PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  Sidney, Ohio

                                  ANNUAL REPORT
                                  June 30, 1998



<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION

                                  Sidney, Ohio

                                  ANNUAL REPORT
                                  June 30, 1998











                                    CONTENTS






TO OUR SHAREHOLDERS.....................................................       2

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

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

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

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

REPORT OF INDEPENDENT AUDITORS .........................................      21

CONSOLIDATED FINANCIAL STATEMENTS

      Consolidated Balance Sheets ......................................      22

      Consolidated Statements of Income ................................      23

      Consolidated Statements of Shareholders' Equity ..................      24

      Consolidated Statements of Cash Flows ............................      25

      Notes To Consolidated Financial Statements .......................      27

SHAREHOLDER INFORMATION.................................................      44

CORPORATE INFORMATION...................................................      45




<PAGE>
[GRAPHIC-PHOTO OF          ]



Dear Fellow Shareholder:

Peoples-Sidney Financial Corporation posted a record year in 1998!

In this letter,  I will highlight where the  Corporation  has been and,  through
strategic  planning,  where the Corporation is heading as we move toward the new
millenium.


RECORD EARNINGS

The  Corporation's  goal of achieving  historically high net income was met. Net
income for the year ended June 30, 1998 reached  $1,233,309,  or $.74 per share.
These earnings were achieved as the result of increased loan demand supported by
steady deposits and stable interest rates.  Our  loan-to-deposit  ratio exceeded
120% meaning that the  Corporation  invested  all  available  funds in mortgage,
consumer  and other loans in order to earn maximum  returns for our  Corporation
and our shareholders and to better serve our community.


FACILITIES EXPANSION

In late 1997,  we announced  plans to construct our first branch office in Anna,
Ohio, a diverse and growing  community  located within our county. As you review
this  letter,  final  preparations  are being made for the grand  opening of the
facility.  We look forward to serving the Anna residents and business  community
by building  upon our current  relationships  and  expanding  our  products  and
services.

In May 1998,  we  announced  plans to expand our presence  into Jackson  Center,
Ohio, and to establish  another  full-service  branch office.  Jackson Center is
located in Northeast Shelby County.  In anticipation of an October  opening,  we
are completing the remodeling of our leased space and hiring talented  personnel
to promote our "community" banking products and services to the residents of the
Jackson Center area.


CAPITAL MANAGEMENT

Since our  conversion  to a stock  company in April  1997,  your  directors  and
management team have been carefully  evaluating the "new" capital  infusion as a
result of the overwhelming response to our public offering.

We realize that the investment  community looks carefully for favorable  "return
on assets" and "return on equity" ratios.  Our Board is committed to analyze all
possibilities to keep our capital level manageable,  and, over a period of time,
strive to reach reasonable  returns on capital.  This will be accomplished as we
continue to grow the  Corporation  and examine  other means to add value for our
shareholders.  This year, as a result of our evaluation,  the Board of Directors
declared a special  cash  distribution  of $4.00 per share and also  announced a
stock repurchase program.


2
<PAGE>
YEAR 2000 ISSUE

As with all financial service providers, our operations are heavily dependent on
information  technology systems.  Management has been working with the companies
that supply or service our information technology systems to identify and remedy
any  potential  Year 2000  problems.  We will  continue  to access  and test our
systems to assure compliance into 2000 and beyond.


OUR PEOPLE, PRODUCTS AND COMMUNITIES

Peoples  Federal's  success over the years can be traced directly to the talent,
dedication  and  enthusiasm  of our  employees at every  level.  The benefits of
hiring the best people available as we expand our facilities are foremost in our
planning.

From the  beginning,  we have focused  upon our  customers - much more than just
serving  them - by truly  getting  to know  them and  their  banking  needs.  We
continually  examine our products and services to meet our  customers'  evolving
needs.  We believe  that our  customers  expect to continue to work with persons
that they have known and trust.  Our Mission in Sidney,  Anna and Jackson Center
is  to  bring  "hometown"   banking  services  to  the  residents  and  business
communities  for the long  term.  We want to be the  "Peoples"  choice and build
relationships that will extend from generation to generation.

In conclusion, we are pleased with the current positioning of our Corporation in
an ever-changing business environment. While we cannot assure the stock market's
continual rise or a repeat of our past years'  performance,  we can promise that
our  management  team is committed to being a long-term  player in the financial
services arena. The Board, officers and employees of the Corporation  appreciate
the  confidence  of your  support.  We invite  you to  encourage  you family and
friends to use our services.


                                                          Sincerely,




                                                          Douglas Stewart
                                                          President and CEO


                                                                               3
<PAGE>
BUSINESS OF PEOPLES-SIDNEY
FINANCIAL CORPORATION

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

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

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

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

The Corporation had 1,775,375 common shares  outstanding on August 7, 1998, held
of record by approximately 952  shareholders.  Price information with respect to
the Corporation's  common shares is quoted on The Nasdaq National Market System.
The high and low  trading  prices for the common  shares of the  Corporation  as
quoted by The Nasdaq Stock Market,  Inc., and cash dividends paid by quarter are
shown below.
<TABLE>
<CAPTION>
                                            September 30,      December 31,      March 31,         June 30,
                                                1997              1997             1998              1998
                                          --------------     -------------    ------------     --------------
<S>                                       <C>                <C>              <C>              <C>           
              High                        $        17.00     $       18.50    $      18.63     $        24.38
              Low                                  13.63             13.38           17.50              17.00
              Cash Dividends(1)                      .05               .07             .07               4.07
</TABLE>
The trading price for the common shares of the Corporation  from April 25, 1997,
the date of  formation,  to June 30, 1997, as quoted by The Nasdaq Stock Market,
Inc., ranged from $12.88 to $14.06. No dividends were paid during the year ended
June 30, 1997.
---------------

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

4
<PAGE>
In addition to certain federal income tax considerations, OTS regulations impose
limitations  on the payment of  dividends  and other  capital  distributions  by
savings  associations.  Under OTS  regulations  applicable to converted  savings
associations,  the  Association  is not  permitted to pay a cash dividend on its
common shares if its regulatory  capital  would,  as a result of payment of such
dividend,  be reduced below the amount required for the Liquidation Account (the
account  established for the purpose of granting a limited priority claim on the
assets of the Association in the event of complete  liquidation to those members
of the  Association  before the Conversion who maintain a savings account at the
Association after the Conversion), or applicable regulatory capital requirements
prescribed by the OTS.

OTS regulations  applicable to all savings and loan associations  provide that a
savings  association  which immediately prior to, and on a pro forma basis after
giving  effect to, a proposed  capital  distribution  (including a dividend) has
total capital (as defined by OTS  regulations)  that is equal to or greater than
the amount of its  capital  requirements  is  generally  permitted  without  OTS
approval  (but  subsequent  to 30 days prior  notice to the OTS) to make capital
distributions,  including dividends,  during a calendar year in an amount not to
exceed the greater of (1) 100% of its net  earnings to date during the  calendar
year,  plus an amount equal to one-half  that which its total  capital to assets
ratio  exceeded  its required  capital to assets  ratio at the  beginning of the
calendar  year, or (2) 75% of its net earnings for the most recent  four-quarter
period.   Savings   associations  with  total  capital  more  than  the  capital
requirements  that have been  notified  by the OTS that they are in need of more
than normal supervision will be subject to restrictions on dividends.  A savings
association  that  fails  to  meet  current  minimum  capital   requirements  is
prohibited from making any capital  distributions  without the prior approval of
the OTS.

The Association currently meets all of its capital requirements and, because the
OTS has not determined  that the  Association  is an institution  requiring more
than normal  supervision,  the  Association may pay dividends in accordance with
the foregoing provisions of OTS regulations.


