UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
         SECURITIES EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED          June 30, 1998
                                       OR
[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
         For the transition period from ______________ to _________________

                         Commission File Number 0-22223

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

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

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

         Issuer's telephone number, including area code: (937) 492-6129

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the 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  Securities  Exchange  Act of 1934 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  herein,  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 ]
<PAGE>
         State the issuer's revenues for its most recent fiscal year: $8,130,061

         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  computed by  reference  to the average of the bid and asked
prices  of such  stock on the  NASDAQ  System  as of  August  25,  1998 was 31.0
million. (The exclusion from such amount of the market value of the shares owned
by any  person  shall not be deemed an  admission  by the  registrant  that such
person is an affiliate of the registrant.)

         As of August 25,  1998,  there were  issued and  outstanding  1,775,375
shares of the Registrant's Common Stock.


                       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, 1998.

         Part III of Form 10-KSB - Portions of Proxy  Statement  for 1998 Annual
Meeting of Stockholders.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
         YES [  ]         NO   [ X ]

<PAGE>
                                     PART I

Item 1.  Description of Business

General

         Peoples-Sidney  Financial  Corporation  (the  "Company")  is a Delaware
corporation  which  was  organized  in 1997 by  Peoples  Federal  Savings & Loan
Association of Sidney ("Peoples  Federal" or the  "Association") for the purpose
of  becoming a savings and loan  holding  company.  The Company  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
Company include the Company and the Association on a consolidated  basis, except
that  information  as of a date  prior to April  25,  1997  relates  only to the
Association.  The Association,  the Company's 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 to a lesser  extent in the  contiguous
counties of Logan,  Auglaize,  Miami, Darke and Champaign.  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, and consumer loans and invests in U.S. government obligations,  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  (the "OTS").  The  Association is a member of the Federal Home Loan
Bank System  ("FHLB  System")  and a  stockholder  in the Federal Home Loan Bank
("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  Company  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 and in future filings by the Company with
the  Securities  and Exchange  Commission  (the "SEC"),  in the Company's  press
releases or other public or shareholder  communications,  and in oral statements
made with the approval of an authorized  executive officer, the words or phrases
"will likely  result,"  "are expected to," "will  continue,"  "is  anticipated,"
"estimate,"   "project"  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  Company's  market  area,  changes  in  policies  by  regulatory   agencies,
fluctuations  in interest rates,  demand for loans in the Company's  market area
and  competition,  that could cause  actual  results to differ  materially  from
historical  earnings and those presently  anticipated or projected.  The Company
<PAGE>
wishes  to  caution   readers   not  to  place   undue   reliance  on  any  such
forward-looking  statements,  which speak only as of the date made.  The Company
wishes  to advise  readers  that the  factors  listed  above  could  affect  the
Company's financial performance and could cause the Company's actual results for
future periods to differ  materially  from any opinions or statements  expressed
with respect to future periods in any current statements.

         The  Company  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 events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or  unanticipated
events.

Lending Activities

         General.   The  principal   lending  activity  of  the  Association  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  Association's  primary  market area,  Peoples
Federal also originates  construction  or  development,  commercial real estate,
consumer,  land, multi-family and commercial business loans. The Association may
adjust or discontinue any product offering to respond to competitive or economic
factors.
<PAGE>
         Loan Portfolio  Composition.  The following  information sets forth the
composition  of the  Association'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,
                                     -----------------------------------------------------------------------------------------------
                                            1998               1997                1996                1995              1994
                                     ------------------  ----------------   -----------------   -----------------  -----------------
                                     Amount    Percent   Amount   Percent   Amount    Percent   Amount    Percent  Amount    Percent
                                                                                            (Dollars in Thousands)
<S>                                  <C>        <C>      <C>      <C>       <C>       <C>      <C>      <C>       <C>        <C>   
Real Estate Loans:
 One- to four-family.............    $79,691     82.37%  $75,808   82.24%   $65,448    79.60%   $59,181   78.95%   $53,531    77.64%
 Construction and development....      6,776      7.00     6,551    7.10      7,091     8.63      6,639    8.86      6,254     9.07
 Commercial......................      6,608      6.83     5,843    6.34      5,302     6.45      5,750    7.67      6,080     8.82
 Multi-family....................        655      0.68       219    0.24        485     0.59        335    0.45        579     0.84
 Land............................        868      0.90     1,447    1.57      1,342     1.63        909    1.21        805     1.16
                                     -------    ------   -------  ------    -------   ------    -------  ------    -------   ------ 
     Total real estate loans.....     94,598     97.78    89,868   97.49     79,668    96.90     72,814   97.14     67,249    97.53
                                     -------    ------   -------  ------    -------   ------    -------  ------    -------   ------ 
                                                                                                                             
Other Loans:                                                                                                                 
 Consumer Loans:                                                                                                             
  Automobile.....................      1,124      1.16     1,215    1.32      1,274     1.55      1,042    1.39        706     1.02
  Deposit account................        257      0.27       351    0.38        167     0.20        262    0.35        190     0.28
  Other..........................        672      0.69       719    0.78      1,027     1.25        821    1.09        749     1.09
                                     -------    ------   -------  ------    -------   ------    -------  ------    -------   ------ 
     Total consumer loans........      2,053      2.12     2,285    2.48      2,468     3.00      2,125    2.83      1,645     2.39
                                     -------    ------   -------  ------    -------   ------    -------  ------    -------   ------ 
                                                                                                                             
 Commercial business loans.......        101      0.10        29    0.03         81     0.10         22    0.03         55     0.08
                                     -------    ------   -------  ------    -------   ------    -------  ------    -------   ------ 
                                                                                                                             
     Total loans.................     96,752    100.00%   92,182  100.00%    82,217   100.00%    74,961  100.00%    68,949   100.00%
                                     -------    ======   -------  ======              ======             ======              ======
                                                                                                                             
Less:                                                                                                                        
 Loans in process................     (2,079)            (2,703)             (3,508)             (2,579)            (1,929)  
 Deferred loan fees..............       (195)              (158)               (169)               (198)              (212)  
 Allowance for loan losses.......       (426)              (397)               (307)               (251)              (198)  
                                     -------              ------             -----              ------             ------- 
 Total loans receivable, net.....    $94,052             $88,924            $78,233             $71,933            $66,610   
                                     =======             =======            =======             =======            =======   
</TABLE>
<PAGE>
         The following  table shows the  composition of the  Association's  loan
portfolios by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                                                 June 30,
                                     -----------------------------------------------------------------------------------------------
                                            1998               1997                1996                1995              1994
                                     ------------------  ----------------   -----------------   -----------------  -----------------
                                     Amount    Percent   Amount   Percent   Amount    Percent   Amount    Percent  Amount    Percent
                                     ------    -------   ------   -------   ------    -------   ------    -------  ------    -------
 
                                                                                            (Dollars in Thousands)
<S>                                  <C>        <C>      <C>      <C>       <C>       <C>      <C>      <C>       <C>        <C>   
Fixed-Rate Loans:
 Real estate:
  One- to four-family............    $24,628     25.46%  $21,836   23.69%   $17,166    20.88%  $12,254    16.35%  $11,708     16.98%
  Construction and development...      1,643      1.70       949    1.03        775     0.94       526     0.70       768      1.11
  Commercial.....................        386      0.40       259    0.28        179     0.22       313     0.42       395      0.57
  Multi-family...................        ---       ---       ---     ---        ---      ---       ---      ---        12      0.02
  Land...........................         80      0.08       184    0.20         20     0.02         5     0.01        29      0.04
                                     -------     -----   -------   -----    -------    -----   -------    -----   -------     ----- 
     Total real estate loans.....     26,737     27.64    23,228   25.20     18,140    22.06    13,098    17.48    12,912     18.72
                                     -------     -----   -------   -----    -------    -----   -------    -----   -------     ----- 
 Consumer loans..................      2,053      2.12     2,285    2.48      2,468     3.00     2,125     2.83     1,645      2.39
 Commercial business loans.......        101      0.10        29     .03         81     0.10        22     0.03        55       .08
                                     -------     -----   -------   -----    -------    -----   -------    -----   -------     ----- 
     Total fixed-rate loans......     28,891     29.86    25,542   27.71     20,689    25.16    15,245    20.34    14,612     21.19 
                                                                                                                           
