSOLIDATED STATEMENTS OF INCOME
                                             (Unaudited)
                                             (continued)


                                               Three Months Ended           Six Months Ended
                                                   December 31,                 December 31,
                                            -------------------------     -------------------------
                                               1998           1997           1998           1997
                                            ----------     ----------     ----------     ----------
<S>                                         <C>            <C>            <C>            <C>       

Income before income taxes                     184,371        524,602        367,684      1,048,656

Provision for income taxes                      66,660        186,651        132,797        373,146
                                            ----------     ----------     ----------     ----------

Net income                                  $  117,711     $  337,951     $  234,887     $  675,510
                                            ==========     ==========     ==========     ==========

Earnings per common share - basic           $      .07     $      .20     $      .14            .40
                                            ==========     ==========     ==========     ==========

Earnings per common share - diluted         $      .07     $      .20     $      .14            .40
                                            ==========     ==========     ==========     ==========

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

                                  PEOPLES-SIDNEY FINANCIAL CORPORATION
                             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                               (Unaudited)

                                                      Three Months Ended          Six Months Ended
                                                         December 31,               December 31,
                                                 ------------------------      ------------------------
                                                    1998           1997          1998          1997
                                                 ---------      ---------      ---------      ---------
<S>                                              <C>            <C>            <C>            <C>      
Net income                                       $ 117,711      $ 337,951      $ 234,887      $ 675,510

Other comprehensive income
     Unrealized gain/(loss) on available for
       sale securities arising during the
       period                                      (17,206)          (947)        (4,363)        10,248
     Tax effect                                      5,850            323          1,484         (3,484)
                                                 ---------      ---------      ---------      ---------
Other comprehensive income                         (11,356)          (624)        (2,879)         6,764
                                                 ---------      ---------      ---------      ---------

Comprehensive income                             $ 106,355      $ 337,327      $ 232,008      $ 682,274
                                                 =========      =========      =========      =========

</TABLE>

          See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                              PEOPLES-SIDNEY FINANCIAL CORPORATION
                        CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
                                      SHAREHOLDERS' EQUITY
                                          (Unaudited)


                                                                       Six Months Ended
                                                                          December 31,
                                                                ------------------------------
                                                                     1998              1997
                                                                ------------      ------------
<S>                                                             <C>               <C>         
Balance, beginning of period                                    $ 19,626,016      $ 25,711,713

Net income for period                                                234,887           675,510

Cash dividends of $.14 per share in 1998 and $.12 per share
  in 1997                                                           (226,671)         (198,330)

Purchase of 72,500 shares of treasury stock, at cost              (1,283,437)             --

Commitment to release 7,624 and 5,100 employee stock
  ownership plan shares in 1998 and 1997, at fair value              140,479            84,426

Change in unrealized gain on securities available for sale            (2,879)            6,764
                                                                ------------      ------------

Balance, end of period                                          $ 18,488,395      $ 26,280,083
                                                                ============      ============

</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>
                                PEOPLES-SIDNEY FINANCIAL CORPORATION
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (Unaudited)

                                                                           Six Months Ended
                                                                               December 31,
                                                                      ----------------------------
                                                                          1998             1997
                                                                      -----------      -----------
<S>                                                                   <C>              <C>                                 
Cash flows from operating activities
     Net income                                                       $   234,887      $   675,510
     Adjustments to reconcile net income to net cash from
       operating activities
         Depreciation                                                      45,242           24,272
         Provision for loan losses                                         52,919           35,760
         FHLB stock dividends                                             (30,600)         (28,000)
         Compensation expense related to ESOP shares                      140,479           84,426
         Change in
              Accrued interest receivable and other assets                133,233           42,056
              Accrued expense and other liabilities                       161,120          (45,184)
              Deferred loan fees                                            8,311            4,548
                                                                      -----------      -----------
                  Net cash from operating activities                      745,591          793,388

Cash flows from investing activities
     Purchases of securities available for sale                              --           (999,141)
     Maturities of securities available for sale                          500,000             --
     Maturities of securities held to maturity                               --          1,000,000
     Proceeds from maturities of time deposits in other financial
       institutions                                                          --          5,000,000
     Purchase of time deposits in other financial institutions           (500,000)      (2,000,000)
     Net increase in loans                                             (3,355,603)      (4,354,439)
     Premises and equipment expenditures                               (1,097,027)         (47,759)
                                                                      -----------      -----------
         Net cash from investing activities                            (4,452,630)      (1,401,339)

Cash flows from financing activities
     Net increase in deposits                                           2,835,175        2,569,561
     Net change in short-term Federal Home Loan Bank advances             700,000             --
     Purchase of treasury stock                                        (1,283,437)            --
     Cash dividends paid                                                 (226,671)        (198,330)
                                                                      -----------      -----------
         Net cash from financing activities                             2,025,067        2,371,231
                                                                      -----------      -----------

Net change in cash and cash equivalents                                (1,681,972)       1,763,280

Cash and cash equivalents at beginning of period                        4,947,253        2,795,826
                                                                      -----------      -----------

Cash and cash equivalents at end of period                            $ 3,265,281      $ 4,559,106
                                                                      ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                PEOPLES-SIDNEY FINANCIAL CORPORATION
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (Unaudited)
                                            (continued)

                                                                           Six Months Ended
                                                                               December 31,
                                                                      ----------------------------
                                                                          1998             1997
                                                                      -----------      -----------
<S>                                                                   <C>              <C> 
Supplemental disclosures of cash flow information
     Cash paid during the year for
         Interest                                                     $ 2,180,326      $ 1,998,237
         Income taxes                                                      21,000          386,000

Noncash transactions
     Transfer from loans to other real estate owned                        62,444             --

</TABLE>

          See accompanying notes to consolidated financial statements.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These interim  financial  statements are prepared  without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the   financial   position  of   Peoples-Sidney   Financial   Corporation   (the
"Corporation") at December 31, 1998 and its results of operations and cash flows
for the periods  presented.  All such  adjustments  are normal and  recurring in
nature. The accompanying consolidated financial statements have been prepared in
accordance with the instructions of Form 10-QSB and,  therefore,  do not purport
to  contain  all the  necessary  financial  disclosures  required  by  generally
accepted  accounting  principles  that  might  otherwise  be  necessary  in  the
circumstances, and should be read in conjunction with the consolidated financial
statements and notes thereto of the  Corporation  for the fiscal year ended June
30,  1998,  included  in its  1998  Annual  Report.  Reference  is  made  to the
accounting  policies of the  Corporation  described in the notes to consolidated
financial  statements  contained in its 1998 Annual Report.  The Corporation has
consistently followed these policies in preparing this Form 10-QSB.

