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, 1997
                                       OR
[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
         [NO FEE REQUIRED]
         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)
<PAGE>

         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 ]

        State the issuer's revenues for its most recent fiscal year: $7,251,866.

         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 September  16, 1997,  was $24.2
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 September 16, 1997,  there were issued and outstanding  1,785,375
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, 1997.

         Part III of Form 10-KSB - Proxy  Statement  for 1997 Annual  Meeting of
Stockholders.
<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
stock  of the  Association  issued  in  connection  with the  completion  of the
conversion  from the mutual to stock form of  organization.  Unless the  context
otherwise requires, all references herein to the Company include the Company and
the Association on a consolidated  basis.  The  Association,  the Company's only
subsidiary,  was  initially  organized  in  1886  as  an  Ohio-chartered  mutual
association and converted to a federally chartered association in 1958.

         The Association is a financial  intermediary  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,  to a lesser extent,  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").

         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

         In  addition  to  the  historical  information  contained  herein,  the
following discussion contains forward-looking  statements that involve risks and
uncertainties.  Economic  circumstances,  the  Company's  operations  and actual
results could differ  significantly from those discussed in the  forward-looking
statements.  Some  of the  factors  that  could  cause  or  contribute  to  such
differences  are  discussed  herein but also include  changes in the economy and
interest rates in the nation and in the Company's market area.

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 areas.
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 community  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  reserves  the right in the  future to  adjust  or  discontinue  any
product offerings to respond to competitive or economic factors.
<PAGE>
         Loan Portfolio  Composition.  The following  information sets forth the
composition  of the  Association's  loan  portfolios  in dollar  amounts  and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
                                                                              June 30,                                
                                              ------------------------------------------------------------------------
                                                       1997                     1996                     1995         
                                                       ----                     ----                     ----         
                                                Amount      Percent      Amount      Percent      Amount       Percent
                                                ------      -------      ------      -------      ------       -------
                                                                                            (Dollars in Thousands)
<S>                                           <C>          <C>         <C>          <C>         <C>           <C>     
Real Estate Loans:
 One- to four-family.....................     $75,808       82.24%      $65,448      79.60%      $59,181       78.95% 
Construction and development............        6,551        7.10         7,091       8.63         6,639       8.86   
 Commercial..............................       5,843        6.34         5,302       6.45         5,750       7.67   
 Multi-family............................         219        0.24           485       0.59           335       0.45   
 Land....................................       1,447        1.57         1,342       1.63           909       1.21   
                                              -------      ------       -------     ------       -------      ------  
      Total real estate loans.............     89,868       97.49        79,668      96.90        72,814      97.14   
                                              -------      ------       -------     ------       -------      ------  
                                                                                                                      
Other Loans:                                                                                                          
 Consumer Loans:                                                                                                      
  Automobile.............................       1,215        1.32         1,274       1.55         1,042       1.39   
  Deposit account........................         351        0.38           167       0.20           262       0.35   
  Other..................................         719        0.78         1,027       1.25           821       1.09   
                                              -------      ------       -------     ------       -------      ------  
      Total consumer loans................       2,285       2.48         2,468       3.00         2,125       2.83   
                                              -------      ------       -------     ------       -------      ------  
                                                                                                                      
 Commercial business loans...............          29        0.03            81       0.10            22       0.03   
                                              -------      ------       -------     ------       -------      ------  
                                                                                                                      
     Total loans.........................      92,182      100.00%       82,217     100.00%       74,961     100.00%  
                                               ------      ======                   =====                    =====    
                                                                                                                      
Less:                                                                                                                 
 Loans in process........................      (2,703)                   (3,508)                  (2,579)             
 Deferred fees and discounts.............        (158)                     (169)                    (198)             
 Allowance for losses....................        (397)                     (307)                    (251)             
                                              -------                   -------                 --------              
 Total loans receivable, net.............     $88,924                   $78,233                  $71,933              
                                               ======                   =======                  =======              
<PAGE>
<CAPTION>
                                                                  June 30,
                                              ----------------------------------------------
                                                        1994                    1993
                                                        ----                    ----
                                                Amount        Percent    Amount      Percent
                                                ------        -------    ------      -------
                                              
<S>                                           <C>            <C>       <C>          <C>   
Real Estate Loans:
 One- to four-family.....................      $53,531        77.64%    $51,547      78.72%
Construction and development............         6,254        9.07        5,185       7.92
 Commercial..............................        6,080        8.82        5,595       8.54
 Multi-family............................          579        0.84          624       0.95
 Land....................................          805        1.16          810       1.24
                                               -------       ------     -------     ------ 
      Total real estate loans.............      67,249       97.53       63,761      97.37
                                               -------       ------     -------     ------ 
                                                                                 
Other Loans:                                                                    
 Consumer Loans:                                                                
  Automobile.............................          706        1.02          689       1.05
  Deposit account........................          190        0.28          188       0.29
  Other..................................          749        1.09          764       1.17
                                               -------       ------     -------     ------ 
      Total consumer loans................       1,645        2.39        1,641       2.51
                                               -------       ------     -------     ------ 
                                                                                 
 Commercial business loans...............           55        0.08           79       0.12
                                               -------       ------     -------     ------ 
                                                                                 
     Total loans.........................       68,949      100.00%      65,481     100.00%
                                                            =====                   =====
                                                                                
Less:                                                                           
 Loans in process........................       (1,929)                  (2,213)
 Deferred fees and discounts.............         (212)                    (278)
 Allowance for losses....................         (198)                    (123)
                                               -------                  ------- 
 Total loans receivable, net.............      $66,610                  $62,867 
                                               =======                  ======= 
</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,                               
                                           ---------------------------------------------------------------------
                                                  1997                      1996                    1995         
                                                  ----                      ----                    ----         
                                            Amount     Percent     Amount        Percent     Amount      Percent 
                                            ------     -------     ------        -------     ------      ------- 
                                                                    (Dollars in Thousands)
<S>                                         <C>        <C>         <C>           <C>         <C>         <C>    
Fixed-Rate Loans:
 Real estate:
  One- to four-family................       $21,836     23.69%     $17,166        20.88%     $12,254      16.35% 
  Construction and development.......           949      1.03          775        0.94           526       0.70  
  Commercial.........................           259      0.28          179        0.22           313       0.42  
  Multi-family.......................           ---       ---          ---         ---           ---        ---  
  Land...............................           184      0.20           20        0.02             5       0.01  
                                            -------    ------      -------       ------      -------     ------  
     Total real estate loans.........        23,228     25.20       18,140       22.06        13,098      17.48  
                                            -------    ------      -------       ------      -------     ------  
 Consumer............................         2,285      2.48        2,468        3.00         2,125       2.83  
 Commercial business.................            29       .03           81        0.10            22       0.03  
                                            -------    ------      -------       ------      -------     ------  
     Total fixed-rate loans..........        25,542     27.71       20,689       25.16        15,245      20.34  
                                                                                                                 
