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                      PEOPLES-SIDNEY FINANCIAL CORPORATION

                               1999 ANNUAL REPORT



<PAGE>



                      PEOPLES-SIDNEY FINANCIAL CORPORATION

                                  Sidney, Ohio

                                  ANNUAL REPORT
                                  June 30, 1999











                                    CONTENTS






TO OUR SHAREHOLDERS...................................................        3

BUSINESS OF PEOPLES-SIDNEY FINANCIAL CORPORATION......................        4

MARKET PRICE OF THE CORPORATION'S COMMON SHARES
  AND RELATED SHAREHOLDER MATTERS.....................................        4

SELECTED CONSOLIDATED FINANCIAL INFORMATION
  AND OTHER DATA......................................................        6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS.................................        8

REPORT OF INDEPENDENT AUDITORS .......................................       23

CONSOLIDATED FINANCIAL STATEMENTS

      Consolidated Balance Sheets ....................................       24

      Consolidated Statements of Income ..............................       25

      Consolidated Statements of Changes in Shareholders' Equity .....       26

      Consolidated Statements of Cash Flows ..........................       29

      Notes To Consolidated Financial Statements .....................       31

SHAREHOLDER INFORMATION...............................................       50

CORPORATE INFORMATION.................................................       51




<PAGE>
{GRAPHIC-MAP WITH PHOTOS OF BANK LOCATIONS]



<PAGE>
[GRAPHIC-PHOTO OF PRESIDENT AND CEO]

                                                               Dear Shareholder:

As you will see as you review this report,  fiscal 1999 was a year of growth for
our  Corporation   and  its   subsidiary,   Peoples  Federal  Savings  and  Loan
Association.  This growth,  both in operations and physical  structures will now
serve as a foundation as we prepare to enter the next millennium.

The Corporation experienced increases in assets, deposits, mortgage and consumer
loans.  These gains were enhanced by the addition of consumer and business lines
of credit and  agricultural  operation  loans.  Assets  increased 10%,  reaching
$117,000,000 at June 30, 1999.  Deposits reached  $84,300,000 at our fiscal year
end, a 7% gain. Total mortgage loans increased $7,100,000 to $101,700,000, an 8%
increase  over fiscal 1998.  You will also note that our consumer and other loan
portfolio reflected a 92% increase to $4,130,000.

Net income for the year totaled $510,376 or $.32 per share.  Although net income
was  lower  than the  previous  year,  the  Corporation's  income  reflects  the
additional  costs of our two new  facilities  and  additional  staff in Anna and
Jackson  Center,  Ohio.  I am pleased  to report  that our  branch  offices  are
currently  operating at their  anticipated  levels and will soon celebrate their
one-year  anniversaries.  Additional  costs were also  recognized to enhance our
employee  benefit plans which were approved by the shareholders on May 22, 1998.
The Corporation is now poised at a new plateau of operations  which,  over time,
will continue to enhance shareholder value.

Speaking of shareholder  value,  during the past year we continued to manage our
capital  position by completing two separate stock buybacks.  A total of 176,881
shares were purchased in the open market.  Outstanding shares at June 30 totaled
1,664,622,  a  9.6%  decrease.  As  favorable  market  conditions  prevail,  the
Corporation  will  continue  stock  repurchases.  Our current  capital  ratio is
14.85%, well in excess of regulatory requirements.

Our portfolio of services is constantly monitored to offer contemporary products
which meet our customers needs.  During the past year, as a result of a study to
enhance operations,  we elected to discontinue  offering our VISA and Mastercard
credit card program. The entire program was sold to a provider who will continue
offering this service to our  customers.  Our products were,  however,  enhanced
with the addition of a Master Money Debit Card program. The initial results have
been favorable.


In conclusion, Peoples-Sidney Financial Corporation and its subsidiary are proud
of the  talent  and  dedication  of its  biggest  asset...its  employees.  Their
enthusiasm to promote our services and assist customers remains  noteworthy.  As
we move  forward I can assure you that our  Directors,  Officers  and staff will
diligently guard the interests of our shareholders.  I invite you to promote our
company and use our services.

                                                              Sincerely,


                                                              /s/Douglas Stewart
                                                              ------------------
                                                              Douglas Stewart
                                                              President and CEO

<PAGE>
BUSINESS OF PEOPLES-SIDNEY
  FINANCIAL CORPORATION

Peoples-Sidney  Financial  Corporation  ("Peoples"),  a unitary  thrift  holding
company  incorporated  under the laws of the State of Delaware,  owns all of the
issued  and  outstanding  capital  stock of  Peoples  Federal  Savings  and Loan
Association ("Association"),  a savings and loan association chartered under the
laws of the United States together referred to as the Corporation.  On April 25,
1997,  Peoples  acquired all of the common stock issued by the Association  upon
its conversion from a mutual savings and loan association to a stock savings and
loan association ("Conversion"). Peoples' activities have been limited primarily
to holding the common shares of the Association.

Serving the Sidney, Ohio area since 1886, the Association conducts business from
its main office at 101 East Court Street,  Sidney, Ohio. During fiscal 1999, the
Association opened full-service  branches in Anna and Jackson Center,  Ohio. The
Association's  business involves attracting deposits from the general public and
using such deposits to originate one- to four-family  permanent and construction
residential mortgages and, to a lesser extent, commercial real estate, consumer,
land,  multi-family and commercial business loans in its market area, consisting
primarily of Shelby County and contiguous counties in Ohio. The Association also
invests in  securities  consisting  primarily  of U.S.  government  obligations,
mortgage-backed  and related  securities and various types of short-term  liquid
assets.

As a savings  and loan  holding  company,  Peoples  is  subject  to  regulation,
supervision  and  examination by the Office of Thrift  Supervision of the United
States  Department of the Treasury  ("OTS").  As a savings and loan  association
chartered  under the laws of the United  States,  the  Association is subject to
regulation,  supervision  and  examination  by the OTS and the  Federal  Deposit
Insurance Corporation (the "FDIC"). The FDIC insures deposits in the Association
up to applicable  limits.  The  Association is also a member of the Federal Home
Loan Bank of Cincinnati ("FHLB").


MARKET PRICE OF THE CORPORATION'S COMMON SHARES AND
  RELATED SHAREHOLDER MATTERS

The Corporation had 1,664,622 common shares  outstanding on August 6, 1999, held
of record by approximately 919  shareholders.  Price information with respect to
the Corporation's  common shares is quoted on The NASDAQ National Market System.
The high and low daily closing  prices for the common shares of the  Corporation
as quoted by The NASDAQ Stock Market,  Inc. and cash  dividends  paid by quarter
are shown below.
<PAGE>
<TABLE>
<CAPTION>


                                            September 30,      December 31,     March 31,         June 30,
                                                1998              1998            1999              1999
                                          --------------     -------------    ------------     --------------

<S>                                       <C>                <C>              <C>              <C>
              High                        $        21.75     $       18.06    $      16.88     $        13.25
              Low                                  18.13             15.00           12.50              10.00
              Cash Dividends                         .07               .07             .07                .07
<CAPTION>

                                            September 30,      December 31,      March 31,         June 30,
                                                1997             1997              1998              1998
                                          --------------     -------------    ------------     --------------
<S>                                       <C>                <C>              <C>              <C>
              High                        $        17.00     $       18.50    $      18.63     $        24.38
              Low                                  13.63             13.38           17.50              17.00
              Cash Dividends(1)                      .05               .07             .07               4.07
</TABLE>

(1)  Cash  dividends  for the quarter  ended June 30,  1998  include a $4.00 per
     share special dividend of which $3.99 was a return of capital distribution.

4
<PAGE>
In addition to certain federal income tax considerations, OTS regulations impose
limitations  on the 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
dividend,  be reduced below the amount required for the Liquidation Account (the
account  established for the purpose of granting a limited priority claim on the
assets of the Association in the event of complete  liquidation to those members
of the  Association  before the Conversion who maintain a savings account at the
Association after the Conversion), or applicable regulatory capital requirements
prescribed by the OTS.

OTS regulations  applicable to all savings and loan associations  provide that a
savings  association may make capital  distributions  in a calendar year without
prior  notice to the OTS as long as the  distributions  do not  exceed an amount
equal to the  savings  association's  net  income for that year to date plus the
savings  association's  retained  net income  for the  preceding  two years.  An
application  and  approval  from  the  OTS  must  be  obtained  if the  proposed
distribution would cause total  distributions for that year to exceed net income
for that year to date plus the savings association's retained net income for the
preceding  two years.  Savings  associations  would be required to file a notice
with the OTS whenever an  application  would not be required  based on the above
and: (1) The savings  association  will not be at least  adequately  capitalized
following the capital  distribution;  (2) The capital  distribution would reduce
the  amount  of,  or  retire  any part of the  savings  association's  common or
preferred  stock,  or  retire  any  part of debt  instruments  such as  notes or
debentures  included in capital;  (3) The proposed  distribution would violate a
prohibition contained in any applicable statute, regulation or agreement between
the savings association and the OTS (or the FDIC), or a condition imposed on the
savings  association  in an  OTS-approved  application  or  notice;  or, (4) The
savings association is a subsidiary of a savings and loan holding company.



                                                                               5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL
  INFORMATION AND OTHER DATA

The following tables set forth certain  information  concerning the consolidated
financial  condition and earnings of and other data regarding the Corporation at
the dates and for the periods  indicated.  As the  conversion  was  completed on
April 25,  1997,  information  before the year  ended  June 30,  1997 is for the
Association.
<TABLE>
<CAPTION>
Selected Financial Condition                                            At June 30,
----------------------------             ---------------------------------------------------------------------------
  and Other Data:                             1999          1998            1997            1996           1995
  ---------------                        ------------   -------------   ------------   ------------    ------------
                                                                        (In thousands)
Total amount of:
<S>                                      <C>            <C>             <C>            <C>             <C>
     Assets                              $    116,882   $     105,903   $    103,142   $     86,882    $     78,976
     Time deposits in other
       financial institutions                     400             100          5,000          1,100               -
     Securities available for sale              7,858           4,016          2,013              -               -
     Securities held to maturity                    -               -          1,999          2,598           3,098
     FHLB stock                                   908             847            763            667             622
     Loans receivable, net (1)                102,803          94,053         88,924         78,233          71,933
     Deposits                                  84,310          79,054         77,045         77,318          70,306
     Borrowed funds                            14,800           7,000              -              -               -
     Shareholders' equity (2)                  17,362          19,626         25,712          9,213           8,361
<CAPTION>
                                                                      Year ended June 30,
                                         --------------------------------------------------------------------------
Selected Operations Data:                     1999          1998            1997            1996           1995
------------------------                 ------------   -------------    -----------   ------------    ------------
                                                                      (In thousands)
<S>                                      <C>            <C>             <C>            <C>             <C>
Interest income                          $      8,105   $       8,067   $      7,189   $      6,513    $      5,725
Interest expense                                4,353           3,944          4,051          3,706           2,968
                                         ------------   -------------   ------------   ------------    ------------
Net interest income                             3,752           4,123          3,138          2,807           2,757
Provision for loan losses                         104              41            103             68              55
                                         ------------   -------------   ------------   ------------    ------------
Net interest income after
  provision for loan losses                     3,648           4,082          3,035          2,739           2,702
Noninterest income                                 89              63             63             57              60
Noninterest expense                             2,873           2,205          2,222          1,504           1,495
                                         ------------   -------------   ------------   ------------    ------------
Income before income taxes                        864           1,940            876          1,292           1,267
Income tax expense                                354             707            312            440             432
                                         ------------   -------------   ------------   ------------    ------------
Net income                               $        510   $       1,233   $        564   $        852    $        835
                                         ============   =============   ============   ============    ============
Earnings per common
  share - basic (3)                      $        .32   $        .74    $        .09
                                         ============   ============    ============
Earnings per common
  share - diluted (3)                    $        .32   $        .74    $        .09
                                         ============   ============    ============
Dividends declared per share (3)         $        .28   $       4.26    $          -
                                         ============   ============    ============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
                                                              At or for the year ended June 30,
                                         ----------------------------------------------------------------------
Selected Financial Ratios and               1999            1998            1997           1996          1995
-----------------------------            ------------   -------------    -----------   ------------    --------
  Other Data:
  ----------
<S>                                            <C>           <C>             <C>             <C>           <C>
Performance Ratios:
     Return on assets (ratio of net
       income to average total assets)         0.47%         1.17%           0.60%           1.01%         1.07%
     Return on equity (ratio of net
       income to average equity) (2)           2.73          4.77            4.70            9.70         10.55
     Interest rate spread (4)                  2.81          2.78            2.81            2.97          3.30
     Net interest margin (5)                   3.57          4.01            3.45            3.41          3.66
     Ratio of operating expense to
       average total assets                    2.65          2.10            2.38            1.78          1.93
     Ratio of average interest-earning assets
       to average interest-bearing liabilities 1.18x         1.32x           1.14x           1.10x         1.09x
Quality Ratios:
     Nonperforming assets to total
       assets at end of period (6)             0.65%         0.91%           0.84%           1.41%         1.80%
     Allowance for loan losses to
       nonperforming loans                    70.03         44.41           45.78           25.14         17.70
     Allowance for loan losses to
       gross loans receivable (7)              0.50          0.44            0.43            0.37          0.33
Capital Ratios:
     Shareholders' equity to total
       assets at end of period (2)            14.85         18.53           24.93           10.60         10.59
     Average equity to average
       assets (2)                             17.24         24.59           12.87           10.43         10.24
Other Data:
     Number of full service offices            3             1               1               1             1
</TABLE>

(1)  Loans  receivable  are shown net of loans in  process,  net  deferred  loan
     origination fees and the allowance for loan losses.
(2)  Retained earnings only before June 30, 1997.
(3)  Earnings and dividends per share are not  applicable for any of the periods
     presented  before  June 30,  1997 due to the  Association's  mutual form of
     ownership  before April 25,  1997.  Earnings per share for the period ended
     June 30,  1997 was  computed  based on net income of the  Corporation  from
     April 25, 1997 to June 30, 1997. The dividends for 1998 include a $4.00 per
     share special dividend of which $3.99 was a return of capital distribution.
(4)  The average  interest rate spread  represents  the  difference  between the
     weighted average yield on interest-earning  assets and the weighted average
     cost of interest-bearing liabilities.
(5)  The net interest  margin  represents  net  interest  income as a percent of
     average interest-earning assets.
(6)  Nonperforming  assets consist of nonperforming loans and foreclosed assets.
     Nonperforming  loans consist of all accruing loans 90 days or more past due
     and all nonaccrual loans.
(7)  Gross loans receivable are stated at unpaid principal balances.