Adjustable-Rate Loans:                                                                                                     
 Real estate:                                                                                                              
  One- to four-family............     55,063     56.91    53,972   58.55     48,282    58.73    46,927    62.60    41,823     60.66
  Construction and development...      5,133      5.30     5,602    6.07      6,316     7.68     6,113     8.15     5,486      7.96
  Commercial.....................      6,222      6.43     5,584    6.06      5,123     6.23     5,437     7.25     5,685      8.25
  Multi-family...................        655      0.68       219    0.24        485     0.59       335     0.45       567      0.82
  Land...........................        788      0.82     1,263    1.37      1,322     1.61       904     1.21       776      1.12
                                     -------     -----   -------   -----    -------    -----   -------    -----   -------     ----- 
     Total adjustable-rate loans.     67,861     70.14    66,640   72.29     61,528    74.84    59,716    79.66    54,337     78.81
                                     -------     -----   -------   -----    -------    -----   -------    -----   -------     ----- 
     Total loans.................     96,752    100.00%   92,182  100.00%    82,217   100.00%   74,961   100.00%   68,949    100.00%
                                                ======            ======              ======             ======              ======
                                                                                                                           
Less:                                                                                                                      
 Loans in process................     (2,079)             (2,703)            (3,508)            (2,579)            (1,929) 
 Deferred loan fees..............       (195)               (158)              (169)              (198)              (212) 
 Allowance for loan losses.......       (426)               (397)              (307)              (251)              (198) 
                                     -------             -------            -------            -------            ------- 
    Total loans receivable, net..    $94,052             $88,924            $78,233            $71,933            $66,610  
                                     =======             =======            =======            =======            =======   
</TABLE>
<PAGE>
         The  following  schedule  presents the  contractual  maturities  of the
Association's loan portfolio at June 30, 1998. The schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
                                                 Real Estate
                            ------------------------------------------------------- 
                                One- to Four-Family and          Multi-family,
                             Construction and Development    Commercial and Land            Consumer             Commercial Business
                            -----------------------------  ------------------------  -------------------     -----------------------
                                               Weighted                    Weighted              Weighted                  Weighted 
                                               Average                     Average                Average                  Average  
                               Amount           Rate       Amount           Rate      Amount       Rate       Amount        Rate    
                               ------           ----       ------           ----      ------       ----       ------        ----    
                                                                    (Dollars in Thousands)
<S>                           <C>             <C>         <C>               <C>       <C>          <C>       <C>            <C>   
1 year or less(1)             $     7           8.47%     $     3           8.38%     $   549      9.65%     $    96        8.42% 

Over 1 year - 3 years             358           8.77           24           7.64          883      9.84            5        9.75  
Over 3 years - 5 years          1,587           8.41          258           8.06          621      9.22           --          --  
Over 5 years -
 10 years                       4,785           8.31        1,881           7.98           --                     --          --  
Over 10 years -
 20 years                      31,834           7.84        4,064           7.79           --                     --          --  
Over 20 years                  47,896           7.76        1,901           7.86           --        --           --          --  
                              -------           ----      -------           ----      -------      ----      -------        ----  
    Total                     $86,467           7.83%     $ 8,131           7.86%     $ 2,053      9.60%     $   101        8.49% 
                              =======           ====      =======           ====      =======      ====      =======        ====  
 
<CAPTION>
                                      Total 
                              ------------------------              
                                              Weighted       
                                               Average       
                               Amount           Rate        
                              -------           ----
<C>                           <C>               <C>    
1 year or less(1)             $   655           9.45%  
                                                       
Over 1 year - 3 years           1,270           9.50   
Over 3 years - 5 years          2,466           8.58   
Over 5 years -                                         
 10 years                       6,666           8.22   
Over 10 years -                                        
 20 years                      35,898           7.83   
Over 20 years                  49,797           7.76   
                              -------           ----   
    Total                     $96,752           7.87%  
                              =======           ====   
                              
</TABLE>
-----------
(1)  Includes demand loans, loans having no stated maturity and overdraft loans.


      The total amount of loans due after June 30, 1999 which have predetermined
interest  rates is  $28,244,000,  while the total amount of loans due after such
dates which have floating or adjustable interest rates is $67,853,000.
<PAGE>
         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,  1998,  based  on  the  above  limitation,   the  Association's   regulatory
loan-to-one  borrower limit was approximately  $2.75 million.  On the same date,
the  Association  had no borrowers with  outstanding  balances in excess of this
amount.  As of June 30, 1998, the largest dollar amount of  indebtedness  to one
borrower or group of related borrowers was $1,043,000 secured by multiple one-to
four-family  real estate  properties.  The next  largest loan to one borrower or
group of related  borrowers had an  outstanding  balance of $764,000 at June 30,
1998 and is secured by commercial  property leased to tenants involved in retail
business.  As of June 30, 1998,  such loans were  performing in accordance  with
their terms.

         Loan  applications  are  accepted  by  salaried  loan  officers  at the
Association's  office.  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 approved 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 $25,000  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, 1998, $79.7 million, or 82.4% 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 $53,000 and the largest outstanding residential loan had a principal
balance of  $323,000.  Virtually  all of the  residential  loans  originated  by
Peoples Federal are secured by properties  located in the  Association's  market
area.

         Historically,  Peoples  Federal  originated  for  retention  in its own
portfolio  30-year  fixed-rate loans secured by one- to four-family  residential
real estate.  Beginning  in 1979,  in order to reduce its exposure to changes in
interest  rates,  Peoples  Federal began to originate  adjustable  rate mortgage
loans  ("ARMs"),  subject to market  conditions  and  consumer  preference.  The
Association  traditionally  has not sold either its ARM or its  fixed-rate  loan
production,  and as a result of continued consumer demand,  particularly  during
periods of relatively low interest rates, for fixed-rate loans,  Peoples Federal
has continued to originate fixed-rate  residential loans in amounts and at rates
which  are  monitored  for  compliance  with the  Association's  asset/liability
<PAGE>
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 ARMs
originated by the Association are retained and serviced by it. At June 30, 1998,
the Association  had $24.6 million of fixed-rate  permanent  one-to  four-family
residential  loans,  constituting  25.5% of the Association's  loan portfolio at
such date.

         The  Association  has  offered  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 Peoples  Federal 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, 1998, the total
balance  of  one- to  four-family  ARMs  was  $55.1  million,  or  56.9%  of the
Association's loan portfolio.

         The Association also offers the "7/1" ARM loan. This product  maintains
a constant  interest  rate and  payment  for the first  seven years of the loan.
Amortizable  for up to 30 years,  the loan will adjust  beginning  in the eighth
year,  subject  to the  rate  caps  discussed  above.  At  June  30,  1998,  the
Association had $206,000 in "7/1" loans.  In 1992, the  Association  initiated a
program specifically tailored to first time home buyers. 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, which
can be the lesser of the purchase price or 90% of appraised  value.  At June 30,
1998, the  Association had  approximately  $5.7 million of first-time home buyer
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.  Peoples  Federal  originates  residential
mortgage loans with loan-to-value  ratios up to 90%. On mortgage loans exceeding
an 90%  loan-to-value  ratio at the time of  origination,  Peoples  Federal 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.
<PAGE>
          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, 1998,  the
Association  had  $418,000  of home  equity  lines of credit  and an  additional
$291,000 of additional funds committed, but undrawn, under such lines.

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, 1998, the Association had 43 construction  loans
with  outstanding  aggregate  balances of $5.1  million  secured by  residential
property.  Of this amount,  $3.2 million in loans were  outstanding  directly to
borrowers  intending to live in the properties upon completion of  construction.
At that same date, the Association had 15  construction  loans with  outstanding
aggregate  balances of $1.9 million  secured by one- to four-family  residential
properties  constructed by builders who have pre-sold their houses to individual
purchasers.

         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 90% 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  presold,  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. The  Association
also makes a limited  number of  commercial  real estate  construction  loans on
substantially  the same terms as loans to builders and developers to finance the
construction of residential property.

         Development  loans,  which include loans to develop vacant or raw land,
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  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 the construction cost estimate of an independent  architect or engineer
who inspects the project in connection with significant  disbursement  requests.
As lots are sold, a portion of the sale price is applied to the principal of the
outstanding loan. Interest payments are required at regular intervals (quarterly
or semi-annually)  and loan terms typically are written for three years. At June
30, 1998, the Association had $1.7 million,  or 1.8% of gross loans  receivable,
in this category.
<PAGE>
         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,
1998, the Association's largest commercial real estate loan totaled $764,000. At
that date, the Association  had 64 commercial  real estate loans,  totaling $6.6
million or 6.8% of gross loans receivable.

         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.
<PAGE>
         The table below sets forth by type of security  property the  estimated
number, loan amount and outstanding balance of Peoples Federal's commercial real
estate loans at June 30, 1998.
<TABLE>
<CAPTION>
                                                                              Outstanding
                                   Number of             Original               Principal
                                    Loans               Loan Amount              Balance
                                    -----               -----------              -------
                                                  (Dollars in Thousands)


<S>                                   <C>                 <C>                     <C>   
Office......................          15                  $1,602                  $1,197
Retail......................           5                   1,219                   1,039
Farm real estate............          40                   4,115                   4,115
Churches....................           4                     409                     257
                                     ---                 -------                --------
   Total....................          64                  $7,345                  $6,608
                                      ==                  ======                  ======
</TABLE>
         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
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 Association has generally decreased this
component as a percentage  of its loan  portfolio in recent years and the amount
of such loans at June 30, 1998 was insignificant,  totaling $655,000, or 0.7% 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.

