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, 1997

 [   ]       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 2, 1998, the latest  practicable  date,  1,785,375  shares of the
small  business  issuer's  common  shares,  $.01  par  value,  were  issued  and
outstanding.
<PAGE>


                      PEOPLES-SIDNEY FINANCIAL CORPORATION




                                      INDEX







                                                                                


PART I - FINANCIAL INFORMATION (UNAUDITED)

Item 1.       Financial Statements

      Consolidated Balance Sheets ..............................................

      Consolidated Statements of 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...................


Item 3.       Quantitative and Qualitative Disclosure about Market Risk.........


PART II - OTHER INFORMATION.....................................................

SIGNATURES .....................................................................

<PAGE>
Item 1.  Financial Statements
<TABLE>
<CAPTION>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                                                                                                     
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

 
                                                                    December 31,         June 30,
                                                                       1997               1997
                                                                  -------------      -------------
<S>                                                               <C>                <C>
ASSETS
Cash and amounts due from depository institutions ...........     $     629,438      $     297,722
Interest-bearing deposits in other banks ....................         1,429,668          1,498,104
Overnight deposits ..........................................         2,500,000          1,000,000
                                                                  -------------      -------------
     Total cash and cash equivalents ........................         4,559,106          2,795,826

Time deposits with other financial institutions .............         2,000,000          5,000,000
Securities available for sale ...............................         3,022,505          2,012,802
Securities held to maturity (Estimated fair value of $999,450
  and $1,996,795 at December 31, 1997 and June 30, 1997) ....           999,844          1,999,375
Loans receivable, net .......................................        93,238,470         88,924,339
Accrued interest receivable .................................           743,860            735,462
Premises and equipment, net .................................           778,773            755,286
Federal Home Loan Bank stock available for sale .............           790,500            762,500
Other assets ................................................           105,536            156,772
                                                                  -------------      -------------

     Total assets ...........................................     $ 106,238,594      $ 103,142,362
                                                                  =============      =============

LIABILITIES
Deposits ....................................................     $  79,614,991      $  77,045,430
Accrued expense and other liabilities .......................           343,520            385,219
                                                                  -------------      -------------
     Total liabilities ......................................        79,958,511         77,430,649

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 and outstanding ...................            17,854             17,854
Additional paid-in capital ..................................        17,267,513         17,234,087
Retained earnings ...........................................        10,254,162          9,776,982
Unearned employee stock ownership plan shares ...............        (1,275,280)        (1,326,280)
Unrealized gain on securities available for sale ............            15,834              9,070
                                                                  -------------      -------------
     Total shareholder's equity .............................        26,280,083         25,711,713
                                                                  -------------      -------------

     Total liabilities and shareholders' equity .............     $ 106,238,594      $ 103,142,362
                                                                  =============      =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                              PEOPLES-SIDNEY FINANCIAL CORPORATION

                                CONSOLIDATED STATEMENTS OF INCOME
                                           (Unaudited)


                                              Three Months Ended          Six Months Ended
                                                 December 31,                December 31,
                                            1997          1996           1997            1996
                                        ----------     ----------     ----------     ----------
<S>                                     <C>            <C>            <C>            <C>  
Interest income
     Loans, including fees ........     $1,866,886     $1,700,008     $3,702,996     $3,308,495
     Securities ...................         62,725         29,344        126,288         63,172
     Interest-bearing deposits and
       overnight deposits .........         89,931         19,915        170,715         46,358
     Dividends on Federal Home
       Loan Bank stock ............         14,188         11,942         28,122         23,678
                                        ----------     ----------     ----------     ----------
         Total interest income ....      2,033,730      1,761,209      4,028,121      3,441,703

Interest expense
     Deposits .....................      1,013,726      1,016,407      1,992,991      1,963,836
     Other borrowings .............           --           13,206           --           34,219
                                        ----------     ----------     ----------     ----------
         Total interest expense ...      1,013,726      1,029,613      1,992,991      1,998,055
                                        ----------     ----------     ----------     ----------

Net interest income ...............      1,020,004        731,596      2,035,130      1,443,648
Provision for loan losses .........          9,677         23,468         35,760         41,776
                                        ----------     ----------     ----------     ----------

Net interest income after
  provision for loan losses .......      1,010,327        708,128      1,999,370      1,401,872
                                        ----------     ----------     ----------     ----------