                                                                               5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA

The following tables set forth certain  information  concerning the consolidated
financial  condition and earnings of and other data regarding the Corporation at
the dates and for the periods  indicated.  As the  conversion  was  completed on
April 25,  1997,  information  before the year  ended  June 30,  1997 is for the
Association.
<TABLE>
<CAPTION>
Selected Financial Condition                                            At June 30,
----------------------------             --------------------------------------------------------------------------
  and Other Data:                             1998          1997            1996            1995           1994
  ---------------                        ------------   -------------   ------------   ------------    ------------
                                                                       (In thousands)
<S>                                      <C>            <C>             <C>            <C>             <C>         
Total amount of:
     Assets                              $    105,903   $     103,142   $     86,882   $     78,976    $     76,134
     Time deposits with other
       financial institutions                     100           5,000          1,100              -               -
     Securities available for sale              4,016           2,013              -              -               -
     Securities held to maturity                    -           1,999          2,598          3,098           3,596
     FHLB stock                                   847             763            667            622             572
     Loans receivable, net (1)                 94,053          88,924         78,233         71,933          66,610
     Deposits                                  79,054          77,045         77,318         70,306          68,367
     Borrowed funds                             7,000               -              -              -               -
     Shareholders' equity (2)                  19,626          25,712          9,213          8,361           7,526
<CAPTION>
                                                                    Year ended June 30,
                                         --------------------------------------------------------------------------
Selected Operations Data:                     1998          1997            1996            1995           1994
-------------------------                ------------   -------------   ------------   ------------    ------------
                                                                    (In thousands)
<S>                                      <C>            <C>             <C>            <C>             <C>         
Interest and dividend income             $      8,067   $       7,189   $      6,513   $      5,725    $      5,071
Interest expense                                3,944           4,051          3,706          2,968           2,637
                                         ------------   -------------   ------------   ------------    ------------
Net interest income                             4,123           3,138          2,807          2,757           2,434
Provision for loan losses                          41             103             68             55              83
                                         ------------   -------------   ------------   ------------    ------------
Net interest income after
  provision for loan losses                     4,082           3,035          2,739          2,702           2,351
Service fees and other charges                     63              63             57             60              65
Noninterest expense                             2,205           2,222          1,504          1,495           1,427
                                         ------------   -------------   ------------   ------------    ------------
Income before income taxes and
  accounting change                             1,940             876          1,292          1,267             989
Income tax expense                                707             312            440            432             334
Cumulative effect of change in
  accounting for income taxes                       -               -              -              -             (69)
                                         ------------   -------------   ------------   ------------    ------------
Net income                               $      1,233   $         564   $        852   $        835    $        586
                                         ============   =============   ============   ============    ============
Earnings per common
  share - basic (3)                      $        .74   $        .09
                                         ============   ============
Earnings per common
  share - diluted (3)                    $        .74   $        .09
                                         ============   ============
Dividends declared per share (3)         $       4.26   $          -
                                         ============   ============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
                                                             At or for the year ended June 30,
                                              -----------------------------------------------------------------
Selected Financial Ratios and                  1998          1997            1996            1995          1994
-----------------------------                 -----         -----           -----           -----         -----
  Other Data:
  -----------
<S>                                           <C>           <C>             <C>             <C>           <C>  
Performance Ratios:
     Return on assets (ratio of net
       income to average total assets)         1.17%         0.60%           1.01%           1.07%         0.79%
     Return on equity (ratio of net
       income to average equity) (2)           4.77          4.70            9.70           10.55          8.10
     Interest rate spread (4):
       Average during period                   2.78          2.81            2.97            3.30          3.05
       End of period                           2.63          2.62            2.74            3.08          2.99
     Net interest margin (5)                   4.01          3.45            3.41            3.66          3.35
     Ratio of operating expense to
       average total assets                    2.10          2.38            1.78            1.93          1.91
     Ratio of average interest-earning
       assets to average interest-
       bearing liabilities                     1.32x         1.14x           1.10x           1.09x         1.08x
Quality Ratios:
     Nonperforming assets to total
       assets at end of period (6)             0.91%         0.84%           1.41%           1.80%         2.10%
     Allowance for loan losses to
       nonperforming loans                    44.41         45.78           25.14           17.70         12.98
     Allowance for loan losses to
       gross loans receivable (7)              0.44          0.43            0.37            0.33          0.29
Capital Ratios:
     Shareholders' equity to total
       assets at end of period (2)            18.53         24.93           10.60           10.59          9.88
     Average equity to average
       assets (2)                             24.59         12.87           10.43           10.24          9.70
Other Data:
     Number of full service offices            1             1               1               1             1
</TABLE>
----------- 
(1)  Loans  receivable  are shown net of loans in  process,  net  deferred  loan
     origination fees and the allowance for loan losses.
(2)  Retained earnings only before June 30, 1997.
(3)  Earnings and dividends per share are not  applicable for any of the periods
     presented  before  June 30,  1997 due to the  Association's  mutual form of
     ownership  before April 25,  1997.  Earnings per share for the period ended
     June 30, 1997 were  computed  based on net income of the  Corporation  from
     April 25, 1997 to June 30, 1997. The dividends for 1998 include a $4.00 per
     share special return of capital distribution.
(4)  The average  interest rate spread  represents  the  difference  between the
     weighted average yield on interest-earning  assets and the weighted average
     cost of interest-bearing liabilities.
(5)  The net interest  margin  represents  net  interest  income as a percent of
     average interest-earning assets.
(6)  Nonperforming  assets consist of nonperforming loans and foreclosed assets.
     Nonperforming  loans consist of all accruing loans 90 days or more past due
     and all nonaccrual loans.
(7)  Gross loans receivable are stated at unpaid principal balances.

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

General

The following is management's analysis of the Corporation's  financial condition
and results of operations  as of and for the year ended June 30, 1998,  compared
to prior  years.  This  discussion  is designed to provide a more  comprehensive
review of the operating  results and  financial  position than could be obtained
from an examination of the financial  statements  alone. This analysis should be
read in  conjunction  with the  consolidated  financial  statements  and related
footnotes and the selected financial data included elsewhere in this report.

On November  8, 1996,  the Board of  Directors  of the  Association  unanimously
adopted a Plan of  Conversion  to  convert  from a  federally  chartered  mutual
savings and loan  association  to a federally  chartered  stock savings and loan
association with the concurrent  formation of a holding company,  Peoples-Sidney
Financial  Corporation.  The  conversion  was  consummated  on April 25, 1997 by
amending  the  Association's  charter and the sale of the  Corporation's  common
stock in an amount  equal to the market  value of the  Association  after giving
effect to the conversion.  A total of 1,785,375 common shares of the Corporation
were sold at $10.00 per share and net  proceeds  from the sale were  $17,217,944
after deducting the costs of conversion.

The Corporation retained 50% of the net proceeds from the sale of common shares.
The  remainder of the net  proceeds was invested in the capital  stock issued by
the Association to the Corporation because of the conversion.

The Corporation 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 in Shelby, Logan, Auglaize,  Miami, Darke and Champaign Counties,  Ohio.
The Corporation also originates,  to a lesser extent, loans for the construction
of one- to four-family  residential  real estate,  loans secured by multi-family
residential real estate (over four units) and  nonresidential  real estate,  and
consumer  and  commercial   business  loans  and  invests  in  U.S.   government
obligations, interest-bearing deposits in other financial institutions and other
investments permitted by applicable law.


Forward Looking Statements

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

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


Financial Condition

Total assets at June 30, 1998 were $105.9 million  compared to $103.1 million at
June 30,  1997,  an increase of $2.8  million,  or 2.7%.  The  increase in total
assets  was  primarily  due to an  increase  in loans  funded by  proceeds  from
maturities  of time  deposits  in other  financial  institutions  and  increased
deposits.

$4.9 million net maturities of time deposits with other  financial  institutions
were redirected to provide for loan growth. The excess of such funds, which were
not used to fund loan growth,  were invested in  interest-bearing  deposits with
other banks and overnight  deposits to provide liquidity for future loan growth.
Interest-bearing  deposits  with other banks  increased  $794,000 and  overnight
funds  increased  $1.0  million  from  June  30,  1997 to June 30,  1998.  Total
securities  remained  relatively  unchanged as funds  provided by  maturities of
securities  classified  as  held  to  maturity  were  reinvested  in  securities
classified as available for sale.

Loans  receivable  increased $5.2 million from $88.9 million at June 30, 1997 to
$94.1 million at June 30, 1998.  The  Corporation  experienced  increases in all
mortgage loan  categories  except for land. The largest  increase was in one- to
four-family  residential  real estate loans which  increased  $3.9 million while
multi-family  residential  and commercial real estate loans increased a combined
total of $1.2 million.  The increase in total  mortgage loans is reflective of a
strong local economy coupled with attractive loan rates and products compared to
local  competition.  The  Corporation  has not changed its philosophy  regarding
pricing or underwriting standards during the year.

The Corporation's  consumer and other loan portfolio  decreased $160,000 between
June 30, 1997 and June 30, 1998.  Consumer  loans remain a small  portion of the
entire loan portfolio and represented  only 2.2% and 2.5% of gross loans at June
30, 1998 and June 30, 1997.

