UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark one)

      |X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934

            For the fiscal year ended June 30, 2004

      |_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            For the transition period from _______________ to _______________

                           Commission File No. 0-22223

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                      ------------------------------------
                 (Name of small business issuer in its charter)

                  Delaware                                 31-1499862
       -------------------------------                ----------------------
       (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                 Identification Number)

     101 East Court Street, Sidney, Ohio                       45365
  ----------------------------------------                   ----------
  (Address of principal executive offices)                   (Zip Code)

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

         Securities registered under Section 12(b) of the Exchange Act:

                                      None
                                      ----

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. |X|

Issuer's revenues for the fiscal year ended June 30, 2004 were: $8,046,070.

At  August  31,  2004,  there  were  issued  and  outstanding  1,432,648  of the
Registrant's Common Shares.

The  aggregate  market value of the voting and  non-voting  common stock held by
non-affiliates as of August 31, 2004, was $23,553,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Parts II and IV of Form 10-KSB - Portions of the Annual  Report to  Stockholders
for the fiscal year ended June 30, 2004.

Part III of Form 10-KSB - Portions of Proxy Statement for 2004 Annual Meeting of
Stockholders.

Transitional Small Business Disclosure Form (check one):
Yes |_|                   No |X|

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


                                                                              1.
<PAGE>

                                      INDEX
                                   FORM 10-KSB

<TABLE>
<CAPTION>
                                                                                            Page(s)
                                                                                            -------
<S>                                                                                            <C>
PART I
------

      Item 1.  Description of Business                                                         3-37

      Item 2.  Description of Property                                                           38

      Item 3.  Legal Proceedings                                                                 38

      Item 4.  Submission of Matters to a Vote of Security Holders                               38

PART II
-------

      Item 5.  Market for Registrant's Common Equity, Related Shareholder Matters
                 and Small Business Issuer Purchases of Equity Securities                        39

      Item 6.  Management's Discussion and Analysis or Plan of Operation                         39

      Item 7.  Financial Statements                                                              39

      Item 8.  Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                                               39

      Item 8A. Controls and Procedures                                                           39

      Item 8B. Other Information                                                                 39

PART III
--------

      Item 9.  Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act                                 40

      Item 10. Executive Compensation                                                            40

      Item 11. Security Ownership of Certain Beneficial Owners and Management
               and Related Stockholder Matters                                                   40

      Item 12. Certain Relationships and Related Transactions                                    41

      Item 13. Exhibits and Reports on Form 8-K                                                  42

      Item 14. Principal Accountant Fees and Services                                            43

Signatures                                                                                       44

Exhibits                                                                                         45
</TABLE>

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


                                                                              2.
<PAGE>

                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

General
-------

      Peoples-Sidney   Financial   Corporation   ("Peoples")   is   a   Delaware
corporation,  which was  organized in 1997 by Peoples  Federal  Savings and Loan
Association of Sidney  ("Association") for the purpose of becoming a savings and
loan holding company, together referred to as the Corporation.  Peoples owns all
of the capital stock of the Association issued in connection with the completion
of the Association's conversion from the mutual to stock form of organization on
April 25, 1997. Unless the context otherwise requires,  all references herein to
the Corporation include Peoples and the Association on a consolidated basis. The
Association,   Peoples'   only   subsidiary,   was   organized  in  1886  as  an
Ohio-chartered  mutual  association  and  converted  to  a  federally  chartered
association in 1958.

      The Association is primarily engaged in the business of attracting savings
deposits from the general public and investing such funds in permanent  mortgage
loans secured by one- to four-family  residential real estate located  primarily
in Shelby County, Ohio, and the contiguous counties of Logan,  Auglaize,  Miami,
Darke and Champaign.  The Association  conducts business from its main office in
Sidney,  Ohio and its full-service  branches in Sidney, Anna and Jackson Center,
Ohio. The  Association  also  originates  loans for the  construction of one- to
four-family  real estate,  loans secured by multi-family  real estate (over four
units) and nonresidential real estate, consumer and commercial loans and invests
in U.S. government obligations, mortgage-backed and related securities, interest
bearing deposits in other financial institutions and other investments permitted
by applicable law.

      The  Association's  operations  are  regulated  by the  Office  of  Thrift
Supervision  ("OTS").  The Association is a member of the Federal Home Loan Bank
("FHLB") System and a stockholder of the FHLB of Cincinnati.  The Association is
also a member of the Savings Association Insurance Fund ("SAIF") and its deposit
accounts are insured up to applicable  limits by the Federal  Deposit  Insurance
Corporation ("FDIC"). Accordingly, the Association is also subject to regulation
and oversight by the FDIC.

      The  executive  offices  of the  Corporation  are  located at 101 E. Court
Street, Sidney, Ohio 45365 and its telephone number is (937) 492-6129.

Forward-Looking Statements
--------------------------

      When used in this Form 10-KSB,  the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated,"  "estimate,"  "project" or
similar expressions are intended to identify "forward-looking statements" within
the  meaning of the  Private  Securities  Litigation  Reform  Act of 1995.  Such
statements  are subject to certain  risks and  uncertainties,  including,  among
other things,  changes in economic conditions in the Corporation's  market area,
changes in policies by  regulatory  agencies,  fluctuations  in interest  rates,
demand for loans in the  Corporation's  market area and competition,  that could
cause actual results to differ  materially  from  historical  earnings and those
presently  anticipated or projected.  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.  The  Corporation  wishes to advise  readers  that the
factors listed above could affect the  Corporation's  financial  performance and
could  cause the  Corporation's  actual  results  for  future  periods to differ
materially  from any  opinions or  statements  expressed  with respect to future
periods in any current statements.

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


                                                                              3.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

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

Lending Activities
------------------

      General:  The principal lending activity of the Corporation is originating
for its  portfolio  first  mortgage  loans  secured  by  owner-occupied  one- to
four-family  residential  properties  located in its  primary  market  area.  In
addition, in order to increase the yield and/or the interest rate sensitivity of
its portfolio and in order to provide more  comprehensive  financial services to
families  and  businesses  in  the   Corporation's   primary  market  area,  the
Corporation also originates construction or development, commercial real estate,
consumer,  land, multi-family and commercial business loans. The Corporation may
adjust or discontinue any product offering to respond to competitive or economic
factors.

      Loan  Portfolio  Composition:  The  following  information  sets forth the
composition  of the  Corporation's  loan  portfolio  in  dollar  amounts  and in
percentages  (before  deductions  for loans in process,  deferred  loan fees and
allowance for loan losses) as of the dates indicated.

<TABLE>
<CAPTION>
                                                                               June 30,
                                                                 --------------------------------------
                                                                 2004                              2003
                                                           Amount      Percent              Amount      Percent
                                                           ------      -------              ------      -------
                                                                       (Dollars in thousands)
<S>                                                  <C>               <C>            <C>                <C>
Real estate loans
-----------------
    One- to four-family                              $     89,975        77.05%       $     89,930        77.27%
    Construction and development                            3,056         2.62               4,039         3.47
    Commercial                                             11,848        10.14              10,307         8.86
    Multi-family                                            1,331         1.14               1,657         1.42
    Land                                                    1,695         1.45               1,813         1.56
                                                     ------------       ------        ------------       ------
         Total real estate loans                          107,905        92.40             107,746        92.58
                                                     ------------       ------        ------------       ------

Other loans
    Consumer
       Automobile                                           3,179         2.72               3,311         2.84
       Deposit account                                        194         0.17                 300         0.26
       Other                                                  838         0.72               1,025         0.88
                                                     ------------       ------        ------------       ------
         Total consumer loans                               4,211         3.61               4,636         3.98
                                                     ------------       ------        ------------       ------

    Commercial business loans                               4,662         3.99               4,006         3.44
                                                     ------------       ------        ------------       ------
          Total loans                                     116,778       100.00%            116,388       100.00%
                                                     ------------       ======        ------------       ======
Less:
    Deferred loan fees                                       (373)                            (362)
    Allowance for loan losses                                (753)                            (766)
                                                     ------------                     ------------

          Total loans, net                           $    115,652                     $    115,260
                                                     ============                     ============
</TABLE>

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


                                                                              4.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The  following  table  shows the  composition  of the  Corporation's  loan
portfolios by fixed- and adjustable-rate at the dates indicated.

<TABLE>
<CAPTION>
                                                                              June 30,
                                                                 ------------------------------------
                                                                 2004                            2003
                                                           Amount       Percent             Amount      Percent
                                                           ------       -------             ------      -------
                                                                          (Dollars in thousands)
<S>                                                  <C>                <C>           <C>                <C>
Fixed-rate loans:
    Real estate
       One- to four-family                           $     54,975        47.08%       $     49,500        42.53%
       Construction and development                         1,673         1.43               2,082         1.79
       Commercial                                           1,388         1.19               1,541         1.33
       Multi-family                                            --           --                  --           --
       Land                                                   905         0.77                 689         0.59
                                                     ------------       ------        ------------       ------
         Total real estate loans                           58,941        50.47              53,812        46.24
    Consumer loans                                          4,211         3.61               4,636         3.98
    Commercial business loans                               2,379         2.04               2,119         1.82
                                                     ------------       ------        ------------       ------
         Total fixed-rate loans                            65,531        56.12              60,567        52.04
                                                     ------------       ------        ------------       ------

Adjustable-rate loans:
    Real estate
       One- to four-family                                 35,000        29.97%             40,430        34.74
       Construction and development                         1,383         1.19               1,957         1.68
       Commercial                                          10,460         8.95               8,766         7.53
       Multi-family                                         1,331         1.14               1,657         1.42
       Land                                                   790         0.68               1,124         0.97
                                                     ------------       ------        ------------       ------
         Total real estate loans                           48,964        41.93              53,934        46.34
    Consumer loans                                             --           --                  --           --
    Commercial business loans                               2,283         1.95               1,887         1.62
                                                     ------------       ------        ------------       ------
         Total adjustable rate loans                       51,247        43.88              55,856        47.96
                                                     ------------       ------        ------------       ------

    Total loans                                           116,778       100.00%            116,388       100.00%
                                                     ------------       ======        ------------       ======

Less:
    Deferred loan fees                                       (373)                            (362)
    Allowance for loan losses                                (753)                            (766)
                                                     ------------                     ------------

         Total loans, net                            $    115,652                     $    115,260
                                                     ============                     ============
</TABLE>

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


                                                                              5.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The  following   schedule  presents  the  contracted   maturities  of  the
Corporation's loan portfolio at June 30, 2004. The schedule does not reflect the
effects of possible  prepayments or enforcement of the due-on-sale  clauses. The
amortizing loans, such as one- to four-family and installment  loans, the entire
current principal balance as show as being due at maturity.

<TABLE>
<CAPTION>
                                           Real Estate
                              -------------------------------------
                                One- to Four-
                                 Family and         Multi-family,
                              Construction and       Commercial                               Commercial
                                 Development          and Land            Consumer              Business               Total
                              ----------------    -----------------    ----------------     ----------------    ------------------

                                       Weighted            Weighted            Weighted             Weighted              Weighted
                                        Average            Average              Average              Average               Average
                              Amount     Rate     Amount     Rate      Amount     Rate      Amount     Rate     Amount      Rate
                              ------     ----     ------     ----      ------     ----      ------     ----     ------      ----
                                                                    (Dollars in thousands)
<S>                          <C>         <C>      <C>        <C>       <C>        <C>          <C>     <C>     <C>          <C>
1 year or less*              $     8     9.47%    $    38    7.54%     $  638     6.29%        501     6.13%   $  1,185     6.29%
Over 1 year - 3 years            169     6.68         909    6.06       1,385     7.69       2,003     6.20       4,466     6.65
Over 3 years - 5 years           731     6.75         749    5.05       1,899     6.72       1,719     6.05       5,098     6.25
Over 5 years - 10 years        6,098     6.17         831    5.59         213     5.90         439     6.05       7,581     6.09
Over 10 years - 20 years      53,188     6.13       8,820    5.91          76     8.42          --       --      62,084     6.10
Over 20 years                 32,837     6.31       3,527    5.75          --       --          --       --      36,363     6.26
                             -------     ----     -------    ----      ------     ----      ------     ----    --------     ----

    Total                    $93,031     6.20%    $14,874    5.83%     $4,211     6.96%     $4,662     6.13%   $116,778     6.18%
                             =======     ====     =======    ====      ======     ====      ======     ====    ========     ====
</TABLE>

*Include demand loans, loans having no stated maturity and overdraft loans.