Adjustable-Rate Loans:                                                                                           
 Real estate:                                                                                                    
  One- to four-family................        53,972     58.55       48,282       58.73        46,927      62.60  
  Construction and development.......         5,602      6.07        6,316        7.68         6,113       8.15  
  Commercial.........................         5,584      6.06        5,123        6.23         5,437       7.25  
  Multi-family.......................           219      0.24          485        0.59           335       0.45  
  Land...............................         1,263      1.37        1,322        1.61           904       1.21  
                                            -------    ------      -------       ------      -------     ------  
     Total adjustable-rate loans.....        66,640     72.29       61,528       74.84        59,716      79.66  
                                            -------    ------      -------       ------      -------     ------  
     Total loans.....................        92,182    100.00%      82,217      100.00%       74,961     100.00% 
                                                       ======                   ======                   ======  
                                                                                                                 
Less:                                                                                                            
 Loans in process....................        (2,703)                (3,508)                   (2,579)            
 Deferred fees and discounts.........          (158)                  (169)                     (198)            
 Allowance for loan losses...........          (397)                  (307)                     (251)            
                                            -------                -------                   -------                 
    Total loans receivable, net......       $88,924                $78,233                   $71,933             
                                            =======                =======                   =======             
<PAGE>
<CAPTION>
                                                               June 30,
                                            ---------------------------------------------
                                                     1994                     1993
                                                     ----                     ----
                                            Amount        Percent    Amount       Percent
                                            ------        -------    ------       -------
                                                        (Dollars in Thousands)
<S>                                         <C>           <C>        <C>          <C>   
Fixed-Rate Loans:
 Real estate:
  One- to four-family................       $11,708        16.98%    $12,792       19.54%
  Construction and development.......           768         1.11         448        0.68
  Commercial.........................           395         0.57         494        0.75
  Multi-family.......................            12         0.02          57        0.09
  Land...............................            29         0.04          26        0.04
                                            -------       ------     -------      ------ 
     Total real estate loans.........        12,912        18.72      13,817       21.10
                                            -------       ------     -------      ------ 
 Consumer............................         1,645         2.39       1,641        2.51
 Commercial business.................            55          .08          79         .12
                                            -------       ------     -------      ------ 
     Total fixed-rate loans..........        14,612        21.19      15,537       23.73
                                                                              
Adjustable-Rate Loans:                                                        
 Real estate:                                                                 
  One- to four-family................        41,823        60.66      38,755       59.18
  Construction and development.......         5,486         7.96       4,737        7.23
  Commercial.........................         5,685         8.25       5,101        7.79
  Multi-family.......................           567         0.82         567        0.87
  Land...............................           776         1.12         784        1.20
                                            -------       ------     -------      ------ 
     Total adjustable-rate loans.....        54,337        78.81      49,944       76.27
                                            -------       ------     -------      ------ 
     Total loans.....................        68,949       100.00%     65,481      100.00%
                                                          ======                  ======
                                                                              
Less:                                                                         
 Loans in process....................        (1,929)                  (2,213) 
 Deferred fees and discounts.........          (212)                    (278) 
 Allowance for loan losses...........          (198)                    (123) 
                                            -------                  -------                  
    Total loans receivable, net......       $66,610                  $62,867  
                                            =======                  =======  
</TABLE>
<PAGE>
         The  following  schedule  presents the  contractual  maturities  of the
Association's loan portfolio at June 30, 1997. 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              
                             ----------------------------         -------------------                  --------              
                                               Weighted                        Weighted                        Weighted      
                                                Average                         Average                         Average      
                                Amount           Rate           Amount            Rate          Amount           Rate        
                                ------           ----           ------           -----          ------           ----        
                                                                     (Dollars in Thousands)
<S>                             <C>              <C>            <C>              <C>            <C>              <C>         
1 year or less(1)..........     $    67          8.31%          $   131          8.07%          $  560           8.49%       
Over 1 year - 3 years......         442          8.55                85          8.78              873           9.59        
Over 3 years - 5 years.....       2,109          8.57               117          8.30              807           9.64        
Over 5 years -                                                                                                               
 10 years..................       3,876          8.44             1,602          7.55               45          10.33        
Over 10 years -                                                                                                              
 20 years..................      29,745          7.95             4,020          7.93              ---            ---        
Over 20 years..............      46,120          7.84             1,554          8.14              ---            ---        
                                -------          ----           -------          ----           ------           ----        
    Total..................     $82,359          7.93%          $ 7,509          7.91%          $2,285           9.35%       
                                =======          ====           =======          ====           ======           ====        
<CAPTION>
                                    Commercial Business                    Total
                                    -------------------                    -----
                                                 Weighted                        Weighted
                                                  Average                         Average
                                  Amount           Rate           Amount           Rate
                                  ------           ----           ------           ----
<S>                             <C>               <C>             <C>              <C>  
1 year or less(1)..........     $  22             10.59%          $   780          8.46%
Over 1 year - 3 years......         7              9.75             1,407          9.21
Over 3 years - 5 years.....       ---               ---             3,033          8.84
Over 5 years -                                                           
 10 years..................       ---               ---             5,523          8.20
Over 10 years -                                                          
 20 years..................       ---               ---            33,765          7.94
Over 20 years..............       ---               ---            47,674          7.85
                                -----             -----           -------          ---- 
    Total..................     $  29             10.38%          $92,182          7.96%
                                =====             =====           =======          ====
</TABLE>

(1)  Includes demand loans, loans having no stated maturity and overdraft loans.
<PAGE>
      The total amount of loans due after June 30, 1998 which have predetermined
interest  rates is  $24,865,000,  while the total amount of loans due after such
dates which have floating or adjustable interest rates is $66,537,000.

         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, 1997 based on the above, the Association's  regulatory  loan-to-one borrower
limit was approximately  $2.56 million. On the same date, the Association had no
borrowers  with  outstanding  balances in excess of this amount.  As of June 30,
1997,  the largest  dollar  amount of  indebtedness  to one borrower or group of
related  borrowers was a single loan of $842,000 secured by commercial  property
leased to tenants  involved in retail  businesses.  The next largest loan had an
outstanding  balance of  $750,000  at June 30, 1997 and is secured by land zoned
for residential development.  Such loans are 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, 1997, $75.8 million, or 82.2% 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
$50,000 and the largest outstanding  residential loan had a principal balance of
$324,000.  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 nor 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
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, 1997,
the Association  had $21.8 million of fixed-rate  permanent  residential  loans,
constituting 23.7% 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, 1997, the total
balance  of  one- to  four-family  ARMs  was  $54.0  million,  or  58.6%  of the
Association's loan portfolio.