Land Lending

         Peoples  Federal 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 three  years and have  maximum  loan-
to-value ratios of 75%. At June 30, 1998, the Association had $868,000,  or 0.9%
of gross loans receivable, in land loans.

         Land  lending  generally  affords the  Association  an  opportunity  to
receive interest at rates higher than those obtainable from residential lending.
In addition,  land loans are limited to a maximum 75% loan-to-value and are made
with fixed and  adjustable  rates of interest  and for  relatively  short terms.
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.
<PAGE>
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, 1998,  the  Association's  consumer  loans totaled $2.1
million, or 2.1% of the Association's gross loan portfolio.

         Peoples Federal 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, 1998,  automobile loans totaled $1.1 million,  or
1.2% 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 Association  also offers a credit card program as an  accommodation
to existing customers. At June 30, 1998, approximately 231 credit cards had been
issued, with an aggregate  outstanding loan balance of $63,000 and unused credit
available of $256,000.  The Association  presently  charges an annual membership
fee of $15.00 and a fixed annual rate of interest on these credit cards.

         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.

         Consumer loans may entail greater risk than residential mortgage loans,
particularly  in the case of consumer  loans which 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.
<PAGE>
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 five 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.

         Most of the Association's  commercial business loans have terms ranging
from three months to one year and carry fixed 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, 1998,
commercial  business loans totaled $101,000,  or 0.1% 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  office.  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.
<PAGE>
         The following table shows the loan origination and repayment activities
of the Association for the periods indicated.
<TABLE>
<CAPTION>
                                                          Year Ended June 30,
                                                  ------------------------------------- 
                                                    1998         1997           1996
                                                  --------     ---------      -------- 
                                                              (In thousands)
<S>                                               <C>           <C>           <C>     
Originations by type:
 Adjustable rate:
  Real estate - one- to four-family               $ 16,076      $ 14,908      $ 15,044
                  - commercial                       2,839         2,849         1,366
                  - multi-family                       470           180           180
  Non-real estate - consumer                          --            --            --
                        - commercial business         --            --            --
                                                  --------      --------      --------
         Total adjustable-rate                      19,385        17,937        16,590
 Fixed rate:
  Real estate - one- to four-family                  8,247         7,406         9,458
                  - commercial                         266           461           121
                  - multi-family                      --            --            --
  Non-real estate - consumer                         1,923         2,294         2,087
                        - commercial business          122            11            87
                                                  --------      --------      --------
         Total fixed-rate                           10,558        10,172        11,753
                                                  --------      --------      --------
         Total loans originated                     29,943        28,109        28,343

  Principal repayments                             (24,670)      (17,149)      (21,939)
Increase in other items, net(1)                        (66)         (134)          (52)
                                                  --------      --------      --------
         Net increase                             $  5,207      $ 10,826      $  6,352
                                                  ========      ========      ========
</TABLE>
------------
(1)  Includes  allowance for loan losses, net deferred loan origination fees and
     transfers to foreclosed assets.

Delinquencies and Non-Performing Assets

         Delinquency  Procedures.  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.
<PAGE>
         Consumer 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, they are then subject to charge-off.  The Association's  procedures for
repossession and sale of consumer collateral are subject to various requirements
under Ohio consumer protection laws.

         Real estate  acquired by Peoples  Federal 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.

         The following table sets forth the Association's  loan delinquencies by
type, by amount and by percentage of type at June 30, 1998.
<TABLE>
<CAPTION>
                                                     Loans Delinquent For:
                                 ----------------------------------------------------------------
                                           60-89 Days                    90 Days and Over              Total Delinquent Loans
                                 ------------------------------     -----------------------------    --------------------------- 
                                                       Percent                            Percent                        Percent
                                                       of Loan                            of Loan                        of Loan
                                 Number    Amount      Category     Number    Amount     Category     Number   Amount   Category
                                 ------    ------      --------     ------    ------     --------     ------   ------   --------
                                                                         (Dollars in Thousands)
Real Estate:
<S>                                <C>       <C>           <C>       <C>      <C>          <C>         <C>     <C>         <C>  
  One- to four-family......        13        $592          0.74%       26     $948         1.19%        39     $1,540      1.93%
  Construction and
   development.............       ---         ---          ---        ---      ---          ---        ---        ---     ---
  Commercial...............         1          14         0.20        ---      ---          ---          1         14      0.20
  Multi-family.............       ---         ---          ---        ---      ---          ---        ---        ---     ---
  Land.....................       ---         ---          ---        ---      ---          ---        ---        ---     ---
Consumer...................         5          28         1.36          6       11         0.50         11         39      1.90
Commercial business........       ---         ---          ---        ---      ---          ---        ---        ---     ---
                                  ---        ----        -----        ---     ----        -----        ---      ------    ----

     Total.................        19        $634         0.66%        32     $959         0.99%        51     $1,593      1.65%
                                   ==        ====        =====       ====     ====        =====        ===     ======      ====
</TABLE>
         Classification of Assets. Federal regulations require that each savings
institution  classify  its own  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
<PAGE>
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, 1998,
the Association had classified a total of $728,000 of its loans, as follows:
<TABLE>
<CAPTION>


                             One- to Four-        Commercial
                                 Family           Real Estate           Land         Consumer          Total
                                 ------           -----------           ----         --------          -----
                                                                   (In Thousands)

<S>                               <C>                  <C>             <C>             <C>              <C> 
Substandard................       $713                 $---            $---            $  3             $716
Doubtful...................        ---                  ---             ---             ---              ---
Loss.......................        ---                  ---             ---              12               12
                                  ----                  ---             ---            ----            -----
                                  $713                  ---             ---             $15             $728
                                  ====                  ===             ===             ===             ====
</TABLE>

         Peoples  Federal's  classified assets consist of the (i) non performing
loans and (ii) loans and other  assets of concern  discussed  herein.  As of the
date hereof,  these asset  classifications  are consistent with those of the OTS
and FDIC.
<PAGE>
         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.
<TABLE>
<CAPTION>
                                                                                  June 30,
                                                        ------------------------------------------------------------ 
                                                         1998         1997          1996         1995           1994
                                                        ------       ------        ------       ------         -----
                                                                             (Dollars in Thousands)
<S>                                                       <C>          <C>        <C>          <C>           <C>    
Non accruing loans:
  One- to four-family...........................          $713         $705       $   564      $   494       $   711
  Construction and development..................           ---          ---           ---          ---           ---
  Commercial real estate........................           ---           14           211          ---            17
  Multi-family..................................           ---          ---           ---          ---           ---
  Land..........................................           ---          ---            51          214           192
  Consumer......................................           ---          ---           ---          ---           ---
  Commercial business...........................           ---          ---           ---          ---           ---
                                                          ----         ----       -------      -------       -------
     Total......................................           713          719           826          708           920
                                                          ----          ---       -------      -------       -------

Accruing loans delinquent more than 90 days:
  One- to four-family...........................           235          143           326          604           564
  Construction and development..................           ---          ---           ---          ---           ---
  Commercial real estate........................           ---          ---            58           86            35
  Multi-family..................................           ---          ---           ---          ---           ---
  Land..........................................           ---          ---           ---          ---           ---
  Consumer......................................            11            5            11           20             7
  Commercial business...........................           ---          ---           ---          ---           ---
                                                          ----         ----       -------      -------       -------
     Total......................................           246          148           395          710           606
                                                          ----         ----       -------      -------       -------

Foreclosed assets:
  One- to four-family...........................           ---          ---           ---          ---           ---
  Construction and development..................           ---          ---           ---          ---           ---
  Commercial real estate........................           ---          ---           ---          ---           ---
  Multi-family..................................           ---          ---           ---          ---            74
  Land..........................................           ---          ---           ---          ---           ---
  Consumer......................................           ---          ---           ---          ---           ---
  Commercial business...........................           ---          ---           ---          ---           ---
                                                          ----         ----       -------      -------       -------

     Total......................................           ---          ---           ---          ---            74
                                                          ----         ----       -------      -------       -------

Total non performing assets.....................          $959         $867        $1,221       $1,418        $1,600
                                                          ====         ====        ======        =====        ======
Total as a percentage of total assets...........          0.91%        0.84%         1.41%        1.80%         2.10%
                                                          ====         ====          ====         ====          ====

</TABLE>
<PAGE>
         For the year ended June 30, 1998 gross interest income which would have
been recorded had the non accruing  loans been current in accordance  with their
original  terms  amounted to $67,824.  The amount that was  included in interest
income on such loans was $46,267 for the year ended June 30, 1998.