Noninterest income
     Service fees and other charges         15,253         17,689         31,121         30,419
                                        ----------     ----------     ----------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              PEOPLES-SIDNEY FINANCIAL CORPORATION

                                CONSOLIDATED STATEMENTS OF INCOME
                                           (Unaudited)


                                              Three Months Ended          Six Months Ended
                                                 December 31,                December 31,
                                            1997          1996           1997            1996
                                        ----------     ----------     ----------     ----------
<S>                                     <C>            <C>            <C>            <C>    
Noninterest expense
     Compensation and benefits ....        244,787        197,145        467,800        366,987
     Occupancy and equipment ......         42,245         32,013         81,671         67,663
     Computer processing expense ..         37,002         36,047         73,928         71,613
     FDIC deposit insurance
       premiums ...................         12,121         44,155         24,831        544,091
     State franchise taxes ........         35,080         31,726         70,161         63,452
     Other ........................        129,743         95,154        263,444        176,484
                                        ----------     ----------     ----------     ----------
         Total noninterest expense         500,978        436,240        981,835      1,290,290
                                        ----------     ----------     ----------     ----------

Income before income taxes ........        524,602        289,577      1,048,656        142,001

Provision for income taxes ........        186,651         98,456        373,146         48,280
                                        ----------     ----------     ----------     ----------

Net income ........................     $  337,951     $  191,121     $  675,510     $   93,721
                                        ==========     ==========     ==========     ==========

Earnings per common share .........     $      .20     $     --       $      .40     $     --
                                        ==========     ==========     ==========     ==========

</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                              PEOPLES-SIDNEY FINANCIAL CORPORATION

                         CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
                                      SHAREHOLDERS' EQUITY
                                           (Unaudited)

 


                                                                           Six Months
                                                                        Ended December 31,
                                                                  ------------------------------

                                                                       1997             1996
                                                                  ------------      ------------
<S>                                                               <C>               <C>

Balance at beginning of period ..............................     $ 25,711,713      $  9,212,537

Net income for period .......................................          675,510            93,721

Cash dividends of $.12 per share ............................         (198,330)             --

Commitment to release 5,100 employee stock ownership plan
  shares at fair value ......................................           84,426              --

Change in unrealized gain on securities available for sale ..            6,764              --
                                                                  ------------      ------------

Balance at end of period ....................................     $ 26,280,083      $  9,306,258
                                                                  ============      ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                               PEOPLES-SIDNEY FINANCIAL CORPORATION

                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (Unaudited)



                                                                             Six Months Ended
                                                                                December 31,
                                                                      ----------------------------
                                                                          1997              1996
                                                                      -----------      -----------
<S>                                                                   <C>              <C>
Cash flows from operating activities
     Net income .................................................     $   675,510      $    93,721
     Adjustments to reconcile net income to net cash from
       operating activities
         Depreciation ...........................................          24,272           26,493
         Provision for loan losses ..............................          35,760           41,776
         FHLB stock dividends ...................................         (28,000)         (23,600)
         Gain on sale of premises and equipment .................            --               --
         Compensation expense on ESOP shares ....................          84,426             --
         Change in
              Accrued interest receivable and other assets ......          42,056          (23,136)
              Accrued expense and other liabilities .............         (45,184)         (92,087)
              Deferred loan fees ................................           4,548           (3,204)
                                                                      -----------      -----------
                  Net cash from operating activities ............         793,388           19,963

Cash flows from investing activities
     Purchases of securities available for sale .................        (999,141)            --
     Maturities of securities held to maturity ..................       1,000,000          500,000
     Proceeds from maturities of time deposits in other financial
       institutions .............................................       5,000,000        1,100,000
     Purchase of time deposits in other financial institutions ..      (2,000,000)            --
     Net increase in loans ......................................      (4,354,439)      (7,074,278)
     Premises and equipment expenditures ........................         (47,759)            (929)
     Proceeds from sale of real estate owned ....................            --             42,652
                                                                      -----------      -----------
         Net cash from investing activities .....................      (1,401,339)      (5,432,555)

Cash flows from financing activities
     Net increase in deposits ...................................       2,569,561        3,912,436
     Net change in short-term Federal Home Loan Bank advances ...            --          1,500,000
     Cash dividends paid ........................................        (198,330)            --
                                                                      -----------      -----------
         Net cash from financing activities .....................       2,371,231        5,412,436
                                                                      -----------      -----------

Net change in cash and cash equivalents .........................       1,763,280             (156)