         The  Association  offers several types of ARMs. One new offering is the
"7/1" 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, 1997,  the  Association  had $269,000 in "7/1" loans.  In 1992,  the
Association  initiated a program  specifically  tailored  to first time  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, 1997,  the  Association  had  approximately  $5.9
million of new 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.

          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, 1997,  the
Association  had  $261,000  of home  equity  lines of credit  and an  additional
$329,000 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, 1997, the Association had 41 construction  loans
with  outstanding  aggregate  balances of $5.5  million  secured by  residential
property.  Of this amount,  $4.9 million was  outstanding  directly to borrowers
intending to live in the properties  upon  completion of  construction.  At that
same date, the Association had 6 construction  loans with outstanding  aggregate
balances of $620,000 secured by one- to four-family  residential  property built
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, 1997, the Association had $1.1 million or 1.2% of gross loans  receivable in
this category.

         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 on a variety of  non-residential  properties  including retail facilities,
small office  buildings,  farm real estate and  churches.  At June 30 1997,  the
Association's  largest  commercial  real estate loan totaled  $842,000.  At that
date, the Association had 60 other  commercial real estate loans,  totaling $5.8
million or 6.3% 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, 1997.
<TABLE>
<CAPTION>
                                                                                                          Outstanding
                                                             Number of              Original               Principal 
                                                               Loans               Loan Amount              Balance  
                                                               -----               -----------              -------  
                                                                              (Dollars in Thousands)                 
<S>                                                               <C>                 <C>                     <C>   
Office.........................................                   16                  $1,903                  $1,496
Retail.........................................                    5                   1,049                     931
Farm real estate...............................                   37                   4,007                   3,173
Churches.......................................                    3                     283                     243
                                                                 ---                  ------                  ------
   Total.......................................                   61                  $7,242                  $5,843
                                                                 ===                  ======                  ======
</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 current
amount of such loans is insignificant, totaling $219,000 or 0.24% 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, 1997, the Association had $1.4 million
or 1.57% 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.

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, 1997,  the  Association's  consumer  loans totaled $2.3
million or 2.48% 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
its automobile loans. At June 30, 1997, automobile loans totaled $1.2 million or
1.32% 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, 1997, approximately 234 credit cards had been
issued, with an aggregate  outstanding loan balance of $65,000 and unused credit
available of $293,000.  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 very small portfolio of commercial  business loans.
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, 1997,
commercial  business loans totaled $29,000 or 0.03% 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,
                                                                    -------------------------------------
                                                                      1997           1996          1995
                                                                    --------        -------       -------
                                                                            (In thousands)
<S>                                                                 <C>             <C>           <C>    
Originations by type:
 Adjustable rate:
  Real estate - one- to four-family...........................       $14,908        $15,044       $13,961
              - commercial....................................         2,849          1,366           747
              - multi-family..................................           180            180           ---
  Non-real estate - consumer..................................           ---            ---           ---
                  - commercial business.......................           ---            ---           ---
                                                                    --------        -------       -------
         Total adjustable-rate................................        17,937         16,590        14,708
 Fixed rate:
  Real estate - one- to four-family...........................         7,406          9,458         2,964
              - commercial....................................           461            121            25
              - multi-family..................................           ---            ---           ---
  Non-real estate - consumer..................................         2,294          2,087         1,855
                  - commercial business.......................            11             87            79
                                                                    --------        -------       -------
         Total fixed-rate.....................................        10,172         11,753         4,923
                                                                    --------        -------       -------
         Total loans originated...............................        28,109         28,343        19,631
                                                                    --------        -------       -------

  Principal repayments........................................       (17,149)       (21,939)      (14,115)
                                                                    --------        -------       -------
         Total reductions.....................................       (17,149)       (21,939)      (14,115)
Increase (decrease) in other items, net(1)....................          (134)           (52)         (149)
                                                                    --------        -------       -------
         Net increase (decrease)..............................      $ 10,826        $ 6,352       $ 5,367
                                                                    ========        =======       =======
</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 cause the delinquency to be cured
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.

         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  recorded  at fair value at the date of  acquisition,  and 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.
<PAGE>
         The following table sets forth the Association's  loan delinquencies by
type, by amount and by percentage of type at June 30, 1997.
<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)
<S>                          <C>        <C>        <C>          <C>        <C>        <C>           <C>        <C>        <C>
Real Estate:
  One- to four-family......      13        $608         0.80%        23       $785         1.04%        36     $1,393          1.84%
  Construction and                                                                                                                  
   development.............     ---         ---          ---        ---        ---          ---        ---        ---           --- 
  Commercial...............     ---         ---          ---          1         14         0.24          1         14          0.24 
  Multi-family.............     ---         ---          ---        ---        ---          ---        ---        ---           --- 
  Land.....................       1          49         3.39        ---        ---          ---          1         49          3.39 
Consumer...................       4          17         0.74          5          5         0.22          9         22          0.96 
Commercial business........     ---         ---          ---        ---        ---          ---        ---        ---           --- 
                              -----       -----                   -----      -----                    ----      -----               
                                                                                                                                    
     Total.................      18        $674        0.73%         29       $804        0.87%         47     $1,478         1.60% 
                               ====        ====                    ====       ====                     ===     ======               
</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
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.
<PAGE>
         On the basis of  management's  review of its assets,  at June 30, 1997,
the Association had classified a total of $724,000 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................        $705             $14              $  ---            $---             $719 
Doubtful...................         ---             ---                 ---             ---              --- 
Loss.......................         ---             ---                 ---               5                5 
                                   ----             ---              ------            ----             ---- 
                                   $705             $14              $  ---            $  5             $724 
                                   ====             ===              ======            ====             ==== 
</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.

