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 September 30, 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 November 3, 1998, the latest  practicable  date,  1,740,375  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
                                                              September 30,        June 30,
                                                                   1998              1998
                                                              -------------      -------------
<S>                                                           <C>                <C>          
ASSETS
Cash and amounts due from depository institutions             $     917,507      $     655,188
Interest-bearing deposits in other financial institutions         1,066,366          2,292,065
Overnight deposits                                                2,000,000          2,000,000
                                                              -------------      -------------
     Total cash and cash equivalents                              3,983,873          4,947,253

Time deposits in other financial institutions                       100,000            100,000
Securities available for sale                                     3,528,905          4,015,890
Loans receivable, net                                            96,122,208         94,052,531
Accrued interest receivable                                         769,661            722,401
Premises and equipment, net                                       1,552,177            973,403
Federal Home Loan Bank stock available for sale                     861,900            846,500
Other assets                                                        159,598            245,339
                                                              -------------      -------------

     Total assets                                             $ 107,078,322      $ 105,903,317
                                                              =============      =============


LIABILITIES
Deposits                                                      $  79,686,922      $  79,053,686
Borrowed funds                                                    8,000,000          7,000,000
Accrued expense and other liabilities                               255,058            223,615
                                                              -------------      -------------
     Total liabilities                                           87,941,980         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                                       10,747,903         10,717,991
Retained earnings                                                10,583,992         10,581,096
Treasury stock, 30,000 shares at cost                              (578,750)              --
Unearned employee stock-ownership plan shares                    (1,654,323)        (1,702,114)
Unrealized gain on securities available for sale                     19,666             11,189
                                                              -------------      -------------
     Total shareholders' equity                                  19,136,342         19,626,016
                                                              -------------      -------------

     Total liabilities and shareholders' equity               $ 107,078,322      $ 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
                                                               September 30,
                                                        -------------------------
                                                           1998            1997
                                                        ----------     ----------
<S>                                                     <C>            <C>       
Interest income
     Loans, including fees                              $1,872,303     $1,836,110
     Securities                                             64,033         63,563
     Interest-bearing demand and overnight deposits         48,727         80,784
     Dividends on Federal Home Loan Bank stock              15,469         13,934
                                                        ----------     ----------
         Total interest income                           2,000,532      1,994,391

Interest expense
     Deposits                                              977,941        979,265
     Other borrowings                                      108,314           --
                                                        ----------     ----------
         Total interest expense                          1,086,255        979,265
                                                        ----------     ----------

Net interest income                                        914,277      1,015,126
Provision for loan losses                                   36,780         26,083
                                                        ----------     ----------

Net interest income after provision for loan losses        877,497        989,043
                                                        ----------     ----------
Noninterest income
     Service fees and other charges                         14,291         15,868
                                                        ----------     ----------
Noninterest expense
     Compensation and benefits                             383,034        223,013
     Occupancy and equipment                                47,302         39,426
     Computer processing expense                            42,882         36,926
     FDIC deposit insurance premiums                        11,910         12,710
     State franchise taxes                                  68,356         35,081
     Other                                                 154,991        133,701
                                                        ----------     ----------
         Total noninterest expense                         708,475        480,857
                                                        ----------     ----------

Income before income taxes                                 183,313        524,054

Provision for income taxes                                  66,137        186,495
                                                        ----------     ----------

Net income                                              $  117,176     $  337,559
                                                        ==========     ==========

Earnings per common share - basic                       $     0.07     $     0.20
                                                        ==========     ==========

Earnings per common share - diluted                     $     0.07     $     0.20
                                                        ==========     ==========
</TABLE>
          See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)

                                                           Three Months Ended
                                                               September 30,
                                                         -----------------------
                                                           1998           1997
                                                         --------       --------
<S>                                                      <C>            <C>     
Net income                                               $117,176       $337,559

Other comprehensive income, net of tax
     Unrealized gain/(loss) on available for
       sale securities arising during the
       period                                               8,477          7,388
                                                         --------       --------


Comprehensive income                                     $125,653       $344,947
                                                         ========       ========
</TABLE>

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

 