                                                                               7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

General

The  following  is  management's  analysis  of  the  Corporation's  consolidated
financial  condition  and  consolidated  results of operations as of and for the
year ended June 30, 1999,  compared to prior years.  This discussion is designed
to provide a more  comprehensive  review of the operating  results and financial
position  than  could  be  obtained  from  an  examination  of the  consolidated
financial statements alone. This analysis should be read in conjunction with the
consolidated  financial  statements  and  related  footnotes  and  the  selected
financial data included elsewhere in this report.

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.  The conversion
was consummated on April 25, 1997 by amending the Association's  charter and the
sale of Peoples'  common  stock in an amount equal to the pro forma market value
of the Association  after giving effect to the conversion.  A total of 1,785,375
common  shares of Peoples were sold at $10.00 per share.  Net proceeds  from the
sale were $17,217,944 after deducting the costs of conversion.  Peoples 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 Peoples
because of the conversion.

The Corporation  provides  financial services through its main office in Sidney,
Ohio, and branch offices in Anna and Jackson  Center,  Ohio. Its primary deposit
products are checking,  savings and term  certificate  accounts,  and it primary
lending  products are residential  mortgage,  commercial and installment  loans.
Substantially  all loans are secured by specific  items of collateral  including
business assets, consumer assets and real estate.  Commercial loans are expected
to be repaid from cash flow from operations of businesses. Real estate loans are
secured by both  residential  and  commercial  real  estate.  Substantially  all
revenues  and  services  are derived  from  financial  institution  products and
services in Shelby County and contiguous counties.


Forward-Looking Statements

When used in this  discussion  or future  filings  by the  Corporation  with the
Securities   and   Exchange   Commission,   or  other   public  or   shareholder
communications,  or in oral  statements  made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated,"  "estimate,"  "project," "believe" or similar
expressions  are intended to identify  "forward-looking  statements"  within the
meaning of the Private Securities Litigation Reform Act of 1995. The Corporation
wishes  to  caution   readers   not  to  place   undue   reliance  on  any  such
forward-looking statements,  which speak only as of the date made, and to advise
readers  that  various  factors,   including   regional  and  national  economic
conditions,  changes in levels of market interest rates, credit risks of lending
activities   and   competitive   and  regulatory   factors,   could  affect  the
Corporation's  financial  performance and could cause the  Corporation's  actual
results  for future  periods to differ  materially  from  those  anticipated  or
projected.
<PAGE>

The Corporation is not aware of any trends,  events or  uncertainties  that will
have or are  reasonably  likely  to have a  material  effect  on its  liquidity,
capital resources or operations  except as discussed herein.  The Corporation is
not aware of any current  recommendations  by regulatory  authorities that would
have such effect if implemented.


                                  (Continued)


8
<PAGE>
The Corporation does not undertake,  and specifically disclaims,  any obligation
to  publicly  release  the  result  of any  revisions  which  may be made to any
forward-looking statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.


Financial Condition

Total assets at June 30, 1999 were $116.9 million  compared to $105.9 million at
June 30, 1998,  an increase of $11.0  million,  or 10.4%.  The increase in total
assets was primarily due to an increase in loans,  securities available for sale
and premises and  equipment  funded by a decrease in cash and cash  equivalents,
and an increase in deposits and borrowed funds.

Interest-bearing  deposits with other banks decreased $1.7 million and overnight
funds  decreased $2.0 million from June 30, 1998 to June 30, 1999 to provide for
loan growth.  The excess of such funds, which were not used to fund loan growth,
was invested in securities available for sale to improve earnings.

Securities  available for sale increased $3.8 million from June 30, 1998 to June
30, 1999.  The  Corporation  borrowed  $5.0 million in June 1999 under a 10-year
fixed-rate advance from the FHLB and purchased GNMA  mortgage-backed  securities
with an original par value of $5.0 million to leverage some of the Corporation's
excess capital.

Loans  receivable  increased $8.7 million from $94.1 million at June 30, 1998 to
$102.8 million at June 30, 1999. The  Corporation  experienced  increases in all
mortgage loan categories except for real estate construction and development and
land. The largest  increase was in one- to four-family  residential  real estate
loans which increased $4.5 million while multi-family residential and commercial
real estate loans  increased a combined total of $3.5 million.  These  increases
were partially  offset by a $846,000  decrease in real estate  construction  and
development  loans.  The overall increase and continued growth 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  $2.0 million
between June 30, 1998 and June 30, 1999.  The increase was primarily  related to
new auto loans and commercial  lines of credit  originated at the  Association's
two new branch  locations.  Even with the  increase,  consumer  and other  loans
remain a small portion of the entire loan portfolio and represented only 3.9% of
gross loans at June 30, 1999 compared to 2.2% at June 30, 1998.

Premises and equipment increased $1.0 million from $1.0 million at June 30, 1998
to $2.0 million at June 30, 1999. The increase  resulted because the Corporation
constructed  a new,  full-service  branch  banking  office  in Anna,  Ohio.  The
Corporation  also  purchased  equipment  and  made  leasehold   improvements  in
connection  with the opening of a new,  leased branch  banking office in Jackson
Center, Ohio.
<PAGE>
Total  deposits  increased  $5.2 million from $79.1  million at June 30, 1998 to
$84.3 million at June 30, 1999.  The  Corporation  experienced  increases in all
types of deposits.  The majority of deposit  growth was in negotiable  orders of
withdrawal ("NOW") accounts,  which increased by $1.5 million, savings accounts,
which increased by $1.1 million and certificates of deposit,  which increased by
$1.3  million.  The  increases  in the various  deposit  types are the result of
regular  interest-rate  promotions,  as well as  special  promotions  offered in
connection with the opening of new branch  locations in Anna and Jackson Center,
Ohio.  All  certificates  of deposit  mature within five years with the majority
maturing in the next two years.


                                  (Continued)

                                                                               9
<PAGE>
Borrowed  funds  totaled $14.8 million at June 30, 1999 and $7.0 million at June
30, 1998.  Borrowings  at June 30, 1999  consisted of $2.8 million in short-term
cash management advances and $12.0 million in long-term fixed-rate advances. The
$5.0 million  long-term  fixed-rate  advance borrowed in June 1999 was discussed
above. The remaining $7.0 million in long-term  fixed-rate  advance was borrowed
near the end of fiscal 1998 under a 10-year  fixed-rate advance from the FHLB of
Cincinnati to fund a $4.00 per share special dividend,  of which $3.99 was a tax
free return of capital,  totaling $7.1 million.  The Corporation paid the return
of capital on June 26, 1998 as a means of reducing the excess  capital  provided
from the stock conversion.

Total shareholders' equity decreased $2.2 million from $19.6 million at June 30,
1998 to $17.4 million at June 30, 1999.  The net decrease is due to the purchase
of treasury stock, the  establishment  of a Management  Recognition Plan ("MRP")
and paying out almost all the  Corporation's  1999  earnings in  dividends.  The
decrease is part of Management's  capital  planning  strategy.  During 1999, the
Corporation's Board of Directors approved two separate 5% stock buybacks,  which
were completed prior to June 30, 1999.


Results of Operations

The  operating  results of the  Corporation  are  affected  by general  economic
conditions,  the  monetary  and  fiscal  policies  of federal  agencies  and the
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 the demand for real estate loans and other types of loans,  which
in turn is affected by the interest rates at which such loans are made,  general
economic conditions and the availability of funds for lending activities.

The  Corporation's  net income  primarily  depends upon its net interest income,
which is the difference  between the 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 upon the interest rate  environment and the
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.


Comparison of Results of Operations for the
  Year Ended June 30, 1999 and June 30, 1998

Net Income.  The  Corporation  earned net income of $510,000  for the year ended
June 30, 1999 compared to net income of  $1,233,000  for the year ended June 30,
1998. 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  $3,752,000 for the year ended
June 30,  1999  compared  to  $4,123,000  for the year  ended June 30,  1998,  a
decrease  of  $371,000,  or 9.0%.  The  decrease  was the  result of  additional
interest paid on borrowed funds.
<PAGE>
Interest and fees on loans increased $234,000,  or 3.1%, from $7,463,000 for the
year ended June 30, 1998 to  $7,697,000  for the year ended June 30,  1999.  The
increase in interest income was due to higher average loans receivable,  related
primarily  to  the  origination  of new  commercial  real  estate  and  one-  to
four-family residential loans. The increase in interest and fees on loans due to
volume was  partially  offset by a decline in the yield  earned on loans,  which
dropped from 8.09% for 1998 to 7.88% for 1999.


                                  (Continued)

10
<PAGE>
Interest earned on securities  totaled $229,000 for the year ended June 30, 1999
compared  to  $252,000   for  the  year  ended  June  30,   1998.   Interest  on
interest-bearing  demand,  time and  overnight  deposits  with  other  financial
institutions decreased $177,000 for the year ended June 30, 1999 compared to the
year  ended  June 30,  1998.  The  decreases  were the  result of lower  average
balances of  securities  and  interest-bearing  deposits  and  decreases  in the
average yields 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.

Interest  paid on  deposits  decreased  $55,000 for the year ended June 30, 1999
compared  to the  year  ended  June  30,  1998.  The  average  balance  for  all
interest-bearing deposits increased and the mix of the deposit portfolio shifted
slightly from certificates of deposit to transaction accounts.  The average cost
of deposits  decreased  from 5.06% for the year ended June 30, 1998 to 4.80% for
the year ended June 30,  1999.  The  decrease in the average  cost of funds more
than offset the increase in volume.

Interest  paid on borrowed  funds  totaled  $470,000 for the year ended June 30,
1999 compared to $6,000 for the year ended June 30, 1998.  The  Corporation  did
not borrow  funds  during 1998 until June 25, 1998 to fund the return of capital
discussed  previously.  Management  borrowed short- and long-term funds from the
FHLB throughout 1999 to fund loan growth and leverage some of the  Corporation's
excess capital.

Provision  for Loan Losses.  The  Corporation  maintains  an allowance  for loan
losses in an amount  that,  in  management's  judgment,  is  adequate  to absorb
probable losses inherent in the loan portfolio.  While  management  utilizes its
best judgment and information available,  the ultimate adequacy of the allowance
is  dependent  upon a variety  of  factors,  including  the  performance  of the
Corporation's  loan  portfolio,  the economy,  changes in real estate values and
interest  rates  and  the  view  of  the  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  which is  considered
adequate to absorb probable 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 the size and composition of the loan portfolio
and specific borrower  considerations,  including the ability of the borrower to
repay the loan and the estimated value of the underlying collateral.

The provision for loan losses for the year ended June 30, 1999 totaled  $104,000
compared to $41,000 for the year ended June 30, 1998, an increase of $63,000, or
151.7%. The allowance for loan losses totaled $529,000,  or 0.50% of gross loans
receivable  and 70.0% of total  nonperforming  loans at June 30, 1999,  compared
with  $426,000,   or  0.44%  of  gross  loans  receivable  and  44.4%  of  total
nonperforming loans at June 30, 1998. Charge-offs experienced by the Corporation
have primarily related to consumer and other non-real estate loans. As indicated
previously,  such loans make up a small 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

<PAGE>
defined ratios of debt to income.  Notwithstanding  the charge-off  history,  as
well as a  lower  volume  of  nonperforming  loans,  management  believes  it is
necessary 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.

Noninterest   income.   Noninterest  income  includes  service  fees  and  other
miscellaneous  income and  totaled  $89,000  for the year  ended  June 30,  1999
compared to $63,000 for the year ended June 30,  1998.  The primary  reasons for
the increase were higher late charge income and service  charges on NOW accounts
due to the increase in the number of accounts.


                                  (Continued)


11
<PAGE>
Noninterest  expense.  Noninterest expense totaled $2,872,000 for the year ended
June 30,  1999  compared  to  $2,205,000  for the year ended June 30,  1998,  an
increase of $667,000 or 30.3%. The increase is primarily related to compensation
and benefits, occupancy expenses and state franchise taxes.

Compensation and benefits expense increased $409,000,  or 37.5%. The increase is
the result of normal, annual merit increases,  the addition of employees for the
two new  branches  and the added  expense of the MRP,  which  began in May 1998.
Compensation  expense  related to the MRP was $187,000 and $20,000 for the years
ended  June  30,  1999 and  1998.  Occupancy  and  equipment  expense  increased
$128,000, or 82.0%, due to the added costs of the two new branch offices.  State
franchise  taxes  increased  $70,000,  or  32.7%,  due to being  taxed at higher
capital levels at the Association for a full year for 1999. 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.  Income tax expense
totaled  $354,000 for the year ended June 30, 1999  compared to $706,000 for the
year ended June 30, 1998, a decrease of $352,000,  or 49.9%.  The  effective tax
rates  were  40.9%  and  36.4%  for the  years  ended  June 30,  1999 and  1998,
respectively.  The increase in the effective tax rate  primarily  relates to the
Corporation's  stock-based benefit plans and their relative tax impact resulting
from lower pretax earnings.

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 to 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 the 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  method or the percentage of taxable income
method, based on an annual election.

In August  1996,  legislation  was enacted  that  repeals 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  that exceeds 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,  the  commencement  of which was delayed  until the first  taxable  year
beginning  after  December  31,  1997,  provided  the  institution  met  certain
residential  lending  requirements.  At  June  30,  1999,  the  Association  had
approximately  $484,000 in bad debt  reserves  subject to recapture  for federal
income tax  purposes.  The deferred tax  liability  related to the recapture has
been previously  established.  In fiscal 1999, $97,000 of bad debt reserves were
recaptured.


Comparison of Results of Operations for the
  Year Ended June 30, 1998 and June 30, 1997

Net Income.  The Corporation  earned net income of $1,233,000 for the year ended
June 30, 1998  compared  to net income of  $564,000  for the year ended June 30,
1997.  The  increase  in net  income was  primarily  due to an  increase  in net

<PAGE>
interest income and reduced FDIC deposit insurance  premiums partially offset by
an increase in the noninterest  expense categories of compensation and benefits,
state franchise taxes and other expense.