The  accompanying  consolidated  financial  statements  include  accounts of the
Corporation and its  wholly-owned  subsidiary,  Peoples Federal Savings and Loan
Association (the  "Association"),  a federal stock savings and loan association.
All significant intercompany transactions and balances have been eliminated.

The Corporation's and  Association's  revenues,  operating income and assets are
primarily from the financial  institution  industry.  The Association is engaged
primarily in the business of making  residential real estate loans and accepting
deposits. Its operations are conducted solely through its main office located in
Sidney,  Ohio. The Association's  market area consists of Shelby and surrounding
counties.

To prepare financial statements in conformity with generally accepted accounting
principles,  management  makes  estimates  and  assumptions  based on  available
information.  These estimates and assumptions affect the amounts reported in the
financial statements and disclosures provided,  and future results could differ.
The allowance for loan losses,  fair values of financial  instruments and status
of contingencies are particularly subject to change.

Income tax expense is based on the  effective tax rate expected to be applicable
for the entire year.  Income tax expense is the sum of the  current-year  income
tax due or  refundable  and the change in deferred  tax assets and  liabilities.
Deferred tax assets and  liabilities  are expected  future tax  consequences  of
temporary  differences  between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.

Basic  earnings per share ("EPS") is based on net income divided by the weighted
average number of shares  outstanding  during the period.  Diluted EPS shows the
dilutive effect of unearned  management  recognition plan ("MRP") shares and the
additional common shares issuable under stock options.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The weighted average number of shares  outstanding for basic and diluted EPS was
1,601,560 and  1,614,245  for the three and six months ended  December 31, 1998.
The weighted average number of shares  outstanding for basic and diluted EPS was
1,656,175 and  1,654,895  for the three and six months ended  December 31, 1997.
Unreleased  employee stock ownership plan shares are not considered  outstanding
for determining the weighted  average number of shares used in calculating  both
basic and diluted EPS.  Unearned MRP shares are not considered to be outstanding
shares for determining the weighted average number of shares used in calculating
basic EPS. Stock options  granted did not have a dilutive  effect on EPS for the
three  and  six  months  ended  December  31,  1998  as the  exercise  price  of
outstanding  options was greater  than the average  market price for the period.
Unearned MRP shares did not have a dilutive effect on EPS, as no shares had been
purchased by the MRP plan as of December 31, 1998. Unearned MRP shares and stock
options  did  not  have  a  dilutive  effect  on  the  weighted  average  shares
outstanding  for the three and six months ended December 31, 1997 as neither MRP
shares or stock options were granted until May 22, 1998.

Under a new  accounting  standard  adopted  on  July  1,  1998,  SFAS  No.  130,
"Reporting  Comprehensive  Income,"  comprehensive  income is  reported  for all
periods.  Comprehensive  income includes both net income and other comprehensive
income.  Other comprehensive  income includes the change in unrealized gains and
losses on securities available for sale.

SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information," was issued in June 1997. This Standard  significantly  changes the
way  public-business  enterprises report information about operating segments in
annual  financial  statements,  and requires those  enterprises  report selected
information  about reportable  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about an
enterprise's   reportable   operating  segments  which  is  based  on  reporting
information the way management  organizes the segments within the enterprise for
making operating decisions and assessing performance.  For many enterprises, the
management  approach  will likely  result in more segments  being  reported.  In
addition,  the Standard requires significantly more information be disclosed for
each  reportable  segment than is presently  being reported in annual  financial
statements.  The Standard  also  requires  selected  information  be reported in
interim financial statements.  SFAS No. 131 will be effective beginning with the
Corporation's 1999 annual financial statements.  Adoption of the Standard is not
expected to have a significant impact on the Corporation's financial statements.

SFAS No. 132,  "Employers'  Disclosures about Pensions and Other  Postretirement
Benefits," will also be effective in fiscal 1999. SFAS 132 amends the disclosure
requirements of previous  pension and other  postretirement  benefit  accounting
standards  by  requiring  additional  disclosures  about  such  plans as well as
eliminating some disclosures no longer considered  useful.  SFAS 132 also allows
greater  aggregation of disclosures for employers with multiple  defined benefit
plans.  SFAS  132  is  not  expected  to  have  a  significant   impact  on  the
Corporation's financial statements.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities,"
will be  effective  in  fiscal  2000.  SFAS 133  requires  companies  to  record
derivatives  on the  balance  sheet as assets or  liabilities,  measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted  for  depending on the use of the  derivative  and whether it
qualifies for hedge  accounting.  The key criterion for hedge accounting is that
the  hedging  relationship  must be highly  effective  in  achieving  offsetting
changes  in fair  value or cash  flows.  SFAS 133 does not  allow  hedging  of a
security which is classified as held to maturity,  accordingly, upon adoption of
SFAS 133,  companies  may  reclassify  any  security  from held to  maturity  to
available  for sale if they wish to be able to hedge the security in the future.
Management does not expect the adoption SFAS 133 to have a significant impact on
the Corporation's financial statements.

SFAS No. 134,  "Accounting  for  Mortgage-backed  Securities  Retained after the
Securitization   of  Mortgage  Loans  Held  for  Sale  by  a  Mortgage   Banking
Enterprise,"  will be effective on January 1, 1999. SFAS 134 amends SFAS No. 65,
"Accounting  for  Certain  Mortgage  Banking  Activities"  by  changing  the way
companies  involved in mortgage banking account for certain securities and other
interests they retain after securitizing mortgage loans that were held for sale.
SFAS 134 allows any retained  mortgage-backed  securities after a securitization
of  mortgage  loans held for sale to be  classified  based on holding  intent in
accordance  with SFAS 115  except in cases  where the  retained  mortgage-backed
security is committed to be sold before or during the securitization  process in
which case it must be  classified  as  trading.  Previously,  under SFAS 65, all
retained  mortgage-backed  securities were required to be classified as trading.
SFAS 134 is not  expected  to have a  significant  impact  on the  Corporation's
financial statements.


NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN  ASSOCIATION
WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY

On November  8, 1996,  the Board of  Directors  of the  Association  unanimously
adopted  a Plan of  Conversion  to  convert  from a  federally-chartered  mutual
savings and loan  association  to a  federally-chartered  stock savings and loan
association with the concurrent  formation of a holding company,  Peoples-Sidney
Financial  Corporation.  The  conversion  was  consummated on April 25, 1997, by
amending  the  Association's  charter and selling the holding  company's  common
stock in an amount  equal to the market  value of the  Association  after giving
effect to the  conversion.  Common  shares of the  Corporation  were  offered in
accordance  with the plan of conversion.  A total of 1,785,375  common shares of
the  Corporation  were sold at $10.00 per share and net  proceeds  from the sale
were $17,217,944 after deducting the costs of conversion.

The Corporation retained 50% of the net proceeds from the sale of common shares.
The  remainder of the net  proceeds was invested in capital  stock issued by the
Association to the Corporation as a result of the conversion.

At the time of conversion,  the Association established a liquidation account in
an amount  equal to its  regulatory  capital as of the latest  practicable  date
before the  conversion.  In the event of a complete  liquidation,  each eligible
depositor  will be  entitled  to  receive a  distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for accounts then held.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN  ASSOCIATION
WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY (Continued)

Under Office of Thrift  Supervision  (OTS)  regulations,  limitations  have been
imposed on all "capital  distributions" by savings institutions,  including cash
dividends.  The regulation  establishes a three-tiered  system of  restrictions,
with greatest flexibility afforded to thrifts that are both well capitalized and
given favorable qualitative examination ratings by the OTS.


NOTE 3 - SECURITIES

The amortized  cost and estimated  fair values of securities  are  summarized as
follows:
<TABLE>
<CAPTION>
                                                                          Gross         Gross          Estimated
                                                        Amortized     Unrealized      Unrealized          Fair
                                                          Cost            Gains         Losses           Value
                                                    --------------     ----------    -----------    ---------------
<S>                                                 <C>                <C>           <C>            <C>            
December 31, 1998
Securities available for sale
  U.S. Government agencies                          $    3,499,279     $   12,986    $      (395)   $     3,511,870
                                                    ==============     ==========    ===========    ===============

June 30, 1998
Securities available for sale
  U.S. Government agencies                          $    3,998,936     $   21,459    $    (4,505)   $     4,015,890
                                                    ==============     ==========    ===========    ===============
</TABLE>

Amortized  cost and estimated fair values of securities at December 31, 1998, by
contractual  maturity,  are shown  below.  Actual  maturities  could differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>

                                                                              Estimated
                                                           Amortized            Fair
                                                             Cost               Value
                                                        --------------    ---------------
<S>                                                     <C>               <C>            
Securities available for sale
           Due in one year or less                      $      999,829    $     1,003,910
           Due after one year through five years             2,499,450          2,507,960
                                                        --------------    ---------------

                                                        $    3,499,279    $     3,511,870
                                                        ==============    ===============
</TABLE>
No securities  were sold during the three- or six-month  periods ended  December
31, 1998 and 1997. No securities were pledged as collateral at December 31, 1998
or June 30, 1998.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 4 - LOANS RECEIVABLE

Loans receivable are summarized as follows:
<TABLE>
<CAPTION>

                                            December 31,        June 30,
                                                1998              1998
                                          ------------      ------------
<S>                                        <C>               <C>         
     Mortgage loans:
          1-4 family residential           $ 80,356,047      $ 79,690,787
          Multi-family residential              628,854           654,871
          Commercial real estate              8,871,216         6,608,207
          Real estate construction and
            development                       6,176,078         6,776,389
          Land                                  632,739           867,755
              Total mortgage loans           96,664,934        94,598,009
     Consumer and other loans                 3,273,572         2,154,474
                                           ------------      ------------
              Total loans receivable         99,938,506        96,752,483
     Less:
          Allowance for loan losses            (456,502)         (425,642)
          Loans in process                   (1,993,860)       (2,078,937)
          Deferred loan fees                   (203,684)         (195,373)
                                           ------------      ------------

                                           $ 97,284,460      $ 94,052,531
                                           ============      ============
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
                                       Three Months Ended             Six Months Ended
                                          December 31,                  December 31,
                                   ------------------------      ------------------------
                                      1998           1997           1998          1997
                                   ---------      ---------      ---------      ---------
<S>                                <C>            <C>            <C>            <C>      
Balance at beginning of period     $ 446,145      $ 412,695      $ 425,642      $ 397,159
Provision for losses                  16,139          9,677         52,919         35,760
Charge-offs                           (6,344)        (4,489)       (22,621)       (15,036)
Recoveries                               562            192            562            192
                                   ---------      ---------      ---------      ---------

Balance at end of period           $ 456,502      $ 418,075      $ 456,502      $ 418,075
                                   =========      =========      =========      =========
</TABLE>

As of and for the three and six months  ended  December  31,  1998 and 1997,  no
loans were considered impaired within the scope of SFAS No. 114.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 5 - OTHER BORROWINGS

At December 31, 1998 and June 30, 1998, the  Association  had a cash  management
line of credit  enabling it to borrow up to $5,360,000 and  $5,100,000  from the
Federal Home Loan Bank (FHLB) of Cincinnati.  The line of credit must be renewed
on an annual  basis.  Borrowings  outstanding  on this  line of  credit  totaled
$700,000 at December  31, 1998 while there were no such  borrowings  at June 30,
1998. As a member of the Federal Home Loan Bank system,  the Association has the
ability to obtain  additional  borrowings up to a maximum total of approximately
$17,542,000,  including the line of credit.  The  Association had one fixed-rate
borrowing,  with an interest rate of 6.13%,  totaling $7,000,000 at December 31,
1998 and June 30, 1998.  The original  term of the borrowing was 120 months with
interest due monthly and principal due upon maturity on June 25, 2008.  Advances
under the borrowing  agreements  are  collateralized  by a blanket pledge of the
Association's residential mortgage loan portfolio and its FHLB stock.


NOTE  6  -   COMMITMENTS,   CONTINGENCIES   AND   FINANCIAL   INSTRUMENTS   WITH
OFF-BALANCE-SHEET RISK

Various  contingent  liabilities are not reflected in the financial  statements,
including  claims and legal actions  arising in the ordinary course of business.
In the opinion of management,  after  consultation with legal counsel,  ultimate
disposition  of these  matters is not expected to have a material  effect on the
Corporation's financial condition or results of operations.