         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.
<PAGE>
<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                 ------------------------------------------------------------------
                                                                  1997           1996           1995           1994           1993
                                                                 ------         ------         ------         ------         ------
                                                                                       (Dollars in Thousands)
<S>                                                              <C>            <C>            <C>            <C>            <C>   
Non-accruing loans:
  One- to four-family ...................................        $  705         $  564         $  494         $  711         $  664
  Construction and development ..........................          --             --             --             --             --
  Commercial real estate ................................            14            211           --               17             18
  Multi-family ..........................................          --             --             --             --             --
  Land ..................................................          --               51            214            192           --
  Consumer ..............................................          --             --             --             --             --
  Commercial business ...................................          --             --             --             --             --
                                                                 ------         ------         ------         ------         ------
     Total ..............................................           719            826            708            920            682
                                                                 ------         ------         ------         ------         ------

Accruing loans delinquent more than 90 days:
  One- to four-family ...................................           143            326            604            564          1,337
  Construction and development ..........................          --             --             --             --             --
  Commercial real estate ................................          --               58             86             35            105
  Multi-family ..........................................          --             --             --             --             --
  Land ..................................................          --             --             --             --             --
  Consumer ..............................................             5             11             20              7           --
  Commercial business ...................................          --             --             --             --               17
                                                                 ------         ------         ------         ------         ------
     Total ..............................................           148            395            710            606          1,459
                                                                 ------         ------         ------         ------         ------

Foreclosed assets:
  One- to four-family ...................................          --             --             --             --             --
  Construction and development ..........................          --             --             --             --             --
  Commercial real estate ................................          --             --             --             --              218
  Multi-family ..........................................          --             --             --               74           --
  Land ..................................................          --             --             --             --             --
  Consumer ..............................................          --             --             --             --             --
  Commercial business ...................................          --             --             --             --             --
                                                                 ------         ------         ------         ------         ------
     Total ..............................................          --             --             --               74            218
                                                                 ------         ------         ------         ------         ------

Total non-performing assets .............................        $  867         $1,221         $1,418         $1,600         $2,359
                                                                 ======         ======         ======         ======         ======
Total as a percentage of total assets ...................          0.84%          1.41%          1.80%          2.10%          3.26%
                                                                 ======         ======         ======         ======         ======
</TABLE>

         For the year ended June 30, 1997 gross interest income which would have
been recorded had the  non-accruing  loans been current in accordance with their
original  terms  amounted to $61,905.  The amount that was  included in interest
income on such loans was $43,118 for the year ended June 30, 1997.
<PAGE>

         Other Assets of Concern.  As of June 30, 1997, 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.

         Statement of Financial  Accounting Standards (SFAS) No. 114, as amended
by SFAS No. 118, was adopted July 1, 1995. These Standards  require  recognition
and measurement of impaired loans. Loan impairment is reported when full payment
under the loan terms is not expected.  The carrying values of impaired loans are
reduced to the present value of expected future cash flows, or to the fair value
of collateral if the loan is  collateral  dependent,  by allocating a portion of
the  allowance  for loan losses to such loans.  If these  allocations  cause the
allowance  for loan losses to require an increase,  such increase is reported as
bad debt  expense.  The effect of adopting  these  standards  did not affect the
allowance for loan losses during fiscal 1997 or 1996.

         Loan  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. Loans are
evaluated for impairment  when payments are delayed,  typically 90 days or more,
or when the internal  grading system  indicates a doubtful  classification.  The
carrying  values of impaired  loans are  periodically  adjusted to reflect  cash
payments,  revised  estimates of future cash flows and  increases in the present
value  of  expected  cash  flows  due to the  passage  of  time.  Cash  payments
representing  interest  income are  reported as such.  Other cash  payments  are
reported as reductions in carrying  value,  while  increases or decreases due to
changes in future  payments  and due to the passage of time are reported as part
of the provision for loan losses.

         As of June 30, 1997, the  Association's  allowance for loan losses as a
percent  of gross  loans  receivable  and as a percent of  non-performing  loans
amounted  to  0.43%  and  45.78%,  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,
                                                             -------------------------------------------------------
                                                              1997        1996         1995         1994        1993
                                                              ----      -------      ------        ------     ------
<S>                                                           <C>        <C>           <C>          <C>        <C>  
Balance at beginning of period.......................         $307       $ 251         $198         $123       $  94

Charge-offs:
  One- to four-family................................          ---           9          ---            1         ---
  Construction and development.......................          ---         ---          ---          ---         ---
  Commercial real estate.............................          ---         ---          ---          ---         ---
  Multi-family.......................................          ---         ---          ---          ---         ---
  Consumer...........................................           22           6            4           14          18
  Commercial business................................          ---         ---          ---          ---         ---
                                                             -----      ------       ------       ------      ------
                                                                22          15            4           15          18
                                                              ----       -----        -----        -----       -----
Recoveries:
  One- to four-family................................          ---           1          ---          ---         ---
  Construction and development.......................          ---         ---          ---          ---         ---
  Commercial real estate.............................          ---         ---          ---          ---         ---
  Multi-family.......................................          ---         ---          ---          ---         ---
  Consumer...........................................            9           2            2            7           6
  Commercial business................................          ---         ---          ---          ---         ---
                                                             -----      ------       ------       ------      ------
                                                                 9           3            2            7           6
                                                             -----      ------       ------       ------       -----

Net charge-offs......................................           13          12            2            8          12
Additions charged to operations......................          103          68           55           83          41
                                                              ----      ------        -----        -----       -----
Balance at end of period.............................         $397       $ 307         $251         $198        $123
                                                              ====       =====         ====         ====        ====

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

Ratio of net charge-offs during the period to
 non-performing assets at the end of the period......        1.49%       0.98%        0.14%        0.50%       0.51%
                                                             ====        ====         ====         ====        ====
</TABLE>

(1)  Calculated net of deferred loan fees, loan discounts, loans in process, and
     loss reserves.

<PAGE>

         The distribution of the Association's  allowance for losses on loans at
the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                                                June 30,                                 
                                                  -----------------------------------------------------------------------
                                                                 1997                              1996                  
                                                                 ----                              ----                  
                                                                           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.........................         $316    $75,808     82.24%       $ 211    $65,448        79.60%    
Construction and
  development...............................           14      6,551       7.10           4      7,091         8.63     
Commercial real estate......................           15      5,843       6.34          36      5,302         6.45     
Multi-family................................          ---        219       0.24           1        485         0.59     
Land........................................            3      1,447       1.57           2      1,342         1.63     
Consumer....................................           49      2,285       2.48          53      2,468         3.00     
Commercial business.........................          ---         29       0.03         ---         81         0.10     
Unallocated.................................          ---        ---        ---         ---        ---          ---     
                                                     ----   -------     ------        -----    -------       ------     
     Total..................................         $397   $92,182     100.00%       $ 307    $82,217       100.00%    
                                                     ====   =======     ======        =====    =======       ======     
<CAPTION>
                                                                              June 30,
                               -----------------------------------------------------------------------------------------------------
                                             1995                              1994                              1993               
                                             ----                              ----                              ----               
                                                       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............ $ 179    $59,181        78.95%    $ 126    $53,531        77.64%     $  85   $51,547        78.72%
Construction and
  development..................     5      6,639         8.86         3      6,254         9.07        ---     5,185         7.92
Commercial real estate.........     7      5,750         7.67         2      6,080         8.82        ---     5,595         8.54
Multi-family...................   ---        335         0.45       ---        579         0.84        ---       624         0.95
Land...........................    21        909         1.21        29        805         1.16        ---       810         1.24
Consumer.......................    39      2,125         2.83        38      1,645         2.39         38     1,641         2.51
Commercial business............   ---         22         0.03       ---         55         0.08        ---        79         0.12
Unallocated....................   ---        ---        ---         ---        ---          ---        ---       ---          ---
                                -----    -------       ------     -----    -------       ------      -----   -------       ------ 
     Total..................... $ 251    $74,961       100.00%    $ 198    $68,949       100.00%     $ 123   $65,481       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, 1997, the Association did not own any securities
of a single issuer which exceeded 10% of the  Association's  retained  earnings,
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, 1997,  the  Association's  liquidity  ratio (liquid
assets as a percentage of net withdrawable  savings and current  borrowings) was
15.64% as compared to the OTS requirement of 5.0%.