Net Interest Income.  Net interest income totaled  $4,123,000 for the year ended
June 30,  1998  compared  to  $3,138,000  for the year ended June 30,  1997,  an
increase  of  $985,000,   or  31.4%.  The  change  in  net  interest  income  is
attributable to higher average balances of  interest-earning  assets funded with
the  proceeds  from the mutual to stock  conversion.


                                  (Continued)

12
<PAGE>
Interest and fees on loans increased $658,000,  or 9.7%, from $6,805,000 for the
year ended June 30, 1997 to  $7,463,000  for the year ended June 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  first  mortgages.
Additionally,  interest on loans was also  enhanced by a slight  increase in the
average  yield  earned on loans from  8.06% for the year ended June 30,  1997 to
8.09% for the year ended June 30, 1998.

Interest earned on securities  totaled $252,000 for the year ended June 30, 1998
compared to $141,000  for the year ended June 30, 1997.  Similarly,  interest on
interest-bearing  demand,  time and  overnight  deposits  with  other  financial
institutions increased $100,000 for the year ended June 30, 1998 compared to the
year ended  June 30,  1997.  The  increases  were the  result of higher  average
balances of securities and interest-bearing  deposits partly offset by decreases
in the average yields 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  combined  with an increase
in the dividend rate paid by the FHLB.

Interest  paid on  deposits  decreased  $47,000 for the year ended June 30, 1998
compared  to the year  ended  June 30,  1997.  There  was  little  change in the
interest  paid  on  deposits  as the  average  balance  and  mix of the  deposit
portfolio  remained  fairly stable while the average cost of deposits  decreased
slightly from 5.09% for the year ended June 30, 1997 to 5.06% for the year ended
June 30, 1998.

Interest paid on borrowed  funds totaled $6,000 for the year ended June 30, 1998
compared to $65,000 for the year ended June 30, 1997.  The decrease was a result
of a decrease in the average level of borrowings over the comparable period. The
Corporation  did not borrow  funds  during  1998 until June 25, 1998 to fund the
return of capital  discussed  previously.  Throughout 1997, the Corporation used
short-term advances from the FHLB to provide liquidity for loan growth.

Provision for Loan Losses. The provision for loan losses for the year ended June
30, 1998 totaled $41,000  compared to $103,000 for the year ended June 30, 1997,
a decrease of $62,000, or 60.2%. The allowance for loan losses totaled $426,000,
or 0.44% of total loans  receivable  and 44.4% of total  nonperforming  loans at
June 30, 1998,  compared with $397,000,  or 0.43% of total loans  receivable and
45.8%  of total  nonperforming  loans at June 30,  1997.  The  reduction  in the
provision was  reflective of the fact that the  Corporation  did not  experience
significant  charge-offs during 1998. Charge-offs experienced by the Corporation
have primarily related to consumer and other non-real estate loans. As indicated
previously,  such loans make up a small portion of the Corporation's  total loan
portfolio.

Noninterest  income.  Noninterest  income totaled  $63,000 for each of the years
ended June 30, 1998 and 1997.

Noninterest  expense.  Noninterest expense totaled $2,205,000 for the year ended
June 30,  1998  compared  to  $2,222,000  for the year  ended June 30,  1997,  a
decrease of $17,000,  or 0.8%.  Increases in  compensation  and benefits,  state
franchise taxes and other expenses were offset by a decrease in the FDIC deposit
insurance premiums.
<PAGE>
Compensation and benefits expense increased $216,000,  or 24.7%. 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 employee
stock  ownership  plan  increased as the  Corporation  was able to allocate more
shares to  participants  in 1998.  Compensation  expense related to the ESOP was
$250,000  for the year ended June 30, 1998  compared  to  $136,000  for the year
ended June 30, 1997. The Corporation also  implemented a Management  Recognition
Plan ("MRP") in May 1998,  which resulted in expense of $20,000 for fiscal 1998.
State  franchise  taxes  increased  $80,000,  or  59.7%,  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

                                  (Continued)

                                                                              13
<PAGE>
increases in professional  service fees and printing costs. These increases were
largely related to the conversion to stock ownership.

The FDIC deposit  insurance premium was $49,000 for the year ended June 30, 1998
compared  to  $560,000  for the year ended June 30,  1997.  Included in the year
ended June 30,  1997 was a special  deposit  insurance  assessment  of  $456,000
resulting  from   legislation   enacted  into  law  on  September  30,  1996  to
recapitalize  the Savings  Association  Insurance Fund ("SAIF") of the FDIC. The
SAIF was below the level  required by law because a  significant  portion of the
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  estimated  at $0.657 for each $100 in deposits  held as of March 31,
1995.  Because of the  recapitalization  of the SAIF, the disparity between bank
and  thrift  insurance   assessments  was  reduced.   Thrifts  had  been  paying
assessments of $.23 per $100 of deposits,  which, for most thrifts,  was reduced
to $.064 per $100 in deposits in January  1997 and is scheduled to be reduced to
$.024 per $100 in deposits no later than January 2000.

Income  Tax  Expense.   The  volatility  of  income  tax  expense  is  primarily
attributable  to the change in income before  income  taxes.  Income tax expense
totaled  $706,000 for the year ended June 30, 1998  compared to $312,000 for the
year ended June 30, 1997, a increase of $394,000,  or 126.3%.  The effective tax
rates  were  36.4%  and  35.6%  for the  years  ended  June 30,  1998 and  1997,
respectively.

Yields Earned and Rates Paid. The following table sets forth certain information
relating to the  Corporation's  average  balance  sheet and reflects the average
yield  on  interest-earning  assets  and the  average  cost of  interest-bearing
liabilities  for the  periods  indicated.  Such  yields and costs are derived by
dividing income or expense by the average balances of interest-earning assets or
interest-bearing liabilities,  respectively,  for the periods presented. Average
balances are derived from average daily  balances.  Nonaccruing  loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
                                                                     Year ended June 30,
                           -----------------------------------------------------------------------------------------------------
                                         1999                                 1998                             1997
                           ---------------------------------  --------------------------------   -------------------------------
                              Average   Interest                 Average    Interest                Average   Interest
                           outstanding   earned/      Yield/  outstanding    earned/    Yield/   outstanding   earned/    Yield/
                              balance     paid        rate       balance      paid       rate       balance     paid       rate
                                                           (Dollars in thousands)
<S>                         <C>          <C>           <C>      <C>         <C>           <C>      <C>         <C>         <C>
ASSETS:
Interest-earning assets:
   Interest-earning
     deposits               $   2,853    $   117       4.10%    $  5,919    $   295       4.98%    $  3,467    $ 194       5.60%
   Securities available
     for sale (1)               3,635        229       6.31        3,013        199       6.65          308       21       6.84
   Securities held to
     maturity                       -          -          -          958         53       5.53        2,138      120       5.61
   Loans receivable (2)        97,702      7,697       7.88       92,208      7,463       8.09       84,421    6,805       8.06
   FHLB stock                     870         62       7.13          789         57       7.22          698       49       7.02
                            ---------    -------                --------    -------                --------    -----

     Total interest-
       earning assets         105,060      8,105       7.72      102,887      8,067       7.84       91,032    7,189       7.90
                            ---------    -------                --------    -------                --------    -----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                         <C>          <C>           <C>      <C>         <C>           <C>      <C>         <C>         <C>
Noninterest-earning
  assets:
   Cash and due from
     banks                        725                                536                                498
   Premises and
     equipment, net             1,809                                817                                775
   Accrued interest and
     other assets                 950                                920                              1,014
                            ---------                           --------                           --------

     Total noninterest-
       earning assets           3,484                              2,273                              2,287
                            ---------                           --------                           --------

Total assets                $ 108,544                           $105,160                           $ 93,319
                            =========                           ========                           ========
</TABLE>

                                  (Continued)

14
<PAGE>
<TABLE>
<CAPTION>
                                                                       Year ended June 30,
                              -----------------------------------------------------------------------------------------------------
                                              1999                               1998                              1997
                              ----------------------------------  --------------------------------   ------------------------------
                                 Average    Interest                 Average    Interest               Average    Interest
                              outstanding    earned/      Yield/  outstanding   earned/     Yield/   outstanding   earned/   Yield/
                                 balance      paid        rate      balance       paid       rate       balance     paid      rate
                                                           (Dollars in thousands)
<S>                             <C>          <C>           <C>      <C>         <C>           <C>      <C>        <C>          <C>
LIABILITIES AND
    SHAREHOLDERS' EQUITY:
Interest-bearing
  liabilities:
   Savings deposits             $  18,939    $   571       3.01%    $ 18,236    $   557       3.05%    $ 17,973   $  555       3.09%
   Demand and NOW
     deposits                       5,591        152       2.72        3,911         95       2.43        4,313      105       2.43
   Certificate accounts            56,415      3,160       5.60       55,737      3,286       5.90       56,085    3,326       5.93
                               ----------   --------                --------    -------                   ------   -----

   Total deposits                  80,945      3,883       4.80       77,884      3,938       5.06       78,371    3,986       5.09
   Borrowed funds                   7,764        470       6.05           96          6       6.25        1,163       65       5.59
                                ---------    -------                --------    -------                --------    -----
     Total interest-
      bearing liabilities          88,709      4,353       4.91       77,980      3,944       5.06       79,534    4,051       5.09
                                ---------    -------                --------    -------                --------    -----
Noninterest-bearing
  liabilities
   Demand deposits                    440                                493                              1,281
   Accrued interest
     payable and other
     liabilities                      681                                825                                493
                                ---------                           --------                           --------
     Total noninterest-
       bearing
       liabilities                  1,121                              1,318                              1,774
                                ---------                           --------                           --------

Total liabilities                  89,830                             79,298                             81,308

Total shareholders'
  equity                           18,714                             25,862                             12,011
                                ---------                           --------                           --------
Total liabilities and
  shareholders'
  equity                        $ 108,544                           $105,160                           $ 93,319
                                =========                           ========                           ========
Net interest income;
  interest rate
  spread (3)                                  $ 3,752       2.81%               $ 4,123       2.78%               $3,138       2.81%
                                              =======       ====                =======       ====                ======       ====
Net earning assets              $  16,351                           $ 24,907                           $ 11,498
                                =========                           ========                           ========
Net interest margin (4)                                     3.57%                             4.01%                            3.45%
                                                            ====                              ====                             ====
Average interest-earning
  assets to interest-
  bearing liabilities                1.18x                              1.32x                              1.14x
</TABLE>
<PAGE>

(1)  Average balance  includes  unrealized gains and losses while yield is based
     on amortized cost.
(2)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     allowance for loan losses and includes nonperforming loans.
(3)  Net interest rate spread  represents  the  difference  between the yield on
     interest-earning assets and the cost of interest-bearing liabilities.
(4)  Net  interest  margin  represents  net interest  income  divided by average
     interest-earning assets.

                                  (Continued)

                                                                              15
<PAGE>
The table below  describes  the extent to which  changes in  interest  rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected the  Corporation's  interest  income and expense  during the years
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (1) changes in
volume (multiplied by prior year rate), (2) changes in rate (multiplied by prior
year volume) and (3) total changes in rate and volume.  The combined  effects of
changes in both volume and rate, that are not separately  identified,  have been
allocated proportionately to the change due to volume and change due to rate:
<TABLE>
<CAPTION>
                                                                           Year ended June 30,
                                                   ----------------------------------------------------------------
                                                            1999 vs. 1998                     1998 vs. 1997
                                                   --------------------------------   -----------------------------
                                                          Increase                         Increase
                                                         (decrease)                       (decrease)
                                                           due to                           due to
                                                    Volume       Rate       Total      Volume     Rate       Total
                                                   ---------   --------   ---------   -------   --------    -------
                                                                              (In thousands)
<S>                                                <C>         <C>        <C>         <C>       <C>         <C>
Interest income attributable to:
     Interest-earning deposits                     $    (133)  $    (45)  $    (178)  $   124   $    (23)   $   101
     Securities available for sale                        39         (9)         30       180         (2)       178
     Securities held to maturity                         (53)         -         (53)      (65)        (2)       (67)
     Loans receivable                                    436       (202)        234       630         28        658
     FHLB stock                                            6         (1)          5         7          1          8
                                                   ---------   --------   ---------   -------   --------    -------

         Total interest-earning assets             $     295   $   (257)         38   $   876   $      2        878
                                                   =========   ========   ---------   =======   ========    -------

Interest expense attributable to:
     Savings deposits                              $      21   $     (7)         14   $     8   $     (6)         2
     Demand and NOW deposits                              37         20          57       (10)         -        (10)
     Certificates accounts                                40       (166)       (126)      (21)       (19)       (40)
     Borrowed funds                                      464          -         464       (66)         7        (59)
                                                   ---------   --------   ---------   --------  --------    -------

         Total interest-bearing liabilities        $     562   $   (153)        409   $   (89)  $    (18)      (107)
                                                   =========   ========   ---------   =======   ========    -------

Net interest income                                                       $    (371)                        $   985
                                                                          =========                         =======
</TABLE>
Asset and Liability Management

The Association,  like other financial institutions, is subject to interest rate
risk to the extent that its interest-earning assets reprice differently than its
interest-bearing  liabilities.  As part of its  effort  to  monitor  and  manage
interest rate risk,  the  Association  uses the "net  portfolio  value"  ("NPV")
methodology adopted by the OTS as part of its capital regulations.  Although the
Association is not currently  subject to NPV regulation  because such regulation
does not  apply to  institutions  with  less than  $300  million  in assets  and
risk-based  capital  in  excess  of  12%,  application  of NPV  methodology  may
illustrate the Association's interest rate risk.
<PAGE>
Generally,  NPV is the  discounted  present  value  of  the  difference  between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on  interest-bearing  and other liabilities.  The application of the methodology
attempts  to  quantify  interest  rate risk as the  change in the NPV that would
result from a theoretical 200 basis point (1 basis point equals 0.01%) change in
market interest rates.  Both a 200 basis point increase in market interest rates
and a 200 basis point decrease in market interest rates are  considered.  If the
NPV would  decrease  by more than 2% of the present  value of the  institution's
assets with either an increase or a decrease in market  rates,  the  institution
must  deduct  50%  of the  amount  of  decrease  in  excess  of  such  2% in the
calculation of the institution's risk-based capital.