         Other Assets of Concern.  As of June 30, 1998, 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 non performing asset categories.

         Allowance for Loan Losses.  Management  estimates the allowance balance
required  based on past loan loss  experience,  known and inherent  risks in the
portfolio,   information  about  specific  borrower   situations  and  estimated
collateral values,  economic conditions,  and other factors.  Allocations of the
allowance may be made for specific loans,  but the entire allowance is available
for any loan that, in management's judgment, should be charged-off.

         Loan  impairment  is reported  when full payment under the terms of the
loan is not expected. Impairment is evaluated in total for smaller-balance loans
of similar  nature such as  residential  first  mortgage loans secured by one-to
four-family residences, residential construction loans, credit card, automobile,
home equity and second  mortgage  loans.  Commercial  loans and  mortgage  loans
secured by other properties are evaluated individually for impairment. If a loan
is impaired, a portion of the allowance for loan losses is allocated so that the
loan is reported net, at the present value of estimated  future cash flows using
the loan's  existing  rate or at the fair value of  collateral  if  repayment is
expected  solely from the  collateral.  Loans are evaluated for impairment  when
payments are delayed, typically 90 days or more, or when it is probable that not
all  principal and interest  payments  will be collected in accordance  with the
original terms of the loan.

         As of June 30, 1998, the  Association's  allowance for loan losses as a
percent  of gross  loans  receivable  and as a percent  of  nonperforming  loans
amounted  to 0.44%  and  44.41%,  respectively.  In  light  of the  level of non
performing  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.
<PAGE>
         The  following  table  sets  forth  an  analysis  of the  Association's
allowance for loan losses.
<TABLE>
<CAPTION>
                                                                               Year Ended June 30,
                                                            -------------------------------------------------------- 

                                                              1998        1997         1996         1995        1994
                                                            ------        ----       -------      ------       -----

                                                                             (Dollars in Thousands)

<S>                                                           <C>         <C>         <C>           <C>         <C> 
Balance at beginning of period.......................         $397        $307        $ 251         $198        $123

Charge-offs:
  One- to four-family................................            7         ---            9          ---           1
  Construction and development.......................          ---         ---          ---          ---         ---
  Commercial real estate.............................          ---         ---          ---          ---         ---
  Multi-family.......................................          ---         ---          ---          ---         ---
  Consumer...........................................            8          22            6            4          14
  Commercial business................................          ---         ---          ---          ---         ---
                                                             -----       -----       ------       ------      ------
                                                                15          22           15            4          15
                                                              ----        ----        -----        -----       -----
Recoveries:
  One- to four-family................................          ---         ---            1          ---         ---
  Construction and development.......................          ---         ---          ---          ---         ---
  Commercial real estate.............................          ---         ---          ---          ---         ---
  Multi-family.......................................          ---         ---          ---          ---         ---
  Consumer...........................................            3           9            2            2           7
  Commercial business................................          ---         ---          ---          ---         ---
                                                             -----       -----       ------       ------      ------
                                                                 3           9            3            2           7
                                                             -----       -----       ------       ------      ------

Net charge-offs......................................           12          13           12            2           8
Additions charged to operations......................           41         103           68           55          83
                                                            ------        ----       ------        -----       -----
Balance at end of period.............................         $426        $397        $ 307         $251        $198
                                                              ====        ====        =====         ====        ====

Ratio of net charge-offs during the period to
 average loans outstanding(1) during the period......        0.01%       0.02%        0.02%         ---%       0.01%
                                                             ====        ====         ====         ====        ====

Ratio of net charge-offs during the period to                                                                               
 nonperforming assets at the end of the period.......        1.33%       1.49%        0.98%        0.14%       0.50%
                                                             ====        ====         ====         ====        ====

</TABLE>
-----------
(1)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     allowance for loan losses.
<PAGE>
         The distribution of the Association's  allowance for losses on loans at
the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                                                 June 30,
                                    ------------------------------------------------------------------------------------------------
                                                  1998                             1997                             1996            
                                    ------------------------------   -------------------------------- ------------------------------
                                                            Percent                          Percent                         Percent
                                                           of Loans                          of Loans                       of Loans
                                                 Loan      in Each                 Loan     in Each                 Loan    in Each 
                                    Amount of   Amounts   Category   Amount of   Amounts    Category   Amount of   Amounts  Category
                                    Loan Loss     by      to Total   Loan Loss      by      to Total   Loan Loss     by     to Total
                                    Allowance  Category     Loans    Allowance   Category     Loans    Allowance  Category    Loans 
                                    ---------  --------     -----    ---------   --------     -----    ---------  --------    ----- 
                                                                          (Dollars in Thousands)
<S>                                    <C>     <C>          <C>        <C>       <C>         <C>        <C>        <C>        <C> 
One- to four-family..................  $335    $79,691      82.37%     $316      $75,808     82.24%     $ 211      $65,448    79.60%
Construction and development.........    16      6,776       7.00        14        6,551       7.10         4        7,091     8.63 
Commercial real estate...............    15      6,608       6.83        15        5,843       6.34        36        5,302     6.45 
Multi-family.........................     2        655       0.68       ---          219       0.24         1          485     0.59 
Land.................................     2        868       0.90         3        1,447       1.57         2        1,342     1.63 
Consumer.............................    56      2,053       2.12        49        2,285       2.48        53        2,468     3.00 
Commercial business..................   ---        101       0.10       ---           29       0.03       ---           81     0.10 
Unallocated..........................   ---        ---        ---       ---          ---        ---       ---          ---      --- 
                                       -----   -------     ------      ----      -------     ------      ----      -------    ------
     Total...........................  $426    $96,752     100.00%     $397      $92,182     100.00%     $ 307     $82,217   100.00%
                                       ====    =======     ======      ====      =======     ======      =====     =======   ====== 
                                                                                                                                 
<CAPTION>
                                                                            June 30,  
                                          -------------------------------------------------------------------------- 
                                                        1995                                    1994               
                                          ------------------------------------- ------------------------------------ 
                                                                     Percent                                 Percent 
                                                                     of Loans                               of Loans 
                                                         Loan         in Each                   Loan        in Each  
                                           Amount of    Amounts      Category    Amount of    Amounts       Category 
                                           Loan Loss       by        to Total    Loan Loss       by         to Total 
                                           Allowance    Category       Loans     Allowance    Category        Loans  
                                           ---------    --------       -----     ---------    --------        -----  
                                                                     (Dollars in Thousands)
<S>                                          <C>        <C>            <C>        <C>          <C>            <C>    
One- to four-family..................        $ 179      $59,181        78.95%     $ 126        $53,531        77.64% 
Construction and development.........            5        6,639         8.86          3          6,254         9.07  
Commercial real estate...............            7        5,750         7.67          2          6,080         8.82  
Multi-family.........................          ---          335         0.45        ---            579         0.84  
Land.................................           21          909         1.21         29            805         1.16  
Consumer.............................           39        2,125         2.83         38          1,645         2.39  
Commercial business..................          ---           22         0.03        ---             55         0.08  
Unallocated..........................          ---          ---          ---        ---            ---          ---  
                                             -----      -------       ------      -----        --------      ------  
     Total...........................        $ 251      $74,961       100.00%     $ 198        $68,949       100.00% 
                                             =====      =======       ======      =====        =======       ======  
</TABLE>                                    
<PAGE>
Investment Activities

         As part of its  asset/liability  management  strategy,  the Association
invests in U.S.  government  and agency  obligations  to supplement  its lending
activities.  The Association's  investment policy also allows for investments in
overnight funds,  mortgage-backed  securities and  certificates of deposit.  The
Association may consider the expansion of investments  into other  securities if
deemed appropriate. At June 30, 1998, the Association did not own any securities
of a single issuer which exceeded 10% of the  Association's  equity,  other than
U.S.  government or federal agency  obligations.  See Note 3 of the Notes to the
Consolidated  Financial  Statements  for  additional  information  regarding the
Association's securities portfolio.

         The  Association  is  required  by federal  regulations  to  maintain a
minimum amount of liquid assets that may be invested in specified securities and
is also  permitted  to make  certain  other  securities  investments.  Cash flow
projections are regularly reviewed and updated to assure that adequate liquidity
is provided.  As of June 30, 1998,  the  Association's  liquidity  ratio (liquid
assets as a percentage of net withdrawable  savings and current  borrowings) was
11.49% as compared to the OTS requirement of 4.0%.

         As of June 30,  1998  the  Association  had  securities  totaling  $4.0
million  classified as available for sale while there were no classified as held
to maturity.  As future  securities are acquired,  the  Association may elect to
classify them as either available for sale or held to maturity.