         As of June 30,  1997  the  Association  had  securities  totaling  $2.0
million  classified  as  available  for sale.  The balance of the  Association's
security  portfolio is classified as held to maturity.  As future securities are
acquired the Association may elect to classify them as available for sale rather
than held to maturity.
<PAGE>
         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,          
                                                           -----------------------------------------------------
                                                                     1997                       1996            
                                                                     ----                       ----            
                                                           Carrying         % of      Carrying         % of     
                                                             Value          Total       Value          Total    
                                                            -------         ------      ------         ------   
                                                                           (Dollars in Thousands)   
<S>                                                         <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......         2,013          20.59         ---          ---     
  Time deposits......................................         5,000          51.15       1,100          25.20   
                                                            -------         ------      ------         ------   
     Subtotal........................................         9,012          92.19       3,698          84.72   
FHLB stock...........................................           763           7.81         667          15.28   
                                                            -------         ------      ------         ------   
     Total securities and FHLB stock.................       $ 9,775         100.00%     $4,365         100.00%  
                                                            =======         ======      ======         ======   
Average remaining life of securities
  and time deposits..................................       1.04 years                  1.21 years              

Other interest-earning assets:
  Interest-bearing deposits with banks...............       $ 1,498          59.97%     $1,355          57.54%  
  Overnight deposits.................................         1,000          40.03       1,000          42.46   
                                                            -------         ------      ------         ------   
     Total...........................................       $ 2,498         100.00%     $2,355         100.00%  
                                                            =======         ======      ======         ======   

<PAGE>
<CAPTION>
                                                                              June 30,
                                                           -------------------------------------------------
                                                                     1995                       1994
                                                                     ----                       ----
                                                           Carrying         % of      Carrying       % of
                                                             Value          Total       Value        Total
                                                            -------         ------      ------       ------ 
                                                                        (Dollars in Thousands)
<S>                                                         <C>             <C>         <C>          <C>    
Securities:
  U.S. government securities.........................       $   498          13.39%    $   496        11.90%
  Federal agency obligations held to maturity........         2,600          69.89       3,100        74.38
  Federal agency obligations available for sale......           ---            ---         ---          ---
  Time deposits......................................           ---            ---         ---          ---
                                                            -------         ------      ------       ------ 
     Subtotal........................................         3,098          83.28       3,596        86.28
FHLB stock...........................................           622          16.72         572        13.72
                                                            -------         ------      ------       ------ 
     Total securities and FHLB stock.................       $ 3,720         100.00%     $4,168       100.00%
                                                            =======         ======      ======       ====== 
Average remaining life of securities
  and time deposits..................................       1.89 years                   1.91 years

Other interest-earning assets:
  Interest-bearing deposits with banks...............       $   655           56.71%    $1,171        36.93%
  Overnight deposits.................................           500           43.29      2,000        63.07
                                                            -------         ------      ------       ------ 
     Total...........................................       $ 1,155         100.00%     $3,171       100.00%
                                                            =======         ======      ======       ====== 

</TABLE>
<PAGE>
         The  composition  and  maturities  of the  time  deposit  and  security
portfolios, excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
                                                                                       June 30, 1997
                                                      ------------------------------------------------------------------------------
                                                      Less Than      1 to 5         5 to 10        Over        Total Securities
                                                       1 Year         Years          Years       10 Years      and Time Deposits
                                                      ---------     ---------      ---------     ---------   -----------------------
                                                      Amortized     Amortized      Amortized     Amortized   Amortized
                                                         Cost          Cost          Cost          Cost        Cost       Fair Value
                                                         ----          ----          ----          ----        ----       ----------
                                                                                    (Dollars in Thousands)
<S>                                                     <C>           <C>           <C>           <C>          <C>           <C>   
Time deposit ....................................       $5,000        $ --          $  --         $ --         $5,000        $5,000
Federal agency obligations held to
maturity ........................................          999         1,000           --           --          1,999         1,997
Federal agency obligations
available for sale ..............................         --           1,999           --           --          1,999         2,013
                                                        ------        ------        -------       ------       ------        ------
Total securities and time deposit ...............       $5,999        $2,999        $  --         $ --         $8,998        $9,010
                                                        ======        ======        =======       ======       ======        ======

Weighted average yield ..........................         5.58%         6.54%           ---%         ---%        5.90%         5.90%
</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 reserves the
right to 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.

         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.
<PAGE>
         The  following  table sets forth the savings  flows at the  Association
during the periods indicated.
<TABLE>
<CAPTION>
                                                    Year Ended June 30,
                                       -----------------------------------------
                                          1997             1996          1995
                                       ---------        ---------     ---------
                                                 (Dollars in Thousands)
<S>                                    <C>              <C>           <C>      
Opening balance ...................    $  77,318        $  70,306     $  68,367
Deposits ..........................      111,312(1)        70,928        63,924
Withdrawals .......................      114,882(1)        66,928        64,399
Interest credited .................        3,297            3,012         2,414
                                       ---------        ---------     ---------

Ending balance ....................    $  77,045        $  77,318     $  70,306
                                       =========        =========     =========

Net increase (decrease) ...........    $    (273)       $   7,012     $   1,939
                                       =========        =========     =========

Percent increase (decrease) .......        (0.35)%           9.97%         2.84%
                                       =========        =========     =========
</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,                       
                                                    ------------------------------------------------------------------
                                                                             1997                       1996          
                                                                             ----                       ----          
                                                       Weighted
                                                       Average
                                                       Rate at                     Percent                   Percent  
                                                    June 30, 1997    Amount       of Total      Amount       of Total 
                                                    -------------    ------       --------      ------       -------- 
                                                                                  (Dollars in Thousands)              
<S>                                                     <C>         <C>          <C>             <C>        <C>       
Transactions and Savings Deposits:

Noninterest Bearing Demand..........................                $   150        0.19%       $    118       0.15%   
Savings Accounts....................................    3.05%        17,685       22.94          19,039      24.60    
NOW Accounts........................................    2.42          3,469        4.50           3,184       4.11    
Money Market Accounts...............................    2.50            777        1.01           1,236       1.60    
                                                                    -------      ------          -------    ------    
                                                                                                                      
Total Non-Certificates..............................                 22,081       28.64          23,577      30.46    
                                                                    -------      ------          -------    ------    
                                                                                                                      
Certificates:                                                                                                         
                                                                                                                      
 0.00 -  1.99%......................................                    ---         ---             ---        ---    
 2.00 -  3.99%......................................                    ---         ---               2        ---    
 4.00 -  5.99%......................................                 28,959       37.57          32,233      41.64    
 6.00 -  7.99%......................................                 26,005       33.74           21,506     27.79    
 8.00 -  9.99%......................................                    ---         ---              ---       ---    
10.00% and over.....................................                    ---         ---              ---       ---    
                                                                    -------      ------          -------    ------    
                                                                                                                      
Total Certificates..................................    6.02         54,964       71.31           53,741     69.43    
                                                                    -------      ------          -------    ------    
Accrued Interest....................................                     36        0.05               82      0.11    
                                                                    -------      ------          -------    ------    
Total Deposits......................................    5.11%       $77,081      100.00%         $77,400    100.00%   
                                                                    =======      ======          =======    ======    
<CAPTION>
                                                                                June 30,                           
                                                              ---------------------------------------------------- 
                                                                       1995                       1994             
                                                                       ----                       ----             
                                                                                                                   
                                                                                                                   
                                                                            Percent                    Percent     
                                                               Amount       of Total      Amount       of Total    
                                                               ------       --------      ------       --------    
                                                                           (Dollars in Thousands)                  
<S>                                                           <C>          <C>           <C>              <C>      
Transactions and Savings Deposits:                                                                                 
                                                                                                                   
Noninterest Bearing Demand..........................          $   158        0.22%      $     94            0.14%  
Savings Accounts....................................           18,439       26.19         20,791           30.38   
NOW Accounts........................................            3,257        4.63          3,026            4.42   
Money Market Accounts...............................            1,455        2.07          1,889            2.76   
                                                              -------      ------        -------          ------   
                                                                                                                   
Total Non-Certificates..............................           23,309       33.11         25,800           37.70   
                                                              -------      ------        -------          ------   
                                                                                                                   
Certificates:                                                                                                      
                                                                                                                   
 0.00 -  1.99%......................................              ---         ---            ---             ---   
 2.00 -  3.99%......................................               35        0.05          8,057           11.77   
 4.00 -  5.99%......................................           31,129       44.22         33,781           49.36   
 6.00 -  7.99%......................................           15,775       22.41            314            0.46   
 8.00 -  9.99%......................................               58        0.08            415            0.61   
10.00% and over.....................................              ---         ---            ---             ---   
                                                              -------      ------        -------          ------   
                                                                                                                   
Total Certificates..................................           46,997       66.76         42,567           62.20   
                                                              -------      ------        -------          ------   
Accrued Interest....................................               92        0.13             74            0.10   
                                                              -------      ------        -------          ------   
Total Deposits......................................          $70,398      100.00%       $68,441          100.00%  
                                                              =======      ======        =======          ======   
</TABLE>
<PAGE>
         The  following  table  shows  rate  and  maturity  information  for the
Association's certificates of deposit as of June 30, 1997.
<TABLE>
<CAPTION>
                                       4.00-        6.00-                      Percent
                                       5.99%        7.99%          Total      of Total
                                       -----        -----          -----      --------
                                                   (Dollars in Thousands)
Certificate accounts
    maturing
in quarter ending:
------------------
<S>                                  <C>           <C>           <C>           <C> 
September 30, 1997.............      $ 4,595       $ 2,993       $ 7,588        13.80%
December 31, 1997..............        5,332         2,150         7,482        13.61
March 31, 1998.................        2,977         4,413         7,390        13.45
June 30, 1998..................        3,320         6,182         9,502        17.29
September 30, 1998.............        3,772         2,782         6,554        11.92
December 31, 1998..............        2,890         1,095         3,985         7.25
March 31, 1999.................        2,699           384         3,083         5.61
June 30, 1999..................        1,186           879         2,065         3.76
September 30, 1999.............        1,005            61         1,066         1.94
December 31, 1999..............          695         1,357         2,052         3.73
March 31, 2000.................          120            77           197         0.36
June 30, 2000..................           95           884           979         1.78
September 30, 2000.............           44           838           882         1.60
December 31, 2000..............          ---           927           927         1.69
March 31, 2001.................          150            91           241         0.44
June 30, 2001..................           69           106           175         0.32
September 30, 2001.............           10            56            66         0.12
December 31, 2001..............          ---           374           374         0.68
March 31, 2002.................          ---           103           103         0.19
June 30, 2002..................          ---           253           253         0.46
                                     -------       -------       -------      ------ 
   Total.......................      $28,959       $26,005       $54,964      100.00%
                                     =======       =======       =======      ====== 

    Percent of total...........       52.69%        47.31%
                                      =====         =====
</TABLE>

         At June 30, 1997 the  Association  had  approximately  $4.2  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..........................................              $ 339                  5.46%
Over three through six months.................................                765                  5.96
Over six through 12 months....................................              1,567                  6.23
Over 12 months................................................              1,548                  5.87
                                                                           ------
Total.........................................................             $4,219                  5.99%
                                                                           ======
</TABLE>
         For   additional   information   regarding  the   composition   of  the
Association's   deposits,   see  Note  8  of  Notes  to  Consolidated  Financial
Statements.
<PAGE>
         Borrowings.  Peoples  Federal's other available  sources of funds,  not
currently  utilized,  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.  The Association did
not have any outstanding borrowings at the end of any periods indicated.
<TABLE>
<CAPTION>
                                                                               Year Ended June 30,
                                                                  ---------------------------------------------
                                                                   1997         1996          1995         1994
                                                                   ----         ----          ----         ----
                                                                               (Dollars in Thousands)
<S>                                                               <C>         <C>           <C>          <C>    
Maximum balance at any month end during the period:
  FHLB advances...........................................        $3,500      $   ---       $   ---      $   ---

Average balance for the period:
  FHLB advances...........................................        $1,163      $   ---       $   ---      $   ---
  Weighted average rate...................................         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,  1997,  in  the  stock  of,  or  loans  to,  service   corporation
subsidiaries.  As of such date,  Peoples  Federal had no  investment  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
Holding Company also is subject to federal regulation and oversight. The purpose
of the  regulation  of the Holding  Company and other  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.