                                  (Continued)

16
<PAGE>
At March 31, 1999, the most recent date with  available  data, 2% of the present
value of the Association's assets was $2,203,000. Because the interest rate risk
of a 200 basis point  decrease in market  interest rates (which was greater than
the interest rate risk of a 200 basis point  increase)  was  $2,905,000 at March
31, 1999, the Association would have been required to make additional deductions
from its capital of  $351,000 in  determining  whether the  Association  met its
risk-based capital requirement.  Even with the deduction,  the Association would
have still exceeded its risk-based capital requirement.

Presented  below,  as of March 31,  1999,  is an analysis  of the  Association's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel  shifts of 100 basis points in market interest rates. As illustrated in
the table, NPV is more sensitive to declining rates than rising rates. Since the
Association is primarily a residential  mortgage lender,  the mortgage portfolio
makes up nearly 90% of total assets.  Faster  prepayment  speeds under a falling
rate environment, along with the large percentage of adjustable-rate loans, make
the  Association  more  sensitive when interest  rates fall.  Additionally,  the
Association has significant long-term fixed-rate FHLB advances that increase the
Association's sensitivity to a falling rate environment.
<TABLE>
<CAPTION>

                                                                 NPV as % of
                                                                 Portfolio           Target Limit Under
   Change                  Net Portfolio Value                    Value of            Asset/Liability
  in Rates       $ Amount        $ Change         % Change          Assets            Management Policy
  --------       --------        --------         --------         ------            -----------------
<S>              <C>            <C>                <C>              <C>                     <C>
    +400         $13,256        $(2,938)           (18.2)%          13.18%                  (75)%
    +300          14,496         (1,699)           (10.5)           14.03                   (45)
    +200          15,721           (473)            (2.9)           14.80                   (20)
    +100          16,193             (1)            (0.0)           14.94                   (10)
   STATIC         16,194              0              0.0            14.70                     0
   (100)          14,753         (1,441)            (8.9)           13.34                   (10)
   (200)          13,289         (2,905)           (17.9)           11.96                   (20)
   (300)          11,913         (4,281)           (26.4)           10.65                   (45)
   (400)          10,809         (5,385)           (33.2)            9.60                   (75)
</TABLE>

As with any method of measuring  interest rate risk,  certain  shortcomings  are
inherent  in  the  NPV  approach.  For  example,  although  certain  assets  and
liabilities may have similar maturities or periods of repricing,  they may react
in different  degrees to changes in market  interest  rates.  Also, the interest
rates on certain  types of assets and  liabilities  may  fluctuate in advance of
changes in market  interest  rates,  while interest rates on other types may lag
behind  changes in market rates.  Further,  in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed  securities and
early  withdrawal  levels from  certificates  of deposit  would  likely  deviate
significantly from those assumed in making risk calculations.



                                  (Continued)

                                                                              17
<PAGE>
Liquidity and Capital Resources

The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a  result  of  its  operating,  investing  and  financing  activities.  These
activities  are  summarized  below for the years ended June 30,  1999,  1998 and
1997.
<TABLE>
<CAPTION>

                                                                                  Year Ended June 30,
                                                                   ------------------------------------------------
                                                                        1999              1998             1997
                                                                   -------------     ------------      ------------
<S>                                                                <C>               <C>               <C>
Net income                                                         $         510     $      1,233      $        564
Adjustments to reconcile net income to net
  cash from operating activities                                             824               83               134
                                                                   -------------     ------------      ------------
Net cash from operating activities                                         1,334            1,316               698
Net cash from investing activities                                       (14,237)            (602)          (16,140)
Net cash from financing activities                                         9,889            1,437            15,517
                                                                   -------------     ------------      ------------
Net change in cash and cash equivalents                                   (3,014)           2,151                75
Cash and cash equivalents at beginning of period                           4,947            2,796             2,721
                                                                   -------------     ------------      ------------
Cash and cash equivalents at end of period                         $       1,933     $      4,947      $      2,796
                                                                   =============     ============      ============
</TABLE>

The  Corporation's  principal  sources of funds are deposits,  loan  repayments,
maturities of securities and other funds provided by operations. The Corporation
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  Corporation  maintains  investments in liquid
assets based upon  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 4% 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 June 30, 1999, the  Association's  regulatory  liquidity was 7.47%. At
such date, the Corporation had  commitments to originate  fixed-rate  commercial
and  residential  real  estate  loans  totaling   $375,000,   and  variable-rate
commercial and residential  real estate mortgage loans totaling  $394,000.  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 16 of the Notes to Consolidated Financial Statements.
<PAGE>
The  Association  is  subject  to  various   regulatory   capital   requirements
administered  by  the  federal  regulatory  agencies.   Under  capital  adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Association  must meet specific  capital  guidelines  that involve  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
the regulators  about the  Association's  components,  risk weightings and other
factors.  Failure to meet minimum  capital  requirements  can  initiate  certain
mandatory  actions that, if undertaken,  could have a direct  material effect on
the Corporation's  financial  statements.  At June 30, 1999 and 1998, 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  Insurance Act at June
30, 1999 and 1998. No conditions or events have occurred  subsequent to the last
notification  by  regulators  that  management  believes  would have changed the
Association's category.


                                  (Continued)
18
<PAGE>
The following table  summarizes the  Association's  minimum  regulatory  capital
requirements and actual capital at June 30, 1999.



<TABLE>
<CAPTION>
                                                                                   Excess of Actual
                                                                               Capital Over Current
                              Actual capital          Current requirement            Requirement         Applicable
                           Amount      Percent       Amount      Percent          Amount   Percent       Asset Total
                           ------      -------       ------      -------          ------   -------       -----------
                                                   (Dollars in thousands)
<S>                      <C>            <C>        <C>            <C>           <C>          <C>        <C>
Total risk-based
  capital                $   13,634     18.0%      $   6,069      8.0%          $   7,565    10.0%      $    75,864
Tier 1 risk-based
  capital                    13,152     17.3           3,035      4.0              10,117    13.3            75,864
Core capital                 13,152     11.2           4,677      4.0               8,475     7.2           116,935
Tangible capital             13,152     11.2           1,754      1.5              11,398     9.7           116,935
</TABLE>



Impact of New Accounting Standards

Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
Derivative  Instruments and Hedging Activities" - 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.  SFAS 133,  as amended by SFAS 137,  is  effective  for
fiscal years  beginning  after June 15, 2000 with early adoption  encouraged for
any  fiscal  quarter  beginning  July 1,  1998  or  later,  with no  retroactive
application.  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"
- SFAS 134 changes the way  companies  involved in mortgage  banking  activities
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, all retained mortgage-backed securities were
required to be classified as trading. SFAS 134 was effective as of July 1, 1999,
and did not have a significant impact on the Corporation's financial statements.
<PAGE>
Impact of Inflation and Changing Prices

The  Consolidated  Financial  Statements  and Notes  included  herein  have been
prepared in accordance with generally accepted accounting  principles  ("GAAP").
Presently,  GAAP  requires the  Corporation  to measure  financial  position and
operating  results  primarily  in  terms of  historic  dollars.  Changes  in the
relative  value of  money  due to  inflation  or  recession  are  generally  not
considered.

In  management's  opinion,  changes  in  interest  rates  affect  the  financial
condition of a financial institution to a far greater degree than changes in the
inflation  rate.  While interest rates are greatly  influenced by changes in the
inflation  rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather,  interest rate volatility is based on changes in the
expected  rate of  inflation,  as well as on  changes  in  monetary  and  fiscal
policies.

                                  (Continued)

                                                                              19
<PAGE>
Year 2000 ("Y2K") 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 uses
the services of a  nationally-recognized  data  processing  service  bureau that
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  began by identifying  mission  critical  systems in the fourth
quarter of 1997.  Every system was reviewed and inventoried and determined to be
"mission critical" or "nonmission  critical." Mission critical systems are those
critical to providing service to the customers by maintaining  customer records,
general  accounting  functions  and those  that would  impact the  Corporation's
liquidity if they should fail.

The following systems were identified as mission critical by management. A brief
description on the status of each system is listed below.

     1.   File servers and Novell network
     2.   Teller equipment and NCR BMS teller and new accounts software
     3.   Other personal computers
     4.   NCR Starcom account processing including ACH items and EDS (Jeannie)
     5.   IPS accounting software
     6.   Federal Home Loan Bank
     7.   Bankers Systems, Inc. new loan software
     8.   EDS

File Servers and Novell Network

Due to two new branches,  two new Compaq file servers were purchased in 1998 and
have been verified as Y2K compliant.  The Novell  operating  software was either
upgraded or purchased and has been verified as Y2K compliant. One file server at
a branch  location will not rollover the date into the next century,  but can be
manually set and will  correctly  handle dates forward  including leap year. The
file server and  software  were tested at the Sidney  location in August 1998 by
advancing the date to the next century and performing daily teller functions.

Teller Equipment and NCR Software

All personal  computer-based  equipment  and NCR software  were updated and then
tested in August 1998. The testing included running of transactions in Year 2000
environment  against an  on-line  test file.  Review of the  results  showed the
processing operated correctly and is Y2K compliant.

Other Personal Computers

All other personal  computers have been tested by an outside vendor and found to
be Y2K  compliant  or will have the date loaded form the file server as noted by
the  manufacturer  and tested by the  Corporation.  All  operating  software and
office  software  were  installed  with the most recent Y2K versions and are Y2K
compliant.

                                  (Continued)
20
<PAGE>
NCR Starcom Account Processing

The Starcom account processing was tested in August 1998 in conjunction with the
teller  equipment  and  software.  The results of these tests were  reviewed and
showed that the system operated as expected and is Y2K compliant.  An additional
test was performed in July 1999 for items that had been added since the previous
test.  The results of this test  indicate  these items will operate as expected.
NCR also tested  with EDS  (Jeannie)  and the ACH  networks on a proxy basis and
have certified that they are compliant.


IPS Accounting Software

The IPS accounting was presented as being Y2K compliant by the  manufacturer and
was  tested  in  December  1998 by the  Corporation.  The test  results  were as
expected and showed the system to be compliant.


Federal Home Loan Bank

The FHLB is the  primary  correspondent  of the  Corporation  and  provides  the
Corporation  with  liquidity  through  advances,  and  cash  and  also  acts  as
settlement agent with the Federal Reserve Bank. The FHLB has reported completion
of all mission-critical testing.


Bankers Systems, Inc. Loan Processing Software

The Bankers  Systems,  Inc. loan  processing  software has been certified as Y2K
compliant  by  the   manufacturer  and  was  tested  in  December  1998  by  the
Corporation. All tests showed the software to be compliant.


EDS

EDS provides the Corporation with on-us check clearing, statement mailing, check
encoding and depositing. They have reported being Y2K compliant.


Bank Security

All security  systems have been  certified as Y2K compliant or do not use a date
function in the operation of the system.


Other Nonmission Critical Systems

All nonmission critical systems have been reviewed and made Y2K ready or will be
removed from service prior to year-end.


Y2K Costs

The total direct cost of upgrading equipment and software, personnel and testing
associated fees will be  approximately  $21,000.  Some other indirect costs were
incurred due to upgrading  equipment  that would have needed to be replaced over
the coming year.

                                  (Continued)
                                                                              21
<PAGE>
Business Resumption Contingency Plan

The Corporation's  contingency  plans have been reviewed and updated.  A special
Y2K addendum was also added to cover  special  concerns and needs of the century
change.  These  included  liquidity  and  cash  needs  of the  Association.  The
Corporation  has  secured  a  guaranteed  Y2K  line  from the FHLB to be used in
addition  to the  normal  line of credit  that has been  recently  renewed.  The
Corporation  plans to maintain  higher levels of liquidity the remainder of 1999
through maturing  investments,  normal cash flows and FHLB advances.  As part of
the  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.

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.


22
<PAGE>
                       [GRAPHIC-CROWE CHIZEK LETTERHEAD]




                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
Peoples-Sidney Financial Corporation
Sidney, Ohio


We have audited the accompanying  consolidated  balance sheets of Peoples-Sidney
Financial Corporation as of June 30, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended June 30, 1999.  These  financial  statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of  Peoples-Sidney
Financial  Corporation  as of June 30,  1999 and 1998,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
June 30, 1999, in conformity with generally accepted accounting principles.




                                                /s/Crowe, Chizek and Company LLP
                                                --------------------------------
                                                   Crowe, Chizek and Company LLP

Columbus, Ohio
July 9, 1999


                                                                              23
<PAGE>
<TABLE>
<CAPTION>
                             PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  CONSOLIDATED BALANCE SHEETS
                                    June 30, 1999 and 1998

                                                                    1999              1998
                                                              -------------      -------------
<S>                                                           <C>                <C>
ASSETS
Cash and due from banks                                       $   1,298,357      $     655,188
Interest-bearing deposits in other financial institutions           634,621          2,292,065
Overnight deposits                                                     --            2,000,000
                                                              -------------      -------------
     Total cash and cash equivalents                              1,932,978          4,947,253

Time deposits in other financial institutions                       400,000            100,000
Securities available for sale                                     7,858,111          4,015,890
Federal Home Loan Bank stock                                        907,700            846,500
Loans receivable, net                                           102,802,845         94,052,531
Accrued interest receivable                                         759,913            722,401
Premises and equipment, net                                       1,985,608            973,403
Other assets                                                        235,104            245,339
                                                              -------------      -------------

     Total assets                                             $ 116,882,259      $ 105,903,317
                                                              =============      =============


LIABILITIES
Deposits                                                      $  84,310,492      $  79,053,686
Borrowed funds                                                   14,800,000          7,000,000
Accrued interest payable and other liabilities                      409,550            223,615
                                                              -------------      -------------
     Total liabilities                                           99,520,042         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                                       10,779,941         10,717,991
Retained earnings                                                10,643,040         10,581,096
Treasury stock, 120,753 shares at cost                           (1,766,399)              --
Unearned employee stock ownership plan shares                    (1,520,139)        (1,702,114)
Unearned management recognition plan shares                        (746,692)              --
Accumulated other comprehensive income                              (45,388)            11,189
                                                              -------------      -------------
     Total shareholders' equity                                  17,362,217         19,626,016
                                                              -------------      -------------

     Total liabilities and shareholders' equity               $ 116,882,259      $ 105,903,317
                                                              =============      =============
</TABLE>
          See accompanying notes to consolidated financial statements.