Some  financial  instruments  are used in the normal  course of business to meet
financing needs of customers and reduce exposure to interest rate changes. These
financial  instruments include commitments to extend credit,  standby letters of
credit and financial guarantees.  These involve, to varying degrees, more credit
risk than the amount reported in the financial statements.

Exposure to credit loss if the other  party does not perform is  represented  by
contractual  amount for commitments to extend credit,  standby letters of credit
and  financial  guarantees  written.  The  same  credit  policies  are  used for
commitments  and  conditional  obligations as are used for loans.  The amount of
collateral  obtained,  if deemed  necessary,  on extension of credit is based on
management's   credit  evaluation  and  generally  consists  of  residential  or
commercial real estate.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there  is  no  violation  of  any  condition   established  in  the  commitment.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require payment of a fee. Since many  commitments are expected to expire
without being used, total  commitments do not necessarily  represent future cash
requirements.

As of December 31, 1998 and June 30, 1998, the  Corporation  had  commitments to
make fixed-rate commercial and residential real estate mortgage loans at current
market rates totaling $878,000 and $621,000,  and  variable-rate  commercial and
residential real estate mortgage loans at current market rates totaling $835,000
and $687,000.  Loan commitments are generally for 30 days. The interest rates on

<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE  6  -   COMMITMENTS,   CONTINGENCIES   AND   FINANCIAL   INSTRUMENTS   WITH
OFF-BALANCE-SHEET RISK (Continued)

fixed-rate commitments ranged from 6.75% to 7.75% at December 31, 1998 and 7.50%
to 8.25% at June 30,  1998.  The  interest  rates on  variable-rate  commitments
ranged from 7.00% to 7.50% at  December  31, 1998 and 7.25% to 8.00% at June 30,
1998.  The  Corporation  also had unused lines of credit  totaling  $931,000 and
$548,000 at December 31, 1998 and June 30, 1998.

At December  31, 1998 and June 30, 1998,  compensating  balances of $456,000 and
$299,000  were  required as deposits  with various  correspondent  banks.  These
balances do not earn interest.


The Association entered into employment  agreements with certain officers of the
Corporation and  Association.  The agreements  provide for terms of one to three
years, and an annual salary and performance review by the Board of Directors, as
well as inclusion of the employee in any formally-established  employee benefit,
bonus,  pension and  profit-sharing  plans for which  management  personnel  are
eligible. The agreements provide for extensions for a period of one year on each
annual  anniversary  date,  subject to review and  approval of the  extension by
disinterested  members  of  the  Board  of  Directors  of the  Association.  The
employment agreements also provide for vacation and sick leave.


NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN

The Corporation offers an employee stock ownership plan ("ESOP") for the benefit
of substantially  all employees of the Corporation and Association.  During July
1997,  the ESOP  received a favorable  determination  letter  from the  Internal
Revenue Service on the qualified status of the ESOP under applicable  provisions
of the Internal Revenue Code.

The ESOP borrowed  funds from the  Corporation in order to acquire common shares
of the  Corporation.  The loan is secured by shares purchased with loan proceeds
and will be repaid  by ESOP  with  funds  from the  Association's  discretionary
contributions  to the  ESOP  and  earnings  on ESOP  assets.  All  dividends  on
unallocated  shares  received by the ESOP are used to pay debt  service.  Shares
purchased with loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. As payments are made and shares are released
from the suspense  account,  such shares will be validly issued,  fully paid and
nonassessable.

Shares  pledged as  collateral  are  reported  as  unearned  ESOP  shares in the
Consolidated  Balance  Sheets.  As shares  are  released  from  collateral,  the
Corporation  reports  compensation  expense equal to the current market price of
the  shares   and  the  shares   become   outstanding   for   earnings-per-share
computations.  Dividends on allocated ESOP shares are recorded as a reduction of
retained  earnings;  dividends  on  unallocated  ESOP  shares are  recorded as a
reduction of debt and accrued interest.  ESOP  compensation  expense was $62,776
and $140,479 for the three and six months ended December 31, 1998.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)


The ESOP shares as of December 31, 1998 and June 30, 1998 were as follows:
<TABLE>
<CAPTION>
                                                      December 31,      June 30,
                                                          1998            1998
                                                       ----------     ----------
<S>                                                        <C>            <C>   
Allocated shares                                           24,031         24,031
Shares committed to be released for allocation              7,624           --
Unreleased shares                                         137,175        144,799
                                                       ----------     ----------
    Total ESOP shares                                     168,830        168,830
                                                       ==========     ==========

Fair value of unreleased shares                        $2,297,681     $2,588,282
                                                       ==========     ==========

</TABLE>

NOTE 8 - STOCK OPTION AND INCENTIVE PLAN

Upon approval of the Stock Option and Incentive Plan by the  shareholders of the
Corporation on May 22, 1998, the Board of Directors  granted options to purchase
138,809  shares  of common  stock at an  exercise  price of  $20.00  to  certain
employees, officers and directors of the Association and Corporation. No options
had been  previously  awarded.  One-fifth  of the options  awarded  become first
exercisable on each of the first five  anniversaries  of the date of grant.  The
option  period  expires  10 years  from  the  date of  grant.  No  options  were
exercisable  at December 31, 1998 or June 30, 1998. In addition,  39,729 options
to purchase common stock are reserved for future grants.


NOTE 9 - MANAGEMENT RECOGNITION PLAN

A Management  Recognition Plan ("MRP") was adopted by the Board of Directors and
approved by the shareholders of the Corporation on May 22, 1998. The MRP will be
used  as a means  of  providing  directors  and  certain  key  employees  of the
Association and Corporation  with an ownership  interest in the Corporation in a
manner  designed to compensate  such directors and key employees for services to
the  Association  and  Corporation.  The MRP will purchase 71,415 common shares,
which  is  equal  to 4% of  the  common  shares  sold  in  connection  with  the
conversion. As of December 31, 1998, no shares have been purchased.