         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
December,  1996. Under agency scheduling  guidelines,  it is likely that another
examination  will be initiated in the near future.  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, 1997 was $29,000.

         The OTS also  has  extensive  enforcement  authority  over all  savings
institutions  and their holding  companies,  including  Peoples  Federal and the
Holding 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, 1997, the  Association's  lending
limit under this restriction was $2.56 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
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.

           For the first six months of 1995,  the  assessment  schedule  for BIF
members and SAIF members ranged from 0.23% to 0.31% of deposits.  As is the case
with the SAIF, the FDIC is authorized to adjust the insurance  premium rates for
banks that are insured by the BIF of the FDIC in order to  maintain  the reserve
ratio of the BIF at  1.25%  of BIF  insured  deposits.  As a  result  of the BIF
reaching its statutory  reserve ratio the FDIC revised the premium  schedule for
BIF insured  institutions to provide a range of 0.04% to 0.31% of deposits.  The
revisions  became  effective in the third quarter of 1995. In addition,  the BIF
rates were further revised,  effective January 1996, to provide a range of 0% to
0.27%. The SAIF rates,  however, were not adjusted. At the time the FDIC revised
the BIF premium schedule, it noted that, absent legislative action (as discussed
below),  the SAIF would not attain its  designated  reserve ratio until the year
2002. As a result,  SAIF insured members would continue to be generally  subject
to higher deposit insurance  premiums than BIF insured  institutions  until, all
things being equal, the SAIF attained its required reserve ratio.

         In order to eliminate this disparity and any  competitive  disadvantage
between  BIF and SAIF  member  institutions  with  respect to deposit  insurance
premiums,  legislation to  recapitalize  the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to  recapitalize  the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if  no  savings  associations  then  exist.  The  special  assessment  rate  was
established  at 0.657% of deposits by the FDIC and the  resulting  assessment of
$456,000 on the Association  was paid in November 1996. This special  assessment
significantly  increased  noninterest  expense and  adversely  affected  Peoples
Federal's results of operations for the year ended June 30, 1997. As a result of
the special  assessment,  Peoples  Federal's  deposit  insurance  premiums  were
reduced to 0.064% of deposits based upon its current risk classification and the
new  assessment  schedule  for SAIF  insured  institutions.  These  premiums are
subject to change in future periods.

         Prior  to the  enactment  of the  legislation,  a  portion  of the SAIF
assessment imposed on savings  associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift  crisis in the 1980s.  Although the FDIC has  proposed  that the SAIF
assessment be equalized with the BIF assessment  schedule,  effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing  obligation.  Although the  legislation  also now
requires  assessments  to be made on  BIF-assessable  deposits for this purpose,
effective  January 1, 1997,  that  assessment will be limited to 20% of the rate
imposed on SAIF  assessable  deposits until the earlier of September 30, 1999 or
when no  savings  association  continues  to exist,  thereby  imposing a greater
burden on SAIF member institutions such as Peoples Federal. Thereafter, however,
assessments  on  BIF-member  institutions  will  be made on the  same  basis  as
SAIF-member institutions.

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.

         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, 1997, 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,  1997,  Peoples  Federal  had  tangible  capital  of $17.1
million,  or 16.6% of total assets,  which is approximately  $15.5 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
relationships.  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, 1997,  Peoples
Federal had no intangibles which were subject to these tests.

         At June 30,  1997,  Peoples  Federal  had core  capital  equal to $17.1
million,  or 16.6% of adjusted  total  assets,  which is $14.0 million above the
minimum leverage ratio requirement of 3% 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, 1997, Peoples Federal
had  $393,000  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, 1997.

         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, 1997,  Peoples  Federal had total  capital of $17.5 million
(including   $17.1   million  in  core  capital  and   $393,000  in   qualifying
supplementary  capital)  and  risk-weighted  assets of $65.1  million;  or total
capital of 26.9% of  risk-weighted  assets.  This amount was $12.3 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.

         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 the 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 may be adopted.

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 1997 Annual Report to  Stockholders  as attached  hereto as Exhibit B and
incorporated by reference  herein.  This liquid asset ratio requirement may vary
from time to time (between 4% and 10%)  depending  upon economic  conditions and
savings  flows of all savings  associations.  At the present  time,  the minimum
liquid asset ratio is 5%.

         In  addition,  short-term  liquid  assets  (e.g.,  cash,  certain  time
deposits,  certain  bankers  acceptances  and short-term  United States Treasury
obligations)  currently must constitute at least 1% of the association's average
daily  balance of net  withdrawable  deposit  accounts  and current  borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At June 30, 1997, the Association was in compliance with both
requirements,  with an overall  liquid  asset  ratio of 15.64% and a  short-term
liquid assets ratio of 12.07%.

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.
Under either test, such assets primarily consist of residential  housing related
loans and  investments.  At June 30, 1997, 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 "- Holding Company Regulation."

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.

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few 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 1995 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 Holding
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.

Holding Company Regulation

         The Holding  Company will be a unitary savings and loan holding company
subject to  regulatory  oversight  by the OTS. As such,  the Holding  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 Holding  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 Holding  Company
generally  is not  subject to  activity  restrictions.  If the  Holding  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 Holding 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 Holding 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 Holding 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.

Federal Securities Law

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

         Holding  Company  stock held by persons who are  affiliates  (generally
officers,  directors and principal  stockholders) of the Holding Company may not
be resold without  registration or unless sold in accordance with certain resale
restrictions.  If the Holding Company meets specified current public information
requirements,  each  affiliate  of the  Holding  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,  1997,  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, 1997,  Peoples  Federal had $763,000 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  5.16% and were 7.02% for
fiscal 1997.

         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.

         For the  year  ended  June  30,  1997,  dividends  paid by the  FHLB of
Cincinnati  to Peoples  Federal  totaled  $49,000,  which  constitutes  a $4,000
increase over the amount of dividends  received in fiscal year 1996. The $13,000
dividend  for the quarter  ended June 30, 1997  reflects an  annualized  rate of
7.19%, or 0.17% above the rate for fiscal 1997.

Federal and State Taxation

         Savings   associations  such  as  Peoples  Federal  that  meet  certain
conditions  prescribed  by the Internal  Revenue  Code of 1986,  as amended (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  is  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, 1997, the Association had
approximately  $581,000 in bad debt  reserves  subject to recapture  for federal
income tax  purposes.  The deferred tax  liability  related to the recapture has
been previously established so there will be no effect on future net income.

         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, 1997, the portion of Peoples Federal's reserves subject
to this treatment for tax purposes totaled approximately $1.7 million.