The  total  amount  of loans due  after  June 30,  2005 that have  predetermined
interest rates is $64,709,  while the total amount of loans due after such dates
which have floating or adjustable interest rates is $50,884.

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


                                                                              6.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      Under federal law, the aggregate  amount of loans that the  Association is
permitted to make to any one borrower is generally  limited to 15% of unimpaired
capital  and  surplus  (25%  if  the  security  for  such  loan  has a  "readily
ascertainable" value or 30% for certain residential  development loans). At June
30,  2004,  based  on  the  above  limitation,   the  Association's   regulatory
loan-to-one  borrower limit was approximately  $2.23 million.  On the same date,
the  Association  had no borrowers with  outstanding  balances in excess of this
amount.  As of June 30, 2004, the largest dollar amount of  indebtedness  of one
borrower or group of related borrowers was $1,790,989,  secured by multiple one-
to four-family real estate properties, commercial real estate and land. The next
largest loan to one borrower or group of related  borrowers  had an  outstanding
balance  of  $1,134,656  at June 30,  2004 and is  secured  by  multiple  one-to
four-family  real  estate  properties.  As of June 30,  2004,  such  loans  were
performing in accordance with their terms.

      Loan   applications   are  accepted  by  salaried  loan  officers  at  the
Association's  offices.  Loan  applications  are  presented  for approval to the
Executive Committee of the Board of Directors or to the full Board of Directors,
depending on loan amount. All loans of $100,000 or more are subject to review by
the full Board of  Directors.  Decisions  on loan  applications  are made on the
basis of detailed  applications  and property  valuations  (consistent  with the
Association's  written appraisal policy),  by qualified  independent  appraisers
(unless  the  Association's   exposure  will  be  $75,000  or  less).  The  loan
applications are designed primarily to determine the borrower's ability to repay
and include length of employment,  past credit history and the amount of current
indebtedness.  Significant  items on the application are verified through use of
credit reports,  financial  statements,  tax returns and/or  confirmations.  The
Association is an equal opportunity lender.

      Generally,  the  Association  requires an attorney's  title opinion on its
mortgage  loans as well as fire and  extended  coverage  casualty  insurance  in
amounts  at least  equal to the  principal  amount  of the loan or the  value of
improvements  on the property,  depending on the type of loan.  The  Association
also requires flood insurance to protect the property securing its interest when
the property is located in a flood plain.

One- to Four-Family Residential Real Estate Lending

      The  cornerstone of the  Association's  lending  program has long been the
origination of long-term  permanent loans secured by mortgages on owner-occupied
one- to four-family  residences.  At June 30, 2004, $90.0 million,  or 77.05% of
the  Association's  loan  portfolio,  consisted  of  permanent  loans on one- to
four-family  residences.  At that date, the average outstanding residential loan
balance was $70,128 and the largest outstanding residential loan had a principal
balance of $901,538.  Virtually all of the residential  loans  originated by the
Association are secured by properties located in the Association's market area.

      The Association  originates fixed-rate residential loans in amounts and at
rates that are monitored for compliance with the  Association's  asset/liability
management policy.  Currently,  the Association originates fixed-rate loans with
maturities  of up to 20 years for retention in its own  portfolio.  Limiting the
contractual term to 20 years, as opposed to the more traditional 30 year period,
allows for accelerated principal repayment and equity build up for the borrower.
Currently, all such loans are made on owner-occupied  properties. All fixed-rate
loans originated by the Association are retained and serviced by it. At June 30,
2004,  the  Association  had  $55.0  million  of  fixed-rate   permanent  one-to
four-family  residential  loans,  constituting  47.08% of the Association's loan
portfolio at such date.

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


                                                                              7.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The  Association  has offered  adjustable  rate mortgage  ("ARM") loans at
rates,  terms and points  determined in accordance  with market and  competitive
factors.  The  Association's  current one- to four-family  residential  ARMs are
fully amortizing loans with contractual maturities of up to 30 years. Applicants
are  qualified  using a fully  indexed  rate,  and no ARMs  allow  for  negative
amortization.  The interest rates on the ARMs  originated by the Association are
generally subject to adjustment at one, three, and five-year  intervals based on
a  margin  over the  analogous  Treasury  Securities  Constant  Maturity  Index.
Decreases  or  increases  in the  interest  rate of the  Association's  ARMs are
generally  limited to 6% above or below the initial  interest rate over the life
of the loan, and up to 2% per adjustment  period. The Association's ARMs are not
convertible into fixed-rate loans, and do not contain prepayment penalties.  ARM
loans may be assumed on a case-by-case basis with the Association's  consent. At
June 30, 2004, the total balance of one- to four-family  ARMs was $35.0 million,
or  29.97% of the  Corporation's  loan  portfolio.  All ARMs  originated  by the
Association are retained and serviced by it.

      In 1992,  the  Association  initiated a program  specifically  tailored to
first-time homebuyers. These loans are made on a five-year adjustable basis with
a term up to 30 years. The margin,  which is lower than other products currently
offered,  is 200 basis  points.  Additionally,  somewhat  higher  debt-to-income
ratios are permitted,  although  mandatory  escrows for taxes and insurance,  an
acceptable  credit  rating  and an  employment  history of at least one year are
required.  The maximum loan amount under this program,  which  requires that the
property  be  owner-occupied,  is  currently  $75,000  unless  Board of Director
approval is obtained,  which can be the lesser of the  purchase  price or 90% of
appraised  value.  At June 30, 2004,  the  Association  had  approximately  $2.0
million of first-time homebuyer loans in its portfolio.

      As discussed above, the Association  evaluates both the borrower's ability
to make  principal,  interest and escrow  payments and the value of the property
that will secure the loan. The Association originates residential mortgage loans
with  loan-to-value  ratios  up  to  90%.  On  mortgage  loans  exceeding  a 90%
loan-to-value  ratio at the time of origination,  the Association will generally
require  private  mortgage  insurance  in  an  amount  intended  to  reduce  the
Association's exposure to less than 90% of the appraised value of the underlying
property.

      The  Association's   residential   mortgage  loans   customarily   include
due-on-sale  clauses  giving  the  Association  the  right to  declare  the loan
immediately due and payable in the event that, among other things,  the borrower
sells or otherwise disposes of the property subject to the mortgage and the loan
is not repaid.

      The Association uses the same underwriting standards for home equity lines
of credit as it uses for one- to four-family  residential  mortgage  loans.  The
Association's  home equity  lines of credit are  originated  in amounts,  which,
together with the amount of the first  mortgage,  generally do not exceed 80% of
the appraised  value of the property  securing the loan.  At June 30, 2004,  the
Association  had  $535,000  of home  equity  lines of credit  and an  additional
$823,000 of funds committed, but undrawn, under such lines.

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


                                                                              8.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Construction and Development Lending

      The  Association   makes   construction   loans  to  individuals  for  the
construction  of their primary or secondary  residences and loans to builders or
developers for the construction of single-family  homes,  multi-family units and
commercial real estate  projects.  Loans to individuals for the  construction of
their  residences  typically run for 12 months.  The borrower pays interest only
during the construction  period.  Residential  construction  loans are generally
underwritten  pursuant to the same  guidelines  used for  originating  permanent
residential  loans. At June 30, 2004, the Association had 28 construction  loans
with  outstanding  aggregate  balances  of  $3,056,000  secured  by  residential
property.  Of this  amount,  $2,117,000  in loans were  outstanding  directly to
borrowers intending to live in the properties upon completion of construction.

      The  Association  makes loans to builders  and  developers  to finance the
construction  of residential  property.  Such loans  generally  have  adjustable
interest rates based upon prime or treasury  indexes with terms ranging from six
months to one year.  The proceeds of the loan are advanced  during  construction
based upon the percentage of completion as determined by an inspection. The loan
amount normally does not exceed 85% of projected  completed value for homes that
have been  pre-sold to the  ultimate  occupant.  For loans to  builders  for the
construction  of homes not yet  pre-sold,  which may  carry a higher  risk,  the
loan-to-value  ratio is generally  limited to 80%.  Whether the  Association  is
willing to provide  permanent  takeout financing to the purchaser of the home is
determined  independently of the construction loan by separate underwriting.  In
the event that upon completion the house is not sold, the builder is required to
make principal and interest  payments until the house is sold. At June 30, 2004,
the Association did not have any construction  loans with builders that pre-sold
their  homes and four loans with an  outstanding  aggregate  balance of $939,000
secured by one-to four-family residential properties constructed by builders who
have not pre-sold their homes to individual  purchasers.  The  Association  also
makes a limited  number of commercial  real estate  construction  loans with the
loan amount  generally  not to exceed 75% of the  completed  value.  At June 30,
2004, the Association had no commercial real estate construction loans.

      Construction and development  lending generally affords the Association an
opportunity  to receive  interest  at rates  higher than those  obtainable  from
residential  lending and to receive higher  origination  and other loan fees. In
addition,   such  loans  are  generally   made  for   relatively   short  terms.
Nevertheless,  construction  lending to persons  other than  owner-occupants  is
generally  considered  to  involve a higher  level of  credit  risk than one- to
four-family  permanent residential lending due to the concentration of principal
in a limited  number of loans and borrowers and the effects of general  economic
conditions on construction  projects,  real estate  developers and managers.  In
addition,  the  nature of these  loans is such that they are more  difficult  to
evaluate  and  monitor.  The  Association's  risk of loss on a  construction  or
development loan is dependent  largely upon the accuracy of the initial estimate
of the  property's  value upon  completion of the project and the estimated cost
(including  interest)  of the  project.  If the  estimate of value  proves to be
inaccurate,  the Association  may be confronted,  at or prior to the maturity of
the loan,  with a project  with a value  which is  insufficient  to assure  full
repayment  and/or the possibility of having to make  substantial  investments to
complete  and sell the  project.  Because  defaults in  repayment  may not occur
during the construction period, it may be difficult to identify problem loans at
an early stage.  When loan payments  become due, the cash flow from the property
may not be adequate to service the debt. In such cases,  the  Association may be
required to modify the terms of the loan.

Commercial Real Estate Lending

      The Association's  commercial real estate loan portfolio consists of loans
secured by a variety of non-residential  properties including retail facilities,
small office  buildings,  farm real estate and churches.  At June 30, 2004,  the
Association's  largest commercial real estate loan totaled  $1,790,989.  At that
date, the Association had 83 commercial real estate loans,  totaling $11,848,000
or 10.14% of gross loans receivable.

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


                                                                              9.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The Association has originated both adjustable- and fixed-rate  commercial
real estate loans,  although most current  originations  have adjustable  rates.
Rates  on  the  Association's   adjustable-rate  commercial  real  estate  loans
generally  adjust  in  a  manner  consistent  with  the  Association's  one-  to
four-family  residential ARMs,  although  five-year  adjustment  periods are not
currently  offered.  Commercial real estate loans are generally  underwritten in
amounts of up to 75% of the appraised value of the underlying property.

      Appraisals on properties  securing commercial real estate loans originated
by the  Association  are performed by a qualified  independent  appraiser at the
time the loan is made. In addition,  the Association's  underwriting  procedures
generally  require  verification of the borrower's  credit  history,  income and
financial statements,  banking relationships,  references and income projections
for  the  property.   Personal   guarantees  are  generally   obtained  for  the
Association's commercial real estate loans.  Substantially all of the commercial
real estate  loans  originated  by the  Association  are  secured by  properties
located within the Association's market area.

      The table  below sets forth by type of  security  property  the  estimated
number, loan amount and outstanding balance of the Association's commercial real
estate loans at June 30, 2004.

                                                        Original     Outstanding
                                          Number of       Loan        Principal
                                            Loans        Amount        Balance
                                            -----        ------        -------
                                                 (Dollars in thousands)
      Office                                  24        $ 4,168        $ 3,494
      Retail                                   3            978            406
      Farm real estate                        50          7,347          5,642
      Churches                                 6          2,697          2,306
                                             ---        -------        -------

          Total                               83        $15,190        $11,848
                                             ===        =======        =======

      Commercial real estate loans generally present a higher level of risk than
loans  secured by one- to  four-family  residences.  This greater risk is due to
several factors, including the concentration of principal in a limited number of
loans and  borrowers,  the  effects of  general  economic  conditions  on income
producing  properties and the increased  difficulty of evaluating and monitoring
of these  types of  loans.  Furthermore,  the  repayment  of  loans  secured  by
commercial real estate is typically  dependent upon the successful  operation of
the related  real estate  project.  If the cash flow from the project is reduced
(for example, if leases are not obtained or renewed),  the borrower's ability to
repay the loan may be impaired.