Cash and cash equivalents at beginning of period ................       2,795,826        2,720,809
                                                                      -----------      -----------

Cash and cash equivalents at end of period ......................     $ 4,559,106      $ 2,720,653
                                                                      ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               PEOPLES-SIDNEY FINANCIAL CORPORATION

                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (Unaudited)
                                            (continued)



                                                                             Six Months Ended
                                                                                December 31,
                                                                      ----------------------------
                                                                          1997              1996
                                                                      -----------      -----------
<S>                                                                   <C>              <C>

Supplemental disclosures of cash flow information
     Cash paid during the year for
         Interest ...............................................     $ 1,998,237      $ 2,007,158
         Income taxes ...........................................         386,000           80,000

     Noncash transactions
         Transfers from loans to real estate owned ..............            --             42,652


</TABLE>
See accompanying notes to financial statements.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                          NOTES TO 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,  1997,  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 financial  statements
and notes  thereto of the  Corporation  for the fiscal year ended June 30, 1997,
included in its 1997 Annual Report. Reference is made to the accounting policies
of the Corporation  described in the notes to financial  statements contained in
its 1997 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").  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 Corporation 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 Corporation'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 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 the expected  future tax  consequences of temporary
differences   between  the  carrying   amounts  and  tax  bases  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.

Earnings  per common  share is computed  under the  provisions  of  Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which was
adopted  retroactively  by the  Corporation  on December 31, 1997.  SFAS No. 128
requires dual  presentation of basic and diluted  earnings per share ("EPS") for
entities with complex capital structures.  Basic EPS includes no dilution and is
computed  by  dividing   income   available  to  common   shareholders   by  the
weighted-average  common shares outstanding for the period. Diluted EPS reflects
potential  dilution of  securities  that could  share in earnings  such as stock
options,  warrants or other common stock  equivalents.  Adoption of SFAS No. 128
did not  change  the  earnings  per share  amounts  previously  reported  as the
Corporation currently has no common stock equivalents.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings  per share  computations  are based on the  weighted-average  number of
shares of common stock  outstanding  during the year. As more fully discussed in
Note 2, the  Association  converted  from  mutual  to stock  ownership  with the
concurrent formation of a holding company effective April 25, 1997. The weighted
average number of shares  outstanding for the three- and six-month periods ended
December 31, 1997 were 1,656,175 and 1,654,895.  Unreleased  ESOP shares are not
considered to be outstanding  shares for determining  weighted average number of
shares used in the earnings per common share calculation. No earnings per common
share is shown for the three and six months ended  December 31, 1996,  as before
April 25, 1997, the Association was a mutual company. The financial  information
for the three and six months ended December 31, 1996,  reflects the  Association
before the conversion.

SFAS No. 129,  "Disclosures  of  Information  about Capital  Structure,"  became
effective for the Corporation as of December 31, 1997. SFAS No. 129 consolidated
existing  accounting  guidance  relating to disclosure about a company's capital
structure. SFAS No. 129 did not affect the Corporation's disclosures.

In June 1997, the Financial  Account  Standards  Board ("FASB")  issued SFAS No.
130,  "Reporting  Comprehensive  Income."  SFAS 130  establishes  standards  for
reporting  and display of  comprehensive  income and its  components  (revenues,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  SFAS No. 130 requires  all items  required to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  It does not require a specific format for that financial
statement,  but  requires an  enterprise  display an amount  representing  total
comprehensive income for the period in that financial statement.

SFAS No. 130 requires an enterprise  (a) classify  items of other  comprehensive
income by their nature in a financial  statement and (b) display the accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
additional  paid-in  capital in the equity  section of a statement  of financial
position.  SFAS No. 130 is effective for fiscal years  beginning  after December
15, 1997.  Reclassification of financial statements for earlier periods provided
for comparative purposes is required.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related Information." 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
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

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 is effective for financial statements
for periods beginning after December 15, 1997.


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  were invested in the 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
prior to 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.