                                                                       Three Months Ended
                                                                          September 30,
                                                               -------------------------------
                                                                    1998              1997
                                                               ------------      -------------
<S>                                                             <C>               <C>         
Balance, beginning of period                                    $ 19,626,016      $ 25,711,713

Net income for period                                                117,176           337,559

Cash dividends of $.07 per share in 1998 and $.05 per share
  in 1997                                                           (114,280)          (82,638)

Purchase of 30,000 shares of treasury stock, at cost                (578,750)             --

Commitment to release 3,812 and 2,550 employee stock
  ownership plan shares in 1998 and 1997, at fair value               77,703            40,061

Change in unrealized gain on securities available for sale             8,477             7,388
                                                                ------------      ------------

Balance, end of period                                          $ 19,136,342      $ 26,014,083
                                                                ============      ============
</TABLE>

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

                                                                           Three Months Ended
                                                                               September 30,
                                                                      ----------------------------
                                                                          1998             1997
                                                                      -----------      -----------
<S>                                                                   <C>              <C>        
Cash flows from operating activities
     Net income (loss)                                                $   117,176      $   337,559
     Adjustments to reconcile net income to net cash from
       operating activities
         Depreciation                                                      13,580           11,784
         Provision for loan losses                                         36,780           26,083
         FHLB stock dividends                                             (15,400)         (13,900)
         Compensation expense related to ESOP shares                       77,703           40,061
         Change in
              Accrued interest receivable and other assets                 38,310          (44,114)
              Accrued expense and other liabilities                        27,076           32,925
              Deferred loan fees                                            7,716           (5,343)
                                                                      -----------      -----------
                  Net cash from operating activities                      302,941          385,055

Cash flows from investing activities
     Purchases of securities available for sale                              --           (499,219)
     Maturities of securities available for sale                          500,000             --
     Maturities of securities held to maturity                               --            500,000
     Proceeds from maturities of time deposits in other financial
       institutions                                                          --          3,000,000
     Purchase of time deposits in other financial institutions               --         (1,000,000)
     Net increase in loans                                             (2,114,173)      (2,509,759)
     Premises and equipment expenditures                                 (592,354)          (8,154)
                                                                      -----------      -----------
         Net cash from investing activities                            (2,206,527)        (517,132)

Cash flows from financing activities
     Net increase in deposits                                             633,236         (646,721)
     Net change in short-term Federal Home Loan Bank advances           1,000,000             --
     Purchase of treasury stock                                          (578,750)            --
     Cash dividends paid                                                 (114,280)         (82,638)
                                                                      -----------      -----------
         Net cash from financing activities                               940,206         (729,359)
                                                                      -----------      -----------

Net change in cash and cash equivalents                                  (963,380)        (861,436)

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

Cash and cash equivalents at end of period                            $ 3,983,873      $ 1,934,390
                                                                      ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                PEOPLES-SIDNEY FINANCIAL CORPORATION
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (Unaudited)
                                            (continued)

                                                                           Three Months Ended
                                                                               September 30,
                                                                      ----------------------------
                                                                          1998             1997
                                                                      -----------      -----------
<S>                                                                   <C>              <C>        
Supplemental disclosures of cash flow information
     Cash paid during the year for
         Interest                                                     $   982,737      $   983,034
         Income taxes                                                        --            100,000

</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  September  30, 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 collectibility of loans, fair values of financial  instruments and status of
contingencies are particularly subject to change.

The provision for income taxes 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.

The Corporation adopted Statement of Financial Accounting Standards ("SFAS") No.
128,  "Earnings  Per Share," on December  31, 1997.  SFAS No. 128 requires  dual
presentation  of basic and diluted  earnings per share ("EPS") for entities with
complex capital  structures.  Prior EPS data has been restated to conform to the
new method.  Basic 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
1,626,929 for the three months ended  September 30, 1998.  The weighted  average
number of shares  outstanding  for basic and diluted EPS was  1,658,803  for the
three months ended September 30, 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 months ended  September 30,
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  September  30,
1998.  Unearned MRP shares and stock  options did not have a dilutive  effect on
the weighted average shares outstanding for the three months ended September 30,
1997 as the 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.  Non-public  companies  are subject to reduced  disclosure  requirements,
however,  such entities may elect to follow the full disclosure  requirements of
SFAS  132.  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>       
                                          ----------     ----------     ------------     ----------
September 30, 1998
Securities available for sale
U.S. Government agencies                  $3,499,108     $   29,797     $        --      $3,528,905
                                          ==========     ==========     ============     ==========