24
<PAGE>
<TABLE>
<CAPTION>
                                   CONSOLIDATED STATEMENTS OF INCOME
                               Years Ended June 30, 1999, 1998 and 1997


                                                                 1999            1998          1997
                                                              ----------     ----------     ----------
<S>                                                           <C>            <C>            <C>
Interest income
     Loans, including fees                                    $7,697,298     $7,463,234     $6,804,933
     Securities                                                  228,786        252,271        140,604
     Interest-bearing demand, time and overnight deposits        117,218        294,440        194,226
     Dividends on Federal Home Loan Bank stock                    61,386         57,204         49,055
                                                              ----------     ----------     ----------
         Total interest income                                 8,104,688      8,067,149      7,188,818

Interest expense
     Deposits                                                  3,883,143      3,938,606      3,985,995
     Borrowed funds                                              469,997          5,878         64,640
                                                              ----------     ----------     ----------
         Total interest expense                                4,353,140      3,944,484      4,050,635
                                                              ----------     ----------     ----------

Net interest income                                            3,751,548      4,122,665      3,138,183

Provision for loan losses                                        103,803         41,240        102,743
                                                              ----------     ----------     ----------

Net interest income after provision for loan losses            3,647,745      4,081,425      3,035,440

Noninterest income
     Service fees and other charges                               88,729         62,912         63,048

Noninterest expense
     Compensation and benefits                                 1,499,573      1,090,237        873,749
     Director fees                                               120,000        129,000         83,800
     Occupancy and equipment                                     285,073        156,676        137,027
     Computer processing expense                                 185,542        156,470        152,318
     FDIC deposit insurance premiums                              47,627         49,096        559,660
     State franchise taxes                                       283,863        213,864        133,639
     Other                                                       450,555        409,197        281,909
                                                              ----------     ----------     ----------
         Total noninterest expense                             2,872,233      2,204,540      2,222,102
                                                              ----------     ----------     ----------

Income before income taxes                                       864,241      1,939,797        876,386

Income tax expense                                               353,865        706,488        311,941
                                                              ----------     ----------     ----------

Net income                                                    $  510,376     $1,233,309     $  564,445
                                                              ==========     ==========     ==========

Earnings per common share - basic                             $      .32     $      .74     $      .09
                                                              ==========     ==========     ==========
Earnings per common share - diluted                           $      .32     $      .74     $      .09
                                                              ==========     ==========     ==========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                                                              25
<PAGE>
<TABLE>
<CAPTION>
                                                PEOPLES-SIDNEY FINANCIAL CORPORATION
                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                              Years Ended June 30, 1999, 1998 and 1997

                                                            Additional                                      Unearned       Unearned
                                                Common       Paid-In          Retained      Treasury          ESOP           MRP
                                                 Stock       Capital          Earnings        Stock          Shares         Shares
                                               --------   -------------    -------------   -----------    ------------    ---------
<S>                                           <C>        <C>              <C>             <C>            <C>             <C>
Balance, July 1, 1996                         $      -   $           -    $   9,212,537   $          -   $          -    $        -

Comprehensive income:

   Net income for the year ended
     June 30, 1997                                   -               -          564,445              -              -             -

   Change in net unrealized gain (loss) on
     securities available for sale, net of
     reclassification and tax effects                -               -                -              -              -             -


     Total comprehensive income

Sale of 1,785,375 shares of $.01 par
  common stock, net of
  conversion costs                              17,854      17,200,090                -              -              -             -

142,830 shares purchased under
  employee stock ownership plan                      -               -                -              -     (1,428,300)            -

Commitment to release 10,202
  employee stock ownership
  plan shares                                        -          33,997                -              -        102,020             -
                                              --------   -------------    -------------   ------------   ------------    ----------

Balance, June 30, 1997                        $ 17,854   $  17,234,087    $   9,776,982   $          -   $ (1,326,280)   $        -
                                              ========   =============    =============   ============   ============    ==========

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                    Accumulated
                                                       Other
                                                   Comprehensive
                                                       Income         Total
                                                     ---------   --------------
<S>                                                  <C>         <C>
Balance, July 1, 1996                                $       -   $    9,212,537

Comprehensive income:

   Net income for the year ended
     June 30, 1997                                           -          564,445

   Change in net unrealized gain (loss) on
     securities available for sale, net of
     reclassification and tax effects                    9,070            9,070
                                                                 --------------

     Total comprehensive income                                    573,515

Sale of 1,785,375 shares of $.01 par
  common stock, net of
  conversion costs                                           -       17,217,944

142,830 shares purchased under
  employee stock ownership plan                              -       (1,428,300)

Commitment to release 10,202
  employee stock ownership
  plan shares                                                -          136,017
                                                     ---------   --------------

Balance, June 30, 1997                               $   9,070   $   25,711,713
                                                     =========   ==============

</TABLE>

          See accompanying notes to consolidated financial statements.

26
<PAGE>
<TABLE>
<CAPTION>
                                                PEOPLES-SIDNEY FINANCIAL CORPORATION
                               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
                                              Years Ended June 30, 1999, 1998 and 1997


                                                         Additional                                     Unearned        Unearned
                                             Common       Paid-In          Retained      Treasury          ESOP            MRP
                                             Stock        Capital          Earnings        Stock          Shares         Shares
                                            --------   -------------    -------------   -----------    ------------    ---------
<S>                                         <C>        <C>              <C>             <C>            <C>             <C>
Balance, July 1, 1997                       $ 17,854   $  17,234,087    $   9,776,982   $          -   $ (1,326,280)   $        -

Comprehensive income:

   Net income for the year ended
     June 30, 1998                                 -               -        1,233,309              -              -             -

   Change in net unrealized gain (loss) on
     securities available for sale, net of
     reclassification and tax effects              -               -                -              -              -             -


     Total comprehensive income

Cash dividends - $.26 per share                    -               -         (429,195)             -              -             -

$4.00 per share special dividend of
  which $3.99 was a return of capital
  distribution                                     -      (6,602,996)               -              -       (538,504)            -

Commitment to release 13,920 employee
  stock ownership plan shares                      -          86,900                -              -        162,670             -
                                            --------   -------------    -------------   ------------   ------------    ----------

Balance, June 30, 1998                      $ 17,854   $  10,717,991    $  10,581,096   $          -   $ (1,702,114)   $        -
                                            ========   =============    =============   ============   ============    ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                      Accumulated
                                                         Other
                                                     Comprehensive
                                                        Income         Total
                                                      ---------   --------------
<S>                                                   <C>         <C>
Balance, July 1, 1997                                 $   9,070   $   25,711,713

Comprehensive income:

   Net income for the year ended
     June 30, 1998                                            -        1,233,309

   Change in net unrealized gain (loss) on
     securities available for sale, net of
     reclassification and tax effects                     2,119            2,119
                                                                  --------------

     Total comprehensive income                                        1,235,428

Cash dividends - $.26 per share                               -         (429,195)

$4.00 per share special dividend of
  which $3.99 was a return of capital
  distribution                                                -       (7,141,500)

Commitment to release 13,920 employee
  stock ownership plan shares                                 -          249,570
                                                      ---------   --------------

Balance, June 30, 1998                                $  11,189   $   19,626,016
                                                      =========   ==============

</TABLE>

                                  (Continued)


                                                                              27
<PAGE>
<TABLE>
<CAPTION>
                                              PEOPLES-SIDNEY FINANCIAL CORPORATION 29.
                               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
                                              Years Ended June 30, 1999, 1998 and 1997



                                                           Additional                                      Unearned       Unearned
                                               Common       Paid-In           Retained      Treasury          ESOP           MRP
                                                Stock       Capital            Earnings        Stock         Shares        Shares
                                               --------   -------------    -------------   ------------   ------------   ----------
<S>                                           <C>        <C>               <C>             <C>            <C>             <C>
Balance, July 1, 1998                         $ 17,854   $  10,717,991     $  10,581,096   $          -   $ (1,702,114)   $       -

Comprehensive income:

   Net income for the year ended
     June 30, 1999                                   -               -           510,376              -              -            -

   Change in unrealized gain (loss) on
     securities available for sale, net of
     reclassification and tax effects                -               -                 -              -              -            -


     Total comprehensive income

Cash dividends - $.28 per share                      -               -          (448,432)             -              -            -

Commitment to release 15,248 employee
  stock ownership plan shares                        -          61,950                 -              -        181,975            -

Purchase of 177,881 treasury shares,
  at cost                                            -               -                 -     (2,719,692)             -            -

Transfer of 57,128 shares from treasury
  stock to management recognition plan               -               -                 -        953,293              -     (953,293)

12,378 shares earned under
  management recognition plan                        -               -                 -              -              -       206,601
                                               --------   -------------    -------------   ------------   ------------   ----------

Balance, June 30, 1999                        $ 17,854    $  10,779,941    $  10,643,040   $ (1,766,399)  $ (1,520,139)  $ (746,692)
                                              ========    =============    =============   ============   ============   ==========


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                       Accumulated
                                                          Other
                                                     Comprehensive
                                                         Income          Total
                                                        ---------   --------------
<S>                                                     <C>         <C>
Balance, July 1, 1998                                   $  11,189   $   19,626,016

Comprehensive income:

   Net income for the year ended
     June 30, 1999                                              -          510,376

   Change in unrealized gain (loss) on
     securities available for sale, net of
     reclassification and tax effects                     (56,577)         (56,577)
                                                                    --------------

     Total comprehensive income                                            453,799

Cash dividends - $.28 per share                                 -         (448,432)

Commitment to release 15,248 employee
  stock ownership plan shares                                   -          243,925

Purchase of 177,881 treasury shares,
  at cost                                                       -       (2,719,692)

Transfer of 57,128 shares from treasury
  stock to management recognition plan                          -                -

12,378 shares earned under
  management recognition plan                                   -          206,601
                                                        ---------   --------------

Balance, June 30, 1999                                  $ (45,388)  $   17,362,217
                                                        =========   ==============

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


28
<PAGE>
<TABLE>
<CAPTION>
                                   PEOPLES-SIDNEY FINANCIAL CORPORATION
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 Years Ended June 30, 1999, 1998 and 1997

                                                              1999              1998              1997
                                                         ------------      ------------      ------------
<S>                                                      <C>               <C>               <C>
Cash flows from operating activities
     Net income                                          $    510,376      $  1,233,309      $    564,445
     Adjustments to reconcile net income to
       net cash from operating activities
         Depreciation                                         124,252            51,399            53,973
         Provision for loan losses                            103,803            41,240           102,743
         Gain on sale of real estate owned                     (3,086)             --                --
         FHLB stock dividends                                 (61,200)          (57,000)          (48,900)
         Deferred taxes                                       (56,025)           (1,101)          (12,778)
         Compensation expense for ESOP shares                 243,925           249,570           136,017
         Compensation expense for MRP shares                  186,601              --                --
         Change in:
              Accrued interest receivable and
                other assets                                  (28,444)         (212,755)         (127,860)
              Accrued interest payable and other
                liabilities                                   291,106           (25,707)           41,393
              Deferred loan fees                               22,600            37,183           (11,400)
                                                         ------------      ------------      ------------
                  Net cash from operating activities        1,333,908         1,316,138           697,633

Cash flows from investing activities
     Purchase of securities available for sale             (7,926,777)       (2,499,141)       (1,998,974)
     Proceeds from maturities of securities
       available for sale                                   4,000,000           500,000              --
     Proceeds from maturities of securities
       held to maturity                                          --           2,000,000           600,000
     Purchase of time deposits in other financial
       institutions                                          (900,000)       (3,100,000)       (5,000,000)
     Proceeds from maturities of time deposits
       in other financial institutions                        600,000         8,000,000         1,100,000
     Purchase of Federal Home Loan Bank stock                    --             (27,000)          (46,600)
     Net increase in loans                                 (8,939,161)       (5,206,615)      (10,825,674)
     Premises and equipment expenditures                   (1,136,457)         (269,516)          (11,588)
     Proceeds from sale of real estate owned                   65,530              --              42,652
                                                         ------------      ------------      ------------
         Net cash from investing activities               (14,236,865)         (602,272)      (16,140,184)

</TABLE>
                                  (Continued)

                                                                              29
<PAGE>
<TABLE>
<CAPTION>
                                   PEOPLES-SIDNEY FINANCIAL CORPORATION
                         CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                              Years ended June 30, 1999, 1998 and 1997


                                                      1999              1998             1997
                                                 ------------      ------------      ------------
<S>                                              <C>               <C>               <C>
Cash flows from financing activities
     Net change in deposits                      $  5,256,806      $  2,008,256      $   (272,076)
     Proceeds from long-term borrowings             5,000,000         7,000,000              --
     Net change in short-term borrowings            2,800,000              --                --
     Proceeds from issuance of common stock,
       net of conversion costs                           --                --          17,217,944
     Cash provided to ESOP                               --                --          (1,428,300)
     Return of capital distribution                      --          (7,141,500)             --
     Cash dividends paid                             (448,432)         (429,195)             --
     Purchase of treasury shares                   (2,719,692)             --                --
                                                 ------------      ------------      ------------
         Net cash from financing activities         9,888,682         1,437,561        15,517,568

Net change in cash and cash equivalents            (3,014,275)        2,151,427            75,017

Cash and cash equivalents at beginning
  of period                                         4,947,253         2,795,826         2,720,809
                                                 ------------      ------------      ------------

Cash and cash equivalents at end of period       $  1,932,978      $  4,947,253      $  2,795,826
                                                 ============      ============      ============

Supplemental disclosures of
  cash flow information
     Cash paid during the year for
         Interest                                $  4,343,587      $  3,946,041      $  4,096,411
         Income taxes                                 191,000           951,000           240,000

     Noncash transactions
         Transfer from loans to
           real estate owned                           62,444              --              42,652
         Transfer of treasury stock to MRP            953,293              --                --

</TABLE>

          See accompanying notes to consolidated financial statements.