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

NOTE 3 - SECURITIES

The amortized  cost and estimated  fair values of securities  are  summarized as
follows:
<TABLE>
<CAPTION>
                                                       December 31, 1997
                                  --------------------------------------------------------
                                                     Gross          Gross        Estimated
                                   Amortized      Unrealized     Unrealized         Fair
                                     Cost            Gains         Losses           Value
                                  ----------     -----------     ----------     ----------
<S>                               <C>            <C>             <C>            <C>
Securities available for sale
  U.S. Government agencies ..     $2,998,515     $    25,397     $    1,407     $3,022,505
                                  ==========     ===========     ==========     ==========

Securities held to maturity
  U.S. Government agencies ..     $  999,844     $      --       $      394     $  999,450
                                  ==========     ===========     ==========     ==========

<CAPTION>
                                                       June 30, 1997
                                  --------------------------------------------------------
                                                     Gross          Gross        Estimated
                                   Amortized      Unrealized     Unrealized         Fair
                                     Cost            Gains         Losses           Value
                                  ----------     -----------     ----------     ----------
<S>                               <C>            <C>             <C>            <C>
Securities available for sale
U.S. Government agencies ....     $1,999,060     $    13,742     $       --     $2,012,802
                                  ==========     ===========     ============   ==========

Securities held to maturity
  U.S. Government agencies ..     $1,999,375     $      --       $      2,580   $1,996,795
                                  ==========     ===========     ============   ==========
</TABLE>
The amortized cost and estimated fair values of securities at December 31, 1997,
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 after one year through five years .     $2,998,515     $3,022,505
                                                       ==========     ==========

Securities held to maturity
           Due in one year or less ...............     $  999,844     $  999,450
                                                       ==========     ==========
</TABLE>
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

No securities  were sold during the three- or six-month  periods ended  December
31, 1997 and 1996. No securities were pledged as collateral at December 31, 1997
or June 30, 1997.


NOTE 4 - LOANS RECEIVABLE

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


                                                   December 31,        June 30,
                                                      1997               1997
                                                  ------------      ------------
<S>                                               <C>               <C>
Mortgage loans:
     1-4 family residential .................     $ 79,512,080      $ 75,808,323
     Multi-family residential ...............          376,496           219,153
     Commercial real estate .................        6,235,556         5,842,476
     Real estate construction and development        6,642,905         6,551,430
     Land ...................................        1,112,005         1,446,838
                                                  ------------      ------------
         Total mortgage loans ...............       93,879,042        89,868,220
Consumer and other loans ....................        2,285,914         2,314,263
                                                  ------------      ------------
         Total loans receivable .............       96,164,956        92,182,483
Less:
     Allowance for loan losses ..............         (418,075)         (397,159)
     Loans in process .......................       (2,345,674)       (2,702,795)
     Deferred loan fees .....................         (162,737)         (158,190)
                                                  ------------      ------------

                                                  $ 93,238,470      $ 88,924,339
                                                  ============      ============
</TABLE>
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>


                                       Three months ended             Six months ended
                                          December 31,                  December 31,
                                   ------------------------      ------------------------                        
                                      1997            1996          1997          1996
                                   ---------      ---------      ---------      ---------
<S>                                <C>            <C>            <C>            <C>
Balance at beginning of period     $ 412,695      $ 320,543      $ 397,159      $ 307,308
Provision for loan losses ....         9,677         23,468         35,760         41,776
Charge-offs ..................        (4,489)        (6,546)       (15,036)       (11,619)
Recoveries ...................           192          3,010            192          3,010
                                   ---------      ---------      ---------      ---------

Balance at end of period .....     $ 418,075      $ 340,475      $ 418,075      $ 340,475
                                   =========      =========      =========      =========
</TABLE>

As of and for the three and six months ended  December 31, 1997 and 1996,  there
were no loans for which impairment was required to be evaluated on an individual
loan by loan basis in accordance with SFAS No. 114.


NOTE 5 - OTHER BORROWINGS

At December 31, 1997 and June 30, 1997, the  Association  had a cash  management
line of credit enabling it to borrow up to $5,000,000 with the Federal Home Loan
Bank  ("FHLB")  of  Cincinnati.  The line of credit must be renewed on an annual
basis.  No borrowings  were  outstanding  on this line of credit at December 31,
1997 or June 30, 1997.  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 $15,810,000, including the line of credit. Advances under
the  borrowing  agreements  are  collateralized  by  a  blanket  pledge  of  the
Association's  residential  mortgage  loan  portfolio and Federal Home Loan Bank
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
financial condition or results of operation.

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, credit risk
more than reported in the financial statements.
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

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. 