Multi-Family Lending

      The Association has historically made permanent  multi-family loans in its
primary market area.  However,  the amount of such loans has been insignificant.
At June 30, 2004, multi-family loans totaled $1,331,000, or 1.14% of gross loans
receivable.

      The Association's  multi-family  loan portfolio  includes loans secured by
five or more unit residential  buildings  located primarily in the Association's
market area.

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


                                                                             10.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Land Lending

      Land loans  include  loans to  develop  vacant or raw land and are made to
various builders and developers with whom the Association has had  long-standing
relationships.  All of such loans are secured by land zoned for  residential  or
commercial  developments  and  located  within the  Association's  market  area.
Proceeds are used for excavation,  utility  placements and street  improvements.
Disbursements  related to acquisition and  development  land loans are typically
based on inspections to determine the progress of the project. As lots are sold,
a portion of the sale price is applied to the principal of the outstanding  loan
in order to ensure the loan is paid in full prior to all lots in the development
being sold.  Interest payments are required at regular  intervals  (quarterly or
semi-annually) and loan terms typically are written for three years. At June 30,
2004, the Association had $959,000 of loans receivable in this category.

      The Association also makes loans to individuals who purchase and hold land
for various reasons, such as the future construction of a residence.  Such loans
are  generally  originated  with terms of five years and have maximum  loan- to-
value ratios of 85% for loans on improved  residential  building lots and 75% on
undeveloped  acreage.  At June 30, 2004,  the  Association  had $736,000 in land
loans to individuals.

      Land lending  generally  affords the Association an opportunity to receive
interest  at rates  higher  than  those  obtainable  from  residential  lending.
Nevertheless,  land lending is generally considered to involve a higher level of
credit  risk due to the fact that funds are  advanced  upon the  security of the
land, which is of uncertain value prior to its development.

Consumer Lending

      Management  believes that offering  consumer loan products helps to expand
the  Association's  customer base and to create  stronger ties with its existing
customer base. In addition,  because consumer loans generally have shorter terms
to maturity  and carry  higher rates of interest  than do  residential  mortgage
loans,  they can be valuable  asset/liability  management tools. The Association
currently originates substantially all of its consumer loans in its market area.
At June 30, 2004, the Association's consumer loans totaled $4,211,000,  or 3.61%
of the Association's gross loan portfolio.

      The  Association  offers a variety of secured  consumer  loans,  including
automobile loans,  loans secured by savings deposits and home improvement loans.
Although the  Association  primarily  originates  consumer loans secured by real
estate,  deposits or other  collateral,  the  Association  also makes  unsecured
personal loans.

      The largest  component of the  Association's  consumer  lending program is
automobile  loans. At June 30, 2004,  automobile  loans totaled  $3,179,000,  or
2.72% of gross loans  receivable.  The  Association  makes loans directly to the
consumer  to aid in the  purchase  of new and  used  vehicles,  which  serve  as
collateral  for the  loan.  The  Association  also  employs  other  underwriting
criteria discussed below in deciding whether to extend credit.

      The terms of other types of consumer  loans vary  according to the type of
collateral,  length  of  contract  and  creditworthiness  of the  borrower.  The
underwriting  standards employed by the Association for consumer loans include a
determination  of  the  applicant's  payment  history  on  other  debts  and  an
assessment of the borrower's ability to meet payments on the proposed loan along
with his  existing  obligations.  In  addition  to the  creditworthiness  of the
applicant,  the underwriting  process also includes a comparison of the value of
the security, if any, in relation to the proposed loan amount.

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


                                                                             11.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      Consumer loans may entail greater risk than  residential  mortgage  loans,
particularly  in the case of  consumer  loans that are  unsecured  or secured by
rapidly  depreciable assets such as automobiles.  In such cases, any repossessed
collateral  for defaulted  consumer  loans may not provide  adequate  sources of
repayment  for  the  outstanding  loan  balances  as a  result  of  the  greater
likelihood  of  damage,  loss,  or  depreciation.  In  addition,  consumer  loan
collections are dependent on the borrower's continuing financial stability,  and
thus  are  more  likely  to  be  affected  by  adverse  personal  circumstances.
Furthermore,  the  application  of various  federal  and state  laws,  including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans.

Commercial Business Lending

      In order to increase the yield and interest rate  sensitivity  of its loan
portfolio and in order to satisfy the demand for financial services available to
individuals  and  businesses in its primary  market area,  the  Association  has
maintained  a  small  portfolio  of  commercial  business  loans.  Although  the
portfolio remains a small percentage of gross loans outstanding, the Association
has  experienced  substantial  growth over the last few years primarily from the
new branch facilities.  Unlike  residential  mortgage loans, which generally are
made on the basis of the  borrower's  ability to make  repayment from his or her
employment and other income,  and which are secured by real property whose value
tends to be more easily  ascertainable,  commercial business loans are generally
of higher risk and typically are made on the basis of the borrower's  ability to
make repayment from the cash flow of the borrower's  business.  As a result, the
availability  of funds for the  repayment of  commercial  business  loans may be
substantially  dependent on the success of the business itself (which,  in turn,
may be dependent upon the general economic  environment).  During the past seven
years, the Association has made commercial  business loans to businesses such as
small retail operations,  small  manufacturing  concerns and professional firms.
The  Association's  commercial  business  loans almost always  include  personal
guarantees and are usually, but not always,  secured by business assets, such as
accounts  receivable,   equipment,  inventory  and  real  estate.  However,  the
collateral  securing  the loans may  depreciate  over time,  may be difficult to
appraise  and may  fluctuate  in value  based on the  success  of the  business.
Moreover,  personal  guarantees may be of limited  utility in  safeguarding  the
Association's position.

      Most of the  Association's  commercial  business  loans have terms ranging
from three months to one year and may carry fixed or adjustable  interest rates.
The  underwriting  process for  commercial  business  loans  generally  includes
consideration of the borrower's financial statements,  tax returns,  projections
of future business operations and inspection of the subject collateral,  if any.
At June 30, 2004, commercial business loans totaled $4,662,000,  or 3.99% of the
Association's gross loans receivable.

Originations, Purchases and Sales of Loans

      The Association  originates real estate and other loans through  employees
located at the Association's offices.  Walk-in customers and referrals from real
estate brokers and builders are also important sources of loan originations. The
Association  has  historically  not  utilized  the  services of mortgage or loan
brokers, nor purchased or sold loans from or to other lenders. While a portfolio
lender,  the Association may in the future evaluate loan sale  opportunities  as
they arise and make sales depending on market conditions.

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

                                                                             12.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The following table shows the loan origination and repayment activities of
the Corporation for the periods indicated.

                                                           Year Ended June 30,
                                                         -----------------------
                                                             2004          2003
                                                             ----          ----
                                                             (in thousands)
      Originations by type:
      ---------------------
          Adjustable rate:
             Real estate:
                One- to four-family, construction,
                  development and land                   $  9,751      $  8,960
                Commercial                                  2,983         1,987
                Multi-family                                   48            --
             Nonreal estate:
                Consumer                                       --            --
                Commercial business                         2,973         2,230
                                                         --------      --------
                   Total adjustable rate                   15,755        13,177

          Fixed rate:
             Real estate:
                One- to four-family, construction,
                  development and land                     23,906        30,881
                Commercial                                    265           906
                Multi-family                                   --            --
             Nonreal estate
                Consumer                                    3,327         3,014
                Commercial business                         1,753         1,361
                                                         --------      --------
                   Total fixed rate                        29,251        36,162
                                                         --------      --------
                   Total loans originated                  45,006        49,339
          Principal repayments                            (43,847)      (54,471)
             Increase in other items, net*                   (350)         (411)
                                                         --------      --------
                   Net increase (decrease)               $    809      $ (5,543)
                                                         ========      ========

      *     Includes  provision for loan losses,  net charge-offs,  net deferred
            loan origination fees and transfers to foreclosed assets.

Delinquencies and Nonperforming Assets

      When  a  borrower  fails  to  make  a  required  payment  on a  loan,  the
Association  attempts to cure the delinquency by contacting the borrower. A late
notice is sent on all loans over 30 days delinquent. Another late notice is sent
60 days  after  the due date  followed  by a letter  from the  President  of the
Association.

      If the  delinquency  is not cured by the 90th  day,  the  customer  may be
provided  written  notice  that the  account  will be  referred  to counsel  for
collection and foreclosure, if necessary. A good faith effort by the borrower at
this time will defer  foreclosure  for a reasonable  length of time depending on
individual circumstances.  The Association may agree to accept a deed in lieu of
foreclosure.  If it becomes  necessary  to  foreclose,  the  property is sold at
public sale and the Association may bid on the property to protect its interest.
The decision to foreclose  is made by the Senior Loan Officer  after  discussion
with the members of the Executive Committee or Board of Directors.

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


                                                                             13.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      Consumer and commercial  loans are  charged-off if they remain  delinquent
for 120 days unless the borrower and lender agree on a payment plan. If terms of
the plan are not met, the  customer's  loan is then subject to  charge-off.  The
Association's  procedures for repossession and sale of collateral are subject to
various requirements under federal and state laws.

      Real estate  acquired by the  Association as a result of foreclosure or by
deed in lieu of foreclosure is classified as real estate owned until it is sold.
When property is acquired by foreclosure or deed in lieu of  foreclosure,  it is
initially  recorded  at fair value at the date of  acquisition.  Any  write-down
resulting  therefrom is charged to the  allowance  for loan  losses.  Subsequent
decreases  in the value of the property  are charged to  operations  through the
creation of a valuation  allowance.  After  acquisition,  all costs  incurred in
maintaining  the property are expensed.  Costs relating to the  development  and
improvement of the property, however, are capitalized to the extent of estimated
fair value.

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


                                                                             14.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

The following table sets forth the Corporation's  loan delinquencies by type, by
amount and by percentage of type at June 30, 2004.

<TABLE>
<CAPTION>
                                                        Loans Delinquent For:
                                     ---------------------------------------------------------------
                                              60-89 Days                   90 Days and Over               Total Delinquent Loans
                                     -----------------------------   -------------------------------   -----------------------------
                                     Number     Amount    Category   Number     Amount      Category   Number     Amount    Category
                                     ------     ------    --------   ------     ------      --------   ------     ------    --------
                                                                        (Dollars in thousands)
<S>                                      <C>    <C>          <C>         <C>    <C>            <C>         <C>   <C>          <C>
Real estate:
    One- to four-family                  10     $   645      0.72%       16     $ 1,047        1.16%       26    $ 1,692      1.88%
    Construction and development         --          --        --        --          --          --        --         --        --
    Commercial                           --          --        --        --          --          --        --         --        --
    Multi-family                         --          --        --        --          --          --        --         --        --
    Land                                 --          --        --        --          --          --        --         --        --
Consumer                                 10          43      1.02        11          35        0.83        21         78      1.85
Commercial business                       1          17      0.36         1         129        2.77         2        146      3.13
                                     ------     -------   -------    ------     -------     -------    ------    -------    ------

       Total                             21     $   705      0.60%       28     $ 1,211        1.04%       49    $ 1,916      1.64%
                                     ======     =======   =======    ======     =======     =======    ======    =======    ======
</TABLE>

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


                                                                             15.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Classification of Assets:  Federal  regulations require that savings institution
classify  its  assets  on a regular  basis.  In  addition,  in  connection  with
examinations of savings  institutions,  OTS and FDIC examiners have authority to
identify  problem  assets and, if  appropriate,  require them to be  classified.
There are three  classifications for problem assets:  Substandard,  Doubtful and
Loss.   Substandard   assets  have  one  or  more  defined  weaknesses  and  are
characterized by the distinct possibility that the Association will sustain some
loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses
of substandard assets, with the additional  characteristics  that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable,  and there is a high possibility of loss. An
asset  classified as Loss is considered  uncollectible  and of such little value
that  continuance as an asset on the balance sheet of the  institution,  without
establishment of a specific valuation allowance or charge-off, is not warranted.
Assets  classified  as  Substandard  or  Doubtful  require  the  institution  to
establish  prudent  general  allowances for loan losses.  If an asset or portion
thereof is  classified  as Loss,  the  institution  may  charge-off  such amount
against  the loan loss  allowance.  If an  institution  does not  agree  with an
examiner's  classification of an asset, it may appeal this  determination to the
District Director of the OTS.