In  conjunction  with the  adoption  of the MRP on May 22,  1998,  the  Board of
Directors awarded 57,128 shares to certain directors,  officers and employees of
the  Association  and  Corporation.  No  shares  had  been  previously  awarded.
One-fifth of such shares will be earned and  nonforfeitable on each of the first
five  anniversaries  of the date of the  award.  In the  event  of the  death or
disability of a participant, however, the participant's shares will be deemed to
be earned and  nonforfeitable  upon such date. At December 31, 1998 and June 30,
1998, there were 14,287 shares reserved for future awards.  Compensation expense
related to MRP shares is based  upon the cost of the  shares.  For the three and
six months ended December 31, 1998,  the  Corporation  has accrued  compensation
expense  totaling  $60,000 and  $120,000  based upon the  estimated  cost of the
number  of  shares  earned  during  the  period.  No  compensation  expense  was
recognized during the three and six months ended December 31, 1997.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Introduction

In the  following  pages,  management  presents  an  analysis  of the  financial
condition of  Peoples-Sidney  Financial  Corporation (the  "Corporation")  as of
December 31, 1998,  compared to June 30, 1998, and results of operations for the
three and six months ended December 31, 1998,  compared with the same periods in
1997.  This  discussion  is designed to provide a more  comprehensive  review of
operating  results  and  financial  position  than  could  be  obtained  from an
examination of the financial  statements  alone. This analysis should be read in
conjunction with the interim financial statements and related footnotes included
herein.

In  addition to the  historical  information  contained  herein,  the  following
discussion   contains    forward-looking    statements   involving   risks   and
uncertainties.  Economic circumstances,  the Corporation's operations and actual
results could differ  significantly from those discussed in the  forward-looking
statements.  Some factors that could cause or contribute to such differences are
discussed herein,  but also include changes in the economy and interest rates in
the nation and the Association's general market area.

On November 8, 1996, the Board of Directors of the Peoples  Federal  Savings and
Loan (the  "Association")  unanimously  adopted a Plan of  Conversion to convert
from  a   federally-chartered   mutual   savings  and  loan   association  to  a
federally-chartered  stock  savings  and loan  association  with the  concurrent
formation  of a  holding  company,  Peoples-Sidney  Financial  Corporation.  The
conversion  was  consummated  on April 25, 1997,  by amending the  Association's
charter and selling the holding company's common stock in an amount equal to the
market value of the Association,  after giving effect to the conversion. A total
of 1,785,375  common shares of the Corporation were sold at $10.00 per share and
net  proceeds  from the sale  were  $17,217,944  after  deducting  the  costs of
conversion.

The Corporation retained 50% of the net proceeds from the sale of common shares.
The  remainder of the net  proceeds was invested in the capital  stock issued by
the Association to the Corporation as a result of the conversion.

The Corporation is a thrift holding company,  primarily  engaged in the business
of attracting  savings deposits from the general public and investing such funds
in permanent  mortgage  loans secured by one- to  four-family  residential  real
estate located in Shelby, Logan, Auglaize,  Miami, Darke and Champaign Counties,
Ohio.  The  Corporation  also  originates,  to a lesser  extent,  loans  for the
construction of one- to four-family  residential  real estate,  loans secured by
multi-family  residential real estate (over four units) and nonresidential  real
estate  and  consumer  loans,  and  invests  in  U.S.  government   obligations,
interest-bearing  deposits in other financial institutions and other investments
permitted by applicable law.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Financial Condition

Total assets at December 31, 1998 were $108.5 million compared to $105.9 million
at June 30, 1998,  an increase of $2.6 million,  or 2.5%.  The increase in total
assets was due to  increases in loans and  premises  and  equipment  funded by a
decrease in overnight deposits in other financial institutions and proceeds from
increased deposits and borrowings.

Loans  receivable  increased $3.2 million from $94.1 million at June 30, 1998 to
$97.3  million at December 31, 1998.  The increase was  primarily in  commercial
real  estate  loans  which  increased  $2.3  million.  A decrease in real estate
construction and land development  loans was offset by an increase in 1-4 family
residential  real estate loans as several  construction  loans were converted to
more permanent financing upon completion of construction. Changes in other types
of mortgage loans were not  significant.  The overall increase in total mortgage
loans is reflective of a strong local economy coupled with attractive loan rates
and products compared to local competition.  The Corporation has not changed its
philosophy regarding pricing or underwriting standards during the year.

The  Corporation's  consumer  and other loan  portfolio  increased  $1.1 million
between June 30, 1998 and December 31, 1998. Despite the increase,  consumer and
other loans remain a small portion of the entire loan portfolio and  represented
only 3.3% and 2.2% of gross loans at December 31, 1998 and June 30, 1998.

Premises and equipment  increased $1.1 million from $973,000 at June 30, 1998 to
$2.0  million at December 31, 1998.  The  increase  resulted as the  Corporation
constructed  a new,  full-service  branch  banking  office  in Anna,  Ohio.  The
Corporation also purchased  additional  equipment in connection with the opening
of a new, leased branch facility in Jackson Center, Ohio.

Total  deposits  increased  $2.8 million from $79.1  million at June 30, 1998 to
$81.9 million at December 31, 1998. The Corporation experienced increases in all
types of deposits,  however,  the majority of the growth was in negotiable order
of withdraw  ("NOW") and money market demand deposit  accounts,  which increased
$2.3 million,  and passbook  savings  accounts,  which increased  $396,000.  The
growth is the  result of  special  promotions  offered  in  connection  with the
opening of new branch locations in Anna and Jackson Center, Ohio.

Borrowed  funds  increased  $700,000  from $7.0 million at June 30, 1998 to $7.7
million  at  December  31,  1998.  The  Association  maintains  a  $5.4  million
cash-management  line of credit with the FHLB under which  $700,000 was borrowed
to provide additional  liquidity for loan growth. The advance carries a variable
interest  rate  and can be  prepaid  at any  time  without  penalty.  Additional
advances may be obtained  from the FHLB to fund future loan growth and liquidity
as needed.


Results of Operations

The  operating  results of the  Corporation  are  affected  by general  economic
conditions,  monetary and fiscal  policies of federal  agencies  and  regulatory
policies of agencies that regulate  financial  institutions.  The  Corporation's
cost of funds is  influenced  by interest  rates on  competing  investments  and
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

general  market rates of interest.  Lending  activities are influenced by demand
for real  estate  loans and other  types of loans,  which in turn is affected by
interest  rates at which such loans are made,  general  economic  conditions and
availability of funds for lending activities.