Total  deposits  increased  $2.1 million from $77.0  million at June 30, 1997 to
$79.1 million at June 30, 1998.  The  Corporation  experienced  increases in all
types of deposits other than negotiable  orders of withdrawal  ("NOW") accounts,
which  decreased  only  slightly.  The majority of deposit growth was in savings
accounts,  which  increased  by  $770,000  and  certificates  of deposit  which,
increased  by $1.1  million.  Management  believes  the  shift of funds  between
savings  and NOW  accounts is the result of normal  patterns of consumer  use of
funds. Certificate of deposit growth has been due to normal operating procedures
as the  Corporation  has not used any special  promotions  to attract  increased
volume.  All  certificates of deposit mature within five years with the majority
maturing in the next two years.

Borrowed  funds  totaled  $7.0  million  at June 30,  1998  while  there were no
borrowings at June 30, 1997. The  Association  borrowed $7.0 million under a ten
year fixed rate advance from the Federal Home Loan Bank of  Cincinnati  ("FHLB")
to fund a $4.00 per share tax-free return of capital totaling $7.1 million.  The
Corporation  paid the return of capital on June 26,  1998 as a means of reducing
the excess capital provided from the stock conversion.
<PAGE>
As an additional source of liquidity,  the Association  maintains a $5.1 million
cash management line-of-credit with the FHLB. There were no advances outstanding
under this line of credit at June 30, 1998 or 1997.  Advances are variable  rate
and can be prepaid at any time without  penalty.  Advances may be obtained  from
the FHLB to fund future loan growth and liquidity.

Total shareholders' equity decreased $6.1 million from $25.7 million at June 30,
1997 to $19.6 million at June 30, 1998. The net decrease is due to the return of
capital discussed above.

                                                                               9
<PAGE>
Results of Operations

The  operating  results of the  Corporation  are  affected  by general  economic
conditions,  the  monetary  and  fiscal  policies  of federal  agencies  and the
regulatory  policies of  agencies  that  regulate  financial  institutions.  The
Corporation's  cost of funds  is  influenced  by  interest  rates  on  competing
investments  and  general  market  rates of  interest.  Lending  activities  are
influenced  by the demand for real estate loans and other types of loans,  which
in turn is affected by the interest rates at which such loans are made,  general
economic conditions and the availability of funds for lending activities.

The  Corporation's  net income  primarily  depends upon its net interest income,
which is the difference  between the interest income earned on  interest-earning
assets,  such  as  loans  and  securities,  and  interest  expense  incurred  on
interest-bearing  liabilities,  such as deposits and other borrowings. The level
of net interest  income is dependent upon the interest rate  environment and the
volume  and  composition  of   interest-earning   assets  and   interest-bearing
liabilities.  Net income is also affected by provisions for loan losses, service
charges,  gains on the sale of assets and other income,  noninterest expense and
income taxes.


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

Net Income.  The Corporation  earned net income of $1,233,000 for the year ended
June 30, 1998  compared  to net income of  $564,000  for the year ended June 30,
1997.  The  increase  in net  income was  primarily  due to an  increase  in net
interest income and reduced FDIC deposit insurance  premiums partially offset by
an increase in the noninterest  expense categories of compensation and benefits,
state franchise taxes and other expense.

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

Interest and fees on loans increased $658,000,  or 9.7%, from $6,805,000 for the
year ended June 30, 1997 to  $7,463,000  for the year ended June 30,  1998.  The
increase in interest income was due to higher average loans receivable,  related
primarily  to the  origination  of new  one-  to  four-family  first  mortgages.
Additionally,  interest on loans was also  enhanced by a slight  increase in the
average  yield  earned on loans from  8.06% for the year ended June 30,  1997 to
8.09% for the year ended June 30, 1998.

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

Dividends on FHLB stock increased slightly over the comparable periods due to an
increase in the number of shares of FHLB stock owned  combined  with an increase
in the dividend rate paid by the FHLB.

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

10
<PAGE>
Interest paid on borrowed  funds totaled $6,000 for the year ended June 30, 1998
compared to $65,000 for the year ended June 30, 1997.  The decrease was a result
of a decrease in the average level of borrowings over the comparable period. The
Corporation  did not borrow  funds  during  1998 until June 25, 1998 to fund the
return of capital  discussed  previously.  Throughout 1997, the Corporation used
short-term  advances  from  the  FHLB to  provide  liquidity  for  loan  growth.
Management expects interest paid on borrowed funds to significantly  increase in
the future as a result of the $7.0 million ten year,  fixed-rate,  interest-only
advance  borrowed at the end of 1998 to fund the return of  capital.  The annual
interest expense related to the advance,  assuming no principal repayment,  will
be $429,000.

Provision  for Loan Losses.  The  Corporation  maintains  an allowance  for loan
losses in an amount  that,  in  management's  judgment,  is  adequate  to absorb
reasonably  foreseeable losses inherent in the loan portfolio.  While management
utilizes its best judgment and information  available,  the ultimate adequacy of
the allowance is dependent upon a variety of factors,  including the performance
of the Corporation's loan portfolio,  the economy, changes in real estate values
and  interest  rates  and the view of the  regulatory  authorities  toward  loan
classifications.  The  provision  for loan losses is determined by management as
the amount to be added to the  allowance  for loan losses after net  charge-offs
have  been  deducted  to bring  the  allowance  to a level  which is  considered
adequate  to absorb  losses  inherent in the loan  portfolio.  The amount of the
provision is based on  management's  monthly  review of the loan  portfolio  and
consideration of such factors as historical loss experience,  general prevailing
economic  conditions,  changes in the size and composition of the loan portfolio
and specific borrower  considerations,  including the ability of the borrower to
repay the loan and the estimated value of the underlying collateral.

The provision  for loan losses for the year ended June 30, 1998 totaled  $41,000
compared to $103,000 for the year ended June 30, 1997, a decrease of $62,000, or
60.2%. The allowance for loan losses totaled  $426,000,  or 0.44% of total loans
receivable  and 44.4% of total  nonperforming  loans at June 30, 1998,  compared
with  $397,000,   or  0.43%  of  total  loans  receivable  and  45.8%  of  total
nonperforming  loans  at June  30,  1997.  The  reduction  in the  provision  is
reflective  of the fact that the  Corporation  has not  experienced  significant
charge-offs in any period presented.  Charge-offs experienced by the Corporation
have primarily related to consumer and other non-real estate loans. As indicated
previously,  such loans make up an  insignificant  portion of the  Corporation's
total loan portfolio. The Corporation's low historical charge-off history is the
product  of a variety  of  factors,  including  the  Corporation's  underwriting
guidelines, which generally require a loan-to-value or projected completed value
ratio of 90% for purchase or  construction  of one- to  four-family  residential
properties and 75% for commercial real estate and land loans, established income
information and defined ratios of debt to income. Notwithstanding the charge-off
history, as well as a low volume of non-performing loans, management believes it
is prudent to continue to increase the  allowance for loan losses as total loans
increase. Accordingly, management anticipates it will continue its provisions to
the allowance for loan losses as loan growth continues.

Noninterest   income.   Noninterest  income  includes  service  fees  and  other
miscellaneous  income and  totaled  $63,000 for each of the years ended June 30,
1998 and 1997.

Noninterest  expense.  Noninterest expense totaled $2,205,000 for the year ended
June 30,  1998  compared  to  $2,222,000  for the year  ended June 30,  1997,  a
decrease of $17,000,  or 0.8%.  Increases in  compensation  and benefits,  state
franchise taxes and other expenses were offset by a decrease in the FDIC deposit
insurance premiums.

                                                                              11
<PAGE>
Compensation and benefits expense increased $216,000,  or 24.7%. The increase is
the result of normal, annual merit increases,  the addition of new employees and
the added expense of employee benefit plans. The expense related to the employee
stock  ownership  plan  increased as the  Corporation  was able to allocate more
shares to  participants  in 1998.  Compensation  expense related to the ESOP was
$250,000  for the year ended June 30, 1998  compared  to  $136,000  for the year
ended June 30, 1997. The Corporation also  implemented a Management  Recognition
Plan ("MRP") in May, 1998.  State franchise taxes increased  $80,000,  or 59.7%,
due to the change in corporate  structure  during  fiscal 1997 and the resulting
tax impact of higher  capital  levels at the  Association  and  earnings  at the
Corporation. The third and fourth quarters of fiscal 1998 were the first periods
impacted by the capital raised in the conversion.  The increase in other expense
was  attributable to increases in director fees,  professional  service fees and
printing costs.  These increases were largely related to the conversion to stock
ownership.