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 September 30, 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                   $  999,701         $1,009,060
           Due after one year through five years      2,499,407          2,519,845
                                                     ----------         ----------

                                                     $3,499,108         $3,528,905
                                                     ==========         ==========
</TABLE>
No securities were sold during the three-month  periods ended September 30, 1998
and 1997. No securities were pledged as collateral at September 30, 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>
                                        September 30,              June 30,
                                            1998                     1998
                                        ------------            ------------
<S>                                     <C>                     <C>         
Mortgage loans:
     1-4 family residential             $ 79,972,437            $ 79,690,787
     Multi-family residential                643,139                 654,871
     Commercial real estate                8,021,584               6,608,207
     Real estate construction and
       development                         6,222,915               6,776,389
     Land                                    909,556                 867,755
         Total mortgage loans             95,769,631              94,598,009
Consumer and other loans                   2,863,696               2,154,474
                                        ------------            ------------
         Total loans receivable           98,633,327              96,752,483
Less:
     Allowance for loan losses              (446,145)               (425,642)
     Loans in process                     (1,861,885)             (2,078,937)
     Deferred loan fees                     (203,089)               (195,373)
                                        ------------            ------------

                                        $ 96,122,208            $ 94,052,531
                                        ============            ============
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                          September 30,
                                                   ----------------------------
                                                      1998               1997
                                                   ---------          ---------
<S>                                                <C>                <C>      
Balance at beginning of period                     $ 425,642          $ 397,159
Provision for losses                                  36,780             26,083
Charge-offs                                          (16,277)           (10,547)
Recoveries                                              --                 --
                                                   ---------          ---------

Balance at end of period                           $ 446,145          $ 412,695
                                                   =========          =========
</TABLE>


As of and for the three months ended  September 30, 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 September 30, 1998 and June 30, 1998, the  Association  had a cash management
line of credit enabling it to borrow up to $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  $1,000,000  at
September  30, 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 $17,238,000,
including the line of credit. The Association had one fixed-rate borrowing, with
an interest  rate of 6.13%,  totaling  $7,000,000 at September 30, 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 September 30, 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 $349,000 and $621,000,  and  variable-rate  commercial and
residential  real  estate  mortgage  loans  at  current  market  rates  totaling
$1,067,000  and  $687,000.  Loan  commitments  are  generally  for 30 days.  The
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

interest rates on fixed-rate commitments ranged from 7.50% to 7.75% at September
30,  1998  and  7.50%  to  8.25%  at  June  30,  1998.  The  interest  rates  on
variable-rate  commitments ranged from 7.00% to 8.00% at September 30, 1998, and
7.25% to 8.00% at June 30, 1998. The Corporation also had unused lines of credit
totaling $642,000 and $548,000 at September 30, 1998 and June 30, 1998.

At September 30, 1998 and June 30, 1998,  compensating  balances of $319,000 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.

The  Corporation  accounts for the ESOP in accordance with Statement of Position
("SOP") 93-6. Accordingly, 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 $77,703 and $40,061 for the three months ended September 30, 1998 and 1997.
<PAGE>
                   PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)

The ESOP shares as of September 30, 1998 and June 30, 1998 were as follows:
<TABLE>
<CAPTION>
                                                      September 30,     June 30,
                                                          1998            1998
                                                       ----------     ----------
<S>                                                    <C>            <C>   
Allocated shares                                           24,031         24,031
Shares committed to be released for allocation              3,812           --
Unreleased shares                                         140,987        144,799
                                                       ----------     ----------
    Total ESOP shares                                     168,830        168,830
                                                       ==========     ==========