         Peoples Federal files federal income tax returns on a fiscal year basis
using the accrual method of accounting.  The Holding Company does not anticipate
filing  consolidated  federal income tax returns with Peoples  Federal.  Savings
associations  that file  federal  income tax  returns as part of a  consolidated
group are required by applicable  Treasury  regulations  to reduce their taxable
income for purposes of computing the  percentage  bad debt  deduction for losses
attributable  to  activities  of  the  non-savings  association  members  of the
consolidated  group  that are  functionally  related  to the  activities  of the
savings association member.

         Peoples  Federal  has been  audited by the IRS with  respect to federal
income tax returns through December, 1991. 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.

         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 in Ohio Revised
Code pays a tax equal to 15 mills (.015) times its  apportioned  net worth.  The
apportionment factor consists of a business done factor, determined by reference
to the total  receipts of the  financial  institution  from all  sources,  and a
property  factor,  determined by reference to the net book value of all property
owned by the financial institution. The financial institution may claim a credit
equal to the annual  assessment  paid to the State  pursuant to the Ohio Revised
Code.

         Delaware Taxation.  As a Delaware holding company,  the Holding 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 Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.

Impact of New Accounting Standards

         Statement  of  Financial   Accounting   Standards   ("SFAS")  No.  125,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of Liabilities," was issued by the Financial Accounting Standards Board ("FASB")
in 1996. It revises the  accounting for transfers of financial  assets,  such as
loans  and  securities,   and  for  distinguishing  between  sales  and  secured
borrowings. It was originally effective for some transactions in 1997 and others
in 1998. SFAS No. 127,  "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125" was issued in December 1996. SFAS No. 127 defers for one
year the effective date of provisions related to securities lending,  repurchase
agreements and other similar  transactions.  The remaining  portions of SFAS 125
became effective January 1, 1997. SFAS No. 125 did not have a material impact on
the Corporation's financial statements.

         In March 1997,  the FASB issued  SFAS No.  128,  "Earnings  Per Share,"
which is effective for periods ending after December 15, 1997, including interim
periods.  SFAS No. 128 simplifies the  calculation of earnings per share ("EPS")
by replacing  primary EPS with basic EPS. It also requires dual  presentation of
basic EPS and diluted EPS for entities with complex  capital  structures.  Basic
EPS includes no dilution and is computed by dividing income  available to common
shareholders by the  weighted-average  common shares outstanding for the period.
Diluted EPS reflects the potential  dilution of  securities  that could share in
earnings such as stock options, warrants or other common stock equivalents.  All
prior period EPS data will be restated to conform with the new presentation.

         In  February  1997,  the FASB  issued  SFAS No.  129,  "Disclosures  of
Information  about  Capital  Structure."  SFAS  No.  129  consolidated  existing
accounting  guidance relating to disclosure about a company's capital structure.
Public  companies  generally have always been required to make  disclosures  now
required by SFAS No. 129 and,  therefore,  SFAS No. 129 should have no impact on
the Corporation.  SFAS No. 129 is effective for financial statements for periods
ending after December 15, 1997.

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This Statement  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 No. 131 uses a "management  approach" to disclose financial and descriptive
information about an enterprise's  reportable  operating segments which is based
on reporting  information the way 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,   the  Statement  requires   significantly  more
information to be disclosed for each reportable  segment than is presently being
reported in annual  financial  statements.  The  Statement  also  requires  that
selected information be reported in interim financial  statements.  SFAS No. 131
is effective for financial  statements for periods  beginning after December 15,
1997.

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.  At June 30, 1997,  Shelby  County had 7 banks with 19
offices and one home-based thrift with one office. The Association estimates its
market  share  of  savings  deposits  in the  Shelby  County  market  area to be
approximately 12%.

Employees

         At  June  30,  1997,  the  Association  had a  total  of  16  full-time
employees,  12 of which have been  employed  by Peoples  Federal for at least 10
years,  and 4  part-time  employees.  None of the  Association's  employees  are
represented  by  any  collective  bargaining  group.  Management  considers  its
employee relations to be good.

Executive Officers of the Registrant Who Are Not Directors

         The following information as to the business experience during the past
five years is supplied with respect to the executive officers of 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 46, 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 41,  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 39, is 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, 1997.  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            1997
--------                          ------         --------          -----

Main Office:

101 East Court Street              1917           Owned           $250,000
Sidney, Ohio 45365

Drive-In:

232 S. Ohio Avenue                 1971           Owned           $186,000
Sidney, Ohio 45365


         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, 1997
was approximately $69,000.

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

         No matter was  submitted  to a vote of  security  holders,  through the
solicitation of proxies or otherwise, during the quarter ended June 30, 1997.


                                     PART II

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

         Page 4 of the Company's  1997 Annual Report to  Stockholders  is herein
incorporated by reference.

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

         Pages 8 through 19 of the Company's 1997 Annual Report to  Stockholders
are herein incorporated by reference.

Item 7.  Financial Statements

         Pages 20 through 45 of the Company's 1997 Annual Report to Stockholders
are herein incorporated 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  definitive  Proxy  Statement  for the Annual  Meeting of
Stockholders  to be held in 1997,  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,  1997,  the
Registrant complied with all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10 percent beneficial owners.

Item 10.      Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from  the  definitive  Proxy  Statement  for the  Annual  Meeting  of
Stockholders  to be held in 1997,  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 definitive  Proxy
Statement for the Annual Meeting of  Stockholders  to be held in 1997, 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 definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997, 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
<TABLE>
<CAPTION>
                                                                             Reference to
                                                                             Prior Filing
                                                                              or Exhibit
    Regulation                                                                  Number
   S-B Exhibit                                                                 Attached
      Number                              Document                              Hereto
      ------                              --------                              ------
<S>               <C>                                                     <C>
        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       Form of Employment Agreement with David R. Fogt,                *
                  Gary N. Fullenkamp, Debra A. Geuy and Steven Goins
       10.4       401k Plan                                                       *
       10.5       Incentive Bonus 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

</TABLE>

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


         (b)  Reports on Form 8-K

         The  Company  filed no reports on Form 8-K for the three  month  period
ended June 30, 1997.
<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 29, 1997                              Date: September 29, 1997



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


Date: September 29, 1997                              Date: September 29, 1997
<PAGE>
/s/Robert W. Bertsch                                  /s/Debra A. Geuy
----------------------------------                    --------------------------
Robert W. Bertsch                                     Debra A. Geuy
Director                                              Treasurer
                                                      (Principal Financial and
                                                       Accounting Officer)



Date: September 29, 1997                              Date: September 29, 1997



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



Date: September 29, 1997
<PAGE>
                                INDEX TO EXHIBITS



  Number
  ------
    13          Portions of Annual Report to Security Holders

    21          Subsidiaries of the Registrant

    27          Financial Data Schedule