The Corporation's net income primarily depends on its net interest income, which
is the difference  between  interest income earned on  interest-earning  assets,
such as loans and securities and interest expense  incurred on  interest-bearing
liabilities,  such as deposits and other  borrowings.  The level of net interest
income is dependent on the interest rate  environment and volume and composition
of interest-earning assets and interest-bearing  liabilities. Net income is also
affected by provisions for loan losses,  service  charges,  gains on the sale of
assets and other income, noninterest expense and income taxes.

Net Income.  The Corporation  earned net income of $118,000 and $235,000 for the
three and six months ended  December 31, 1998  compared to $338,000 and $676,000
for the three and six months ended December 31, 1997. The decrease in net income
was primarily due to a decrease in net interest income combined with an increase
in noninterest expense.

Net Interest Income. Net interest income totaled $937,000 and $1,852,000 for the
three and six  months  ended  December  31,  1998  compared  to  $1,020,000  and
$2,035,000 for the three and six months ended December 31, 1997.
The decreases were the result of additional interest paid on borrowed funds.

Interest and fees on loans increased $63,000 and $99,000,  or 3.4% and 2.7% from
$1,867,000  and  $3,703,000 for the three and six months ended December 31, 1997
to $1,930,000  and  $3,802,000  for the three and six months ended  December 31,
1998.  The  increase  in  interest  income  was  due  to  higher  average  loans
receivable,  related  primarily to the origination of new commercial real estate
and consumer loans.

Interest  earned on  interest-bearing  demand and overnight  deposits  decreased
$65,000  and  $97,000 for the three and six months  ended  December  31, 1998 as
compared to the same  periods in the prior year.  The decrease was the result of
lower  average  balances  coupled with a decrease in the average yield earned on
such investments.

Interest  paid on deposits  decreased  $35,000 and $37,000 for the three and six
months  ended  December  31,  1998  compared  to the three and six months  ended
December 31, 1997.  There was little  change in the interest paid on deposits as
the mix of the deposit  portfolio  remained fairly stable while the effect of an
increase  in the  average  balance of  deposits  was offset by a decrease in the
average  cost.  The average  cost of deposits  decreased  from 5.08% for the six
months ended  December  31, 1997 to 4.88% for the six months ended  December 31,
1998.

Interest paid on borrowed funds totaled  $112,000 and $220,000 for the three and
six months ended December 31, 1998. There were no borrowings during the three or
six months ended  December 31, 1997.  The increase  resulted as the  Corporation
borrowed $7.0 million under a ten-year,  fixed-rate,  interest-only advance from
the FHLB at the end of fiscal 1998 to fund a $4.00 per share tax-free  return of
capital  totaling $7.1 million.  The  Corporation  paid the return of capital on
June 26, 1998 as a means to reduce the excess  capital  provided  from the stock
conversion.  The  Corporation  borrowed an  additional  $700,000  under its cash
management  line of credit  during the three months  ended  December 31, 1998 to
provide liquidity for loan growth.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Provision  for Loan Losses.  The  Corporation  maintains  an allowance  for loan
losses in an amount  that,  in  management's  judgment,  is  adequate  to absorb
probable losses inherent in the loan portfolio.  While  management uses its best
judgment and information  available,  the ultimate  adequacy of the allowance is
dependent on a variety of factors,  including  performance of the  Corporation's
loan  portfolio,  the economy,  changes in real estate values and interest rates
and  the  view  of  regulatory  authorities  toward  loan  classifications.  The
provision  for loan losses is determined by management as the amount to be added
to the  allowance  for loan losses after net  charge-offs  have been deducted to
bring the allowance to a level considered  adequate to absorb probable losses in
the loan portfolio. The amount of the provision is based on management's monthly
review of the loan  portfolio  and  consideration  of such factors as historical
loss experience,  general prevailing  economic  conditions,  changes in size and
composition  of  the  loan  portfolio  and  specific  borrower   considerations,
including  ability of the borrower to repay the loan and the estimated  value of
the underlying collateral.

The  provision  for loan losses for the three and six months ended  December 31,
1998 totaled  $16,000 and $53,000  compared to $10,000 and $36,000 for the three
and  six  months  ended  December  31,  1997.  Charge-offs  experienced  by  the
Corporation  have primarily  related to consumer and other nonreal estate loans.
As  indicated  previously,  such loans make up an  insignificant  portion of the
Corporation's total loan portfolio.  The Corporation's low historical charge-off
history is the  product of a variety of  factors,  including  the  Corporation's
underwriting  guidelines,  which generally  require a loan-to-value or projected
completed  value  ratio  of 90%  for  purchase  or  construction  of 1-4  family
residential  properties  and 75% for  commercial  real  estate  and land  loans,
established   income   information   and  defined  ratios  of  debt  to  income.
Notwithstanding  the historical  charge-off  history, as well as a low volume of
nonperforming  loans,  management believes it is prudent to continue to increase
the  allowance  for  loan  losses  as total  loans  increase.  The  loan  growth
experienced  by the  Corporation  from June 30,  1998 to  December  31, 1998 was
concentrated  in the commercial  real estate and consumer loan area.  Since such
loan  types  inherently  carry  more risk than 1-4  family  real  estate  loans,
management  believes  it is  prudent  to  provide  for  potential  losses,  even
considering  the stability in the level of  non-performing  loans.  Accordingly,
management anticipates it will continue its provisions to the allowance for loan
losses as loan growth continues. The allowance for loan losses totaled $457,000,
or .46% of gross loans receivable, at December 31, 1998 compared to $426,000, or
 .44% of gross loans receivable, at June 30, 1998

Noninterest   income.   Noninterest  income  includes  service  fees  and  other
miscellaneous  income and  totaled  $20,000  and  $34,000  for the three and six
months  ended  December  31,  1998 and $15,000 and $31,000 for the three and six
months ended December 31, 1997.