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

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, 1997 and June 30, 1997, the  Corporation  had  commitments to
make fixed-rate commercial and residential real estate mortgage loans at current
market rates totaling $330,000 and $156,000,  and  variable-rate  commercial and
residential real estate mortgage loans at current market rates totaling $471,000
and $876,000.  Loan commitments are generally for 30 days. The interest rates on
fixed-rate  commitments ranged from 7.75% to 8.25% at December 31, 1997 and were
8.25% at June 30, 1997. The interest rates on variable-rate  commitments  ranged
from 7.00% to 7.75% at December  31,  1997 and 7.25% to 8.50% at June 30,  1997.
The Corporation  also had unused lines of credit totaling  $583,000 and $622,000
at December 31, 1997 and June 30, 1997.

At December  31, 1997 and June 30, 1997,  compensating  balances of $364,000 and
$298,000  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 a term of one to three
years,  and a salary and  performance  review by the Board of Directors not less
often  than   annually,   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.
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)

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 $44,365 and $84,426 for the three and six months ended December 31, 1997.

The ESOP shares as of December 31, 1997 and June 30, 1997 were as follows:
<TABLE>
<CAPTION>


                                                   December 31,         June 30,
                                                       1997                1997
                                                   ----------         ----------
<S>                                                <C>                <C>
Allocated shares .........................         $   10,202         $   10,202
Shares released for allocation ...........              5,100               --
Unreleased shares ........................            127,528            132,628
                                                   ----------         ----------
    Total ESOP shares ....................         $  142,830         $  142,830
                                                   ==========         ==========

Fair value of unreleased shares ..........         $2,280,201         $1,865,081
                                                   ==========         ==========

</TABLE>
<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, 1997,  compared to June 30, 1997, and results of operations for the
three and six months ended December 31, 1997,  compared with the same periods in
1996.  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 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  were invested in the capital stock issued by
the Association to the Corporation because 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 December 31, 1997 were $106.2 million compared to $103.1 million
at June 30, 1997,  an increase of $3.1 million,  or 3.0%.  The increase in total
assets was  primarily  due to an increase  in loans.  The  Corporation  was able
reinvest   proceeds  from   maturities  of  time  deposits  in  other  financial
institutions in higher yielding  loans.  Additional  funding for loan growth was
provided by increased deposits.

Loans  receivable  increased $4.3 million from $88.9 million at June 30, 1997 to
$93.2 million at December 31, 1997. The Corporation experienced increases in all
mortgage loan categories except for land loans. The largest increase was in one-
to four-family residential real estate loans which increased $3.7 million. These
increases are reflective of a strong local economy  coupled with attractive loan
rates and products compared to local  competition.  The  Corporation's  consumer
loan portfolio remained relatively  unchanged between June 30, 1997 and December
31, 1997. Consumer loans remain a small portion of the entire loan portfolio and
represented  only 2.4% and 2.5% of gross loans at December 31, 1997 and June 30,
1997.

A $3.0 million  decrease in time deposits with other financial  institutions was
the  result  of  redirection  of  funds  provided  from the  maturities  of such
investments,  in addition to increased deposits, to provide for loan growth. The
excess of such funds were invested in overnight  deposits to provide  additional
liquidity for future loan growth.  Overnight  funds  increased $1.5 million from
$1.0  million at June 30,  1997 to $2.5  million at  December  31,  1997.  Total
securities remained relatively  unchanged as the Corporation  replaced a matured
held-to-maturity security with an available-for-sale security.

Total  deposits  increased  $2.6 million from $77.0  million at June 30, 1997 to
$79.6  million at December 31, 1997.  The  Corporation  experienced  the largest
increases in savings accounts and certificates of deposit as they increased $1.4
million and $1.5 million, respectively. Offsetting such increases was a $342,000
decrease in negotiable order of withdrawal  ("NOW")  accounts.  Savings accounts
increased primarily due a large deposit received during the second quarter.  Had
the  large  deposit  not been  received,  savings  accounts  would  have  seen a
decrease.  Management  believes  the decline in savings and NOW  accounts is the
result of normal  patterns of  consumer  use of funds  during the  Corporation's
second quarter as the Corporation has experienced such cyclical  patterns in the
past.  Certificate of deposit growth has been due to normal operating procedures
as the  Corporation  has not used any special  promotions  to attract  increased
volume.  Almost all  certificates of deposit mature in less than five years with
the majority maturing in the next two years.

As a secondary source of liquidity,  the Association maintains a $5 million cash
management  arrangement  with the Federal Home Loan Bank ("FHLB") of Cincinnati.
There were no advances  outstanding  at December 31, 1997, or June 30, 1997. The
advances  are  variable  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

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.