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

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

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

Prior to the enactment of legislation discussed below, thrifts which met certain
tests  relating to the  composition  of assets had been  permitted  to establish
reserves for bad debts and to make annual additions thereto which could,  within
specified  formula limits,  be taken as a deduction in computing  taxable income
for federal  income tax purposes.  The amount of the bad debt reserve  deduction
for  "nonqualifying  loans" was computed under the experience method. The amount
of the bad debt reserve  deduction for "qualifying real property loans" could be
computed under either the experience  method or the percentage of taxable income
method, based on an annual election.
<PAGE>
In August  1996,  legislation  was enacted  that  repeals the reserve  method of
accounting  used by many thrifts to calculate their bad debt reserve for federal
income tax  purposes.  Therefore,  small  thrifts such as the  Association  must
recapture  that  portion of the reserve  that exceeds the amount that could have
been taken under the experience  method for tax years  beginning  after December
31, 1987.  The  legislation  also requires  thrifts to account for bad debts for
federal income tax purposes on the same basis as commercial  banks for tax years
beginning  after  December 31, 1995.  The  recapture  will occur over a six-year
period,  the commencement of which will be delayed until the first  taxable-year
beginning  after  December 31,  1997,  provided the  institution  meets  certain
residential  lending  requirements.  At  June  30,  1998,  the  Association  had
approximately  $581,000 in bad debt  reserves  subject to recapture  for federal
income tax  purposes.  The deferred tax  liability  related to the recapture has
been previously established.

12
<PAGE>
Comparison  of Results of  Operations  for the Year Ended June 30, 1997 and June
30, 1996

Net Income.  The  Corporation  earned net income of $564,000  for the year ended
June 30,  1997,  compared to net income of $852,000  for the year ended June 30,
1996.  The  decrease  in net income  was  primarily  the  result of the  special
deposit-insurance assessment discussed previously.

Net Interest Income.  Net interest income totaled  $3,138,000 for the year ended
June 30,  1997  compared  to  $2,807,000  for the year ended June 30,  1996,  an
increase  of  $331,000,   or  11.8%.  The  change  in  net  interest  income  is
attributable to higher average  balances of  interest-earning  assets  partially
offset by an overall  increase  in the cost of funds on an  increased  volume of
interest-bearing liabilities. The increase in the cost of funds was attributable
to a larger portion of the deposit base being in higher yielding certificates of
deposit and an increased level of borrowed funds.

Interest and fees on loans increased $757,000, or 12.5%, from $6,048,000 for the
year ended  June 30,  1996 to  $6,805,000  the year  ended  June 30,  1997.  The
increase  in  interest  income  was  due to  higher  average  loans  receivable,
partially  offset by a decline in the average  yield  earned on loans from 8.17%
for the year ended June 30, 1996 to 8.06% for the year ended June 30, 1997.

Interest earned on securities  totaled $141,000 for the year ended June 30, 1997
compared to $150,000 for the year ended June 30, 1996. The decrease was a result
of lower average  balances of securities  partially offset by an increase in the
average yield earned.

Interest on  interest-bearing  deposits and overnight deposits decreased $76,000
for the year ended June 30, 1997  compared to the year ended June 30, 1996.  The
decline was the result of lower  average  balances of  interest-bearing  demand,
time and overnight deposits, offset by slightly higher rates earned.

Dividends  on FHLB stock  increased  slightly  for the year ended June 30, 1997,
compared to the year ended June 30,  1996,  primarily  due to an increase in the
number of shares of FHLB stock owned.

Interest  paid on deposits  increased  $279,000 for the year ended June 30, 1997
compared to the year ended June 30, 1996.  The increase in interest  expense was
due to an increase in average deposit balances  combined with an increase in the
cost of funds.  The average cost of deposits  increased  from 4.94% for the year
ended June 30, 1996, to 5.09% for the year ended June 30, 1997.  The increase in
the average cost of deposits was the result of a shift in deposit  accounts from
savings and demand deposit accounts to higher yielding  certificates of deposits
as a result of special  interest rate  promotions for  certificates  of deposit.
Certificates of deposit  increased from 69.5% of total deposits at June 30, 1996
to 71.3% of total  deposits  at June 30,  1997.  The  yield on  certificates  of
deposits was 5.84% for the year ended June 30,  1996,  compared to 5.93% for the
year ended June 30, 1997,  while the average yield on savings and demand deposit
accounts  increased from 2.91% for the year ended June 30, 1996 to 2.96% for the
year ended June 30, 1997.

The Corporation  borrowed funds for the first time from the FHLB during the year
ended  June  30,  1997.  The  borrowings  were  used as a source  of  short-term
liquidity to provide  funding for loan demand and were repaid  before  year-end.
Interest on the borrowings totaled $65,000 for the year ended June 30, 1997. The
average yield paid on the borrowings was 5.59%.

Provision for Loan Losses. The provision for loan losses for the year ended June
30, 1997 totaled $103,000  compared to $68,000 for the year ended June 30, 1996,
an  increase  of  $35,000,  or 51.5%.  The  allowance  for loan  losses  totaled
$397,000,  or 0.43% of total loans  receivable and 45.8% of total  nonperforming
loans  at June 30,  1997,  compared  with  $307,000,  or  0.37%  of total  loans
receivable and 25.1% of total nonperforming loans at June 30, 1996. The increase
in the provision for loan losses was  primarily  attributable  to an increase in
the total loan portfolio.

                                                                              13
<PAGE>
Noninterest  income.  Noninterest  income for the year  ended June 30,  1997 was
$63,000  compared  to $57,000 for the year ended June 30,  1996,  an increase of
$6,000,  or 10.5%. The increase was primarily a result of an increase in various
service fees collected and miscellaneous operating income.

Noninterest expense.  Noninterest expense was $2,222,000 for the year ended June
30, 1997 compared to $1,503,000 for the year ended June 30, 1996, an increase of
$719,000,  or 47.8%.  The increase was primarily a result of a $456,000  special
deposit-insurance  assessment resulting from legislation  discussed  previously.
Other significant components of the increase include an increase in compensation
and benefits expense by $208,000, or 31.2%, and an increase in other expenses by
$77,000, or 26.7%.  Compensation and benefits expense increased primarily due to
the added expense from the  implementation of an employee  stock-ownership  plan
combined with normal, annual merit increases. The increase in other expenses was
a result of an increase in directors  compensation  combined  with  increases in
other miscellaneous expenses arising from the process of converting to mutual to
stock ownership.

Income Tax Expense. The provision for income taxes totaled $312,000 for the year
ended June 30, 1997  compared to $441,000  for the year ended June 30,  1996,  a
decrease of $129,000,  or 29.3%.  The decrease was largely due to the tax effect
of $(155,000) for the special assessment discussed previously. The effective tax
rates  were  35.6%  and  34.1%  for the  years  ended  June 30,  1997 and  1996,
respectively.


14
<PAGE>
Yields Earned and Rates Paid. The following table sets forth certain information
relating to the Corporation's average balance sheet information and reflects the
average   yield   on   interest-earning   assets   and  the   average   cost  of
interest-bearing  liabilities for the periods  indicated.  Such yields and costs
are  derived  by  dividing  income  or  expense  by  the  average   balances  of
interest-earning assets or interest-bearing liabilities,  respectively,  for the
periods  presented.  Average  balances are derived from average daily  balances.
Nonaccruing  loans  have been  included  in the table as loans  carrying  a zero
yield.
<TABLE>
<CAPTION>
                                                                    Year ended June 30,
                          -----------------------------------------------------------------------------------------------------
                                          1998                               1997                              1996
                          ---------------------------------   -------------------------------    ------------------------------
                            Average     Interest                Average    Interest                Average   Interest
                          outstanding    earned/     Yield/   outstanding   earned/    Yield/    outstanding  earned/   Yield/
                            balance       paid        rate      balance      paid        rate      balance     paid       rate
                           ---------      -----       ----     --------      -----       ----     --------     -----      ----
                                                                   (Dollars in thousands)
<S>                        <C>          <C>           <C>      <C>         <C>           <C>      <C>         <C>         <C>  
Interest-earning assets:
   Interest-earning
     deposits              $   5,919    $   295       4.98%    $  3,467    $   194       5.60%    $  4,849    $ 270       5.57%
   Securities available
     for sale (1)              3,013        199       6.65          308         21       6.84            -        -          -
   Securities held to
     maturity                    958         53       5.53        2,138        120       5.61        2,752      150       5.45
   Loans receivable (2)       92,208      7,463       8.09       84,421      6,805       8.06       74,071    6,048       8.17
   Federal Home Loan
     Bank stock                  789         57       7.22          698         49       7.02          640       45       7.03
                           ---------    -------                --------    -------                --------    -----       
     Total interest-
       earning assets      $ 102,887      8,067       7.84     $ 91,032      7,189       7.90     $ 82,312    6,513       7.91
                           =========    -------                ========    -------                ========    ----- 
Interest-bearing
  liabilities:
   Savings deposits        $  18,236        557       3.05     $ 17,973        555       3.09     $ 18,484      563       3.05
   Demand and NOW
     deposits                  3,911         95       2.43        4,313        105       2.43        4,580      108       2.36
   Certificate accounts       55,737      3,286       5.90       56,085      3,326       5.93       52,012    3,035       5.84
                           ---------    -------                --------    -------                --------    -----       
     Total deposits           77,884      3,938       5.06       78,371      3,986       5.09       75,076    3,706       4.94