      On the basis of management's  review of its assets,  at June 30, 2004, the
Association had classified a total of $808,000 of its loans, as follows:

<TABLE>
<CAPTION>
                             One-       Commercial
                           To Four-        Real                                  Commercial
                            Family        Estate        Land         Consumer      Business       Total
                            ------        ------        ----         --------      --------       -----
                                                         (in thousands)
<S>                       <C>           <C>           <C>           <C>           <C>                 <C>
      Substandard         $     624     $      --     $      --     $      25     $      --           649
      Doubtful                   --            --            --            --            --            --
      Loss                       --            --            --            13           146           159
                          ---------     ---------     ---------     ---------     ---------     ---------

                          $     624     $      --     $      --     $      38     $     146     $     808
                          =========     =========     =========     =========     =========     =========
</TABLE>

      The Association's classified assets consist of the (i) nonperforming loans
and (ii) loans and other  assets of  concern  discussed  herein.  As of June 30,
2004, these asset classifications are consistent with those of the OTS and FDIC.

      The table below sets forth the amounts and  categories  of  non-performing
assets.  Interest  income on loans is accrued  over the term of the loans  based
upon the  principal  outstanding  except  where  serious  doubt exists as to the
collectibility of a loan, in which case the accrual of interest is discontinued.
For all years presented, the Association has had no troubled debt restructurings
(which  involve  forgiving a portion of interest  or  principal  on any loans or
making loans at a rate  materially  less than that of market rates).  Foreclosed
assets include assets acquired in settlement of loans.

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


                                                                             16.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

                                                                 June 30,
                                                         ----------------------
                                                           2004          2003
                                                           ----          ----
                                                         (Dollars in thousands)
      Nonaccruing loans
          One- to four-family                            $    624      $  1,604
          Construction and
            Development                                        --            --
          Commercial real estate                               --            --
          Multi-family                                         --            --
          Land                                                 --            --
          Consumer                                             --            --
          Commercial business                                  --            --
                                                         --------      --------
          Total                                               624         1,604

      Accruing loans delinquent
        more than 90 days
          One- to four-family                                 423           398
          Construction and
            Development                                        --            --
          Commercial real estate                               --            --
          Multi-family                                         --            --
          Land                                                 --            --
          Consumer                                             35            11
          Commercial business                                 129            --
                                                         --------      --------
             Total                                            587           409

      Foreclosed assets
          One- to four-family                                  99           109
          Construction and
            development                                        --            --
          Commercial real estate                               --            --
          Multi-family                                         --            --
          Land                                                 --            --
          Consumer                                             --            --
          Commercial business                                  --            --
                                                         --------      --------
             Total                                             99           109
                                                         --------      --------

      Total nonperforming assets                         $  1,310      $  2,122
                                                         ========      ========
      Total as a percentage of
        total assets                                         0.96%         1.47%
                                                         ========      ========

      For the year ended June 30, 2004 gross  interest  income  which would have
been recorded had the  nonaccruing  loans been current in accordance  with their
original  terms  amounted to $50,236.  The amount that was  included in interest
income on such loans was $40,009 for the year ended June 30, 2004.

Other Assets of Concern: As of June 30, 2004, the Association had no assets that
are not now disclosed  because of known  information  about the possible  credit
problems of the borrowers or the cash flows of the security property which would
cause  management  to have some  doubts as to the  ability of the  borrowers  to
comply  with  present  loan  repayment  terms and which may result in the future
inclusion of such items in the nonperforming asset categories.

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


                                                                             17.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Allowance for Loan Losses:  Management  estimates the allowance balance required
based on past loan loss  experience,  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.

      A loan is impaired  when full  payment  under the terms of the loan is not
expected. Commercial and commercial real estate loans are individually evaluated
for impairment.  If a loan is impaired,  a portion of the allowance 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.  Large  groups of smaller
balance  homogeneous  loans, such as consumer and residential real estate loans,
are collectively evaluated for impairment.

      As of June 30,  2004,  the  Association's  allowance  for loan losses as a
percent  of gross  loans  receivable  and as a percent  of  nonperforming  loans
amounted  to  0.65%  and  62.17%,  respectively.   As  of  June  30,  2003,  the
Association's  allowance for loan losses as a percent of gross loans  receivable
and  as  a  percent  of  nonperforming  loans  amounted  to  0.66%  and  38.26%,
respectively.  In light of the level of nonperforming assets to total assets and
the nature of these  assets,  management  believes  that the  allowance for loan
losses is adequate.  While management believes that it uses the best information
available  to  determine  the  allowance  for  loan  losses,  unforeseen  market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly  affected, if circumstances differ substantially
from the assumptions used in making the final determination.

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


                                                                             18.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The following table sets forth an analysis of the Corporation's  allowance
for loan losses.

<TABLE>
<CAPTION>
                                                               Year ended June 30,
                                                             ------------------------
                                                               2004           2003
                                                               ----           ----
                                                               (Dollars in thousands)
<S>                                                          <C>            <C>
      Balance at beginning of period                         $     766      $     708

      Charge-offs
          One- to four-family                                       33             --
          Construction and
          Development                                               --             --
          Commercial real estate                                    --             --
          Multi-family                                              --             --
          Consumer                                                  13             15
          Commercial business                                       21             --
                                                             ---------      ---------
                                                                    67             15
                                                             ---------      ---------
      Recoveries
          One- to four-family                                       --             --
          Construction and
            Development                                             --             --
          Commercial real estate                                    --             --
          Multi-family                                              --             --
          Consumer                                                  --              4
          Commercial business                                        1             --
                                                             ---------      ---------
                                                                     1              4
                                                             ---------      ---------

      Net charge-offs                                               66             11
      Additions charged to operations                               53             69
                                                             ---------      ---------
      Balance at end of period                               $     753      $     766
                                                             =========      =========

      Ratio of net charge-offs during the period to
        average loans outstanding* during the period              0.06%          0.01%
                                                             =========      =========

      Ratio of net charge-offs during the period to
        nonperforming assets at the  end of the period            5.08%          0.50%
                                                             =========      =========
</TABLE>

      *     Calculated  net of  deferred  loan fees and the  allowance  for loan
            losses.

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


                                                                             19.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

The distribution of the Corporation's allowance for losses on loans at the dates
indicated is summarized as follows:

<TABLE>
<CAPTION>
                                                                        June 30,
                                 -------------------------------------------------------------------------------
                                                  2004                                       2003
                                 -------------------------------------      ------------------------------------
                                 Allowance      Category        Loans       Allowance      Category        Loans
                                 ---------      --------        -----       ---------      --------        -----
                                                             (Dollars in thousands)
<S>                               <C>           <C>             <C>          <C>           <C>             <C>
One- to four-family               $    384      $ 89,975         77.05%      $    478      $ 89,930         77.27%
Construction and development            10         3,056          2.62             14         4,039          3.47
Commercial real estate                  37        11,848         10.14             24        10,307          8.86
Multi-family                             4         1,331          1.14              4         1,657          1.42
Land                                     5         1,695          1.45              4         1,813          1.56
Consumer                                94         4,211          3.61            115         4,636          3.98
Commercial business                    219         4,662          3.99            127         4,006          3.44
Unallocated                             --            --            --             --            --            --
                                  --------      --------      --------       --------      --------      --------

    Total                         $    753      $116,778        100.00%      $    766      $116,388        100.00%
                                  ========      ========      ========       ========      ========      ========
</TABLE>

Investment Activities

      As  part  of its  asset/liability  management  strategy,  the  Corporation
invests in U.S. Government and agency obligations and mortgage-backed securities
to supplement its lending activities.  The Association's  investment policy also
allows for  investments  in overnight  funds and  certificates  of deposit.  The
Association may consider the expansion of investments  into other  securities if
deemed appropriate. At June 30, 2004, the Corporation did not own any securities
of a single issuer that  exceeded 10% of the  Association's  equity,  other than
U.S.  Government or federal agency  obligations.  See Note 2 of the Notes to the
Consolidated  Financial  Statements  for  additional  information  regarding the
Association's securities portfolio.

      As of June 30, 2004 the Corporation  had securities  totaling $5.3 million
classified as available  for sale while there were no  securities  classified as
held to maturity.  As future securities are acquired,  the Corporation may elect
to classify them as either available for sale or held to maturity.

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


                                                                             20.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

The following table sets forth the composition of the Corporation's  investments
in securities and time deposits at the dates indicated.

<TABLE>
<CAPTION>
                                                                          June 30,
                                                  ----------------------------------------------------------
                                                             2004                           2003
                                                             ----                           ----
                                                   Carrying         % of           Carrying         % of
                                                    Value           Total            Value          Total
                                                    -----           -----            -----          -----
                                                                    (Dollars in thousands)
<S>                                               <C>                <C>          <C>                <C>
U.S. Government Agencies                          $    5,288          76.76%      $   11,517          88.21%

FHLB stock                                             1,602          23.24            1,539          11.79
                                                  ----------      ---------       ----------      ---------

    Total securities                              $    6,890         100.00%      $   13,056         100.00%
                                                  ==========      =========       ==========      =========

Average remaining life of securities              6.17 years                      6.16 years

Other interest-earning assets
    Interest-bearing deposits with banks          $    4,706          54.05%      $    6,482          56.46%
    Overnight deposits                                 4,000          45.95            5,000          43.54
                                                  ----------      ---------       ----------      ---------

          Total                                   $    8,706         100.00%      $   11,482         100.00%
                                                  ==========      =========       ==========      =========
</TABLE>

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


                                                                             21.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

The  composition  and  maturities of the  securities  portfolio,  excluding FHLB
stock, are indicated in the following table.

<TABLE>
<CAPTION>
                                                                        June 30, 2004
                              -----------------------------------------------------------------------------------------------------
                                Less than 1 year             1 to 5 years             5 to 10 years             Total Securities
                              --------------------    -----------------------     ---------------------      ----------------------
                              Carrying       Fair     Carrying          Fair      Carrying       Fair        Carrying         Fair
                                Value       Value       Value          Value        Value       Value          Value         Value
                                -----       -----       -----          -----        -----       -----          -----         -----
                                                                     (Dollars in thousands)
<S>                           <C>         <C>         <C>            <C>          <C>          <C>           <C>           <C>
U.S. Government Agencies
    available for sale        $     --    $     --    $  2,498       $  2,498     $  2,790     $  2,790      $  5,288      $  5,288
                              --------    --------    --------       --------     --------     --------      --------      --------
                              $     --    $     --    $  2,498       $  2,498     $  2,790     $  2,790      $  5,288      $  5,288
                              ========    ========    ========       ========     ========     ========      ========      ========

Weighted average yield              --%         --%       3.09%          3.09%        3.65%        3.65%         3.39%         3.39%
</TABLE>

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


                                                                             22.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Sources of Funds

General. The Corporation's  primary sources of funds are deposits,  amortization
and  prepayment  of  loan  principal,   maturities  of  securities,   short-term
investments and funds provided from operations as well as FHLB advances.

Deposits.  The  Association  offers a variety of deposit  accounts having a wide
range of  interest  rates and  terms.  The  Association's  deposits  consist  of
passbook accounts, statement savings, NOW accounts, Christmas club, money market
and  certificate  accounts.  The  Association  relies  primarily on advertising,
including newspaper and radio, competitive pricing policies and customer service
to attract and retain these deposits. Neither premiums nor brokered deposits are
utilized.

      The flow of  deposits  is  influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.

      The variety of deposit  accounts offered by the Association has allowed it
to be competitive in obtaining funds and to respond with  flexibility to changes
in consumer  demand.  The Association has become more susceptible to short- term
fluctuations  in deposit  flows,  as customers  have become more  interest  rate
conscious.  The Association  manages the pricing of its deposits in keeping with
its asset/liability  management,  profitability and growth objectives.  Based on
its  experience,  the  Association  believes that its  passbook,  demand and NOW
accounts are relatively stable sources of deposits.  However, the ability of the
Association to attract and maintain certificate deposits,  and the rates paid on
these  deposits,  has been and will  continue  to be  significantly  affected by
market conditions.