30
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant  accounting  policies  followed in the
preparation of the accompanying consolidated financial statements.

Principles of Consolidation:  The consolidated  financial statements include the
accounts  of   Peoples-Sidney   Financial   Corporation   ("Peoples")   and  its
wholly-owned  subsidiary,  Peoples  Federal  Savings and Loan  Association  (the
"Association"), a federal stock savings and loan association,  together referred
to as the Corporation.  All significant  intercompany  accounts and transactions
have been eliminated in consolidation.

Nature of Operations:  The Corporation  provides  financial services through its
main office in Sidney,  Ohio,  and branch  offices in Anna and  Jackson  Center,
Ohio. Its primary deposit  products are checking,  savings and term  certificate
accounts, and its primary lending products are residential mortgage,  commercial
and installment loans.  Substantially all loans are secured by specific items of
collateral   including  business  assets,   consumer  assets  and  real  estate.
Commercial  loans are  expected to be repaid from cash flow from  operations  of
businesses.  Real estate loans are secured by both  residential  and  commercial
real estate.  Substantially all revenues and services are derived from financial
institution products and services in Shelby County and contiguous counties.

Use of Estimates:  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 the disclosures  provided,  and future
results  could differ.  The allowance for loan losses,  fair values of financial
instruments and status of contingencies are particularly subject to change.

Cash  Flows:  Cash and cash  equivalents  are  defined  as cash,  deposits  with
financial  institutions,  overnight  deposits and time  deposits  with  original
maturities of 90 days or less.  Overnight deposits are sold for one-day periods.
Net cash flows are reported for customer loan and deposit transactions,  as well
as  short-term  borrowings  under its cash  management  line of credit  with the
Federal Home Loan Bank of Cincinnati.

Securities:  Securities  are  classified  as held to  maturity  and  carried  at
amortized cost when  management has the positive intent and ability to hold them
to maturity.  Securities are classified as available for sale when they might be
sold before maturity.  Securities  available for sale are carried at fair value,
with unrealized holding gains or losses reported in other comprehensive income.

Interest and dividend income, adjusted by amortization of premiums and accretion
of discounts, is included in earnings. Securities are written down to fair value
when a decline  in fair  value is not  temporary.  Realized  gains and losses on
sales of securities  are  determined  using the  amortized  cost of the specific
security sold.
<PAGE>

Loans Receivable: Loans are reported at the principal balance outstanding,  less
net deferred loan fees and the allowance for loan losses.

Interest income is reported on the interest method and includes  amortization of
net deferred loan fees over the loan term.  Interest income is not reported when
full loan repayment is in doubt, typically when the loan is impaired or payments
are past due over 90 days.  Payments  received  on such  loans are  reported  as
principal  reductions.


                                  (Continued)

                                                                              31
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997

NOTE 1 -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES (Continued)

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required based on past loan loss experience, known and inherent risks in
the nature and volume of the  portfolio,  information  about  specific  borrower
situations  and estimated  collateral  values,  economic  conditions,  and other
factors.  Allocations of the allowance may be made for specific  loans,  but the
entire  allowance  is available  for any loan that,  in  management's  judgment,
should be charged-off.

Loan impairment is reported when full payment under the terms of the loan is not
expected.  Impairment is evaluated in total for smaller-balance loans of similar
nature such as first mortgage  loans secured by one- to four-family  residences,
residential construction loans, credit card, automobile,  home equity and second
mortgage loans.  Commercial loans and mortgage loans secured by other properties
are evaluated  individually for impairment.  If a loan is impaired, a portion of
the  allowance for loan losses is allocated so that the loan is reported net, at
the present value of estimated  future cash flows using the loan's existing rate
or at the fair value of  collateral  if  repayment  is expected  solely from the
collateral.

Real Estate  Owned:  Real estate  acquired in  collection of a loan is initially
recorded  at fair  value at  acquisition,  establishing  a new cost  basis.  Any
reduction to fair value from the carrying  value of the related loan at the time
the  property  is  acquired  is  accounted  for  as  a  loan  charge-off.  After
acquisition,  a valuation  allowance reduces the reported amount to the lower of
the initial amount or fair value less costs to sell. Expenses,  gains and losses
on disposition,  and changes in the valuation allowance are reported in net gain
or loss on other  real  estate.  The  Corporation  had no real  estate  owned at
year-end 1999 or 1998.

Premises and Equipment:  Asset cost is reported net of accumulated depreciation.
Depreciation  expense is calculated using the straight-line  method based on the
estimated  useful lives of the assets.  These assets are reviewed for impairment
when events indicate the carrying amount may not be recoverable.
Maintenance and repairs are charged to expense as incurred and  improvements are
capitalized.

Income Taxes: Income tax expense is the total 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  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.

Concentration  of  Credit  Risk:  The  Corporation's   loan  portfolio  consists
principally of long-term  conventional  loans secured by first mortgage deeds on
single family  residences  located in its primary  lending area of Shelby County
and its contiguous counties.  Mortgage loans comprise  approximately 96% and 98%
of the Corporation's  loan portfolio at June 30, 1999 and 1998. The remainder of
the  portfolio  consists of consumer  and other  loans  secured by  automobiles,
deposit balances at the Association and various other assets.
<PAGE>

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


                                  (Continued)

32
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings per Common  Share:  Basic  earnings per share  ("EPS") are based on net
income divided by the weighted average number of shares  outstanding  during the
period.  Unallocated  ESOP  shares  are  not  considered  outstanding  for  this
calculation.   Management   recognition   plan  ("MRP")  shares  are  considered
outstanding as they become vested.  Diluted EPS shows the dilutive effect of MRP
shares and the additional common shares issuable under stock options.

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.  Accordingly,  earnings per share for the period ended June 30,
1997 was  computed  based on net income of the  Corporation  from April 25, 1997
through June 30, 1997 of $150,298.

Dividend  Restriction:  Financial  institution  regulations,  which  require the
maintenance of certain  capital  levels,  may limit the amount of dividends that
may be paid. For regulatory capital requirements, see a separate Note.

Comprehensive  Income:  Comprehensive  income  consists  of net income and other
comprehensive  income.  Other comprehensive income includes unrealized gains and
losses on securities available for sale, which are also recognized as a separate
component  of  equity.   The   accounting   standard  that  requires   reporting
comprehensive  income first applies for 1999, with prior information restated to
be comparable.

Reclassification:   Reclassification  of  certain  amounts  in  the  prior  year
consolidated  financial  statements  have  been  made  to  conform  to the  1999
presentation.



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 the sale of the holding company's common
stock in an amount equal to the pro forma 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.  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 because of the conversion.
<PAGE>

At the time of conversion,  the  Association  established a liquidation  account
that was 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 the accounts then held.



                                  (Continued)

33
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 3 - SECURITIES

Securities at year-end were as follows:
<TABLE>
<CAPTION>
                                                                Gross           Gross          Estimated
                                               Amortized     Unrealized      Unrealized          Fair
                                                 Cost           Gains          Losses            Value
                                                 ----           -----          ------            -----
<S>                                        <C>                <C>           <C>             <C>
1999
Securities available for sale
    U.S. Government agencies               $     2,998,229    $        -    $   (41,509)    $    2,956,720
    Mortgage-backed securities                   4,928,652             -        (27,261)         4,901,391
                                           ---------------    ----------    -----------     --------------
       Total                               $     7,926,881    $        -    $   (68,770)    $    7,858,111
                                           ===============    ==========    ===========     ==============

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

Contractual  maturities of  securities at year-end 1999 were as follows.  Actual
maturities may 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           $    2,998,229    $     2,956,720
           Mortgage-backed securities                           4,928,652          4,901,391
                                                           --------------    ---------------
                                                           $    7,926,881    $     7,858,111
                                                           ==============    ===============
</TABLE>

No securities were pledged as collateral at year-end 1999 or 1998. No securities
were sold during the years ended June 30, 1999, 1998 and 1997.

                                  (Continued)

34
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997



NOTE 4 - LOANS RECEIVABLE

Year-end loans receivable were as follows:
<TABLE>
<CAPTION>
                                                                              1999              1998
                                                                              ----              ----
<S>                                                                    <C>               <C>
           Mortgage loans:
                1-4 family residential                                  $    84,165,483   $     79,690,787
                Multi-family residential                                      1,358,906            654,871
                Commercial real estate                                        9,407,998          6,608,207
                Real estate construction and
                  development                                                 5,930,241          6,776,389
                Land                                                            866,988           867,755
                    Total mortgage loans                                    101,729,616         94,598,009
           Consumer and other loans                                           4,131,469          2,154,474
                                                                        ---------------   ----------------
                    Total loans receivable                                  105,861,085         96,752,483
           Less:
                Allowance for loan losses                                      (528,898)          (425,642)
                Loans in process                                             (2,311,369)        (2,078,937)
                Deferred loan fees                                             (217,973)          (195,373)
                                                                        ---------------   ----------------

                                                                        $   102,802,845   $     94,052,531
                                                                        ===============   ================
</TABLE>

Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
                                                                     1999           1998           1997
                                                                     ----           ----           ----
<S>                                                            <C>            <C>             <C>
         Balance at beginning of year                          $    425,642   $    397,159    $    307,308
         Provision for losses                                       103,803         41,240         102,743
         Charge-offs                                                (22,621)       (15,037)        (21,645)
         Recoveries                                                  22,074          2,280           8,753
                                                               ------------   ------------    ------------

         Balance at end of year                                $    528,898   $    425,642    $    397,159
                                                               ============   ============    ============
</TABLE>

As of and for the  years  ended  June 30,  1999,  1998 and 1997,  no loans  were
required to be evaluated for  impairment on an individual  loan basis within the
scope of SFAS No. 114. Loans on nonaccrual status totaled approximately $315,000
and $713,000 at June 30, 1999 and 1998.
<PAGE>
Loans to  executive  officers,  directors  and  companies  with  which  they are
affiliated  aggregating  $60,000 or more to any one  related  party for the year
ended June 30, 1999, were as follows.
<TABLE>
<CAPTION>
<S>                                                         <C>
         Balance at beginning of period                     $      311,168
         New loans                                                  98,482
         Principal repayments                                      (94,423)
                                                            --------------

         Balance at end of period                           $      315,227
                                                            ==============
</TABLE>

                                  (Continued)

                                                                              35
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 5 - ACCRUED INTEREST RECEIVABLE

Year-end accrued interest receivable was as follows:
<TABLE>
<CAPTION>
                                                                  1999            1998
                                                                  ----            ----

<S>                                                         <C>              <C>
         Loans                                              $    684,767     $    655,509
         Securities                                               72,296           66,579
         Interest-bearing deposits in other
           financial institutions                                  2,850              313
                                                            ------------     ------------

                                                            $    759,913     $    722,401
                                                            ============     ============

</TABLE>

NOTE 6 - PREMISES AND EQUIPMENT

Year-end premises and equipment was as follows:
<TABLE>
<CAPTION>
                                                                  1999            1998
                                                                  ----            ----

<S>                                                         <C>              <C>
         Land                                               $    225,166     $    225,166
         Buildings and improvements                            1,769,702          995,468
         Furniture and equipment                               1,148,856          590,421
         Construction in progress                                      -          196,212
                                                            ------------     ------------
              Total cost                                       3,143,724        2,007,267
         Accumulated depreciation                              1,158,116        1,033,864
                                                            ------------     ------------

                                                            $  1,985,608     $    973,403
                                                            ============     ============
</TABLE>



The Jackson  Center  branch  facility is leased under an  operating  lease which
began in September  1998. The lease term is for ten years.  At the conclusion of
the fifth year,  the rent shall be adjusted  by the  cumulative  increase in the
Consumer Price Index over the previous five years with a maximum increase of 15%
for the remaining five years of the lease term. Total rental expense was $20,226
for the year ended June 30,  1999.  The lease  agreement  includes  an option to
purchase the property at any time during the lease term.
<PAGE>
Rental commitments under this noncancelable  operating lease, assuming a maximum
increase of 15% after year five, were:
<TABLE>
<CAPTION>

     Year ending June 30,

<S>                                                             <C>
         2000                                                   $    24,271
         2001                                                        24,271
         2002                                                        24,271
         2003                                                        24,271
         2004                                                        25,784
         Thereafter                                                 108,692
                                                                -----------
                                                                $   231,560
                                                                ===========
</TABLE>


36

<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 7 - FEDERAL INCOME TAXES

Income tax expense was as follows:
<TABLE>
<CAPTION>
                                              1999          1998          1997
                                              ----          ----          ----
<S>                                       <C>            <C>           <C>
         Current                          $   409,890    $   707,589   $   324,719
         Deferred                             (56,025)        (1,101)      (12,778)
                                          -----------    -----------   -----------

                                          $   353,865    $   706,488   $   311,941
                                          ===========    ===========   ===========
</TABLE>

Year-end  deferred  tax  assets and  deferred  tax  liabilities  were due to the
following:
<TABLE>
<CAPTION>
                                                                                    1999          1998
                                                                                    ----          ----
<S>                                                                              <C>           <C>
         Items giving rise to deferred tax assets
              Deferred loan fees                                                 $    55,688   $    43,422
              Reserve for delinquent interest                                          2,132         7,607
              Allowance for loan losses                                               15,198             -
              Accrued ESOP expense                                                    12,385         3,620
              Accrued MRP expense                                                      5,401         6,800
              Unrealized loss on securities available for sale                        23,381             -
                                                                                 -----------   -----------
                  Total deferred tax assets                                          114,185        61,449

         Items giving rise to deferred tax liabilities
              Depreciation                                                           (50,663)      (45,387)
              Federal Home Loan Bank
                stock dividends                                                     (114,240)      (93,432)
              Allowance for loan losses                                                    -       (52,754)
              Unrealized gain on securities available for sale                             -        (5,764)
                                                                                 -----------   -----------
                  Total deferred tax liabilities                                    (164,903)     (197,337)
                                                                                 -----------   -----------

                  Net deferred tax liability                                     $   (50,718)  $  (135,888)
                                                                                 ===========   ===========
</TABLE>

<PAGE>

Effective  tax rates differ from Federal  statutory  rates  applied to financial
statement income due to the following:
<TABLE>
<CAPTION>
                                                                      1999          1998          1997
                                                                      ----          ----          ----
<S>                                                               <C>            <C>           <C>
         Income taxes computed at the statutory
           tax rate on pretax income                              $   293,842    $   659,531   $   297,971
         Add tax effect of:
             ESOP fair value in excess of cost                         39,481         46,546        11,559
             MRP cost in excess of fair value                          19,884              -             -
             Nondeductible expenses and other                             658            411         2,411
                                                                  -----------    -----------   -----------

                                                                  $   353,865    $   706,488   $   311,941
                                                                  ===========    ===========   ===========

         Statutory tax rate                                              34.0%         34.0%          34.0%
                                                                  ===========    ==========    ===========
         Effective tax rate                                              40.9%         36.4%          35.6%
                                                                  ===========    ==========    ===========
</TABLE>


                                  (Continued)

                                                                              37
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997

NOTE 7 - FEDERAL INCOME TAXES (Continued)

In August  1996,  legislation  was enacted  that  repeals 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  that exceeds 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,  the  commencement  of which was delayed  until the first  taxable  year
beginning  after  December  31,  1997,   because  the  Association  met  certain
residential  lending  requirements.  At  June  30,  1999,  the  Association  had
approximately  $484,000 in bad debt  reserves  subject to recapture  for federal
income tax  purposes.  The deferred tax  liability  related to the recapture has
been  previously  established.  In fiscal 1999,  $97,000 bad debt  reserves were
recaptured.