   Borrowed funds                 96          6       6.25        1,163         65       5.59            -        -          -
                           ---------    -------                --------    -------                --------    -----       
     Total interest-
      bearing liabilities    $77,980      3,944       5.06     $ 79,534      4,051       5.09     $ 75,076    3,706       4.94
                           =========    -------                ========    -------                ========    ----- 
Net interest income;
  interest rate
  spread (3)                            $ 4,123       2.78%                $ 3,138       2.81%               $2,807       2.97%
                                        =======       ====                 =======       ====                ======       ====
Net earning assets         $  24,907                           $ 11,498                           $  7,236
                           =========                           ========                           ========
Net interest margin (4)                    4.01%                                         3.45%                            3.41%
                                           ====                                          ====                             ==== 
Average interest-earning
  assets to interest-
  bearing liabilities                      1.32x                                         1.14x                            1.10x
                                           ====                                          ====                             ==== 
</TABLE>
------------------------
<PAGE>

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

                                                                              15
<PAGE>
The table below  describes  the extent to which  changes in  interest  rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected the  Corporation's  interest  income and expense  during the years
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (1) changes in
volume (multiplied by prior year rate), (2) changes in rate (multiplied by prior
year volume) and (3) total changes in rate and volume.  The combined  effects of
changes in both volume and rate, that are not separately  identified,  have been
allocated proportionately to the change due to volume and change due to rate:
<TABLE>
<CAPTION>
                                                                           Year ended June 30,
                                                     -------------------------------------------------------------
                                                            1998 vs. 1997                     1997 vs. 1996
                                                     ----------------------------      ---------------------------
                                                          Increase                         Increase
                                                         (decrease)                       (decrease)
                                                           due to                           due to
                                                     ----------------                  ---------------
                                                     Volume      Rate       Total      Volume     Rate       Total
                                                     ------      ----       -----      ------     ----       -----
                                                                            (In thousands)
<S>                                                <C>         <C>        <C>         <C>       <C>         <C>     
Interest income attributable to:
     Interest-earning deposits                     $     124   $    (23)  $     101   $   (77)  $      1    $   (76)
     Securities available for sale                       180         (2)        178        21          -         21
     Securities held to maturity                         (65)        (2)        (67)      (34)         4        (30)
     Loans receivable                                    630         28         658       835        (78)       757
     Federal Home Loan Bank stock                          7          1           8         4          -          4
                                                   ---------   --------   ---------   -------   --------    ------- 

         Total interest-earning assets             $     876   $      2         878   $   749   $    (73)       676
                                                   =========   ========   ---------   =======   ========    -------

Interest expense attributable to:
     Savings deposits                                      8         (6)          2       (16)         8         (8)
     Demand and NOW deposits                             (10)         -         (10)       (6)         3         (3)
     Certificates accounts                               (21)       (19)        (40)      241         50        291
     Borrowed funds                                      (66)         7         (59)       65          -         65

         Total interest-bearing liabilities        $     (89)  $    (18)       (107)  $   284   $     61        345
                                                   =========   ========   ---------   =======   ========    -------

Net interest income                                                       $     985                         $   331
                                                                          =========                         =======
</TABLE>
Asset and Liability Management

The Association,  like other financial institutions, is subject to interest rate
risk to the extent that its interest-earning assets reprice differently than its
interest-bearing  liabilities.  As part of its  effort  to  monitor  and  manage
interest rate risk,  the  Association  uses the "net  portfolio  value"  ("NPV")
methodology adopted by the OTS as part of its capital regulations.  Although the
Association is not currently  subject to NPV regulation  because such regulation
does not  apply to  institutions  with  less than  $300  million  in assets  and
risk-based  capital  in  excess  of  12%,  application  of NPV  methodology  may
illustrate the Association's interest rate risk.

16
<PAGE>
Generally,  NPV is the  discounted  present  value  of  the  difference  between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on  interest-bearing  and other liabilities.  The application of the methodology
attempts  to  quantify  interest  rate risk as the  change in the NPV that would
result from a theoretical 200 basis point (1 basis point equals 0.01%) change in
market interest rates.  Both a 200 basis point increase in market interest rates
and a 200 basis point decrease in market interest rates are  considered.  If the
NPV would  decrease  by more than 2% of the present  value of the  institution's
assets with either an increase or a decrease in market  rates,  the  institution
must  deduct  50%  of the  amount  of  decrease  in  excess  of  such  2% in the
calculation of the institution's  risk-based capital. See "Liquidity and Capital
Resources."

At March 31, 1998,  the most recent  available  date, 2% of the present value of
the Association's assets was $2,110,000. Because the interest rate risk of a 200
basis  point  decrease in market  interest  rates  (which was  greater  than the
interest rate risk of a 200 basis point  increase)  was  $1,588,000 at March 31,
1998, the Association would not have been required to make additional deductions
from its capital in  determining  whether  the  Association  met its  risk-based
capital requirement.

Presented  below,  as of March 31,  1998,  is an analysis  of the  Association's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel  shifts of 100 basis points in market interest rates. As illustrated in
the table,  NPV is more  sensitive to rising rates than  declining  rates.  Such
difference in sensitivity occurs principally  because, as rates rise,  borrowers
do not prepay  adjustable-rate  loans which reprice less  frequently  than on an
annual  basis,  adjustable-rate  loans with interest  rate  adjustment  caps and
fixed-rate loans as quickly as they do when interest rates are declining.  Thus,
in a rising  interest rate  environment,  the amount of interest the Association
would receive on its loans would increase  relatively slowly as loans are slowly
prepaid  and new loans at higher  rates are made.  Moreover,  the  interest  the
Association  would  pay on its  deposits  would  increase  rapidly  because  the
Association's deposits generally have shorter periods to repricing.
<TABLE>
<CAPTION>
                                                                       NPV as % of                 Target Limit            
                                                                    Portfolio Value                    Under      
                                Net Portfolio Value                    of Assets                  Asset/Liability 
  Change             -------------------------------------      ------------------------             Management    
 in Rates             $ Amount    $ Change     % Change         NPV Ratio       % Change               Policy      
 --------             --------    --------     --------         ---------       --------               ------      
<S>                    <C>         <C>           <C>              <C>             <C>                    <C>  
   +400                $15,187     $(3,087)      (16.9)%          14.39%          (16.9)%                (75)%
   +300                 16,493      (1,781)       (9.7)           15.63            (9.7)                 (45)
   +200                 17,703        (571)       (3.1)           16.78            (3.1)                 (20)
   +100                 18,259         (15)       (0.1)           17.30            (0.1)                 (10)
   Static               18,274           0         0.0            17.32             0.0                    0
   (100)                17,508        (766)       (4.2)           16.59            (4.2)                 (10)
   (200)                16,686      (1,588)       (8.7)           15.81            (8.7)                 (20)
   (300)                16,074      (2,200)      (12.0)           15.23           (12.1)                 (45)
   (400)                15,898      (2,376)      (13.0)           15.07           (13.0)                 (75)
</TABLE>
<PAGE>
As with any method of measuring  interest rate risk,  certain  shortcomings  are
inherent  in  the  NPV  approach.  For  example,  although  certain  assets  and
liabilities may have similar maturities or periods of repricing,  they may react
in different  degrees to changes in market  interest  rates.  Also, the interest
rates on certain  types of assets and  liabilities  may  fluctuate in advance of
changes in market  interest  rates,  while interest rates on other types may lag
behind  changes in market rates.  Further,  in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed  securities and
early  withdrawal  levels from  certificates  of deposit  would  likely  deviate
significantly from those assumed in making risk calculations.