The following table sets forth the savings flows at the  Corporation  during the
periods indicated.

                                                      Year Ended June 30,
                                                  ---------------------------
                                                     2004              2003
                                                     ----              ----
                                                     (Dollars in thousands)

      Opening balance                             $  93,452         $  94,787
      Deposits                                      136,256           136,612
      Withdrawals                                  (144,462)         (140,469)
      Interest credited                               1,518             2,522
                                                  ---------         ---------

      Ending balance                              $  86,764         $  93,452
                                                  =========         =========

      Net increase (decrease)                     $  (6,688)        $  (1,335)
                                                  =========         =========

      Percent increase (decrease)                     (7.16)%           (1.41)%
                                                  =========         =========

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


                                                                             23.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

The  following  table sets forth the dollar  amount of savings  deposits  in the
various  types of  deposit  programs  offered  by the  Corporation  at the dates
indicated.

<TABLE>
<CAPTION>
                                                                                     June 30,
                                                                 --------------------------------------------------
                                                                         2004                           2003
                                                                 --------------------         ---------------------

                                                  Weighted
                                                   Average
                                                   Rate at                    Percent                       Percent
                                                  June 30,                      of                            of
                                                    2004         Amount        Total          Amount         Total
                                                    ----         ------        -----          ------         -----
                                                                                      (Dollars in thousands)
<S>                                                 <C>        <C>             <C>           <C>             <C>
Transactions and savings deposits
     Noninterest-bearing demand                       --%      $    797          0.92%       $    850          0.86%
     Savings account                                0.75         30,516         35.17          28,559         30.55
     NOW accounts                                     --          6,691          7.71           6,361          6.80
     Money market accounts                          0.99          3,940          4.53           4,445          4.76
                                                               --------        ------        --------        ------
         Total noncertificates                      0.64         41,944         48.33          40,170         42.97
                                                               --------        ------        --------        ------

Certificates
     0.00 - 1.99%                                   1.30         19,744         22.76          10,088         10.79
     2.00 - 3.99%                                   2.68         15,137         17.44          24,367         26.07
     4.00 - 5.99%                                   4.67          5,523          6.36          10,292         11.01
     6.00 - 7.99%                                   7.12          4,416          5.09           8,535          9.13
                                                               --------        ------        --------        ------
         Total certificates                         2.76         44,820         51.65          53,282         57.00
                                                               --------        ------        --------        ------
Accrued interest                                                     15          0.02              30          0.03
                                                               --------        ------        --------        ------
     Total deposits                                 1.73%      $ 86,779        100.00%       $ 93,482        100.00%
                                                    ====       ========        ======        ========        ======
</TABLE>

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


                                                                             24.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

The following table shows rate and maturity  information  for the  Corporation's
certificates of deposit as of June 30, 2004.

<TABLE>
<CAPTION>
                                            0.00-        2.00         4.00-        6.00-                    Percent
                                            1.99%        3.99%        5.99%        7.99%          Total     of Total
                                            -----        -----        -----        -----          -----     --------
                                                                    (Dollars in thousands)
<S>                                      <C>           <C>          <C>          <C>            <C>           <C>
Certificate accounts maturing in
  quarter ending
     September 30, 2004                  $  5,529      $  2,376     $     43     $    572       $  8,520      19.01%
     December 31, 2004                      4,820         1,199           --          200          6,219      13.87
     March 31, 2005                         2,106         1,711           21          195          4,033       9.00
     June 30, 2005                          2,684         1,317           29          756          4,786      10.38
     September 30, 2005                     1,376         1,542           55        1,260          4,233       9.74
     December 31, 2005                        662         1,738           --        1,318          3,718       8.29
     March 31, 2006                         1,461           109           88          115          1,773       3.96
     June 30, 2006                            771           804          270           --          1,845       4.12
     September 30, 2006                        97           689        1,931           --          2,717       6.06
     December 31, 2006                        159         1,106          113           --          1,378       3.08
     March 31, 2007                            --           497           --           --            497       1.11
     June 30, 2007                             --           211        2,207           --          2,418       5.40
     September 30, 2007                        13            32          605           --            650       1.45
     December 31, 2007                         --           254           84           --            338       0.75
     March 31, 2008                            --           631           --           --            631       1.41
     June 30, 2008                             --           277           --           --            277       0.62
     September 30, 2008                        66           135           --           --            201       0.45
     December 31, 2008                         --            86           --           --             86       0.19
     March 31, 2009                            --           208           --           --            208       0.46
     June 30, 2009                             --           215           77           --            292       0.65
                                         --------      --------     --------     --------       --------     ------
                Total                    $ 19,744      $ 15,137     $  5,523     $  4,416       $ 44,820     100.00%
                                         ========      ========     ========     ========       ========     ======

                Percent of total           44.05%        33.77%        12.33%        9.85%        100.00%
</TABLE>

      At  June  30,  2004,  the  Association  had  approximately  $4,710,000  in
certificate accounts in amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
                                                                                                   Weighted
                                                                                                    Average
                 Maturity Period                                                      Amount         Rate
                 ---------------                                                      ------         ----
                                                                                     (Dollars in thousands)
<S>                                                                                 <C>               <C>
         Three months or less                                                       $    1,394        2.42%
         Over three through six months                                                     391        1.38
         Over six through 12 months                                                        999        2.25
         Over 12 months                                                                  1,926        4.85
                                                                                    ----------        ----
             Total                                                                  $    4,710        3.29%
                                                                                    ==========        ====
</TABLE>

      For additional  information regarding the composition of the Corporation's
deposits, see Note 7 of Notes to Consolidated Financial Statements.

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


                                                                             25.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Borrowings

      The  Corporation's  other available sources of funds include advances from
the  FHLB of  Cincinnati  and  other  borrowings.  As a  member  of the  FHLB of
Cincinnati,  the  Association  is required  to own capital  stock in the FHLB of
Cincinnati  and is authorized to apply for advances from the FHLB of Cincinnati.
Each  FHLB  credit  program  has its own  interest  rate,  which may be fixed or
variable,  and range of  maturities.  The FHLB of  Cincinnati  may prescribe the
acceptable  uses for these  advances,  as well as limitations on the size of the
advances and repayment provisions.

      The following table sets forth the maximum  month-end  balance and average
balance of FHLB advances for the periods indicated.

<TABLE>
<CAPTION>
                                                                    Year Ended June 30,
                                                                    -------------------
                                                                    2004           2003
                                                                    ----           ----
                                                                   (Dollars in thousands)
<S>                                                               <C>            <C>
      FHLB advances
          Balance at end of period                                $ 31,140       $ 32,190
          Weighted average rate at period end                         5.32%          5.34%
          Maximum balance at any month-end during the period      $ 31,811       $ 32,633

          Average balance for the period                            31,379         28,052
          Weighted average rate for the period                        5.34%          5.54%
</TABLE>

Service Corporations

      As a federally chartered savings association, the Association is permitted
by OTS  regulations to invest up to 2.0% of its assets,  or $2.7 million at June
30, 2004 in the stock of, or loans to, service corporation  subsidiaries.  As of
such date, the Association had no investments in service corporations.

                                   REGULATION

General

      The Association is a federally chartered savings association, the deposits
of which are  federally  insured  and backed by the full faith and credit of the
United States Government up to applicable  limits. The Association is subject to
broad  federal  regulation  and  oversight  extending  to  all  its  operations,
principally  by its primary  federal  regulator,  the OTS. The  Association is a
member of the FHLB of Cincinnati and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal  Reserve Board").
As the savings and loan  holding  company of the  Association,  Peoples  also is
subject to federal regulation and oversight, principally by the OTS. The purpose
of the regulation of Peoples and other savings and loan holding  companies is to
protect  subsidiary  savings  associations.  The  Association is a member of the
SAIF,  which  together  with the Bank  Insurance  Fund (the  "BIF")  are the two
deposit  insurance  funds  administered  by the FDIC. As a result,  the FDIC has
certain regulatory and examination authority over the Association.

      Certain of these  regulatory  requirements  and restrictions are discussed
below or elsewhere in this document.

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


                                                                             26.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The  Financial  Services  Modernization  Act. On November  12,  1999,  the
Gramm-Leach-Bliley  Financial  Services  Modernization  Act of 1999 ("GLBA") was
signed into law. The purpose of this  legislation was to modernize the financial
services   industry  by  establishing  a   comprehensive   framework  to  permit
affiliations among commercial banks,  insurance companies,  securities firms and
other financial service providers. Generally, the Act:

      (a)   repealed the historical restrictions and eliminates many federal and
            state law barriers to affiliations  among banks,  securities  firms,
            insurance companies and other financial service providers;

      (b)   provided a uniform  framework for the  functional  regulation of the
            activities  of  banks,   savings   institutions  and  their  holding
            companies;

      (c)   broadened the  activities  that may be conducted by national  banks,
            banking  subsidiaries of bank holding  companies and their financial
            subsidiaries;

      (d)   provided  an  enhanced  framework  for  protecting  the  privacy  of
            consumer information; and

      (e)   addressed a variety of other legal and regulatory  issues  affecting
            day-to-day   operations   and  long-term   activities  of  financial
            institutions.

      The GLBA also imposes  certain  obligations on financial  institutions  to
develop privacy policies,  restrict the sharing of nonpublic  customer data with
nonaffiliated  parties at the customer's request,  and establish  procedures and
practices to protect and secure  customer data.  These privacy  provisions  were
implemented by regulations that were effective on November 12, 2000.  Compliance
with the privacy provisions was required by July 1, 2001.

      USA Patriot Act of 2001. In October 2001,  the USA Patriot Act of 2001 was
enacted in  response  to the  terrorist  attacks in New York,  Pennsylvania  and
Washington,  D.C.,  which  occurred on September  11,  2001.  The Patriot Act is
intended to strengthen U.S. law enforcement's and the intelligence  communities'
abilities to work  cohesively  to combat  terrorism on a variety of fronts.  The
potential  impact of the Patriot Act on financial  institutions  of all kinds is
significant  and wide  ranging.  The Patriot Act  contains  sweeping  anti-money
laundering  and financial  transparency  laws and imposes  various  regulations,
including standards for verifying client  identification at account opening, and
rules to promote  cooperation among financial  institutions,  regulators and law
enforcement entities in identifying parties that may be involved in terrorism or
money laundering.

      Among  other  requirements,  Title III of the USA  Patriot Act imposes the
following requirements:

      o     All financial  institutions  must  establish  anti-money  laundering
            programs  that  include  (i)  internal   policies,   procedures  and
            controls,  (ii) specific  designation  of an  anti-money  laundering
            compliance  officer,  (iii) ongoing employee  training  programs and
            (iv) an independent audit function to test the anti-money laundering
            program.

      o     Financial  institutions  that establish,  maintain,  administer,  or
            manage private  banking  accounts or  correspondent  accounts in the
            United States for non-United States persons or their representatives
            must establish appropriate, specific, and, where necessary, enhanced
            due diligence policies,  procedures, and controls designed to detect
            and report money laundering.

      o     Financial    institutions   are   prohibited   from    establishing,
            maintaining,  administering or managing  correspondent  accounts for
            foreign  shell  banks  that do not have a physical  presence  in any
            country,  and will be subject to certain record keeping  obligations
            with respect to correspondent accounts of foreign banks.

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


                                                                             27.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      o     Bank  regulators  are  directed  to  consider  a  holding  company's
            effectiveness  in combating money  laundering when ruling on Federal
            Reserve Act and Bank Merger Act applications.

      Our policies and procedures have been updated to reflect the  requirements
of the USA  Patriot  Act.  No  significant  changes in our  business or customer
practices were required as a result of the implementation of these requirements.

      Sabanes-Oxley  Act of 2002. On July 30, 2002,  President  Bush signed into
law the Sarbanes-Oxley Act of 2002, or the SOA. The SOA is the most far-reaching
U.S. securities legislation enacted in many years, and includes many substantive
and disclosure-based  requirements.  The stated goals of the SOA are to increase
corporate  responsibility,  to provide for enhanced penalties for accounting and
auditing  improprieties at publicly traded companies and to protect investors by
improving the accuracy and reliability of corporate  disclosures pursuant to the
securities  laws.  The SOA  generally  applies to all  companies,  both U.S. and
non-U.S., that file or are required to file periodic reports with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange
Act").