Noninterest expense. Noninterest expense totaled $757,000 and $1,465,000 for the
three and six months ended  December 31, 1998  compared to $501,000 and $981,000
for three and six months ended  December  31, 1997,  an increase of $256,000 and
$484,000,  or 51.1% and 49.3%.  The  increases  were the result of  increases in
compensation  and benefits,  occupancy and equipment,  state franchise taxes and
other expenses.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Compensation and benefits expense increased $160,000 and $320,000,  or 65.6% and
68.5%, for the three and six months ended December 31, 1998 compared to the same
periods in 1997. The increases are the result of normal, annual merit increases,
the addition of new employees and the added expense of employee  benefit  plans.
The expense related to the ESOP increased due to an increase in the market price
of the  Corporation's  common stock over the prior period.  The  Corporation was
also able to allocate  more ESOP shares to  participants  in 1998.  Compensation
expense  related  to the ESOP was  $63,000  and  $140,000  for the three and six
months ended December 31, 1998 compared to $44,000 and $84,000 for the three and
six  months  ended  December  31,  1997.  The  Corporation  also  implemented  a
Management  Recognition  Plan ("MRP") in May 1998 for which the expense  totaled
$60,000 and  $120,000  for the three and six months  ended  December  31,  1998.
Occupancy and equipment  expense  increased $31,000 and $39,000 due to the added
costs of opening two new branch offices during the six months ended December 31,
1998.  State franchise taxes increased  $41,000 and $74,000 due to the change in
corporate  structure  during  fiscal 1997 and the resulting tax impact of higher
capital levels at the Association and earnings at the Corporation. The third and
fourth  quarters of fiscal 1998 were the first  periods  impacted by the capital
raised in the  conversion.  The increase in other  expense was  attributable  to
various miscellaneous items.

Income  Tax  Expense.   The  volatility  of  income  tax  expense  is  primarily
attributable  to the change in income  before  income  taxes.  The provision for
income  taxes  totaled  $67,000 and  $133,000 for the three and six months ended
December 31, 1998 compared to $187,000 and $373,000 for the three and six months
ended  December 31, 1997,  representing  decreases of $120,000 and $240,000,  or
64.2% and 64.3%.  The effective tax rates were 36.2% and 36.1% for the three and
six months  ended  December 31, 1998 and 35.6% for both the three and six months
ended December 31, 1997.

Liquidity and Capital Resources

The Corporation's  liquidity,  primarily  represented by cash equivalents,  is a
result of operating,  investing and financing  activities.  These activities are
summarized below for the six months ended December 31, 1998 and 1997.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 Six Months
                                                             Ended December 31,
                                                             1998         1997
                                                           -------      -------
                                                          (Dollars in thousands)

<S>                                                        <C>          <C>    
Net income                                                 $   235      $   676
Adjustments to reconcile net income to net cash from
  operating activities                                         511          117
                                                           -------      -------
Net cash from operating activities                             746          793
Net cash from investing activities                          (4,453)      (1,401)
Net cash from financing activities                           2,025        2,371
                                                           -------      -------
Net change in cash and cash equivalents                     (1,682)       1,763
Cash and cash equivalents at beginning of period             4,947        2,796
                                                           -------      -------
Cash and cash equivalents at end of period                 $ 3,265      $ 4,559
                                                           =======      =======
</TABLE>


The  Corporation's  principal  sources of funds are deposits,  loan  repayments,
maturities of securities and other funds provided by operations. The Association
also has the ability to borrow from the FHLB.  While  scheduled loan  repayments
and maturing  investments  are relatively  predictable,  deposit flows and early
loan  prepayments  are more  influenced  by  interest  rates,  general  economic
conditions and  competition.  The  Association  maintains  investments in liquid
assets based on management's  assessment of the (1) need for funds, (2) expected
deposit  flows,  (3)  yields  available  on  short-term  liquid  assets  and (4)
objectives of the asset/liability management program.

OTS regulations  presently  require the Association to maintain an average daily
balance of investments in United States Treasury, federal agency obligations and
other  investments  in an  amount  equal  to 1% of the sum of the  Association's
average  daily  balance of net  withdrawable  deposit  accounts  and  borrowings
payable in one year or less.  The  liquidity  requirement,  which may be changed
from  time to  time  by the OTS to  reflect  changing  economic  conditions,  is
intended to provide a source of relatively liquid funds on which the Association
may rely, if necessary,  to fund deposit withdrawals or other short-term funding
needs. At December 31, 1998, the Association's regulatory liquidity was 7.7%. At
such date, the Corporation had  commitments to originate  fixed-rate  commercial
and residential real estate loans totaling $878,000 and variable-rate commercial
and residential real estate mortgage loans totaling  $835,000.  Loan commitments
are generally for 30 days. The  Corporation  considers its liquidity and capital
reserves sufficient to meet its outstanding short- and long-term needs. See Note
6 of the Notes to Consolidated Financial Statements.

The  Association  is required by  regulations  to meet certain  minimum  capital
requirements,   which  must  be  generally  as  stringent  as  the  requirements
established for commercial banks.  Failure to meet minimum capital  requirements
can initiate certain mandatory actions that, if undertaken,  could have a direct
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

material  affect on the  Association's  financial  statements.  Current  capital
requirements  call for tangible  capital of 1.5% of adjusted total assets,  core
capital (which,  for the  Association,  consists solely of tangible  capital) of
3.0%  of  adjusted  total  assets  and  risk-based   capital  (which,   for  the
Association,  consists of core capital and general valuation allowances) of 8.0%
of risk-weighted  assets (assets are weighted at percentage  levels ranging from
0% to 100% depending on their relative risk). The following table indicates that
the  requirement for core capital is 4.0% because that is the level that the OTS
prompt  corrective-action   regulations  require  to  be  considered  adequately
capitalized.  At December 31, 1998, and June 30, 1998, the Association  complies
with all regulatory capital  requirements.  Based on the Association's  computed
regulatory  capital ratios, the Association is considered well capitalized under
the applicable  requirements at December 31, 1998 and June 30, 1998.  Management
is not aware of any matter after the latest regulatory exam that would cause the
Association's capital category to change.