         The following  table sets forth the  composition  of the  Association's
investments in securities and time deposits at the dates indicated.
<TABLE>
<CAPTION>
                                                                                           June 30,
                                                          --------------------------------------------------------------------------
                                                                 1998                       1997                       1996
                                                          ----------------------      -------------------       --------------------
                                                           Carrying       % of       Carrying       % of        Carrying    % of
                                                             Value        Total        Value        Total         Value     Total
                                                             -----        -----        -----        -----         -----     -----
                                                                                    (Dollars in Thousands)
<S>                                                         <C>           <C>          <C>         <C>            <C>       <C>  
Securities:
  U.S. government securities.........................      $    ---         ---%      $    ---        ---%      $    ---      ---% 
  Federal agency obligations held to maturity........           ---       ---            1,999      20.45          2,598    59.52 
  Federal agency obligations available for sale......         4,016       80.92          2,013      20.59            ---    --- 
  Time deposits......................................           100        2.01          5,000      51.15          1,100    25.20  
                                                            -------    --------         ------      -----         ------   ------  
     Subtotal........................................         4,116       82.93          9,012      92.19          3,698    84.72  
FHLB stock...........................................           847       17.07            763       7.81            667    15.28  
                                                           --------     -------        -------   --------        -------   ------  
     Total securities and FHLB stock.................        $4,963      100.00        $ 9,775     100.00%        $4,365   100.00% 
                                                             ======      ======        =======     ======         ======   ======  
Average remaining life of securities                                                                                               
  and time deposits..................................    3.01 years                 1.04 years                1.21 years           
                                                                                                                                   
Other interest-earning assets:                                                                                                     
  Interest-bearing deposits with banks...............       $ 2,292        53.40%      $ 1,498      59.97%        $1,355     57.54%
  Overnight deposits.................................         2,000        46.60         1,000      40.03          1,000     42.46 
                                                           --------      -------        ------    -------         ------    ------ 
     Total...........................................       $ 4,292       100.00%      $ 2,498     100.00%        $2,355    100.00%
                                                            =======       ======       =======     ======         ======    ====== 
</TABLE>                                                     
<PAGE>
         The  composition  and  maturities  of the time  deposit and  securities
portfolios, excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
                                                                       June 30, 1998
                                        --------------------------------------------------------------------------
                                               Less Than                 1 to 5               Total Securities     
                                                1 Year                    Years               and Time Deposits  
                                        ---------------------  --------------------------   ----------------------   
                                        Amortized               Amortized                   Amortized
                                          Cost     Fair Value     Cost         Fair Value     Cost      Fair Value
                                          ----     ----------     ----         ----------     ----      ----------
                                                                  (Dollars in Thousands)
<S>                                      <C>         <C>         <C>              <C>        <C>         <C>      
Time deposit........................    $   100     $   100   $     ---       $      ---    $   100     $   100   
Federal agency obligations held to                                                                                
maturity............................        ---         ---         ---              ---        ---         ---   
Federal agency obligations                                                                                        
available for sale..................      1,000       1,007       2,999            3,009      3,999       4,016   
                                        -------     -------     -------          -------     ------      ------   
Total securities and time deposit...     $1,100      $1,107      $2,999           $3,009     $4,099      $4,116   
                                         ======      ======      ======           ======     ======      ======   
                                                                                                                  
Weighted average yield..............      6.41%       6.41%       6.50%            6.50%      6.48%       6.48%   
                                                                              
</TABLE>

         Mortgage-Backed  Securities.  The  Association  has no  mortgage-backed
securities.  From time to time, the Association  has considered  purchasing such
securities to supplement loan production or for other reasons,  and may do so in
the  future,  but the  Association  currently  has no  plans  to  purchase  such
securities.

Sources of Funds

         General.  The  Association'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. Peoples Federal 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.
<PAGE>
         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  Association
during the periods indicated.
<TABLE>
<CAPTION>
                                                 Year Ended June 30,
                                     ------------------------------------------- 
                                        1998           1997              1996
                                     ---------      ---------         ---------- 
                                               (Dollars in Thousands)
<S>                                  <C>            <C>               <C>      
Opening balance                      $  77,045      $  77,318         $  70,306
Deposits                                87,133        111,312(1)         70,928
Withdrawals                             88,401        114,882(1)         66,928
Interest credited                        3,277          3,297             3,012
                                     ---------      ---------         ---------

Ending balance                       $  79,054      $  77,045         $  77,318
                                     =========      =========         =========

Net increase (decrease)              $   2,009      $    (273)        $   7,012
                                     =========      =========         =========

Percent increase (decrease)               2.61%         (0.35)%            9.97%
                                     =========      =========         =========
</TABLE>
-------------

(1)      Includes  stock  subscription  deposit  activity  which was included in
         savings accounts in conjunction with the Association's  mutual to stock
         conversion.
<PAGE>
         The following table sets forth the dollar amount of savings deposits in
the various types of deposit  programs  offered by the  Association at the dates
indicated.
<TABLE>
<CAPTION>
                               
                                                                                June 30,                                     
                                                 ---------------------------------------------------------------------------------
                                                          1998                        1997                           1996         
                                                 ----------------------     ------------------------     -------------------------
                                    Weighted                                                                                      
                                     Average                                                                                      
                                     Rate at                    Percent                     Percent                     Percent 
                                 June 30, 1998    Amount       of Total       Amount       of Total        Amount       of Total
                                 -------------    ------       --------       ------       --------        ------       --------
                                                                                                                                    
                                                                         (Dollars in Thousands)                           
Transactions and Savings Deposits:      

<S>                                    <C>       <C>              <C>       <C>                <C>        <C>             <C>  
Noninterest Bearing Demand.......                $    169         0.22%     $     150          0.19%      $     118       0.15% 
Savings Accounts.................      3.05%       18,456        23.34         17,685         22.94          19,039      24.60  
NOW Accounts.....................      2.42%        3,362         4.25          3,469          4.50           3,184       4.11  
Money Market Accounts............      2.50%          982         1.24            777          1.01           1,236       1.60  
                                                 --------         ----      ---------          ----       ---------       ----  
                                                                                                                       
Total Non-Certificates...........                  22,969        29.05         22,081         28.64          23,577      30.46  
                                                 --------         ----      ---------          ----       ---------       ----  
                                                                                                
Certificates:                                                                                                                   
                                                                                                                                
 0.00 -  1.99%...................                     ---        ---              ---           ---             ---        ---    
 2.00 -  3.99%...................                     ---        ---              ---           ---               2        ---    
 4.00 -  5.99%...................                  36,060        45.59         28,959         37.57          32,233      41.64  
 6.00 -  7.99%...................                  20,025        25.32         26,005         33.74          21,506      27.79  
 8.00 -  9.99%...................                     ---        ---              ---           ---             ---        ---    
10.00% and over..................                     ---        ---              ---           ---             ---        ---    
                                                 --------         ----      ---------           ---       ---------       ----  
                                                                                          
Total Certificates...............      5.84%       56,085        70.91         54,964         71.31          53,741      69.43  
                                                 --------         ----      ---------          ----       ---------       ----
Accrued Interest.................                      35        0 .04             36          0.05              82       0.11  
                                                 --------         ----      ---------          ----       ---------       ---- 
Total Deposits...................      4.99%      $79,089       100.00%       $77,081        100.00%      $  77,400     100.00% 
                                                  =======       ======        =======        ======       =========     ======  
</TABLE>
<PAGE>
         The  following  table  shows  rate  and  maturity  information  for the
Association's certificates of deposit as of June 30, 1998.
<TABLE>
<CAPTION>
                                      4.00-        6.00-                        Percent
                                      5.99%        7.99%          Total        of Total
                                      -----        -----          -----        --------
                                                 (Dollars in Thousands)
<S>                                  <C>           <C>          <C>             <C>   
Certificate accounts
    maturing
in quarter ending:

September 30, 1998.............        7,202         2,798        10,000          17.83%
December 31, 1998..............        5,754         1,145         6,899          12.30
March 31, 1999.................        5,424           399         5,823          10.39
June 30, 1999..................        4,865           903         5,768          10.29
September 30, 1999.............        3,045            59         3,104           5.53
December 31, 1999..............        3,509         1,341         4,850           8.65
March 31, 2000.................          424         2,186         2,610           4.65
June 30, 2000..................          499         3,816         4,315           7.69
September 30, 2000.............        1,651         1,607         3,258           5.81
December 31, 2000..............        2,184         1,299         3,483           6.21
March 31, 2001.................        1,087           174         1,261           2.25
June 30, 2001..................          301           112           413           0.74
September 30, 2001.............           11           142           153           0.27
December 31, 2001..............          ---           554           554           0.99
March 31, 2002.................            5           184           189           0.34
June 30, 2002..................           99           262           361           0.64
September 30, 2002.............          ---           452           452           0.81
December 31, 2002..............          ---           439           439           0.78
March 31, 2003.................          ---         1,001         1,001           1.78
June 30, 2003..................          ---         1,152         1,152           2.05
                                     -------       -------       -------         ------ 
   Total.......................      $36,060       $20,025       $56,085         100.00%
                                     =======       =======       =======         ======

   Percent of total............       64.30%        35.70%
                                      =====         =====
</TABLE>
         At June 30, 1998 the  Association  had  approximately  $4.1  million in
certificate accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
                                                                      Weighted
                         Maturity Period              Amount        Average Rate
                         ---------------              ------        ------------
                                                   (Dollars in
                                                    Thousands)

<S>                                                   <C>               <C>  
Three months or less...........................       $1,073            5.46%
Over three through six months..................          554             6.01
Over six through 12 months.....................          900             5.48
Over 12 months.................................        1,530             6.05
                                                     -------             ----
Total..........................................       $4,057             5.76%
                                                      ======             ====
</TABLE>
<PAGE>
         For   additional   information   regarding  the   composition   of  the
Association's   deposits,   see  Note  8  of  Notes  to  Consolidated  Financial
Statements.