The Corporation earned net income of $338,000 and $676,000 for the three and six
months ended  December 31, 1997,  compared to net income of $191,000 and $94,000
for the three and six months ended December 31, 1996. The increase in income for
the three months ended  December 31, 1997 was due to an increase in net interest
income  partly  offset by  increased  noninterest  expense.  The increase in net
income for the six months ended  December 31, 1997 was due to an increase in net
interest income and a decrease in FDIC deposit insurance premiums which resulted
from the special deposit insurance  assessment  recognized as expense in the six
months ended December 31, 1996. The special  assessment is more fully  discussed
below.

Net interest  income  totaled  $1,020,000  and  $2,035,000 for the three and six
months ended  December 31, 1997, as compared to $732,000 and  $1,444,000 for the
three  and six  months  ended  December  31,  1996,  representing  increases  of
$288,000,  or 39.3%,  and $591,000,  or 40.9%,  respectively.  The change in net
interest income is attributable to higher average  balances of  interest-earning
assets being funded with the proceeds from the mutual to stock conversion.

Interest and fees on loans totaled  $1,867,000  and $3,703,000 for the three and
six months ended  December 31, 1997,  compared to $1,700,000  and $3,308,000 for
the three and six months  ended  December 31,  1996,  representing  increases of
$167,000,  or 9.8%,  and  $395,000,  or 11.9%,  respectively.  The  increase  in
interest income was due to higher average loans receivable, related primarily to
the origination of new one- to four-family first mortgages.

Interest  earned on securities  increased  $33,000 and $63,000 for the three and
six months ended December 31, 1997, as compared to the same periods in 1996. The
increase was a result of higher average balances of securities.

Interest on interest-bearing demand and overnight deposits increased $70,000 and
$124,000  for the three and six months ended  December 31, 1997,  as compared to
the same periods in 1996. The increase was the result of higher average balances
of interest-bearing demand and overnight funds.
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Dividends  on FHLB stock  increased  slightly for the three and six months ended
December 31, 1997, compared to the three and six months ended December 31, 1996,
primarily due to an increase in the number of shares of FHLB stock owned.

Interest paid on deposits  totaled  $1,014,000  and $1,993,000 for the three and
six months ended December 31, 1997 compared to $1,016,000 and $1,964,000 for the
three and six months  ended  December  31,  1996.  Interest  expense has changed
little  between the  comparable  periods as the  interest  rates paid on various
types deposit  accounts have remained  fairly stable and the Corporation has not
experienced any significant  changes in the overall volume or composition of its
deposit portfolio.

Interest on borrowings  totaled $13,000 and $34,000 for the three and six months
ended  December 31, 1996. The  Corporation  borrowed funds from the FHLB for the
first  time  during  fiscal  1997.  The  borrowings  were  used as a  source  of
short-term  liquidity to provide  funding for loan demand before the conversion.
There were no  borrowings  during the three and six months  ended  December  31,
1997.

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 utilizes its best judgment and
information  available,  ultimate  adequacy of the  allowance  is dependent on a
variety of factors,  including  performance of the 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 losses inherent 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 totaled  $10,000 and $36,000 for the three and six
months ended  December  31, 1997,  compared to $23,000 and $42,000 for the three
and six months ended December 31, 1996,  representing  decreases of $13,000,  or
56.5%,  and $6,000,  or 14.3%,  respectively.  The reduction in the provision is
reflective  of the fact that the  Corporation  has not  experienced  significant
charge-offs in any periods presented. Charge-offs experienced by the Corporation
have been  primarily  related to consumer and other  non-real  estate loans.  As
indicated  above,   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, however,  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
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

provisions  to the  allowance  for loan  losses at  current  levels for the near
future,  provided the volume of  nonperforming  loans remains low. The allowance
for loan losses totaled $418,000,  or .43% of gross loans receivable at December
31, 1997, compared with $340,000,  or .39% of gross loans receivable at December
31, 1996.

Noninterest income includes service fees and other miscellaneous income. For the
three and six months ended December 31, 1997, noninterest income totaled $15,000
and $31,000  compared to $18,000 and $30,000 for the three and six months  ended
December 31, 1996.