At December 31, 1998 and June 30, 1998, the Association's  actual capital levels
and minimum required levels were:
<TABLE>
<CAPTION>
                                                                   Minimum                      Minimum
                                                               Required To Be               Required To Be
                                                           Adequately Capitalized          Well Capitalized
                                                           Under Prompt Corrective      Under Prompt Corrective
                                       Actual                Action Regulations           Action Regulations
                               ----------------------     ---------------------      ------------------------
                                Amount          Ratio      Amount         Ratio         Amount          Ratio
                               ---------         ----     --------          ---      ----------          ---- 
 
                                                             (Dollars in Thousands)
<S>                            <C>               <C>      <C>               <C>      <C>                 <C>  
December 31, 1998
Total capital (to risk
  weighted assets)             $  16,940         23.7%    $  5,720          8.0%     $    7,150          10.0%
Tier 1 (core) capital to
  risk-weighted assets)           16,490         23.1        2,860          4.0           4,290           6.0
Tier 1 (core) capital to
  adjusted total assets)          16,490         15.2        4,340          4.0           5,425           5.0
Tangible capital (to
  adjusted total assets)          16,490         15.2        1,627          1.5             N/A

June 30, 1998
Total capital (to risk
  weighted assets)             $  18,743         27.6%    $  5,426          8.0%     $    6,783          10.0%
Tier 1 (core) capital to
  risk-weighted assets)           18,330         27.0        2,713          4.0           4,070           6.0
Tier 1 (core) capital to
  adjusted total assets)          18,330         17.3        4,240          4.0           5,300           5.0
Tangible capital (to
  adjusted total assets)          18,330         17.3        1,590          1.5             N/A

</TABLE>
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


In May 1998, the Board of Directors of the  Corporation  authorized the purchase
of up to 5% of the Corporation's  outstanding  common shares over a twelve-month
period  to  commence  on July 1,  1998.  The  shares  will be  purchased  in the
over-the-counter  market.  The number of shares to be purchased and the price to
be paid will depend on the availability of shares,  the prevailing market prices
and any other  considerations  which may,  in the  opinion of the  Corporation's
Board of Directors or management,  affect the advisability of purchasing shares.
As of  December  31,  1998,  72,500  shares have been  repurchased  at a cost of
$1,283,437.

Year 2000 Issue

The Corporation's  lending and deposit  activities are almost entirely dependent
upon  computer  systems  which  process and record  transactions,  although  the
Corporation can  effectively  operate with manual systems for brief periods when
its  electronic  systems  malfunction  or cannot be  accessed.  The  Corporation
utilizes the services of a nationally-recognized  data processing service bureau
which specializes in data processing for financial institutions.  In addition to
its basic operating activities, the Corporation's facilities and infrastructure,
such as security systems and communications equipment, are dependent, to varying
degrees, upon computer systems.

The  Corporation is aware of the potential  Year 2000 related  problems that may
affect the computers which control or operate  Corporation's  operating systems,
facilities  and  infrastructure.  In 1997,  the  Corporation  began a process of
identifying  any Year  2000  related  problems  that may be  experienced  by its
computer-operated  or  computer-dependent  systems. The Corporation has examined
its computer  hardware and software and  determined  it will cost  approximately
$13,000 to make such systems Year 2000 compliant.  The Corporation has contacted
the  companies  that supply or service the  Corporation's  computer-operated  or
computer-dependent  systems  to obtain  confirmation  that each  system  that is
material to the  operations of the  Corporation  is either  currently  Year 2000
compliant or is expected to be Year 2000 compliant. With respect to systems that
cannot  presently be  confirmed as Year 2000  compliant,  the  Corporation  will
continue  to work with the  appropriate  supplier or servicer to ensure all such
systems will be rendered  compliant in a timely manner,  with minimal expense to
the  Corporation  or  disruption  of the  Corporation's  operations.  All of the
identified computer systems affected by the Year 2000 issue are currently in the
renovation,  validation or implementation  phase of the process of becoming Year
2000 compliant.  The Corporation has identified various companies whose services
are deemed critical to the mission of the  Corporation  and received  assurances
that such companies will be Year 2000 compliant. As a contingency plan, however,
the Corporation has determined that if such service providers were to have their
systems fail, the Corporation  would implement manual systems until such systems
could  be  re-established.   The  Corporation  does  not  anticipate  that  such
short-term   manual  systems  would  have  a  material  adverse  effect  on  the
Corporation's operations. The expense of any change in suppliers or servicers is
not  expected to be  material to the  Corporation.  At this time,  however,  the
expense that may be incurred by the  Corporation  in  connection  with Year 2000
issues cannot be determined.
<PAGE>
                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

In addition to the possible expense related to its own systems,  the Corporation
could  incur  losses if loan  payments  are  delayed  due to Year 2000  problems
affecting  any of the  Corporation's  significant  borrowers  or  impairing  the
payroll  systems of large  employers in the  Corporation's  primary market area.
Because the  Corporation's  loan portfolio is highly  diversified with regard to
individual  borrowers  and types of  businesses  and the  Corporation's  primary
market area is not  significantly  dependent on one  employer or  industry,  the
Corporation  does not expect any  significant  or  prolonged  Year 2000  related
difficulties will affect net earnings or cash flow. At this time,  however,  the
expense that may be incurred by the  Corporation  in  connection  with Year 2000
issues cannot be determined.
<PAGE>


                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                           PART II - OTHER INFORMATION

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


Item 1.    Legal Proceedings
           None

Item 2.    Changes in Securities
           None

Item 3.    Defaults Upon Senior Securities
           Not applicable

Item 4.    Submission of Matters to a Vote of Security Holders

           On October 9, 1998,  the Annual  Meeting of the  Shareholders  of the
           Corporation was held. The following members of the Board of Directors
           of the  Corporation  were  reelected by the votes set forth below for
           terms expiring in 2001:

           Douglas Stewart     FOR:  1,503,174         WITHHELD:       17,599
           James W. Kerber     FOR:  1,504,674         WITHHELD:       16,099

           One  other  matter  submitted  to the  Shareholders,  for  which  the
           following votes were cast:

           Ratification of the selection of Crowe, Chizek and Company LLP as the
           auditors of the Corporation for the fiscal year ending June 30, 1999.

           FOR:  1,506,892       AGAINST:  9,074            ABSTAIN:  4,807

Item 5.    Other Information
           None

Item 6.    Exhibits and Reports on Form 8-K
           (a)  Exhibit No. 27:  Financial Data Schedule
           (b)  No current  reports on Form 8-K were filed by the small business
                issuer during the quarter ended December 31, 1998.



<PAGE>


                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  SIGNATURES

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


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




Date:      February 8, 1999                          /s/ Douglas Stewart
                                                     -------------------
                                                     Douglas Stewart
                                                     President





Date:      February 8, 1999                          /s/ Debra Geuy
                                                     --------------
                                                     Debra Geuy
                                                     Chief Financial Officer



<PAGE>


                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                                                                         
                                INDEX TO EXHIBITS


   EXHIBIT
   NUMBER                DESCRIPTION                            
   ------                -----------                            

     27         Financial Data Schedule