Fair value of unreleased shares                        $2,626,588     $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 September 30, 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 September 30, 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 September 30, 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 months
ended  September 30, 1998,  the  Corporation  has accrued  compensation  expense
totaling  $60,000 based upon the  estimated  cost of the number of shares earned
during the  period.  No  compensation  expense was  recognized  during the three
months ended September 30, 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
September 30, 1998, compared to June 30, 1998, and results of operations for the
three months ended  September  30, 1998,  compared with the same period 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
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition

Total  assets at  September  30,  1998 were  $107.1  million  compared to $105.9
million at June 30, 1998, an increase of $1.2 million,  or 1.1%. The increase in
total assets was due to increases in loans and premises and equipment  funded by
a decrease in  interest-bearing  deposits in other  financial  institutions  and
proceeds from maturities of securities of available for sale and borrowings.

Loans receivable  increased $2.0 million from $94.1 million at June 30, 1998, to
$96.1  million at September  30, 1998.  The increase was primarily in commercial
real  estate  loans  which  increased  $1.4  million.  A decrease in real estate
construction and land development loans was partly offset by an increase in one-
to four-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 $709,000 between
June 30, 1998 and September 30, 1998.  Despite the increase,  consumer and other
loans remain a small portion of the entire loan portfolio and  represented  only
2.9% and 2.2% of gross loans at September 30, 1998 and June 30, 1998.

Premises and  equipment  increased  $579,000  from  $973,000 at June 30, 1998 to
$1,552,000  at  September  30,  1998.  The  Corporation  is in  the  process  of
constructing a new, full-service branch banking office in Anna, Ohio. Management
expects the total cost of the  construction  project to be  $805,000,  of which,
through September 30, 1998, the Corporation has paid $692,000.

Total deposits  increased  $633,000 from $79.1 million at June 30, 1998 to $79.7
million at September  30, 1998.  The  Corporation  experienced  increases in all
types of deposits,  however,  the majority of the growth was in negotiable order
of withdraw ("NOW")  accounts,  which increased  $346,000,  and passbook savings
accounts,  which  increased  $217,000.  The  growth  is the  result  of  special
promotions  offered in connection with the opening of the new branch location in
Anna, Ohio which occurred in the latter part of September 1998.

Borrowed funds increased $1.0 million from $7.0 million at June 30, 1998 to $8.0
million  at  September  30,  1998.  The  Association  maintains  a $5.1  million
cash-management  line of credit  with the FHLB  under  which  $1.0  million  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.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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
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 $117,000 for the three months
ended  September  30,  1998  compared  to $338,000  for the three  months  ended
September  30, 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 $914,000 for the three months
ended  September  30, 1998  compared to  $1,015,000  for the three  months ended
September  30,  1997,  a decrease of  $101,000,  or 10.0%.  The decrease was the
result of additional interest paid on borrowed funds.

Interest and fees on loans  increased  $36,000,  or 2.0% from $1,836,000 for the
three months ended  September 30, 1997 to $1,872,000  for the three months ended
September 30, 1998.  The increase in interest  income was due to higher  average
loans  receivable,   related  primarily  to  the  origination  of  new  one-  to
four-family residential real estate and commercial real estate loans.

Interest  earned on  securities  increased  slightly  for the three months ended
September  30, 1998 compared to the three months ended  September 30, 1997.  The
increase  was the result of a higher  average  yield earned  partly  offset by a
decrease in the average balance of such investments.

Interest  earned on  interest-bearing  demand and overnight  deposits  decreased
$32,000 for the three  months ended  September  30, 1998 as compared to the same
period 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.

Dividends on FHLB stock increased slightly over the comparable periods due to an
increase in the number of shares of FHLB stock owned.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest  paid on  deposits  decreased  slightly  for  the  three  months  ended
September 30, 1998 compared to the three months ended September 30, 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 three months ended  September 30,
1997 to 4.91% for the three months ended September 30, 1998.

Interest  paid on borrowed  funds  totaled  $108,000  for the three months ended
September  30,  1998.  There were no  borrowings  during the three  months ended
September  30, 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  $1.0 million under its cash management line
of credit during the three months ended September 30, 1998 to provide  liquidity
for loan growth.