         Borrowings.  Peoples Federal'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,
                                                                ------------------------------------ 
                                                                  1998          1997          1996
                                                                ------------------------------------
                                                                        (Dollars in Thousands)
<S>                                                              <C>           <C>          <C>   
Balance at period end:
  FHLB advances...........................................       $7,000        $  ---       $   --

Maximum balance at any month end during the period:
  FHLB advances...........................................       $7,000        $3,500       $   ---

Average balance for the period:
  FHLB advances...........................................       $   96        $1,163       $   ---
  Weighted average rate...................................        6.25%         5.59%           ---%
</TABLE>

Service Corporations

         As a  federally  chartered  savings  association,  Peoples  Federal  is
permitted by OTS  regulations to invest up to 2% of its assets,  or $2.1 million
at  June  30,  1998,  in  the  stock  of,  or  loans  to,  service   corporation
subsidiaries.  As of such date,  Peoples  Federal had no  investments in service
corporations.

                                   REGULATION

General

         Peoples  Federal 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.  Accordingly,  Peoples  Federal is subject to
broad federal regulation and oversight extending to all its operations.  Peoples
Federal 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 Peoples Federal, the
Company also is subject to federal regulation and oversight.  The purpose of the
regulation  of the Company and other  savings and loan  holding  companies is to
protect  subsidiary  savings  associations.  Peoples  Federal 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, and the deposits of Peoples
Federal are insured by the FDIC.  As a result,  the FDIC has certain  regulatory
and examination authority over Peoples Federal.
<PAGE>
         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

Federal Regulation of Savings Associations

         The  OTS  has  extensive  authority  over  the  operations  of  savings
associations.  As part of this  authority,  Peoples  Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC.  The last  regular OTS  examination  of Peoples  Federal was as of
March 31, 1998. When these  examinations  are conducted by the OTS and the FDIC,
the  examiners  may require  the  Association  to provide for higher  general or
specific  loan  loss  reserves.  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, 1998 was $32,000.

         The OTS also  has  extensive  enforcement  authority  over all  savings
institutions  and their holding  companies,  including  Peoples  Federal and the
Company. 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 laws and it is prohibited  from engaging in
any activities not permitted by such laws. For instance,  no savings institution
may invest in non-investment grade corporate debt securities.  In addition,  the
permissible  level of  investment  by federal  associations  in loans secured by
non-residential real property may not exceed 400% of total capital,  except with
approval of the OTS. Federal savings  associations are also generally authorized
to  branch  nationwide.   Peoples  Federal  is  in  compliance  with  the  noted
restrictions.

         Peoples    Federal'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, 1998, the  Association's  lending
limit under this restriction was $2.75 million. Peoples Federal 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  which  fails to comply  with these
standards must submit a compliance plan.

Insurance of Accounts and Regulation by the FDIC

         Peoples  Federal 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
<PAGE>
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.

         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.

         The FDIC is authorized to increase  assessment  rates,  on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated  reserve  ratio of 1.25% of 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 FDIC may also impose  special  assessments  on SAIF  members to repay
amounts  borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.

         In order to equalize the deposit  insurance  premium  schedules for BIF
and SAIF insured institutions, the FDIC imposed a one-time special assessment on
all  SAIF-assessable   deposits  pursuant  to  federal  legislation  enacted  on
September 30, 1996.  Peoples Federal's special  assessment,  which was $456,000,
was paid in November 1996, and included in federal deposit  insurance expense in
the fiscal  year ended June 30,  1997.  Effective  January 1, 1997,  the premium
schedule  for BIF and  SAIF  insurance  institutions  ranged  from 0 to 27 basis
points.  However,  SAIF-insured  institutions  are  required  to pay a Financing
Corporation (FICO) assessment,  in order to fund the interest on bonds issued to
resolve thrift failures in the 1980's,  equal to 6.48 basis points for each $100
in domestic deposits,  while BIF-insured  institutions pay an asessment equal to
1.52 basis points for each $100 in domestic deposits. The assessment is expected
to be  reduced  to  2.43 no  later  than  January  1,  2000,  when  BIF  insured
institutions fully participate in the assessment.  These assessments,  which may
be revised based upon the level of BIF and SAIF  deposits,  will continue  until
the bonds mature in the year 2017.

Regulatory Capital Requirements

         Federally insured savings  associations,  such as Peoples Federal,  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.
<PAGE>
         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, 1998, 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. Peoples Federal does not have any subsidiaries.

         At June  30,  1998,  Peoples  Federal  had  tangible  capital  of $18.3
million,  or 17.3% of total assets,  which is approximately  $16.7 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that date.

         The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
receivables.  As a result of the prompt corrective  action provisions  discussed
below,  however, a savings  association must maintain a core capital ratio of at
least  4%  to  be  considered  adequately  capitalized  unless  its  supervisory
condition is such to allow it to maintain a 3% ratio. At June 30, 1998,  Peoples
Federal had no intangible assets which were subject to these tests.

         At June 30,  1998,  Peoples  Federal  had core  capital  equal to $18.3
million,  or 17.3% of adjusted  total  assets,  which is 14.1 million  above the
minimum leverage ratio requirement of 4% 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, 1998, Peoples Federal
had  $413,000  of  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.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal  holdings of qualifying capital  instruments.  Peoples Federal had no
such exclusions from capital and assets at June 30, 1998.
<PAGE>
         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.

         OTS regulations  also require that every savings  association with more
than normal  interest rate risk exposure to deduct from its total  capital,  for
purposes of determining compliance with such requirement, an amount equal to 50%
of its  interest-rate  risk  exposure  multiplied  by the  present  value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings  association,  greater  than 2% of the  present  value of its
assets,  based upon a  hypothetical  200 basis  point  increase  or  decrease in
interest rates (whichever results in a greater decline).  Net portfolio value is
the  present  value  of  expected  cash  flows  from  assets,   liabilities  and
off-balance  sheet  contracts.  The rule will not become effective until the OTS
evaluates the process by which savings  associations may appeal an interest rate
risk deduction determination.  It is uncertain as to when this evaluation may be
completed.  Any savings  association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement  unless the
OTS determines  otherwise.  At the present time, the proposal is not expected to
have a material impact on the Association.

         On June 30, 1998,  Peoples  Federal had total  capital of $18.7 million
(including   $18.3   million  in  core  capital  and   $413,000  in   qualifying
supplementary  capital)  and  risk-weighted  assets of $67.8  million,  or total
capital of 27.6% of  risk-weighted  assets.  This amount was $13.3 million above
the 8% requirement in effect on that date.

         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.

          As a condition to the approval of the capital  restoration  plan,  any
company  controlling  an  undercapitalized  association  must agree that it will
enter  into  a  limited  capital  maintenance  guarantee  with  respect  to  the
institution's achievement of its capital requirements.

         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.
<PAGE>
         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.  OTS regulations  also prohibit a
savings  association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result,  the  regulatory  capital  of the  association
would be reduced below the amount  required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.

         Generally,  savings associations,  such as Peoples Federal, that before
and after the proposed  distribution meet their capital  requirements,  may make
capital  distributions  during any calendar year equal to the greater of 100% of
net  income for the  year-to-date  plus 50% of the amount by which the lesser of
the  association's  tangible,  core or  risk-based  capital  exceeds its capital
requirement  for such  capital  component,  as measured at the  beginning of the
calendar  year,  or 75% of their net income  for the most  recent  four  quarter
period.  However,  an  association  deemed  to be in need of  more  than  normal
supervision  by the OTS may have its dividend  authority  restricted by the OTS.
Peoples Federal 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  notice  based on safety and  soundness
concerns. See "- Regulatory Capital Requirements."