                                                                              17
<PAGE>
Liquidity and Capital Resources

The Corporation's  liquidity,  primarily  represented by cash equivalents,  is a
result of its operating,  investing and financing  activities.  These activities
are summarized below for the years ended June 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
                                                                                    Year Ended June 30,
                                                                   -------------------------------------------------
                                                                        1998              1997             1996
                                                                   -------------     ------------      ------------
<S>                                                                <C>               <C>               <C>         
Net income                                                         $       1,233     $        564      $        852
Adjustments to reconcile net income to net
  cash from operating activities                                              83              134               (15)
                                                                   -------------     ------------      ------------
Net cash from operating activities                                         1,316              698               837
Net cash from investing activities                                          (602)         (16,140)           (6,968)
Net cash from financing activities                                         1,437           15,517             7,012
                                                                   -------------     ------------      ------------
Net change in cash and cash equivalents                                    2,151               75               881
Cash and cash equivalents at beginning of period                           2,796            2,721             1,840
                                                                   -------------     ------------      ------------
Cash and cash equivalents at end of period                         $       4,947     $      2,796      $      2,721
                                                                   =============     ============      ============
</TABLE>

The  Corporation's  principal  sources of funds are deposits,  loan  repayments,
maturities of securities and other funds provided by operations. The Corporation
also has the ability to borrow from the FHLB.  While  scheduled loan  repayments
and maturing  investments  are relatively  predictable,  deposit flows and early
loan  prepayments  are more  influenced  by  interest  rates,  general  economic
conditions and  competition.  The  Corporation  maintains  investments in liquid
assets based upon  management's  assessment of (1) need for funds,  (2) expected
deposit  flows,  (3)  yields  available  on  short-term  liquid  assets  and (4)
objectives of the asset/liability management program.

OTS regulations  presently  require the Association to maintain an average daily
balance of investments in United States Treasury, federal agency obligations and
other  investments  in an  amount  equal  to 4% of the sum of the  Association's
average  daily  balance of net  withdrawable  deposit  accounts  and  borrowings
payable in one year or less.  The  liquidity  requirement,  which may be changed
from  time to  time  by the OTS to  reflect  changing  economic  conditions,  is
intended to provide a source of relatively liquid funds on which the Association
may rely, if necessary,  to fund deposit withdrawals or other short-term funding
needs.  At June 30, 1998, the  Association's  regulatory  liquidity was 11.5% At
such date, the Corporation had  commitments to originate  fixed-rate  commercial
and  residential  real  estate  loans  totaling   $621,000,   and  variable-rate
commercial and residential  real estate mortgage loans totaling  $687,000.  Loan
commitments are generally for 30 days. The  Corporation  considers its liquidity
and capital  reserves  sufficient to meet its  outstanding  short- and long-term
needs. See Note 16 of the Notes to Consolidated Financial Statements.
<PAGE>
The  Association  is  subject  to  various   regulatory   capital   requirements
administered  by federal  regulatory  agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory  actions that, if undertaken,  could
have a direct material affect on the Association's  financial statements.  Under
capital adequacy  guidelines and the regulatory  framework for prompt corrective
action,  the  Association  must  meet  specific  capital  guidelines   involving
quantitative  measures  of the  Association's  assets,  liabilities  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Association's   capital  amounts  and   classifications   are  also  subject  to
qualitative  judgments by regulators about the  Association's  components,  risk
weightings  and  other  factors.  At June  30,  1998,  management  believes  the
Association  complied with all  regulatory  capital  requirements.  Based on the
Association's  computed regulatory capital ratios, the Association is considered
well  capitalized  under the Federal  Deposit  Insurance  Act at June 30,  1998.
Management is not aware of any matters  occurring after June 30, 1998 that would
cause the Association's capital category to change.


18
<PAGE>
The following table  summarizes the  Association's  minimum  regulatory  capital
requirements and actual capital at June 30, 1998.
<TABLE>
<CAPTION>
                                                                                Excess of Actual
                                                                             Capital Over Current
                              Actual capital        Current requirement           Requirement          Applicable
                           Amount      Percent      Amount      Percent        Amount     Percent      Asset Total
                           ------      -------      ------      -------        ------     -------      -----------
                                                    (Dollars in thousands)
<S>                      <C>            <C>        <C>            <C>         <C>          <C>        <C>        
Total risk-based
  capital                $   18,743     27.6%      $   5,426      8.0%        $  13,317    19.6%      $    67,831
Tier 1 risk-based
  capital                    18,330     27.0           2,713      4.0            15,617    23.0            67,831
Core capital                 18,330     17.3           4,240      4.0            14,090    14.3           106,009
Tangible capital             18,330     17.3           1,590      1.5            16,740    15.8           106,009
</TABLE>

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

In May 1998, the Board of Directors of the  Corporation  authorized the purchase
of up to 5% of the Corporation's  outstanding  common shares over a twelve-month
period  to  commence  on July 1,  1998.  The  shares  will be  purchased  in the
over-the-counter  market.  The number of shares to be purchased and the price to
be paid will depend  upon the  availability  of shares,  the  prevailing  market
prices  and  any  other   considerations  which  may,  in  the  opinion  of  the
Corporation's  Board of  Directors or  management,  affect the  advisability  of
purchasing shares.


Impact of New Accounting Standards

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

SFAS 130 requires that an enterprise (a) classify  items of other  comprehensive
income by their nature in a financial  statement and (b) display the accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
additional  paid-in  capital in the equity  section of a statement  of financial
position.  SFAS 130 will be effective in fiscal 1999 and is not expected to have
a significant impact on the Corporation's financial statements.
<PAGE>
SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information"  - SFAS 131  significantly  changes  the way that  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,  SFAS 131 requires  significantly more information to be disclosed for
each  reportable  segment than is presently  being reported in annual  financial
statements.  SFAS 131 also  requires  selected  information  to be  reported  in
interim financial  statements.  SFAS 131 will be effective in fiscal 1999 and is
not  expected  to  have a  significant  impact  on the  Corporation's  financial
statements.

                                                                              19
<PAGE>
SFAS No. 132,  "Employers'  Disclosures about Pensions and Other  Postretirement
Benefits" - SFAS 132 amends the disclosure  requirements of previous pension and
other  postretirement  benefit  accounting  standards  by  requiring  additional
disclosures  about such plans as well as eliminating  some disclosures no longer
considered useful.  SFAS 132 also allows greater  aggregation of disclosures for
employers with multiple defined benefit plans.  Non-public companies are subject
to reduced disclosure  requirements,  however, such entities may elect to follow
the full  disclosure  requirements  of SFAS 132.  SFAS 132 will be  effective in
fiscal  1999  and  is  not  expected  to  have  a  significant   impact  on  the
Corporation's financial statements.

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


Impact of Inflation and Changing Prices

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

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


Year 2000 Issue

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

20
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS



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


We have audited the accompanying  consolidated  balance sheets of Peoples-Sidney
Financial Corporation as of June 30, 1998 and 1997 and the related statements of
income,  shareholders'  equity and cash flows for each of the three years in the
period ended June 30, 1998. These financial statements are the responsibility of
the  Corporation's  management.  Our  responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of  Peoples-Sidney
Financial  Corporation  as of June 30,  1998 and 1997,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
June 30, 1998 in conformity with generally accepted accounting principles.