Noninterest  expense totaled  $501,000 and $982,000 for the three and six months
ended December 31, 1997, compared to $436,000 and $1,290,000 for same periods in
1996. Increases in compensation and benefits and other expenses were offset by a
decrease federal deposit  insurance  premiums.  The increase in compensation and
benefits was the result of normal,  annual merit increases and the Corporation's
establishment of an employee stock ownership plan. Increase in other expense was
attributable  to  increases  in director  fees,  professional  service  fees and
printing costs related to the Corporation's first annual report. These increases
were  largely  due to the mutual to stock  conversion.  FDIC  deposit  insurance
expense  during the three and six months ended December 31, 1997 was $12,000 and
$25,000,  compared to $44,000 and  $544,000  for the three and six months  ended
December 31, 1996.  Included in the prior six-month period was a special deposit
insurance  assessment of $456,000  resulting from legislation passed and enacted
into  law on  September  30,  1996,  to  recapitalize  the  Savings  Association
Insurance Fund ("SAIF").  The SAIF was below the level required by law because a
significant  portion  of  assessments  paid into the SAIF by  thrifts,  like the
Association, were used to pay the cost of prior thrift failures. The legislation
called for a one-time  assessment of $0.657 for each $100 in deposits held as of
March 31,  1995.  Because of the  recapitalization  of the SAIF,  the  disparity
between the bank and thrift insurance assessments was reduced.  Thrifts had been
paying assessments of $0.23 per $100 of deposits,  which, for most thrifts,  was
reduced to $0.064 per $100 in deposits in January  1997,  and will be reduced to
$0.024 per $100 in deposits by no later than January 2000.

The legislation  also provides for the merger of the SAIF and the Bank Insurance
Fund  ("BIF")  effective  January  1,  1999,   assuming  there  are  no  savings
associations under federal law. Under separate proposed legislation, Congress is
considering  eliminating  the federal  thrift  charter and the separate  federal
regulation  of  thrifts.  Consequently,  the  Association  would be  required to
convert to a different financial institution charter and possibly become subject
to more restrictive  activity limits.  The Association cannot predict the impact
of any such legislation until it is enacted.

The volatility of income tax expense is primarily  attributable to the change in
net income before income taxes.  The provision for income taxes totaled $187,000
and $373,000, representing an effective tax rate of 35.6%, for the three and six
months ended December 31, 1997, compared to $98,000 and $48,000, representing an
effective  tax rate of 34.0%,  for the three and six months  ended  December 31,
1996.

Prior to the enactment of legislation discussed below, thrifts which met certain
tests  relating to the  composition  of assets had been  permitted  to establish
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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,
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 December 31, 1997, 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 so there will be no effect on future net income.

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, 1997 and 1996.
<TABLE>
<CAPTION>

                                                                 Six Months
                                                             Ended December 31,
                                                             1997           1996
                                                           -------      -------
                                                           (Dollars in thousands)
<S>                                                        <C>          <C>
Net income ...........................................     $   676      $    94
Adjustments to reconcile net income to net cash from
  operating activities ...............................         117          (74)
                                                           -------      -------
Net cash from operating activities ...................         793           20
Net cash from investing activities ...................      (1,401)      (5,433)
Net cash from financing activities ...................       2,371        5,413
                                                           -------      -------
Net change in cash and cash equivalents ..............       1,763         --
Cash and cash equivalents at beginning of period .....       2,796        2,721
                                                           -------      -------
Cash and cash equivalents at end of period ...........     $ 4,559      $ 2,721
                                                           =======      =======
</TABLE>
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


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  having maturities of five years or less in an amount equal to
5% 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,  1997,  the
Association's  regulatory liquidity was 12.6%. At such date, the Corporation had
commitments to originate fixed-rate commercial and residential real estate loans
totaling  $330,000,  and  variable-rate  commercial and residential  real estate
mortgage loans totaling  $471,000.  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 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 December 31, 1997 and June 30, 1997, management
believes 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 Federal  Deposit Act at December 31,
1997 and June 30, 1997.
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

At December 31, 1997 and June 30, 1997, the Association's  actual capital levels
(in thousands) 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
                                  ------         -----      ------         -----        ------          -----
<S>                            <C>               <C>      <C>               <C>      <C>                 <C>
December 31, 1997
Total capital (to risk
  weighted assets)             $  18,131         27.1%    $  5,352          8.0%     $    6,689          10.0%
Tier 1 (core) capital to
  risk-weighted assets)           17,718         26.5        2,676          4.0           4,014           6.0
Tier 1 (core) capital to
  adjusted total assets)          17,718         16.7        3,187          3.0           5,312           5.0
Tangible capital (to
  adjusted total assets)          17,718         16.7        1,594          1.5             N/A