         The OTS has proposed  regulations that would revise the current capital
distribution  restrictions.  Under the proposal a savings association may make a
capital  distribution  without notice to the OTS (unless it is a subsidiary of a
holding  company)  provided  that  it  has a  CAMEL  1 or 2  rating,  is  not of
supervisory concern, and would remain adequately  capitalized (as defined in the
OTS prompt corrective action regulations)  following the proposed  distribution.
Savings  associations  that would remain  adequately  capitalized  following the
proposed  distribution but do not meet the other noted  requirements must notify
the OTS 30 days prior to  declaring  a capital  distribution.  The OTS stated it
will generally regard as permissible that amount of capital  distributions  that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings  association  may not make a capital
distribution  without  prior  approval  of  the  OTS  and  the  FDIC  if  it  is
undercapitalized  before,  or as a result of, such a distribution.  As under the
current  rule,  the  OTS  may  object  to a  capital  distribution  if it  would
constitute  an unsafe  or  unsound  practice.  No  assurance  may be given as to
whether or in what form the regulations will be adopted.
<PAGE>
Liquidity

         All savings  associations,  including Peoples Federal,  are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what Peoples Federal
includes  in  liquid  assets,  see  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
in the 1998  Annual  Report to  Stockholders  attached  hereto as Exhibit 13 and
incorporated by reference  herein.  This liquid asset ratio requirement may vary
from time to time  depending  upon economic  conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 4%.

Qualified Thrift Lender Test

         All savings  associations,  including Peoples Federal,  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.  At June 30, 1998, the
Association met the test and has always met the test since its effectiveness.

         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 "- Regulation of the Company."

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 Peoples
Federal,  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  Peoples
Federal. An unsatisfactory  rating may be used as the basis for the denial of an
application by the OTS.
<PAGE>
         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 1998 and received a rating of satisfactory.

Transactions with Affiliates

         Generally,   transactions   between  a  savings   association   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 Peoples Federal include the Company and
any company which is under common control with the Association.  In addition,  a
savings  association  may not lend to any affiliate  engaged in  activities  not
permissible  for a bank  holding  company  or  acquire  the  securities  of most
affiliates.  The  OTS  has the  discretion  to  treat  subsidiaries  of  savings
associations as affiliates on a case by case basis.

         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.

Regulation of the Company

         The Company is a unitary  savings and loan holding  company  subject to
regulatory  oversight  by the OTS. As such,  the Company 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 the Company and its
non-savings  association  subsidiaries which 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, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan  holding  company,  and the  activities  of the  Company and any of its
subsidiaries  (other  than  Peoples  Federal or any other  SAIF-insured  savings
association)  would  become  subject  to such  restrictions  unless  such  other
associations  each  qualify  as  a  QTL  and  were  acquired  in  a  supervisory
acquisition.

         If Peoples  Federal  fails the QTL test,  the  Company  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 Holding  Company 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."

         The Company must obtain approval from the OTS before acquiring  control
of  any  other  SAIF-insured   association.   Such  acquisitions  are  generally
prohibited  if they  result  in a  multiple  savings  and loan  holding  company
controlling  savings  associations  in  more  than  one  state.   However,  such
interstate  acquisitions are permitted based on specific state  authorization or
in a supervisory acquisition of a failing savings association.
<PAGE>
Federal Securities Law

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

         Company stock held by persons who are affiliates  (generally  officers,
directors and principal  stockholders)  of the Company may not be resold without
registration unless sold in accordance with certain resale restrictions.  If the
Company meets specified current public information requirements,  each affiliate
of the Company 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,  1998,  Peoples  Federal  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

         Peoples Federal 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, Peoples Federal is required to purchase and maintain stock
in the FHLB of  Cincinnati.  At June 30, 1998,  Peoples  Federal had $847,000 in
FHLB  stock,  which was in  compliance  with this  requirement.  In past  years,
Peoples Federal has received  substantial  dividends on its FHLB stock. Over the
past five fiscal years such  dividends  have  averaged  6.60% and were 7.22% for
fiscal 1998.

         Under  federal  law the FHLBs are  required  to  provide  funds for the
resolution  of  troubled  savings  associations  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
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction in value of Peoples Federal's FHLB stock may result in a corresponding
reduction in Peoples Federal's capital.
<PAGE>
         For the  year  ended  June  30,  1998,  dividends  paid by the  FHLB of
Cincinnati to Peoples  Federal  totaled  $57,000,  which  constitutes  an $8,000
increase over the amount of dividends  received in fiscal year 1997. The $15,000
dividend  for the quarter  ended June 30, 1998  reflects an  annualized  rate of
7.25%, or .03% above the rate for fiscal 1998.

Federal and State Taxation

         Savings  associations  such  as  Peoples  Federal,  that  meet  certain
conditions  prescribed by the Code, are permitted to establish  reserves for bad
debts and to make annual additions  thereto which may, within specified  formula
limits,  be taken as a deduction in computing  taxable income for federal income
tax purposes.  The amount of the bad debt reserve  deduction was computed  under
the  experience  method.  Under  the  experience  method,  the bad debt  reserve
deduction is an amount  determined  under a formula based generally upon the bad
debts actually sustained by the savings association over a period of years.

         In August 1996, legislation was enacted that repealed the percentage of
taxable  income  method used by many  thrifts,  including  the  Association,  to
calculate  their bad debt reserve for federal income tax purposes.  As a result,
small thrifts such as the Association must recapture that portion of the reserve
that exceeds the amount that could have been taken under the  experience  method
for tax years beginning after December 31, 1987. The recapture will occur over a
six-year  period,  the  commencement  of which will be  delayed  until the first
taxable year beginning after December 31, 1997,  provided the institution  meets
certain residential lending requirements.  At June 30, 1998, the Association had
approximately  $581,000 in bad debt  reserves  subject to recapture  for federal
income tax  purposes.  The deferred tax  liability  related to the recapture has
been previously established so there will be no effect on future net income.

         In addition to the regular income tax, corporations,  including savings
associations such as Peoples Federal, 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.

         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, 1998, the portion of Peoples Federal's reserves subject
to this treatment for tax purposes totaled approximately $2.2 million.

         Peoples Federal files federal income tax returns on a fiscal year basis
using the accrual method of accounting.  The Company does not file  consolidated
federal income tax returns with Peoples Federal.

         Peoples  Federal  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, 1994. 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, Peoples Federal) would not result in a
deficiency which could have a material adverse effect on the financial condition
of Peoples Federal.
<PAGE>
         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 0.014  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.

         Delaware  Taxation.  As a  Delaware  holding  company,  the  Company 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.  The Company is also
subject to an annual franchise tax imposed by the State of Delaware. The Company
also files an Ohio franchise tax return and pays tax on its Ohio taxable income.


Impact of New Accounting Standards

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

         SFAS  130  requires  that an  enterprise  (a)  classify  items of other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial  position.  SFAS  130  will be  effective  in  fiscal  1999 and is not
expected to have a significant impact on the Company's financial statements.

         SFAS No. 131,  "Disclosures about Segments of an Enterprise and Related
Information"  - SFAS  131  significantly  changes  the way the  public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
reportable segments in interim financial reports issued to shareholders. It also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers.  SFAS 131 uses a "management  approach" to
disclose financial and descriptive  information about an enterprise's reportable
operating  segments  which  is  based  on  reporting  information  the way  that
management  organizes the segments  within the enterprise  for making  operating
decisions  and  assessing  performance.  For many  enterprises,  the  management
approach will likely result in more segments being reported.  In addition,  SFAS
131 requires  significantly more information to be disclosed for each reportable
segment than is presently being reported in annual  financial  statements.  SFAS
131 also  requires that selected  information  be reported in interim  financial
statements.  SFAS 131 will be  effective  for fiscal 1999 and is not expected to
have a significant impact on the Company's financial statements.
<PAGE>
         SFAS  No.  132,  "Employers'   Disclosures  about  Pensions  and  Other
Postretirement  Benefits"  - SFAS 132  amends  the  disclosure  requirements  of
previous  pension  and other  postretirement  benefit  accounting  standards  by
requiring  additional  disclosures  about such plans as well as eliminating some
disclosures  no  longer  considered   useful.   SFAS  132  also  allows  greater
aggregation of disclosures  for employers with multiple  defined  benefit plans.
Non-public  companies are subject to reduced disclosure  requirements;  however,
such  entities may elect follow the full  disclosure  requirements  of SFAS 132.
SFAS  132  will be  effective  in  fiscal  1999  and is not  expected  to have a
significant impact on the Company's financial statements.