Retained  earnings at June 30, 1999 and 1998 included  approximately  $2,174,000
for which no  provision  for  federal  income  taxes had been made.  This amount
represents the qualifying and  nonqualifying tax bad debt reserve as of December
31,  1987,  which is the end of the  Association's  base  year for  purposes  of
calculating  the bad debt  deduction  for tax  purposes.  The related  amount of
unrecognized deferred tax liability was approximately  $739,000 at June 30, 1999
and 1998.  If this  portion of  retained  earnings is used in the future for any
purpose  other  than to absorb  bad  debts,  it will be added to future  taxable
income.


NOTE 8 - DEPOSITS

Year-end deposits were as follows:
<TABLE>
<CAPTION>
                                                       1999               1998
                                                       ----               ----
<S>                                             <C>                <C>
         Noninterest-bearing
           demand deposits                      $       649,972    $        168,836
         NOW accounts                                 4,873,938           3,362,538
         Money market accounts                        1,845,923             981,958
         Savings accounts                            19,544,387          18,455,589
         Certificates of deposit                     57,396,272          56,084,765
                                                ---------------    ----------------

                                                $    84,310,492    $     79,053,686
                                                ===============    ================
</TABLE>
The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000 was $4,463,000 and $4,057,000 at June 30, 1999 and 1998,  respectively.
Deposits more than $100,000 are not insured by the FDIC.
<PAGE>

The scheduled  maturities of certificates of deposit as of June 30, 1999 were as
follows:

                    Year ended June 30,
                           2000                          $ 31,603,351
                           2001                            16,393,941
                           2002                             4,169,384
                           2003                             3,555,442
                           2004                             1,674,154
                                                         ------------

                                                         $ 57,396,272
                                                         ============


                                  (Continued)

38
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997

NOTE 9 - BORROWED FUNDS

At June 30, 1999, the  Association had a cash management line of credit enabling
it to borrow up to  $5,360,000  from the  Federal  Home Loan Bank of  Cincinnati
("FHLB"). All cash management advances have an original maturity of 90 days. The
line of credit must be renewed on an annual  basis.  Borrowings  outstanding  on
this line of credit at June 30,  1999 were  $2,800,000  with  interest  rates of
4.90% and 6.02%. There were no borrowings  outstanding on this line of credit at
June 30, 1998.

As a member  of the FHLB  system,  the  Association  has the  ability  to obtain
borrowings up to a maximum total of  $18,154,000,  including the cash management
line-of-credit.  Advances  from the Federal  Home Loan Bank at year-end  were as
follows:
<TABLE>
<CAPTION>
                                                                              1999               1998
                                                                              ----               ----
<S>                                                                    <C>                <C>
         4.90% FHLB cash management advance,
           due September 17, 1999                                      $     2,300,000    $              -
         4.90% FHLB cash management advance,
           due September 22, 1999                                              300,000                   -
         6.02% FHLB cash management advance,
           due September 28, 1999                                              200,000                   -
         6.13% FHLB advance, due June 25, 2008                               7,000,000           7,000,000
         6.00% FHLB advance, due June 11, 2009                               5,000,000                   -
                                                                       ---------------    ----------------
                                                                       $    14,800,000    $      7,000,000
                                                                       ===============    ================
</TABLE>
The maximum  month-end  balance of advances  outstanding was $14,800,000 in 1999
and $7,000,000 in 1998.  Average balances of borrowings  outstanding during 1999
and 1998 were  $7,764,000 and $96,000.  Advances under the borrowing  agreements
are collateralized by a blanket pledge of the Association's residential mortgage
loan portfolio and its FHLB stock.


NOTE 10 - SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION

Included in FDIC deposit  insurance  premium  expense in the Statement of Income
for the year ended June 30, 1997 is $455,901 for a special assessment  resulting
from  legislation  passed  and  enacted  into  law  on  September  30,  1996  to
recapitalize  the Savings  Association  Insurance  Fund of the  Federal  Deposit
Insurance  Corporation.   Thrifts  such  as  the  Association  paid  a  one-time
assessment  in November 1996 of $0.657 for each $100 in deposits as of March 31,
1995.  Because of the  recapitalization,  the  Association  began  paying  lower
deposit insurance premiums in January 1997.



                                  (Continued)

                                                                              39
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997



NOTE 11 - RETIREMENT PLANS

The  Corporation  adopted a 401(k)  profit  sharing plan on April 1, 1997.  With
certain  exceptions,  all employees who have attained the age of 21 and who have
completed one year of employment, during which they worked at least 1,000 hours,
are eligible to  participate in the plan.  The  Corporation  provides a matching
contribution on behalf of participants who make elective compensation  deferrals
at the rate of 50% of the first 6% of participant  contributions up to a maximum
match  of 3%  of  the  participant's  compensation.  The  Corporation  may  also
contribute  additional  amounts at its discretion.  Employee  contributions  are
vested at all times and the  Corporation's  matching  contributions  vest evenly
over 5 years of service.  The cash  contribution and related expense included in
salaries  and employee  benefits  was $15,951,  $18,440 and $5,219 for the years
ended June 30, 1999, 1998 and 1997.


NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN

The Corporation offers an employee stock ownership plan ("ESOP") for the benefit
of substantially  all employees of the  Corporation.  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  Peoples in order to  acquire  common  shares of
Peoples.  The loan is secured by the shares purchased with the loan proceeds and
will be repaid  by the 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.  When loan
payments are made, ESOP shares are allocated to  participants  based on relative
compensation.

During  fiscal  1998,  the  Corporation  declared  and  paid a $4.00  per  share
distribution of which $3.99 was a tax-free return of capital  distribution.  The
ESOP  received  approximately  $539,000 on 134,262  unallocated  shares from the
return of capital  distribution.  The ESOP used the proceeds to purchase  26,000
additional  shares.  The additional shares are held in suspense and allocated to
participants in a manner similar to the shares originally in the ESOP.

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 $243,925,
$249,570 and $136,017 for the years ended June 30, 1999, 1998 and 1997.
<PAGE>

Year-end ESOP shares were as follows:
<TABLE>
<CAPTION>

                                                         1999             1998
                                                         ----             ----
<S>                                                  <C>              <C>
         Allocated shares                                39,279           24,122
         Unreleased shares                              129,551          144,708
                                                     ----------       ----------
              Total ESOP shares                         168,830          168,830
                                                     ==========       ==========

         Fair value of unreleased shares             $1,295,510       $2,568,567
                                                     ==========       ==========
</TABLE>


                                  (Continued)

40
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997

NOTE 13 - STOCK OPTION AND INCENTIVE PLAN

The Stock  Option and  Incentive  Plan was approved by the  shareholders  of the
Corporation  on May 22,  1998.  The Board of  Directors  has granted  options to
purchase  shares of common  stock at an exercise  price  ranging  from $16.01 to
$18.75 to certain  employees,  officers and  directors of the  Corporation.  The
exercise price for options  granted prior to June 10, 1998,  were reduced by the
$3.99 return of capital  distribution.  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.

A summary of the activity in the plan was as follows:
<TABLE>
<CAPTION>
                                                                 1999                       1998
                                                                 ----                       ----
                                                                      Weighted                   Weighted
                                                                       Average                    Average
                                                                      Exercise                   Exercise
                                                          Shares        Price        Shares        Price
                                                          ------        -----        ------        -----
<S>                                                       <C>        <C>                        <C>
         Outstanding at beginning of year                 142,824    $   16.03              -   $        -
         Granted                                                -            -        142,824        16.03
         Exercised                                              -            -              -            -
         Forfeited                                         (1,000)       16.01              -            -
                                                      -----------    ---------    -----------   ----------
         Outstanding at end of year                       141,824    $   16.03        142,824   $    16.03
                                                      ===========    =========    ===========   ==========

         Options exercisable at year-end                   28,365    $   16.03              -            -
         Remaining shares available for grant              36,714                      35,714

</TABLE>
Options outstanding at year-end 1999 were as follows:
<TABLE>
<CAPTION>


                                                             Weighted Average
                                                                 Remaining
         Exercise                                Number         Contractual        Number
         Prices                                Outstanding         Life          Exercisable
         ------                                -----------         ----          -----------
<S>                                          <C>                <C>            <C>
         $16.01                                  140,579           8.90 yrs        28,116
         $18.75                                    1,245           8.95 yrs           249
                                             -----------        -----------    ----------

         Outstanding at year-end                 141,824           8.90 yrs        28,365
                                             ===========        ===========    ==========
</TABLE>
<PAGE>


The fair value of options granted in 1998 was estimated using the  Black-Scholes
options pricing model with the following weighted-average information: risk-free
interest rate of 5.44%,  expected life of 10 years, expected volatility of stock
price of 32.65% and expected dividend rate of 1.47%. Based on these assumptions,
the estimated fair value per share of options granted in 1998 was $8.89.


                                  (Continued)


                                                                              41
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 13 - STOCK OPTION AND INCENTIVE PLAN (Continued)

SFAS No. 123,  "Accounting  for Stock Based  Compensation,"  requires  pro forma
disclosures for corporations  not adopting its fair value accounting  method for
stock-based  employee  compensation.   Accordingly,   the  following  pro  forma
information  presents net income for 1999 and 1998 had the Standard's fair value
method  been used to  measure  compensation  cost for  stock  option  plans.  No
compensation expense was recognized for the year ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>

                                                                                1999             1998
                                                                                ----             ----

<S>                                                                       <C>               <C>
                  Net income as reported                                  $      510,376    $    1,233,309
                  Pro forma net income                                           344,046         1,219,735
                  Basic earnings per share as reported                               .32               .74
                  Pro forma basic earnings per share                                 .22               .74
                  Diluted earnings per share as reported                             .32               .74
                  Pro forma diluted earnings per share                               .22               .74

</TABLE>

NOTE 14 - 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 to purchase
71,415  common  shares,  which  is  equal  to 4% of the  common  shares  sold in
connection  with the  conversion.  The MRP will be used as a means of  providing
directors  and  certain  key  employees  of the  Corporation  with an  ownership
interest in the  Corporation in a manner  designed to compensate  such directors
and key employees for services to the Corporation.

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 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. At June 30, 1999,  11,426 shares have vested. In the event of
the  death  or  disability  of a  participant  or a  change  in  control  of the
Corporation,  however,  the  participant's  shares  will be  deemed  earned  and
nonforfeitable  upon such  date.  At June 30,  1999,  there were  14,287  shares
reserved  for future  awards and held as treasury  stock.  Compensation  expense
related to MRP shares is based upon the cost of the shares,  which  approximates
fair value at the date of grant.  For the years  ended  June 30,  1999 and 1998,
compensation expense totaled $186,601 and $20,000.


                                  (Continued)

42
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 15 - REGULATORY CAPITAL REQUIREMENTS

The  Association  is  subject  to  various   regulatory   capital   requirements
administered  by  the  federal  regulatory  agencies.   Under  capital  adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Association  must meet specific  capital  guidelines  that involve  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
the regulators  about the  Association's  components,  risk weightings and other
factors.  Failure to meet minimum  capital  requirements  can  initiate  certain
mandatory  actions that, if undertaken,  could have a direct  material affect on
the Corporation's  financial  statements.  At June 30, 1999 and 1998, 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  Insurance Act at June
30, 1999 and 1998. No conditions or events have occurred  subsequent to the last
notification  by  regulators  that  management  believes  would have changed the
Association's category.

At year-end 1999 and 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>
1999
Total capital (to risk-weighted assets)      $  13,634     18.0%       $   6,069     8.0%       $   7,586    10.0%
Tier 1 (core) capital (to risk-weighted
  assets)                                       13,152     17.3            3,035     4.0            4,552     6.0
Tier 1 (core) capital (to adjusted
  total assets)                                 13,152     11.2            4,677     4.0            5,847     5.0
Tangible capital (to adjusted total assets)     13,152     11.2            1,754     1.5              N/A

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

In addition to certain federal income tax  considerations,  the Office of Thrift
Supervision  (OTS) regulations  imposes  limitations on the 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.


                                  (Continued)

                                                                              43
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 15 - REGULATORY CAPITAL REQUIREMENTS (Continued)

OTS regulations  applicable to all savings and loan associations  provide that a
savings  association may make capital  distributions  in a calendar year without
prior  notice to the OTS as long as the  distributions  do not  exceed an amount
equal to the  savings  association's  net  income for that year to date plus the
savings  association's  retained  net income  for the  preceding  two years.  An
application  and  approval  from  the  OTS  must  be  obtained  if the  proposed
distribution would cause total  distributions for that year to exceed net income
for that year to date plus the savings association's retained net income for the
preceding  two years.  Savings  associations  would be required to file a notice
with the OTS whenever an  application  would not be required  based on the above
and: (1) The savings  association  will not be at least  adequately  capitalized
following the capital  distribution;  (2) The capital  distribution would reduce
the  amount  of,  or  retire  any part of the  savings  association's  common or
preferred  stock,  or  retire  any  part of debt  instruments  such as  notes or
debentures  included in capital;  (3) The proposed  distribution would violate a
prohibition contained in any applicable statute, regulation or agreement between
the savings association and the OTS (or the FDIC), or a condition imposed on the
savings  association  in an  OTS-approved  application  or  notice;  or, (4) The
savings association is a subsidiary of a savings and loan holding company.