      The law creates an independent auditing-oversight board under the SEC. The
law also  increases  penalties  for  corporate  wrongdoers,  forces  faster  and
more-extensive  financial  disclosure,  and  creates  avenues  of  recourse  for
aggrieved  shareholders.  The SOA also contains separate provisions that require
signed  certifications  to be made by the  chief  executive  officer  and  chief
financial officer of all public companies, and provides criminal penalties of up
to $5.0 million and imprisonment of up to 20 years for an officer that willfully
provides a certification knowing it to be untrue.

      The Act also addresses functions and  responsibilities of audit committees
of public  companies.  Each audit  committee  is  directly  responsible  for the
appointment,  compensation and oversight of the work of their company's  outside
auditors,  and the auditors must report  directly to the audit  committee.  Each
audit committee member must be independent, which under the Act means that he or
she  cannot  (other  than  in his or  her  capacity  as a  member  of the  audit
committee,  the board or any  other  board  committee)  accept  any  consulting,
advisory or other  compensatory  fees from the company or be affiliated with the
company  or  any  of its  subsidiaries.  Each  audit  committee  must  establish
procedures to receive and respond to any complaints  and concerns  regarding the
company's accounting,  accounting controls or auditing matters. These procedures
would include enabling the company's  employees to transmit  concerns  regarding
questionable   accounting  or  auditing  matters  by   confidential,   anonymous
submission.  In recognition of the audit committee's  independent  status,  each
audit committee is authorized to engage independent  counsel and other advisors.
The company must also provide the  appropriate  funding,  as  determined  by the
audit committee, for payment of compensation to the auditors and advisors of the
audit committee.

Federal Regulation of Savings Associations

      The  OTS  has  extensive   authority   over  the   operations  of  savings
associations,   such  as  the  Association.  As  part  of  this  authority,  the
Association is required to file periodic  reports with the OTS and is subject to
periodic  examinations  by the OTS.  The last  regular  OTS  examination  of the
Association was as of March 31, 2003. When these  examinations  are conducted by
the OTS, the examiners may require the Association to provide for higher general
or specific loan loss  reserves and take other  corrective  action.  All savings
associations  are subject to a  semi-annual  assessment,  based upon the savings
association's total assets, to fund the operations of the OTS. The Association's
OTS assessment for the fiscal year ended June 30, 2004 was $44,000.

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


                                                                             28.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The  OTS  also  has  extensive  enforcement  authority  over  all  savings
institutions and their holding companies, including the Association and Peoples.
This enforcement  authority includes,  among other things, the ability to assess
civil  money  penalties,  to issue  cease-and-desist  or  removal  orders and to
initiate  injunctive  actions.  In  general,  these  enforcement  actions may be
initiated  for  violations  of  laws  and  regulations  and  unsafe  or  unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action,  including  misleading or untimely  reports  filed with the OTS.  Except
under certain  circumstances,  public disclosure of final enforcement actions by
the OTS is required.

      In  addition,  the  investment,  lending and  branching  authority  of the
Association  is prescribed by federal law and it is prohibited  from engaging in
any activities not permitted by such laws. For example, the permissible level of
investment   by  federal   associations,   subject   to  safety  and   soundness
restrictions,  (1) in loans  secured by  non-residential  real  property may not
exceed  400% of total  capital,  (2) in  commercial  loans may not exceed 20% of
assets,  provided  that  amounts  in excess  of 10% of assets  may only be small
business  loans,  (3) related to leasing of tangible  personal  property may not
exceed  10% of  assets,  and (4) in loans for  personal,  family  and  household
purposes when combined with commercial paper and corporate debt securities,  may
not  exceed 35% of  assets.  The  Association  is in  compliance  with the noted
restrictions.  Federal  savings  associations  are also generally  authorized to
branch  nationwide.  Federal  associations such as the Association may designate
under which  investment  authority  (or basket) it made a loan or  investment if
that loan or investment is authorized under different sections of the law.

      The    Association's     general    permissible    lending    limit    for
loans-to-one-borrower  is equal to the greater of $500,000 or 15% of  unimpaired
capital  and  surplus  (except  for  loans  fully  secured  by  certain  readily
marketable  collateral,  in  which  case  this  limit  is  increased  to  25% of
unimpaired  capital and surplus).  At June 30, 2004, the  Association's  lending
limit under this restriction was $2.2 million.  The Association is in compliance
with the loans-to-one-borrower limitation.

      The OTS,  as well as the  other  federal  banking  agencies,  has  adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  Any  institution  that  fails to comply  with  these
standards must submit a compliance plan.

Insurance of Accounts and Regulation by the FDIC

      The  Association  is a member of the SAIF,  which is  administered  by the
FDIC.  Deposits  are  insured  up to  applicable  limits  by the  FDIC  and such
insurance  is  backed  by  the  full  faith  and  credit  of the  United  States
Government.  As insurer,  the FDIC  imposes  deposit  insurance  premiums and is
authorized to conduct  examinations of and to require  reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC  determines  by regulation or order to pose a serious risk
to the SAIF or the BIF. The FDIC also has the authority to initiate  enforcement
actions  against  savings  associations,  after giving the OTS an opportunity to
take such action,  and may terminate the deposit insurance if it determines that
the institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.

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


                                                                             29.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      The FDIC's deposit  insurance  premiums are assessed  through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC for each semi-annual  assessment  period. As of
June 30, 2004, the Association was designated as a well-capitalized institution.

      The FDIC is  authorized  to increase  assessment  rates,  on a semi-annual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of the SAIF insured deposits. In setting these
increased  assessments,  the FDIC must seek to restore the reserve ratio to that
designated  reserve  level,  or such higher  reserve ratio as established by the
FDIC.  The FIDC may also impose  special  assessments  on SAIF  members to repay
amounts borrowed from the U.S. Treasury or for any other reason deemed necessary
by the FDIC.

      Since  January 1, 1997,  the  premium  schedule  for BIF and SAIF  insured
institutions  has  ranged  from  0  to  27  basis  points.  However,  SAIF-  and
BIF-insured  institutions are required to pay a Financing Corporation assessment
in order to fund the interest on bonds issued to resolve thrift  failures in the
1980s equal to approximately 1.5 basis points for each $100 in domestic deposits
annually.  These  assessments,  which may be revised based upon the level of BIF
and SAIF deposits, will continue until the bonds mature.

      Under the Federal Deposit  Insurance Act ("FDIA"),  the FDIC may terminate
deposit  insurance upon a finding that the  institution has engaged in unsafe or
unsound practices,  is in an unsafe or unsound condition to continue  operations
or has violated any applicable law, regulation, rule, order or condition imposed
by the FDIC or the OTS.  Management  of the Bank does not know of any  practice,
condition or violation that might lead to termination of deposit insurance.

Regulatory Capital Requirements

      Federally  insured  savings  associations,  such as the  Association,  are
required  to  maintain  a  minimum  level  of  regulatory  capital.  The OTS has
established  capital  standards,  including a tangible  capital  requirement,  a
leverage  ratio  (or  core  capital)   requirement  and  a  risk-based   capital
requirement applicable to such savings associations.  These capital requirements
must be  generally  as  stringent as the  comparable  capital  requirements  for
national  banks.  The OTS is also  authorized to impose capital  requirements in
excess of these standards on individual associations on a case-by-case basis.

      The  capital  regulations  require  tangible  capital  of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  preferred stock and related income.  In addition,  all
intangible  assets,  other than a limited amount of purchased mortgage servicing
rights,  must be deducted from tangible capital for calculating  compliance with
the  requirement.  At June 30, 2004, the Association did not have any intangible
assets.

      The OTS regulations  establish  special  capitalization  requirements  for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's  level of ownership.  For excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and capital. The Association does not have any subsidiaries.

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


                                                                             30.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS  (Continued)

      At June 30, 2004, the Association had tangible capital of $14,855,000,  or
10.9% of adjusted total assets,  which is  approximately  $12,815,000  above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.

      The capital  standards  also  effective  require core capital  equal to at
least 4% of adjusted total assets.  Core capital generally  consists of tangible
capital plus certain intangible assets,  including a limited amount of purchased
credit card  receivables.  At June 30, 2004,  the  Association  had core capital
equal to  $14,855,000,  or 10.9% of adjusted  total assets,  which is $9,415,000
million above the minimum  leverage  ratio  requirement  of 4.0% as in effect on
that date.

      The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted  assets.  Total capital consists of core
capital,  as defined above, and  supplementary  capital.  Supplementary  capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and the risk of  non-traditional  activities.  At June 30, 2004, the Association
had $593,000 of its total 753,000 of allowance for loan losses that were general
loss  reserves,  which  was less than  1.25% of  risk-weighted  assets.  Certain
exclusions  from  capital and assets are  required to be made for the purpose of
calculating  total capital.  The Association had no such exclusions from capital
and assets at June 30, 2004. In determining the amount of risk-weighted  assets,
all assets,  including certain  off-balance sheet items, will be multiplied by a
risk weight,  ranging from 0% to 100%, based on the risk inherent in the type of
asset.  For  example,  the OTS has  assigned a risk weight of 50% for  prudently
underwritten  permanent one- to  four-family  first lien mortgage loans not more
than 90 days delinquent and having a loan to value ratio of not more than 80% at
origination  unless insured to such ratio by an insurer  approved by the FNMA or
FHLMC.  On June 30,  2004,  the  Association  had total  capital of  $15,448,000
(including $14,855,000 in core capital and $593,000 in qualifying  supplementary
capital) and risk-weighted  assets of $77,199,000,  or total capital of 20.0% of
risk-weighted  assets.  This amount was $9,272,000 above the 8.0% requirement in
effect on that date.

Prompt Corrective Action

      The OTS and the FDIC  are  authorized  and,  under  certain  circumstances
required, to take certain actions against savings associations that fail to meet
their  capital  requirements.  The OTS is  generally  required to take action to
restrict the activities of an "undercapitalized  association" (generally defined
to be  one  with  less  than  either  a 4%  core  capital  ratio,  a 4%  Tier  1
risked-based  capital  ratio  or an  8%  risk-based  capital  ratio).  Any  such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OTS may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OTS  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.

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


                                                                             31.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS  (Continued)

      Any savings  association  that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less  than 3% or a  risk-based  capital  ratio of less  than 6%) must be made
subject  to  one  or  more  of  additional   specified   actions  and  operating
restrictions  which may cover all aspects of its operations and include a forced
merger  or  acquisition  of  the   association.   An  association  that  becomes
"critically  undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly  undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator  with the concurrence of the FDIC) for a
savings  association,  with certain limited exceptions,  within 90 days after it
becomes critically  undercapitalized.  Any undercapitalized  association is also
subject to the general enforcement  authority of the OTS and the FDIC, including
the  appointment  of a  conservator  or a  receiver.  The OTS is also  generally
authorized to reclassify an association into a lower capital category and impose
the  restrictions  applicable to such category if the  institution is engaged in
unsafe or unsound practices or is in an unsafe or unsound condition.

      The  imposition  by the OTS or the  FDIC of any of these  measures  on the
Association  may  have  a  substantial  adverse  effect  on its  operations  and
profitability.

Limitations on Dividends and Other Capital Distributions

      OTS regulations impose various  restrictions on savings  associations with
respect  to their  ability  to make  distributions  of  capital,  which  include
dividends,  stock  redemptions  or  repurchases,   cash-out  mergers  and  other
transactions charged to the capital account. Assuming the absence of supervisory
problems,  OTS regulations generally permit a federal savings association to pay
dividends in any calendar  year equal to net income for that year plus  retained
earnings for the  preceding  two years less any  dividends  paid.  As of July 1,
2004, the Association  must obtain  regulatory  approval to pay dividends to the
holding company until fiscal 2005 net income exceeds $130,944.

      Assuming the absence of supervisory  problems,  savings  associations that
before and after the proposed  distribution  remain  well-capitalized,  may make
capital  distributions  during any calendar year equal to the greater of 100% of
net income for the  year-to-date  plus retained net income for the two preceding
years (less any dividends paid). However, an institution deemed to be in need of
more  than  normal  supervision  by the  OTS may  have  its  dividend  authority
restricted by the OTS. The Association may pay dividends in accordance with this
general authority.