Provision  for Loan Losses.  The  Corporation  maintains  an allowance  for loan
losses in an amount  that,  in  management's  judgment,  is  adequate  to absorb
reasonably  foreseeable 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  potential  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  months ended  September  30, 1998
totaled  $37,000  compared to $26,000 for the three months ended  September  30,
1997,  an  increase  of  $11,000,  or  42.3%.  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 one- to four-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.  Accordingly,  management
anticipates  it will continue its provisions to the allowance for loan losses as
loan growth continues.  The allowance for loan losses totaled $446,000,  or .45%
of gross loans receivable,  at September 30, 1998 compared to $426,000,  or .44%
of gross loans receivable, at June 30, 1998
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Noninterest   income.   Noninterest  income  includes  service  fees  and  other
miscellaneous  income and totaled  $14,000 for the three months ended  September
30, 1998 and $16,000 for the three months ended September 30, 1997.

Noninterest  expense.  Noninterest expense totaled $708,000 for the three months
ended  September 30, 1998 compared to $481,000 for three months ended  September
30, 1997,  an increase of $227,000,  or 47.2%.  The increase was  primarily  the
result of increases in  compensation  and benefits,  state  franchise  taxes and
other expenses.

Compensation and benefits expense  increased  $160,000,  or 71.8%, for the three
months  ended  September  30,  1998  compared  to the same  period in 1997.  The
increase is 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 $78,000 for the three  months ended  September  30, 1998
compared  to  $40,000  for the  three  months  ended  September  30,  1997.  The
Corporation also  implemented a Management  Recognition Plan ("MRP") in May 1998
for which the expense  totaled  $60,000 for the three months ended September 30,
1998.  State franchise taxes increased  $33,000,  or 94.9%, 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  $66,000 for the three months  ended  September  30, 1998
compared to $186,000 for the three months ended  September  30, 1997, a decrease
of  $120,000,  or 64.5%.  The  effective  tax rates were 36.1% and 35.6% for the
three months ended September 30, 1998 and 1997, respectively.

Prior to the enactment of legislation discussed below, thrifts which met certain
tests  relating to the  composition  of assets had been  permitted  to establish
reserves for bad debts and make annual  additions  thereto  which could,  within
specified  formula limits,  be taken as a deduction in computing  taxable income
for federal  income tax purposes.  The amount of bad debt reserve  deduction for
"nonqualifying  loans" was computed under the experience  method.  The amount of
the bad debt reserve  deduction for  "qualifying  real property  loans" could be
computed under either the experience or the percentage of taxable income method,
based on an annual election.

In  August  1996,  legislation  was  enacted  repealing  the  reserve  method of
accounting  used by many thrifts to calculate their bad debt reserve for federal
income tax purposes.  Therefore,  small thrifts,  such as the Association,  must
recapture that portion of the reserve  exceeding the amount that could have been
taken under the  experience  method for tax years  beginning  after December 31,
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

1987. The legislation also requires thrifts to account for bad debts for federal
income  tax  purposes  on the  same  basis as  commercial  banks  for tax  years
beginning  after  December 31, 1995.  The  recapture  will occur over a six-year
period,  commencement  of which will be  delayed  until the first  taxable  year
beginning  after  December 31,  1997,  provided the  institution  meets  certain
residential  lending  requirements.  At September 30, 1998, the  Association had
approximately  $581,000 in bad debt  reserves  subject to recapture  for federal
income tax  purposes.  The deferred tax  liability  related to the recapture has
been previously established.