NOTE 16 - 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,  the
ultimate  disposition of these matters is not expected to have a material effect
on 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,  credit and
interest rate risk in excess of amounts reported in the financial statements.

Exposure to credit loss if the other  party does not perform is  represented  by
the  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.
<PAGE>
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 of the commitments are expected to
expire without being used, the total  commitments do not  necessarily  represent
future cash requirements.


                                  (Continued)

44
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 16 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
  WITH OFF-BALANCE SHEET RISK (Continued)

As of year-end 1999 and 1998, the Corporation had commitments to make fixed-rate
commercial and  residential  real estate  mortgage loans at current market rates
approximating   $375,000  and  $621,000,   and   variable-rate   commercial  and
residential  real estate  mortgage loans at current  market rates  approximating
$394,000 and $687,000.  Loan commitments are generally for 30 days. The interest
rates on fixed-rate  commitments ranged from 7.00% to 7.75% at June 30, 1999 and
ranged from 7.50% to 8.25% at June 30, 1998. The interest rates on variable-rate
commitments  ranged  from 7.00% to 7.75% at June 30,  1999 and 7.25% to 8.00% at
June 30, 1998.

The  Corporation  also had unused lines of credit  approximating  $1,434,000 and
$548,000 at year-end 1999 and 1998.

At June 30, 1999 and 1998,  the  Association  was required to have  $532,000 and
$299,000 on deposit  with its  correspondent  banks as a  compensating  clearing
requirement.

The Association entered into employment  agreements with certain officers of the
Corporation.  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.

<PAGE>

NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments at year-end were as follows:
<TABLE>
<CAPTION>

                                                      1999                                    1998
                                                      ----                                    ----
                                                               Estimated                                Estimated
                                             Carrying            Fair               Carrying              Fair
                                              Value              Value                Value               Value
                                              -----              -----                -----               -----
<S>                                     <C>                       <C>           <C>                <C>
Financial assets:
     Cash and cash equivalents          $     1,932,978           1,933,000     $     4,947,253    $      4,947,000
     Time deposits in other
       financial institutions                   400,000             400,000             100,000             100,000
     Securities available for sale            7,858,111           7,858,000           4,015,890           4,016,000
     Federal Home Loan Bank stock               907,700             908,000             846,500             847,000
     Loans receivable, net                  102,802,845         102,621,000          94,052,531          93,954,000
     Accrued interest receivable                759,913             760,000             722,401             722,000

Financial liabilities:
     Deposits                               (84,310,492)        (84,877,000)        (79,053,686)        (79,500,000)
     Borrowed funds                         (14,800,000)        (13,659,000)         (7,000,000)         (7,000,000)
     Accrued interest payable                   (44,091)            (44,000)            (34,538)            (35,000)

</TABLE>



                                  (Continued)

                                                                              45
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997



NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The  estimated  fair value  approximates  carrying  amounts for all items except
those  described  below.  Estimated fair value for securities is based on quoted
market  values  for the  individual  securities  or for  equivalent  securities.
Estimated fair values of fixed-rate loans and loans that reprice less frequently
than each year,  are based on the rates  charged at year-end  for new loans with
similar  maturities,  applied  until the loan is  assumed to reprice or be paid.
Estimated fair values for  certificates  of deposit and long-term debt are based
on the rates paid at year-end  for new  deposits  or  borrowings  applied  until
maturity.   Estimated   fair  values  for  other   financial   instruments   and
off-balance-sheet loan commitments are considered nominal.


NOTE 18 - EARNINGS PER SHARE

A reconciliation  of the numerators and denominators  used in the computation of
the basic  earnings  per common  share and diluted  earnings per common share is
presented below:
<TABLE>
<CAPTION>


                                                                            1999            1998           1997
                                                                            ----            ----           ----
<S>                                                                      <C>            <C>             <C>
     Basic Earnings Per Common Share
         Numerator
           Net income                                                    $   510,376    $ 1,233,309     $   150,298
                                                                         ===========    ===========     ===========
         Denominator
           Weighted average common shares
             outstanding                                                   1,777,192      1,785,375       1,785,375
           Less:  Average unallocated ESOP shares                           (137,176)      (127,831)       (140,394)
           Less:  Average nonvested MRP shares                               (50,463)             -               -
                                                                         -----------    -----------     -----------
           Weighted average common shares
             outstanding for basis earnings per
             common share                                                  1,589,553      1,657,544       1,644,981
                                                                         ===========    ===========     ===========

         Basic earnings per common share                                 $       .32    $       .74     $      .09
                                                                         ===========    ===========     ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                      <C>            <C>             <C>
     Diluted Earnings Per Common Share
         Numerator
           Net income                                                    $   510,376    $ 1,233,309     $   150,298
                                                                         ===========    ===========     ===========
         Denominator
           Weighted average common shares
             outstanding for basic earnings per
             common share                                                  1,589,553      1,657,544       1,644,981
           Add:  Dilutive effects of average
             nonvested MRP shares                                                  -              -               -
           Add:  Dilutive effects of assumed
             exercises of stock options                                            -              -               -
                                                                         -----------    -----------     -----------
           Weighted average common shares
             and dilutive potential common
             shares outstanding                                            1,589,553      1,657,544       1,644,981
                                                                         ===========    ===========     ===========

         Diluted earnings per common share                               $       .32    $       .74     $      .09
                                                                         ===========    ===========     ==========
</TABLE>


                                  (Continued)

46
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 18 - EARNINGS PER SHARE (Continued)

Stock options  granted did not have a dilutive effect on EPS for the years ended
June 30, 1999 and 1998, as the exercise price of outstanding options was greater
than the average  market price for the period.  No options were  outstanding  at
June 30, 1997. Unearned MRP shares did not have a dilutive effect on EPS for the
year ended June 30,  1999,  as the fair value of MRP shares on the date of grant
was greater than the average market price for the period. No MRP shares had been
purchased as of June 30, 1998 and 1997.


NOTE 19 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows:




<TABLE>
<CAPTION>
                                                                              1999            1998           1997
                                                                              ----            ----           ----
<S>                                                                      <C>            <C>             <C>
     Unrealized holding gains and (losses) on
       available-for-sale securities                                     $   (85,724)   $     3,212     $    13,742
     Reclassification adjustments for (gains) and
       losses later recognized in income                                           -              -               -
                                                                         -----------    -----------     -----------
     Net unrealized gains and losses                                         (85,724)         3,212          13,742
     Tax effect                                                               29,147         (1,093)         (4,672)
                                                                         -----------    -----------     -----------

     Other comprehensive income (loss)                                   $   (56,577)   $     2,119     $     9,070
                                                                         ===========    ===========     ===========

</TABLE>
<PAGE>

NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial  information of Peoples-Sidney  Financial  Corporation as of
June 30, 1999 and 1998, and for the periods ended June 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                            CONDENSED BALANCE SHEETS
                             June 30, 1999 and 1998

                                                         1999             1998
                                                         ----             ----
<S>                                                  <C>             <C>
Assets
Cash and cash equivalents                            $ 3,154,168     $    47,373
Investment in subsidiary                              13,107,093      18,341,302
Loans receivable from ESOP                             1,122,236       1,224,257
Other assets                                              16,145          13,084
                                                     -----------     -----------

    Total assets                                     $17,399,642     $19,626,016
                                                     ===========     ===========

Liabilities
Other liabilities                                    $    37,425     $      --

Shareholders' Equity                                  17,362,217      19,626,016
                                                     -----------     -----------

    Total liabilities and shareholders' equity       $17,399,642     $19,626,016
                                                     ===========     ===========
</TABLE>

                                  (Continued)


                                                                              47

<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)

                         CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                                                    Period from
                                                                        Year           Year       April 25, 1997
                                                                        Ended          Ended          through
                                                                    June 30, 1999  June 30, 1998   June 30, 1997
                                                                    -------------  -------------   -------------
<S>                                                               <C>              <C>             <C>
     Income:
        Dividend income from subsidiary                           $    5,250,000   $           -   $         -
        Interest on loans                                                 85,399         515,584        23,006
                                                                  --------------   -------------   -----------
                                                                       5,335,399         515,584        23,006

     Other expenses                                                      122,303         100,294        14,884
                                                                  --------------   -------------   -----------

     Income before taxes and undistributed earnings
       of subsidiary                                                   5,213,096         415,290         8,122

     Income tax expense (benefit)                                        (12,548)        139,211         2,761
                                                                  --------------   -------------   -----------

     Income before undistributed earnings
       of subsidiary                                                   5,225,644         276,079         5,361

     Equity in undistributed earnings of subsidiary
       (distributions in excess of earnings)                          (4,715,268)        957,230       144,937
                                                                  --------------   -------------   -----------

        Net income                                                $      510,376   $   1,233,309   $   150,298
                                                                  ==============   =============   ===========


</TABLE>
                                  (Continued)

48
<PAGE>
                    PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1999, 1998 and 1997


NOTE 20 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>

                                       CONDENSED STATEMENTS OF CASH FLOWS

                                                                                                    Period from
                                                                                                  April 25, 1997
                                                                 Year Ended       Year Ended          through
                                                                June 30, 1999    June 30, 1998     June 30, 1997
                                                                -------------    -------------     -------------
<S>                                                            <C>              <C>             <C>
     Cash flows from operating activities
     Net income                                                $     510,376    $   1,233,309   $      150,298
     Adjustments to reconcile net income to cash
       provided by operations:
        (Equity in undistributed income of subsidiary)
          distributions in excess of earnings                      4,715,268         (957,230)        (144,937)
        Net change in other assets and liabilities                    34,365          (15,845)           2,762
                                                               -------------    -------------   --------------
           Net cash from operating activities                      5,260,009          260,234            8,123

     Cash flows from investing activities
     Purchase of stock in Peoples Federal Savings
       and Loan Association                                                -                -       (8,608,972)
     Loan to ESOP                                                          -                -       (1,428,300)
     Loan to subsidiary                                                    -                -       (7,000,000)
     Proceeds from loan principal repayments                         102,021        7,102,022          102,020
                                                               -------------    -------------   --------------
           Net cash from investing activities                        102,021        7,102,022      (16,935,252)

     Cash flows from financing activities
     Proceeds from issuance of common stock, net of
       conversion costs                                                    -                -       17,217,944
     Return of capital distribution                                        -       (7,141,500)               -
     Purchase of treasury shares                                  (2,719,692)               -                -
     57,128 shares contributed to MRP from treasury                  953,293                -                -
     Cash dividends paid                                            (448,432)        (429,195)               -
     Dividends on unallocated ESOP shares                            (40,404)         (35,003)               -
                                                               -------------    -------------   --------------
           Net cash from financing activities                     (2,255,235)      (7,605,698)      17,217,944
                                                               -------------    -------------   --------------

     Net change in cash and cash equivalents                       3,106,795         (243,442)         290,815
     Cash and cash equivalents at beginning of year                   47,373          290,815                -
                                                               -------------    -------------   --------------

     Cash at end of year                                       $   3,154,168    $      47,373   $      290,815
                                                               =============    =============   ==============
</TABLE>

                                                                              49

<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                             SHAREHOLDER INFORMATION


ANNUAL MEETING

The Annual Meeting of Shareholders will be held at 11:00 a.m., Sidney, Ohio time
on October 8, 1999 at the Holiday Inn, I-75 and S.R. 47, Sidney, Ohio.


STOCK LISTING

Peoples-Sidney  Financial  Corporation  common  stock is  traded  on the  NASDAQ
National Market under the symbol "PSFC".


SHAREHOLDERS AND GENERAL INQUIRIES                    TRANSFER AGENT

Douglas Stewart, President                            Registrar and Transfer Co.
Peoples-Sidney Financial Corporation                  10 Commerce Drive
101 East Court Street                                 Cranford, NJ  07016
P.O. Box 727
Sidney, Ohio 45365-3021
(937) 492-6129


ANNUAL AND OTHER REPORTS

A copy of Peoples-Sidney  Financial  Corporation's  Annual Report on Form 10-KSB
for the year ended June 30,  1999,  as filed with the  Securities  and  Exchange
Commission,  may be  obtained  without  charge by  contacting  Douglas  Stewart,
President and Chief Executive Officer, Peoples-Sidney Financial Corporation, 101
East Court Street, P.O. Box 727, Sidney, Ohio 45365-3021.






50
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                              CORPORATE INFORMATION


CORPORATION AND ASSOCIATION ADDRESS

101 East Court Street
P.O. Box 727
Sidney, Ohio 45365-3021


DIRECTORS OF THE BOARD

Douglas Stewart
     President and Chief Executive Officer of
     Peoples Federal Savings and Loan Association


Robert W. Bertsch
     Retired Treasurer of Peoples Federal


John W. Sargeant
     Part Owner of Sidney Tool and Die Co. and
     BenSar Development, a warehouse provider



Officers of the Corporation and the Association:
------------------------------------------------

Douglas Stewart, President & CEO
David R. Fogt, VP Financial Services and
  Operations
Gary N. Fullenkamp, VP Mortgage Loans
  and Corporate Secretary
Debra A. Geuy, Chief Financial Officer



Special Counsel
---------------

Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934

<PAGE>
      Telephone:      (937) 492-6129
      Fax:            (937) 498-4554





   Richard T. Martin (Chairman of the Board)
         Certified Public Accountant, in private practice



   Harry N. Faulkner
         Partner in the law firm of Faulkner, Garmhausen,
         Keister & Shenk LPA

   James W. Kerber
         Owner of James W. Kerber CPA, a private practice
         accounting firm














   Independent Auditors
   --------------------

   Crowe, Chizek and Company LLP
   One Columbus
   10 West Broad Street
   Columbus, Ohio  43215