      Savings associations  proposing to make any capital distribution need only
submit  written  notice to the OTS 30 days prior to such  distribution.  Savings
associations  that do not,  or would  not meet  their  current  minimum  capital
requirements following a proposed capital distribution, however, must obtain OTS
approval  prior  to  making  such  distribution.  The  OTS  may  object  to  the
distribution during that 30-day period based on safety and soundness concerns.

Qualified Thrift Lender Test

      All savings associations,  including the Association, are required to meet
a qualified  thrift lender ("QTL") test to avoid certain  restrictions  on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly  average  for nine out of every 12  months  on a  rolling  basis.  As an
alternative,  the savings  association  may  maintain 60% of its assets in those
assets specified in Section 7701(a)(19) of the Internal Revenue Code of 1986, as
amended  (the  "Code").  Under  either test,  such assets  primarily  consist of
residential housing related loans and investments.

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


                                                                             32.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      Any savings  association that fails to meet the QTL test must convert to a
national bank charter,  unless it requalifies as a QTL and thereafter  remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is
limited to national bank branching  rights in its home state.  In addition,  the
association is immediately  ineligible to receive any new FHLB borrowings and is
subject to national  bank limits for payment of dividends.  If such  association
has not requalified or converted to a national bank within three years after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See -"Holding Company Regulation of Peoples."

      If the Association fails the QTL test, Peoples must obtain the approval of
the OTS prior to continuing  after such  failure,  directly or through its other
subsidiaries,  any  business  activity  other than those  approved  for multiple
savings and loan holding companies or their  subsidiaries.  In addition,  within
one year of such failure the Peoples must  register as, and will become  subject
to, the  restrictions  applicable  to bank  holding  companies.  The  activities
authorized  for a bank holding  company are more limited than are the activities
authorized  for a unitary or multiple  savings  and loan  holding  company.  See
"-Qualified Thrift Lender Test."

Community Reinvestment Act

      Under  the  Community   Reinvestment  Act  ("CRA"),   every  FDIC  insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking  practices to help meet the credit needs of its entire  community,
including  low and moderate  income  neighborhoods.  The CRA does not  establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's  discretion to develop the types of products and services
that it believes are best suited to its particular  community,  consistent  with
the CRA. The CRA requires the OTS, in  connection  with the  examination  of the
Association,  to assess the institution's  record of meeting the credit needs of
its community and to take such record into account in its  evaluation of certain
applications,  such  as a  merger  or  the  establishment  of a  branch,  by the
Association. An unsatisfactory rating may be used as the basis for the denial of
an application by the OTS.

      Due to the  heightened  attention  being given to the CRA in recent years,
the  Association may be required to devote  additional  funds for investment and
lending in its local community.  The Association was examined for CRA compliance
in 2003 and received a rating of satisfactory.

Activities of Associations and Their Subsidiaries

      When a savings institution  establishes or acquires a subsidiary or elects
to conduct any new activity through a subsidiary that the association  controls,
the savings  institution must notify the FDIC and the OTS 30 days in advance and
provide  the  information  each  agency may,  by  regulation,  require.  Savings
institutions also must conduct the activities of subsidiaries in accordance with
existing regulations and orders.

      The OTS may determine that the  continuation  by a savings  institution of
its ownership,  control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the savings institution or
is inconsistent  with sound banking  practices or with the purposes of the FDIA.
Based upon that  determination,  the FDIC or the OTS has the  authority to order
the savings institution to divest itself of control of the subsidiary.  The FDIC
also may  determine by regulation  or order that any specific  activity  poses a
serious  threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.

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


                                                                             33.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Transactions with Affiliates

      Savings  institutions must comply with Sections 23A and 23B of the Federal
Reserve Act relative to  transactions  with affiliates in the same manner and to
the same  extent as if the savings  institution  were a Federal  Reserve  member
Savings  Bank.  Generally,  transactions  between a savings  institution  or its
subsidiaries  and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates.  In addition,  certain of these
transactions,  such as loans to an affiliate,  are restricted to a percentage of
the  association's  capital.  Affiliates of the Bank include the Corporation and
any company that is under common  control with the Bank. In addition,  a savings
institution may not lend to any affiliate  engaged in activities not permissible
for a savings  and loan  holding  company  or  acquire  the  securities  of most
affiliates.  The  OTS  has the  discretion  to  treat  subsidiaries  of  savings
institutions as affiliates on a case-by-case basis.

      On  April  1,   2003,   the   Federal   Reserve's   Regulation   W,  which
comprehensively  amends  sections 23A and 23B of the Federal Reserve Act, became
effective.  The Federal  Reserve Act and  Regulation W are applicable to savings
institutions  such  as the  Bank.  The  Regulation  unifies  and  updates  staff
interpretations  issued over the years,  incorporates several new interpretative
proposals  (such as to clarify when  transactions  with an unrelated third party
will be attributed to an affiliate) and addresses new issues arising as a result
of the  expanded  scope of  nonbanking  activities  engaged in by banks and bank
holding companies in recent years and authorized for financial holding companies
under the Financial Services Modernization Act of 1999.

      Certain  transactions with directors,  officers or controlling persons are
also  subject to  conflict of interest  regulations  enforced by the OTS.  These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
individuals.

Regulatory and Criminal Enforcement Provisions

      The OTS has primary enforcement  responsibility over savings  institutions
and has the  authority  to  bring  action  against  all  "institution-affiliated
parties," including stockholders, and any attorneys,  appraisers and accountants
who knowingly or  recklessly  participate  in wrongful  action likely to have an
adverse effect on an insured  institution.  Formal  enforcement action may range
from the issuance of a capital directive or cease and desist order to removal of
officers or directors,  receivership,  conservatorship or termination of deposit
insurance.  Civil  penalties  cover a wide range of violations and can amount to
$25,000 per day, or $1.1 million per day in especially egregious cases. The FDIC
has the  authority  to  recommend  to the  Director of the OTS that  enforcement
action  be taken  with  respect  to a  particular  savings  institution.  If the
Director does not take action,  the FDIC has authority to take such action under
certain  circumstances.  Federal law also  establishes  criminal  penalties  for
certain violations.

Holding Company Regulation of Peoples

      Peoples  is  a  unitary  savings  and  loan  holding  company  subject  to
regulatory  oversight  by the OTS. As such,  Peoples is required to register and
file reports with the OTS and is subject to regulation  and  examination  by the
OTS.  In  addition,  the OTS has  enforcement  authority  over  Peoples  and its
nonsavings  association  subsidiaries  that also  permits the OTS to restrict or
prohibit  activities  that are determined to be a serious risk to the subsidiary
savings association.

      As a unitary  savings and loan holding  company that has been in existence
prior to May 4, 1999, Peoples generally is not subject to activity restrictions.
If  Peoples  acquires  control  of  another  savings  association  as a separate
subsidiary, it would become a multiple savings and loan holding company, and the
activities of Peoples and any of its subsidiaries (other than the Association or
any  other  SAIF-insured  savings  association)  would  become  subject  to such
restrictions.


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


                                                                             34.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Federal Securities Law

      The  common  stock  of  Peoples  is  registered  with  the SEC  under  the
Securities  Exchange Act of 1934, as amended (the  "Exchange  Act").  Peoples is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.

      Peoples'  stock held by persons who are  affiliates  (generally  officers,
directors  and  principal  stockholders)  of Peoples  may not be resold  without
registration  unless sold in accordance  with certain  resale  restrictions.  If
Peoples meets specified current public information requirements,  each affiliate
of Peoples is able to sell in the public market, without registration, a limited
number of shares in any three-month period.

Federal Reserve System

      The Federal Reserve Board requires all depository institutions to maintain
noninterest-bearing  reserves at  specified  levels  against  their  transaction
accounts (primarily checking, NOW and Super NOW checking accounts).  At June 30,
2004, the  Association was in compliance  with these reserve  requirements.  The
balances  maintained  to meet the  reserve  requirements  imposed by the Federal
Reserve Board may be used to satisfy liquidity  requirements that may be imposed
by the OTS. See "-Liquidity."

      Savings  associations  are  authorized to borrow from the Federal  Reserve
Bank  "discount   window,"  but  Federal  Reserve  Board   regulations   require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System

      The Association is a member of the FHLB of Cincinnati,  which is one of 12
regional FHLBs that  administers  the home financing  credit function of savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal  Housing  Finance  Board.  All advances from the FHLB are required to be
fully secured by  sufficient  collateral as determined by the FHLB. In addition,
all  long-term  advances  are  required to provide  funds for  residential  home
financing.

      As a member, the Association is required to purchase and maintain stock in
the FHLB of Cincinnati. At June 30, 2004, the Association had $1,601,000 in FHLB
stock, which was in compliance with this requirement.

      Under  federal  law,  the  FHLB  is  required  to  provide  funds  for the
resolution  of  troubled  savings  institutions  and to  contribute  to low  and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
also could have an adverse  effect on the value of FHLB stock in the future.  In
addition,  the federal agency that regulates the FHLBs has required each bank to
register its stock with the SEC,  which will increase the costs of each bank and
may have other effects that are not possible to predict at this time.

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


                                                                             35.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

      For the year ended June 30, 2004, dividends paid by the FHLB of Cincinnati
to the Association totaled $63,000, which constitutes a $2,000 decrease over the
amount of dividends  received in fiscal year 2003. The $16,000  dividend for the
quarter ended June 30, 2004 reflects an annualized rate of 4.0%.

Federal and State Taxation

      In addition to the regular  income tax,  corporations,  including  savings
associations such as the Association, generally are subject to a minimum tax. An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative minimum taxable income.  However, as provided in the Job
Creation and Worker  Assistance Act of 2002,  this 90% limitation does not apply
to net operating  losses  originated in tax years ending during  calendar  years
2001 and 2002.

      A  portion  of the  Association's  reserves  for  losses on loans may not,
without adverse tax consequences,  be utilized for the payment of cash dividends
or other distributions to a shareholder (including  distributions on redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses). As of June 30, 2004, the portion of the Association's  reserves subject
to this treatment for tax purposes totaled approximately $2.2 million.

      Peoples and the Association file  consolidated  federal income tax returns
on a fiscal year basis using the accrual method of accounting.

      The Corporation has been audited by the IRS, or the statute of limitations
for  assessment has closed,  with respect to federal income tax returns  through
June  30,  2000.  With  respect  to  years  examined  by  the  IRS,  either  all
deficiencies have been satisfied or sufficient reserves have been established to
satisfy asserted deficiencies.  In the opinion of management, any examination of
still open returns  (including  returns of subsidiaries  and predecessors of, or
entities  merged into the  Corporation)  would not result in a  deficiency  that
could  have  a  material  adverse  effect  on  the  financial  condition  of the
Corporation.

      Ohio  Taxation:   The  Association  conducts  its  business  in  Ohio  and
consequently  is  subject  to the Ohio  corporate  franchise  tax.  A  financial
institution  subject  to the Ohio  corporate  franchise  tax  levied by the Ohio
Revised  Code  pays a tax  equal to 1.3 times its  apportioned  net  worth.  The
apportionment  factor  consists  of  a  gross  receipts  factor,  determined  by
reference to the total receipts of the financial institution from all sources, a
property factor,  determined by reference to the net book value of all loans and
fixed assets owned by the financial  institution and a payroll  factor.  Peoples
also files an Ohio franchise tax return and pays tax on its Ohio taxable income.

      Delaware Taxation: As a Delaware holding company, Peoples is exempted from
Delaware  corporate income tax but is required to file an annual report with and
pay an annual fee to the State of Delaware. Peoples is also subject to an annual
franchise tax imposed by the State of Delaware.

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


                                                                             36.
<PAGE>

ITEM 1 - DESCRIPTION OF BUSINESS (Continued)

Competition

      The Association  experiences  strong  competition both in originating real
estate loans and in attracting  deposits.  This competition arises from a highly
competitive market area with numerous savings institutions and commercial banks,
as well as credit  unions,  mortgage  bankers and national and local  securities
firms.  The  Association  competes  for  loans  principally  on the basis of the
interest  rates and loan fees it charges,  the types of loans it originates  and
the quality of services it provides to borrowers.