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 three months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
                                                               Three Months
                                                            Ended September 30,
                                                           --------------------
                                                             1998         1997
                                                           -------      -------
                                                          (Dollars in thousands)

<S>                                                        <C>          <C>    
Net income                                                 $   117      $   338
Adjustments to reconcile net income to net cash from
  operating activities                                         186           47
                                                           -------      -------
Net cash from operating activities                             303          385
Net cash from investing activities                          (2,206)        (517)
Net cash from financing activities                             940         (730)
                                                           -------      -------
Net change in cash and cash equivalents                       (963)        (862)
Cash and cash equivalents at beginning of period             4,947        2,796
                                                           -------      -------
Cash and cash equivalents at end of period                 $ 3,984      $ 1,934
                                                           =======      =======
</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 (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
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

deposit  withdrawals or other  short-term  funding needs. At September 30, 1998,
the Association's  regulatory  liquidity was 8.1%. At such date, the Corporation
had commitments to originate  fixed-rate  commercial and residential real estate
loans totaling  $349,000,  and  variable-rate  commercial and  residential  real
estate mortgage loans totaling $1,067,000. 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  subject  to  various   regulatory   capital   requirements
administered  by federal  regulatory  agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory  actions that, if undertaken,  could
have a direct material affect on the Association's  financial statements.  Under
capital adequacy  guidelines and the regulatory  framework for prompt corrective
action,  the  Association  must  meet  specific  capital  guidelines   involving
quantitative  measures  of the  Association's  assets,  liabilities  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Association's   capital  amounts  and   classifications   are  also  subject  to
qualitative  judgments by regulators about the  Association's  components,  risk
weightings  and  other  factors.  At  September  30,  1998 and  June  30,  1998,
management  believes  the  Association  complied  with  all  regulatory  capital
requirements. Based on the Association's computed regulatory capital ratios, the
Association is considered well capitalized  under the Federal Deposit  Insurance
Act at  September  30, 1998 and June 30,  1998.  Management  is not aware of any
matters  subsequent  to  September  30, 1998 that would cause the  Association's
capital category to change.

At September 30, 1998 and June 30, 1998, the Association's actual capital levels
and minimum required levels were:
<TABLE>
<CAPTION>
                                                                                                Minimum
                                                                                            Required To Be
                                                              Minimum Required             Well Capitalized
                                                                 For Capital            Under Prompt Corrective
                                        Actual               Adequacy Purposes           Action Regulations
                               -----------------------    ----------------------     --------------------------
                                Amount          Ratio      Amount         Ratio         Amount          Ratio
                                ------          -----      ------         -----         ------          -----
                                                            (Dollars in Thousands)
<S>                            <C>               <C>      <C>               <C>      <C>                 <C>  
September 30, 1998
Total capital (to risk
  weighted assets)             $  16,725         24.1%    $  5,560          8.0%     $    6,949          10.0%
Tier 1 (core) capital to
  risk-weighted assets)           16,289         23.4        2,780          4.0           4,170           6.0
Tier 1 (core) capital to
  adjusted total assets)          16,289         15.2        4,287          4.0           5,360           5.0
Tangible capital (to
  adjusted total assets)          16,289         15.2        1,608          1.5             N/A
</TABLE>
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                Minimum
                                                                                            Required To Be
                                                              Minimum Required             Well Capitalized
                                                                 For Capital            Under Prompt Corrective
                                        Actual               Adequacy Purposes           Action Regulations
                               -----------------------    ----------------------     --------------------------
                                Amount          Ratio      Amount         Ratio         Amount          Ratio
                                ------          -----      ------         -----         ------          -----
                                                            (Dollars in Thousands)
<S>                            <C>               <C>      <C>               <C>      <C>                 <C>  
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>

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  September  30, 1998,  30,000  shares have been  repurchased  at a cost of
$579,000.

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
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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.

An OTS  examination  of the  Corporation's  Year  2000  state of  readiness  was
conducted  as of April 29,  1998 and based  upon the  examination  results,  the
Corporation  is  progressing  satisfactorily  towards  completing the process of
becoming Year 2000 compliant.
<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
           There were no matters  brought to a vote of security  holders  during
           the quarter ended September 30, 1998.

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 September 30, 1998.



<PAGE>


                                   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:      November 6, 1998                             /s/ Douglas Stewart
                                                        -------------------
                                                        Douglas Stewart
                                                        President





Date:      November 6, 1998                             /s/ Debra Geuy
                                                        --------------
                                                        Debra Geuy
                                                        Chief Financial Officer


<PAGE>
                                INDEX TO EXHIBITS


   EXHIBIT
   NUMBER                       DESCRIPTION            


     27                   Financial Data Schedule