June 30, 1997
Total capital (to risk
  weighted assets)             $  17,481         26.9%    $  5,208          8.0%     $    6,510          10.0%
Tier 1 (core) capital to
  risk-weighted assets)           17,088         26.3        2,604          4.0           3,906           6.0
Tier 1 (core) capital to
  adjusted total                  17,088         16.6        3,094          3.0           5,156           5.0
Tangible capital (to
  adjusted total assets)          17,088         16.6        1,547          1.5             N/A
</TABLE>


In addition to certain federal income tax  considerations,  the Office of Thrift
Supervision  (OTS)  regulations  impose  limitations on payment of dividends and
other  capital  distributions  by savings  associations.  Under OTS  regulations
applicable to converted savings  associations,  the Association is not permitted
to pay a cash dividend on its common shares if its regulatory  capital would, as
a result of payment of such dividends,  be reduced below the amount required for
the Liquidation  Account,  or below applicable  regulatory capital  requirements
prescribed by the OTS.

OTS regulations  applicable to all savings and loan associations  provide that a
savings  association which,  immediately prior to and on a pro forma basis after
giving effect to a proposed  capital  distribution  (including a dividend),  has
total  capital  (as  defined by OTS  regulations)  equal to or greater  than the
amount of its capital  requirements is generally  permitted without OTS approval
(but   subsequent  to  30  days  prior  notice  to  the  OTS)  to  make  capital
distributions,  including dividends,  during a calendar year in an amount not to
exceed the greater of (1) 100% of its net  earnings to date during the  calendar
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

year,  plus an amount equal to one-half  that which its total  capital to assets
ratio  exceeded  its required  capital to assets  ratio at the  beginning of the
calendar  year, or (2) 75% of its net earnings for the most recent  four-quarter
period.   Savings   associations  with  total  capital  more  than  the  capital
requirements  that have been  notified  by the OTS that they are in need of more
than normal supervision will be subject to restrictions on dividends.  A savings
association  failing to meet current minimum capital  requirements is prohibited
from making any capital distributions without the prior approval of the OTS.

The  Association  currently meets all capital  requirements  and, unless the OTS
determines  that the  Association is an  institution  requiring more than normal
supervision,  the Association may pay dividends in accordance with the foregoing
provisions of OTS regulations.

In December  1997,  the  Association  acquired  real estate in Anna,  Ohio,  and
announced  plans to construct a new,  full-service  branch banking  office.  The
total projected cost of construction is expected to be $805,000.  As of December
31, 1997, the Association has not paid any costs related such construction.

Year 2000 Issue

Many computer  programs use only two digits to identify a year in the date field
and were apparently designed and developed without considering the impact of the
upcoming change in the century. Such programs could erroneously read entries for
the Year 2000 as the Year 1900. This could result in major systems  failures and
miscalculations.  Rapid  and  accurate  data  processing  is  essential  to  the
operations of financial institutions,  such as the Corporation.  The Corporation
has  formed a Year  2000  committee  to  assess  the  extent to which it and its
outside vendors may be adversely affected by Year 2000 problems.  Management has
determined  that most programs are or will be capable of identifying the turn of
the century. The issue is closely monitored by management and full compliance is
expected by the end of 1998.  While the Corporation does not anticipate that any
Year 2000 computer  problems or expenses  required to correct such problems will
materially  affect  its  financial  condition  and  results  of  operations,  no
assurance can be given in this regard.


Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Not yet required.
<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 are no matters brought to a vote of security holders during the
           quarter ended December 31, 1997.

Item 5.    Other Information
           None

Item 6.    Exhibits and Reports on Form 8-K
           (a)   Exhibit No. 27:  Financial Data Schedule
           (b)  Form 8-K was filed on  October  10,  1997.  Under  Item 5, Other
                Matters,  the  Corporation  reported  the  issuance  of a  press
                release to announce its operating  results for the quarter ended
                September 30, 1997 and the  declaration of a $.07 per share cash
                dividend  payable on November 7, 1997 to  shareholders of record
                on October 24, 1997.


<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:    February 9, 1998                              /s/ Douglas Stewart
                                                       -------------------
                                                       Douglas Stewart
                                                       President





Date:    February 9, 1998                              /s/ Debra Geuy
                                                       --------------
                                                       Debra Geuy
                                                       Chief Financial Officer








<PAGE>


 



                                                        
                                INDEX TO EXHIBITS


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


     27         Financial Data Schedule