         SFAS No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities" - SFAS 133 requires  companies to record  derivatives on the balance
sheet as  assets  or  liabilities,  measured  at fair  value.  Gains  or  losses
resulting from changes in the values of those derivatives would be accounted for
depending  on the use of the  derivative  and  whether  it  qualifies  for hedge
accounting.  The  key  criterion  for  hedge  accounting  is  that  the  hedging
relationship must be highly effective in achieving  off-setting  changes in fair
value or cash  flows.  SFAS 133 does not allow  hedging of a  security  which is
classified  as  held to  maturity,  accordingly,  upon  adoption  of  SFAS  133,
companies  may  reclassify  any security  from held to maturity to available for
sale if they wish to be able to hedge the  security in the  future.  SFAS 133 is
effective  for fiscal years  beginning  after June 15, 1999 with early  adoption
encouraged  for any  fiscal  quarter  beginning  July 1, 1998 or later,  with no
retroactive  application.  Management  does not expect the adoption  SFAS 133 to
have a significant impact on the Company's financial statements.

Competition

         Peoples Federal 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 community in
which its  office is  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  community.
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,  1998,  the  Association  had a  total  of  21  full-time
employees,  12 of which have been  employed  by Peoples  Federal for at least 10
years, and four part-time  employees.  None of the  Association's  employees are
represented  by  any  collective  bargaining  group.  Management  considers  its
employee relations to be good.
<PAGE>
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 the Company and
the Association who do not serve on the Company's Board of Directors.  Executive
officers of the Company 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 47, 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 Peoples
Federal since 1983.

         Gary N.  Fullenkamp.  Mr.  Fullenkamp,  age 42,  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 Peoples  Federal
since 1979.

         Debra A.  Geuy.  Mrs.  Geuy,  age 40, 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 Peoples  Federal since
1978.
<PAGE>
Item 2. Properties

         The following table sets forth  information  concerning the main office
and a drive-in  facility of the  Association at June 30, 1998.  The  Association
believes  that  its  current  facilities  are  adequate.  The  Association  also
maintains a 24- hour ATM at its main office location.

                                                                  Net Book
                                              Owned                Value at
                               Year             or                  June 30,
Location                      Opened          Leased                  1998
--------                      ------         --------                -----
Main Office:

101 East Court Street          1917           Owned                 241,000
Sidney, Ohio 45365

Drive-In:

232 S. Ohio Avenue             1971           Owned                 182,000
Sidney, Ohio 45365


         In December 1997, the Association  acquired real estate in Anna,  Ohio,
and announced plans to construct a new,  full-service branch banking office. The
total projected cost of construction is expected to be $805,000.  As of June 30,
1998, the Association has paid $196,000 in costs related to such construction.

         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, 1998
was approximately $62,000.

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

         A special  meeting of  stockholders  of the Company was held on May 22,
1998. The matters voted on by the  stockholders at the meeting and the number of
votes cast for, against, as abstentions and broker non-votes were as follows:
<TABLE>
<CAPTION>
                                                                                            BROKER
                                      FOR              AGAINST           ABSTAIN          NON-VOTES
                                   ---------           -------           -------          ---------  
<S>                                <C>                 <C>                <C>                     
Adoption of the Company's 1998
 Stock Option and Incentive Plan   1,043,979           178,765            20,203               ---

Adoption of the Company's 1998     1,037,727           174,092            31,128               ---
 Management Recognition Plan
</TABLE>
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         Page  4  of  the  Company's  1998  Annual  Report  to  Stockholders  is
incorporated herein by reference.

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

         Pages 8 through 20 of the Company's 1998 Annual Report to  Stockholders
are incorporated herein by reference.


Item 7.  Financial Statements

         Pages 21 through 43 of the Company's 1998 Annual Report to Stockholders
are incorporated herein by reference.

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

         There has been no  Current  Report  on Form 8-K filed  within 24 months
prior to the date of the most recent financial  statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.


                                    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 the Company is incorporated herein
by  reference  from the  Company's  definitive  Proxy  Statement  for the Annual
Meeting of  Stockholders  to be held in 1998,  a copy of which will be filed not
later than 120 days after the close of the fiscal year.

Executive Officers

         Information  concerning  the executive  officers of the Company 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

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive  officers,  and persons who own more than 10% of a registered class of
the Company's equity  securities,  to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity  securities  of
the Company. Officers,  directors and greater than 10% stockholders are required
by SEC  regulation to furnish the Company with copies of all Section 16(a) forms
they file.

         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were  required,  during the fiscal year ended June 30, 1998, the Company
complied with all Section 16(a) filing requirements  applicable to its officers,
directors and greater than 10 percent beneficial owners.
<PAGE>
Item 10.      Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference from the Company's  definitive  Proxy Statement for the Annual Meeting
of Stockholders to be held in 1998, a copy of which will be filed not later than
120 days after the close of the fiscal year.

Item 11.      Security Ownership of Certain Beneficial Owners and Management

         Information  concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy  Statement for the Annual  Meeting of  Stockholders  to be held in 1998, a
copy of which  will be filed  not  later  than 120 days  after  the close of the
fiscal year.

Item 12.      Certain Relationships and Related Transactions

         Information  concerning certain  relationships and related transactions
is  incorporated  herein  by  reference  from  the  Company's  definitive  Proxy
Statement for the Annual Meeting of  Stockholders  to be held in 1998, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
<PAGE>
Item 13.      Exhibits and Reports on Form 8-K

         (a)  Exhibits

 

                                                                    Reference to
                                                                    Prior Filing
                                                                     or Exhibit
Regulation                                                              Number
S-B Exhibit                                                           Attached
Number                              Document                           Hereto
------                              --------                           ------
2         Plan of acquisition, reorganization, arrangement,             None
          liquidation or succession
3(i)      Certificate of Incorporation                                   *
3(ii)     By-Laws                                                        *
 4        Instruments defining the rights of holders, including          *
          indentures
 9        Voting trust agreement                                        None
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      401k Plan                                                      *
10.5      Incentive Bonus Plan                                           *
10.6      Peoples-Sidney Financial Corporation 1998 Stock                **
          Option and Incentive Plan
10.7      Peoples-Sidney Financial Corporation 1998                      **
          Management Recognition Plan
11        Statement re: computation of per share earnings               None
13        Annual report to security holders                              13
16        Letter on change in certifying accountant                     None
18        Letter on change in accounting principles                     None
21        Subsidiaries of Registrant                                     21
22        Published report regarding matters submitted to vote          None
23        Consents of experts and counsel                           Not required
24        Power of attorney                                         Not required
27        Financial data schedule                                        27
99        Additional exhibits                                       Not required

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

**       Included as an exhibit to the  Registrant's  definitive proxy statement
         on Schedule 14A (Commission File No. 0-22223) filed with the Commission
         on April 20, 1998 and incorporated herein by reference.

         (b)  Reports on Form 8-K

         During the quarter  ended June 30,  1998,  the Company  filed a Current
Report on Form 8-K on June 2, 1998 to report,  under Item 5, the  issuance  of a
press release announcing the payment of a cash dividend, the Company's intention
to repurchase up to five percent of its  outstanding  shares of common stock and
that its stockholders had approved the Company's 1998 Stock Option and Incentive
Plan and 1998 Management Recognition Plan.
<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
undersigned, thereunto duly authorized.


PEOPLES-SIDNEY FINANCIAL CORPORATION


By: /s/ Douglas Stewart
    -------------------
    Douglas Stewart
    President, Chief Executive Officer and Director
    (Duly Authorized Representative)


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


/s/ Douglas Stewart                             /s/ James W. Kerber
-------------------                             -------------------
Douglas Stewart                                 James W. Kerber
President, Chief Executive Officer              Director
and Director          
(Principal Executive Officer)

Date: September 25, 1998                        Date: September 25, 1998
      ------------------                              ------------------


/s/ Richard T. Martin                           /s/ John W. Sargeant
---------------------                           --------------------
Richard T. Martin                               John W. Sargeant
Chairman of the Board                           Director

Date: September 25, 1998                        Date: September 25, 1998
      ------------------                              ------------------


/s/ Robert W. Bertsch                           /s/ Debra A. Geuy
---------------------                           -----------------
Robert W. Bertsch                               Debra A. Geuy
Director                                        Chief Financial Officer and
                                                Treasurer
                                                (Principal Financial and 
                                                Accounting Officer)

Date: September 25, 1998                        Date: September 25, 1998
      ------------------                              ------------------


/s/ Harry N. Faulkner
---------------------
Harry N. Faulkner
Director

Date: September 25, 1998
      ------------------
<PAGE>

                                INDEX TO EXHIBITS



  Number
  ------

    13          Portions of Annual Report to Security Holders

    21          Subsidiaries of the Registrant

    27          Financial Data Schedule