                                                   Crowe, Chizek and Company LLP

Columbus, Ohio
July 10, 1998


                                                                              21
<PAGE>
<TABLE>
<CAPTION>
                                             CONSOLIDATED BALANCE SHEETS
                                               June 30, 1998 and 1997
-------------------------------------------------------------------------------------------------------------------
                                                                                     1998                 1997
                                                                              -----------------    ----------------
<S>                                                                           <C>                  <C>             
ASSETS
Cash and amounts due from depository institutions                             $         655,188    $        297,722
Interest-bearing deposits in other financial institutions                             2,292,065           1,498,104
Overnight deposits                                                                    2,000,000           1,000,000
                                                                              -----------------    ----------------
     Total cash and cash equivalents                                                  4,947,253           2,795,826

Time deposits in other financial institutions                                           100,000           5,000,000
Securities available for sale                                                         4,015,890           2,012,802
Securities held to maturity   (Estimated fair value of $1,996,795)                            -           1,999,375
Loans receivable, net                                                                94,052,531          88,924,339
Accrued interest receivable                                                             722,401             735,462
Premises and equipment, net                                                             973,403             755,286
Federal Home Loan Bank stock available for sale                                         846,500             762,500
Other assets                                                                            245,339             156,772
                                                                              -----------------    ----------------

     Total assets                                                             $     105,903,317    $    103,142,362
                                                                              =================    ================

LIABILITIES
Deposits                                                                      $      79,053,686    $     77,045,430
Borrowed funds                                                                        7,000,000                   -
Accrued expense and other liabilities                                                   223,615             385,219
                                                                              -----------------    ----------------
     Total liabilities                                                               86,277,301          77,430,649

SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares
  authorized, none issued and outstanding
Common stock, $.01 par value, 3,500,000 shares
  authorized, 1,785,375 shares issued and outstanding                                    17,854              17,854
Additional paid-in capital                                                           10,717,991          17,234,087
Retained earnings                                                                    10,581,096           9,776,982
Unearned employee stock ownership plan shares                                        (1,702,114)         (1,326,280)
Unrealized gain on securities available for sale                                         11,189               9,070
                                                                              -----------------    ----------------
     Total shareholders' equity                                                      19,626,016          25,711,713
                                                                              -----------------    ----------------

     Total liabilities and shareholders' equity                               $     105,903,317    $    103,142,362
                                                                              =================    ================

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

22
<PAGE>
<TABLE>
<CAPTION>
                                         CONSOLIDATED STATEMENTS OF INCOME
                                     Years Ended June 30, 1998, 1997 and 1996
-------------------------------------------------------------------------------------------------------------------
                                                                      1998              1997               1996
                                                               --------------     --------------    ---------------
<S>                                                            <C>                <C>               <C>            
Interest income
     Loans, including fees                                     $    7,463,234     $    6,804,933    $     6,048,141
     Securities                                                       252,271            140,604            150,483
     Interest-bearing demand, time and overnight deposits             294,440            194,226            269,849
     Dividends on Federal Home Loan Bank stock                         57,204             49,055             44,781
                                                               --------------     --------------    ---------------
         Total interest income                                      8,067,149          7,188,818          6,513,254

Interest expense
     Deposits                                                       3,938,606          3,985,995          3,706,608
     Borrowed funds                                                     5,878             64,640                  -
                                                               --------------     --------------    ---------------
         Total interest expense                                     3,944,484          4,050,635          3,706,608
                                                               --------------     --------------    ---------------

Net interest income                                                 4,122,665          3,138,183          2,806,646

Provision for loan losses                                              41,240            102,743             68,447
                                                               --------------     --------------    ---------------
 
Net interest income after provision for loan losses                 4,081,425          3,035,440          2,738,199

Noninterest income
     Service fees and other charges                                    62,912             63,048             57,473

Noninterest expense
     Compensation and benefits                                      1,090,237            873,749            665,728
     Director fees                                                     93,000             83,800             43,200
     Occupancy and equipment                                          156,676            137,027            123,922
     Computer processing expense                                      156,470            152,318            138,926
     FDIC deposit insurance premiums                                   49,096            559,660            165,917
     State franchise taxes                                            213,864            133,639            120,222
     Other                                                            445,197            281,909            245,520
                                                               --------------     --------------    ---------------
         Total noninterest expense                                  2,204,540          2,222,102          1,503,435
                                                               --------------     --------------    ---------------

Income before income taxes                                          1,939,797            876,386          1,292,237

Income tax expense                                                    706,488            311,941            440,511
                                                               --------------     --------------    ---------------

Net income                                                     $    1,233,309     $      564,445    $       851,726
                                                               ==============     ==============    ===============

Earnings per common share - basic                              $          .74     $          .09
                                                               ==============     ==============
Earnings per common share - diluted                            $          .74     $          .09
                                                               ==============     ==============
</TABLE>
          See accompanying notes to consolidated financial statements.
                                                                              23
<PAGE>
<TABLE>
<CAPTION>
                                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                     Years Ended June 30, 1998, 1997 and 1996
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Unrealized
                                                                                                        Gain on
                                                 Additional                           Unearned        Securities
                                  Common           Paid-In            Retained          ESOP           Available
                                   Stock           Capital            Earnings         Shares           for Sale           Total
                                ------------     ------------      ------------      ------------      ------------    ------------
<S>                             <C>              <C>               <C>               <C>               <C>             <C>         
Balance, July 1, 1995           $       --       $       --        $  8,360,811      $       --        $       --      $  8,360,811

Net income for the year
  ended June 30, 1996                   --               --             851,726              --                --           851,726
                                ------------     ------------      ------------      ------------      ------------    ------------
Balance, June 30, 1996                  --               --           9,212,537              --           9,212,537

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

Sale of 1,785,375 shares of
  $.01 par common stock,
  net of conversion costs             17,854       17,200,090              --                --                --        17,217,944

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

Commitment to release
  10,202 employee stock
  ownership plan shares                 --             33,997              --             102,020              --           136,017

Change in unrealized gain on
  securities available for sale         --               --                --                --               9,070           9,070
                                ------------     ------------      ------------      ------------      ------------    ------------
Balance, June 30, 1997                17,854       17,234,087         9,776,982        (1,326,280)            9,070      25,711,713

Net income for the year
  ended June 30, 1997                   --               --           1,233,309              --                --         1,233,309

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

Return of capital - $4.00
  per share                             --         (6,602,996)             --            (538,504)             --        (7,141,500)

Commitment to release
  13,920 employee stock
  ownership plan shares                 --             86,900              --             162,670              --           249,570

Change in unrealized gain on
  securities available for sale         --               --                --                --               2,119           2,119
                                ------------     ------------      ------------      ------------      ------------    ------------
Balance, June 30, 1998          $     17,854     $ 10,717,991      $ 10,581,096      $ (1,702,114)     $     11,189    $ 19,626,016
                                ============     ============      ============      ============      ============    ============
</TABLE>
          See accompanying notes to consolidated financial statements.

24
<PAGE>
<TABLE>
<CAPTION>
                                       PEOPLES-SIDNEY FINANCIAL CORPORATION
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     Years Ended June 30, 1998, 1997 and 1995
-------------------------------------------------------------------------------------------------------------------
                                                                      1998              1997               1996
                                                              ---------------     --------------    ---------------
<S>                                                           <C>                 <C>               <C>            
Cash flows from operating activities
     Net income                                               $     1,233,309     $      564,445    $       851,726
     Adjustments to reconcile net income to
       net cash from operating activities
         Depreciation                                                  51,399             53,973             55,445
         Provision for loan losses                                     41,240            102,743             68,447
         FHLB stock dividends                                         (57,000)           (48,900)           (44,600)
         Deferred taxes                                                (1,101)           (12,778)            44,507
         Gain on sale or disposal of premises
           and equipment                                                    -                  -             (8,890)
         Compensation expense related to
           ESOP shares                                                249,570            136,017                  -
         Change in:
              Accrued interest receivable and
                other assets                                         (212,755)          (127,860)           (99,015)
              Accrued expense and other liabilities                   (25,707)            41,393             (2,259)
              Deferred loan fees                                       37,183            (11,400)           (28,282)
                                                              ---------------     --------------    ---------------
                  Net cash from operating activities                1,316,138            697,633            837,079

Cash flows from investing activities
     Purchase of securities available for sale                     (2,499,141)        (1,998,974)                 -
     Proceeds from maturities of securities
       available for sale                                             500,000                  -                  -
     Purchase of securities held to maturity                                -                  -         (2,498,047)
     Proceeds from maturities of securities
       held to maturity                                             2,000,000            600,000          3,000,000
     Purchase of time deposits in other financial
       institutions                                                (3,100,000)        (5,000,000)        (1,100,000)
     Proceeds from maturities of time deposits
       in other financial institutions                              8,000,000          1,100,000                  -
     Purchase of Federal Home Loan Bank stock                         (27,000)           (46,600)                 -
     Net increase in loans                                         (5,206,615)       (10,825,674)        (6,352,041)
     Premises and equipment expenditures                             (269,516)           (11,588)           (39,844)
     Proceeds from sale of premises and
       equipment                                                            -                  -             10,000
     Proceeds from sale of real estate owned                                -             42,652             11,938
                                                              ---------------     --------------    ---------------
         Net cash from investing activities                          (602,272)       (16,140,184)        (6,967,994)