      The  Association  attracts all of its deposits  through the communities in
which its offices are  located;  therefore,  competition  for those  deposits is
principally from other savings institutions, commercial banks, securities firms,
money market and mutual funds and credit unions located in the same communities.
The ability of the  Association  to attract and retain  deposits  depends on its
ability to provide an investment  opportunity that satisfies the requirements of
investors as to rate of return, liquidity,  risk, convenient locations and other
factors.  The  Association  competes for these deposits by offering a variety of
deposit  accounts  at  competitive  rates,   convenient  business  hours  and  a
customer-oriented staff.

Employees

      At June 30, 2004, the Association  had a total of 30 full-time  employees,
14 of whom have been employed by the  Association  for at least 10 years,  and 6
part-time employees.  None of the Association's employees are represented by any
collective  bargaining group.  Management considers its employee relations to be
good.

Executive Officers of the Registrant Who are Not Directors

      The following  information as to the business  experience  during the past
five years is supplied with respect to the executive officers of Peoples and the
Association  who  do  not  serve  on  Peoples'  or the  Association's  Board  of
Directors.  Executive  officers  are  elected  annually  to  serve  until  their
successors  are  elected  or until  they  resign or are  removed by the Board of
Directors. There are no arrangements or understandings between the persons named
and any other person pursuant to which such officers were elected.

      David R. Fogt.  Mr.  Fogt,  age 53, is Vice  President of  Operations  and
Financial  Services  of the  Association.  He is  responsible  for  the  overall
administration  of the  Association  with  direct  responsibilities  in consumer
lending  and  asset  and  liability  management.  He has  been  employed  by the
Association since 1983.

      Gary N. Fullenkamp.  Mr. Fullenkamp, age 48, is Vice President of Mortgage
Loans and Corporate Secretary of the Association. He is responsible for mortgage
lending operations of the Association,  including underwriting and processing of
mortgage loan activity. He has been employed by the Association since 1979.

      Debra A. Geuy. Mrs. Geuy, age 46, is Chief Financial Officer and Treasurer
of the Association. She is responsible for overseeing the financial functions of
the Association. She has been employed by the Association since 1978.

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


                                                                             37.
<PAGE>

ITEM 2 - DESCRIPTION OF PROPERTY
--------------------------------

      The following table sets forth information  concerning the main and branch
offices  and a  drive-in  facility  of the  Association  at June 30,  2004.  The
Association  believes that its current facilities are adequate.  The Association
also maintains a 24-hour ATM at its main and both branch office locations.

<TABLE>
<CAPTION>
                                                                                                Net Book
                                                                                                Value at
                                                              Year           Owned              June 30,
                                                             Opened        or Leased              2004
                                                             ------        ---------              ----
<S>                                                           <C>            <C>              <C>
         Main Office
             101 East Court Street                            1917           Owned            $   216,933
             Sidney, Ohio 45365

         Drive-In
             232 South Ohio Avenue                            1971           Owned            $   139,856
             Sidney, Ohio 45365

         Anna Branch
             403 South Pike Street                            1998           Owned            $   545,628
             Anna, Ohio 45302

         Jackson Center Branch
             115 East Pike Street                             1998           Owned            $   431,169
             Jackson Center, Ohio 45334

         Sidney Wal-Mart Branch
             2400 West Michigan Avenue                        2001           Leased           $   166,122
             Sidney, Ohio 45365
</TABLE>

      The Association's  depositor and borrower customer files are maintained by
an  independent  data  processing  company.  The  net  book  value  of the  data
processing and computer  equipment  utilized by the Association at June 30, 2004
was approximately $142,049.

ITEM 3 - LEGAL PROCEEDINGS
--------------------------

      From time to time,  the  Association is involved as plaintiff or defendant
in various legal proceedings arising in the normal course of its business. While
the ultimate outcome of these various legal proceedings cannot be predicted with
certainty,  it is the opinion of management  that the  resolution of these legal
actions  should  not  have a  material  effect  on the  Association's  financial
position or results of operations.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

      No  matter  was  submitted  to a vote of  security  holders,  through  the
solicitation of proxies or otherwise, during the quarter ended June 30, 2004.

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


                                                                             38.
<PAGE>

                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
-------------------------------------------------------------------------------
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
----------------------------------------------------

      Page 4 of Peoples' 2004 Annual Report to Stockholders,  attached hereto as
Exhibit 13, is incorporated herein by reference.

ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

      Pages 8 through 20 of the  Peoples'  2004 Annual  Report to  Stockholders,
attached hereto as Exhibit 13, are incorporated herein by reference.

ITEM 7 - FINANCIAL STATEMENTS
-----------------------------

      Pages 21 through 48 of the Peoples'  2004 Annual  Report to  Stockholders,
attached hereto as Exhibit 13, are incorporated herein by reference.

ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

      Not applicable.

ITEM 8A - CONTROLS AND PROCEDURES
---------------------------------

      We  carried  out  an  evaluation,  under  the  supervision  and  with  the
participation of our management, including our Chief Executive Officer and Chief
Financial  Officer,  of the design and operation of our disclosure  controls and
procedures.  Based on this  evaluation,  our Chief  Executive  Officer and Chief
Financial Officer  concluded that, as of June 30, 2004, our disclosure  controls
and  procedures  were  effective  to  provide  reasonable   assurance  that  the
information  we are  required to disclose in the reports we file or submit under
the  Securities  Exchange Act of 1934 is  recorded,  processed,  summarized  and
reported within the time periods specified in the SEC's rules and forms.

      Any control system, no matter how well designed and operated,  can provide
only  reasonable  (not  absolute)  assurance  that its  objectives  will be met.
Furthermore,  no evaluation of controls can provide absolute  assurance that all
control issues and instances of fraud, if any, have been detected.

ITEM 8B - OTHER INFORMATION
---------------------------

      Not applicable.

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


                                                                             39.
<PAGE>

                                    PART III

ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------

Directors

      Information  concerning  directors  of Peoples is  incorporated  herein by
reference  from Peoples'  definitive  Proxy  Statement for the Annual Meeting of
Stockholders  to be held in 2004,  which was filed with the SEC on September 15,
2004.

Executive Officers

      Information  concerning  the  executive  officers  of Peoples  who are not
directors is incorporated by reference from Part I of this Form 10-KSB under the
caption "Executive Officers of the Registrant Who Are Not Directors."

Section 16(a) Beneficial Ownership Reporting Compliance

      Information   concerning   compliance   with   Section   16(a)   reporting
requirements by Peoples' directors and executive officers is incorporated herein
by reference from the Peoples' definitive Proxy Statement for the Annual Meeting
of  Stockholders  to be held in 2004,  which was filed with the SEC on September
15, 2004.

ITEM 10 - EXECUTIVE COMPENSATION
--------------------------------

      Information  concerning  executive  compensation is incorporated herein by
reference  from Peoples'  definitive  Proxy  Statement for the Annual Meeting of
Stockholders to be held in 2004,  which has been filed with the SEC on September
15, 2004.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
----------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

      Information concerning security ownership of certain beneficial owners and
management is incorporated  herein by reference from Peoples'  definitive  Proxy
Statement for the Annual Meeting of Stockholders  to be held in 2004,  which has
been filed with the SEC on September 15, 2004.

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


                                                                             40.
<PAGE>

      The following  table  provides  information as of June 30, 2004 related to
our equity compensation plans in effect at that time.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                          (a)                       (b)                            (c)
-------------------------------------------------------------------------------------------------------------------
                                                                                         Number of securities
                                                                                         remaining available for
                                 Number of securities                                    future issuance under
                                 to be issued upon           Weighted-average            equity compensation plans
                                 exercise of                 exercise price of           (excluding securities
Plan Category                    outstanding options         outstanding options         reflected in column (a))
-------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                        <C>                              <C>
Equity compensation plans
approved by security holders.          140,824                    $16.03                           37,714
-------------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

      Information  concerning certain  relationships and related transactions is
incorporated  herein by reference from Peoples'  definitive  Proxy Statement for
the Annual Meeting of Stockholders to be held in 2004, which has been filed with
the SEC on September 15, 2004.

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


                                                                             41.
<PAGE>

ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------

(a) EXHIBITS

<TABLE>
<CAPTION>
                                                                                     Incorporation
                                                                                           by
                                                                                     Reference to
 Regulation S-B                                                                     Prior Filing or
    Exhibit                                                                         Exhibit Number
    Number                       Description of Document                            Attached Hereto
    ------                       -----------------------                            ---------------
<S>                    <C>                                             <C>
      3(i)             Certificate of Incorporation                                      *

      3(ii)            By-Laws                                                           *

      4                Instruments defining the rights of holders,
                       including indentures                                              *

     10.1              Employee Stock Ownership Plan                                     *

     10.2              Form of Employment Agreement with
                       Douglas Stewart                                                   *

     10.3              Forms of Employment Agreements with
                       David R. Fogt, Gary N. Fullenkamp,
                       Debra A. Geuy and Steven Goins                                    *

     10.4              401(k) Plan                                                       *

     10.5              Incentive Bonus Plan                                              *

     10.6              Peoples-Sidney Financial Corporation
                       Amended and Restated 1998 Stock
                       Option and Incentive Plan                                         **

     10.7              Peoples-Sidney Financial Corporation
                       Amended and Restated 1998
                       Management Recognition Plan                                       **

     11                Statement re: computation of per-share            See Note 16 to the Consolidated
                          earnings                                     Financial Statements on pages 45-46
                                                                            of the 2004 Annual Report
                                                                          Stockholders attached hereto
                                                                                  as Exhibit 13

     13                Annual report to Stockholders                                     13

     21                Subsidiaries of Registrant                                        21

     23                Consents of experts and counsel                                   23

    31.1               Certification of the Chief Executive Officer
                       Pursuant to Section 302 of the Sarbanes-
                       Oxley Act of 2002                                               31.1

    31.2               Certification of the Chief Financial Officer
                       Pursuant to Section 302 of the Sarbanes-
                       Oxley Act of 2002                                               31.2


    32.1               Certification of the Chief Executive Officer
                       Pursuant to Section 906 of the Sarbanes-
                       Oxley Act of 2002                                               32.1

</TABLE>

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


                                                                             42.
<PAGE>

    32.2               Certification  of the Chief Financial Officer
                       Pursuant to Section 906 of the
                       Sarbanes-Oxley Act of 2002                           32.2

*     Filed as an exhibit to the Registrant's Form S-1 registration statement
      (File No. 333-20461) and incorporated herein by reference.

**    Filed as an exhibit to the  Registrant's  Annual Report on Form 10-KSB for
      the fiscal year ended June 30,  1999 (File No.  0-22223)  and  incorporate
      herein by reference.

(b) REPORTS ON FORM 8-K

      During the quarter  ended June 30,  2004,  Peoples  furnished  one Current
Report on Form 8-K. On April 16, 2004,  under Item 5 therein,  Peoples  reported
the  issuance of a press  release  announcing  Peoples  earnings for the quarter
ended March 31, 2004 and the declaration of a cash dividend.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
------------------------------------------------

      Information   concerning   principal   accountant  fees  and  services  is
incorporated  herein by reference from Peoples'  definitive  Proxy Statement for
The Annual Meeting of Stockholders to be held in 2004, which has been filed with
the SEC on September 15, 2004.

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


                                                                             43.
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused this report to be signed on its behalf by the under
signed, thereunto duly authorized.

   September 28, 2004                       PEOPLES-SIDNEY FINANCIAL CORPORATION
-----------------------------
           Date
                                            By:    /s/ DOUGLAS STEWART
                                                ---------------------------
                                                Douglas Stewart
                                                President, CEO and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on September 28, 2004.

<TABLE>
<CAPTION>
             Signatures                                             Signatures
             ----------                                             ----------
<S>                                                     <C>
     /s/ DOUGLAS STEWART                                     /s/ JAMES W. KERBER
--------------------------------------------            -------------------------------------
Douglas Stewart                                         James W. Kerber
Douglas Stewart, President, CEO and Director            Director
September 28, 2004                                      September 28, 2004

     /s/ RICHARD T. MARTIN                                   /s/ JOHN W. SARGEANT
--------------------------------------------            -------------------------------------
Richard T. Martin                                       John W. Sargeant
Chairman of the Board                                   Director
September 28, 2004                                      September 28, 2004

     /s/ HARRY N. FAULKNER                                   /s/ DEBRA A. GEUY
--------------------------------------------            -------------------------------------
Harry N. Faulkner                                       Debra A. Geuy
Director                                                Chief Financial Officer and Treasurer
September 28, 2004                                      September 28, 2004
</TABLE>

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


                                                                             44.