</TABLE>
                                   (Continued)
                                                                              25
<PAGE>
<TABLE>
<CAPTION>
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                      Years ended June 30, 1998, 1997 and 1996
-------------------------------------------------------------------------------------------------------------------
                                                                     1998              1997               1996
                                                              ---------------     --------------    ---------------
<S>                                                           <C>                 <C>               <C>            
Cash flows from financing activities
     Net change in deposits                                   $     2,008,256     $     (272,076)   $     7,011,556
     Proceeds from long-term debt                                   7,000,000                  -                  -
     Proceeds from issuance of common stock,
       net of conversion costs                                              -         17,217,944                  -
     Cash provided to ESOP                                                  -         (1,428,300)                 -
     Return of capital                                             (7,141,500)                 -                  -
     Cash dividends paid                                             (429,195)                 -                  -
                                                              ---------------     --------------    ---------------
         Net cash from financing activities                         1,437,561         15,517,568          7,011,556

Net change in cash and cash equivalents                             2,151,427             75,017            880,641

Cash and cash equivalents at beginning
  of period                                                         2,795,826          2,720,809          1,840,168
                                                              ---------------     --------------    ---------------

Cash and cash equivalents at end of period                    $     4,947,253     $    2,795,826    $     2,720,809
                                                              ===============     ==============    ===============

Supplemental disclosures of
  cash flow information
     Cash paid during the year for
         Interest                                             $     3,946,041     $    4,096,411    $     3,716,477
         Income taxes                                                 951,000            240,000            406,444

     Noncash transactions
         Transfer from loans to
           real estate owned                                                -             42,652             11,938

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

26
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Nature of Operations: The Corporation and the Association's revenues,  operating
income and assets are primarily  from the financial  institution  industry.  The
Association  is engaged  primarily  in the business of making  residential  real
estate loans and accepting deposits. Its operations are conducted solely through
its main office located in Sidney,  Ohio. The Association's market area consists
of Shelby and surrounding counties.

Estimates: To prepare financial statements in conformity with generally accepted
accounting  principles,  management  makes  estimates and  assumptions  based on
available  information.  These  estimates  and  assumptions  affect the  amounts
reported in the financial  statements and the disclosures  provided,  and future
results  could differ.  The allowance for loan losses,  fair values of financial
instruments and status of contingencies are particularly subject to change.

Cash Flow  Reporting:  Cash and cash  equivalents  are  defined as cash on hand,
deposits with financial institutions,  overnight deposits and time deposits with
an original maturity of 90 days or less. Overnight deposits are sold for one-day
periods.  The  Corporation  reports net cash flows for customer loan and deposit
transactions, as well as short-term borrowings under its cash management line of
credit with the Federal Home Loan Bank of Cincinnati.

Securities:  Securities  are  classified  as held to  maturity  and  carried  at
amortized cost when  management has the positive  intent and the ability to hold
them to maturity.  Securities  are  classified  as available  for sale when they
might be sold before maturity. Securities available for sale are carried at fair
value,  with  unrealized   holding  gains  or  losses  reported   separately  in
shareholders' equity, net of tax. Securities are written down to fair value when
a decline in fair value is not temporary.  Realized gains and losses on sales of
securities  are  determined  using the amortized  cost of the specific  security
sold.  Interest and dividend  income,  adjusted by  amortization of premiums and
accretion of discounts, is included in earnings.

Loans Receivable:  Loans are reported at the principal balance outstanding,  net
of deferred  loan fees and costs and the  allowance  for loan  losses.  Interest
income is reported  on the  interest  method and  includes  amortization  of net
deferred loan fees and costs over the loan term.

Interest income is not reported when full loan repayment is in doubt,  typically
when  payments  are past due over 90 days.  Payments  received on such loans are
reported as principal reductions.

                                  (Continued)
                                                                              27
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

Real Estate  Owned:  Real estate  acquired in  collection of a loan is initially
recorded  at fair value at  acquisition.  Any  reduction  to fair value from the
carrying  value of the  related  loan at the time the  property  is  acquired is
accounted for as a loan charge-off.  After  acquisition,  a valuation  allowance
reduces the  reported  amount to the lower of the  initial  amount or fair value
less costs to sell.  Expenses,  gains and losses on disposition,  and changes in
the  valuation  allowance are reported in net gain or loss on other real estate.
The Corporation had no real estate owned at year-end 1998 or 1997.

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

Income Taxes:  Income tax expense is the sum of the current-year  income tax due
or refundable  and the change in deferred tax assets and  liabilities.  Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences   between  the  carrying   amounts  and  tax  bases  of  assets  and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.

Concentration  of  Credit  Risk:  The  Corporation's   loan  portfolio  consists
principally of long-term  conventional  loans secured by first mortgage deeds on
single family  residences  located in its primary lending area of Shelby County,
Ohio.  Mortgage loans comprise  approximately  98% and 97% of the  Corporation's
loan  portfolio  at June 30,  1998 and  1997.  The  remainder  of the  portfolio
consists of consumer and other loans secured by automobiles, deposit balances at
the Association and various other assets.

                                  (Continued)
28
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Earnings  per Common  Share:  The  Corporation  adopted  Statement  of Financial
Accounting  Standards  ("SFAS") No. 128,  "Earnings  Per Share," on December 31,
1997. SFAS No. 128 requires dual  presentation of basic and diluted earnings per
share ("EPS") for entities with complex capital  structures.  Prior EPS data has
been  restated  to conform to the new  method.  Basic EPS is based on net income
divided by the weighted average number of shares  outstanding during the period.
Diluted EPS shows the dilutive effect of unearned  management  recognition  plan
("MRP") shares and the additional common shares issuable under stock options.

As more fully  discussed  in Note 2, the  Association  converted  from mutual to
stock  ownership with the concurrent  formation of a holding  company  effective
April 25,  1997.  Accordingly,  earnings per share for the period ended June 30,
1997 was computed based on net income of the Corporation from April 25, 1997. No
earnings per common  share is shown for the years ended June 30, 1996,  as prior
to  April  25,  1997,  the  Association  was a  mutual  company.  The  financial
information for the year ended June 30, 1996 reflects the Association before the
conversion.

The weighted average number of shares  outstanding for basic and diluted EPS was
1,657,544 and  1,644,981 for the years ended June 30, 1998 and 1997.  Unreleased
employee  stock  ownership  plan  shares  are  not  considered  outstanding  for
determining the weighted average number of shares used in calculating both basic
and diluted EPS. Unearned MRP shares are not considered to be outstanding shares
for determining the weighted average number of shares used in calculating  basic
EPS.  Stock options  granted did not have a dilutive  effect on EPS for the year
ended June 30, 1998 as the  exercise  price of  outstanding  options was greater
than the average  market price for the year.  Unearned MRP shares did not have a
dilutive  effect on EPS, as no shares had been  purchased  by the MRP plan as of
June 30,  1998.  Unearned  MRP shares and stock  options did not have a dilutive
effect on the weighted average shares outstanding for the ended June 30, 1997 as
the neither MRP shares or stock options were granted until May 22, 1998.

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

Reclassification:  Reclassification of certain amounts in the prior consolidated
financial statements has been made to conform to the 1998 presentation.


                                  (Continued)
                                                                              29
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996

NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND
  LOAN ASSOCIATION WITH THE CONCURRENT FORMATION OF A HOLDING
  COMPANY

On November  8, 1996,  the Board of  Directors  of the  Association  unanimously
adopted a Plan of  Conversion  to  convert  from a  federally  chartered  mutual
savings and loan  association  to a federally  chartered  stock savings and loan
association with the concurrent  formation of a holding company,  Peoples-Sidney
Financial  Corporation.  The  conversion  was  consummated  on April 25, 1997 by
amending the Association's  charter and the sale of the holding company's common
stock in an amount  equal to the market  value of the  Association  after giving
effect to the conversion.  A total of 1,785,375 common shares of the Corporation
were sold at $10.00 per share and net  proceeds  from the sale were  $17,217,944
after deducting the costs of conversion.

The Corporation retained 50% of the net proceeds from the sale of common shares.
The  remainder of the net  proceeds was invested in the capital  stock issued by
the Association to the Corporation because of the conversion.

At the time of conversion,  the  Association  established a liquidation  account
that was equal to its  regulatory  capital  as of the  latest  practicable  date
before the  conversion.  In the event of a complete  liquidation,  each eligible
depositor  will be  entitled  to  receive a  distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for the accounts then held.

Under Office of Thrift Supervision  ("OTS")  regulations,  limitations have been
imposed on all "capital  distributions" by savings institutions,  including cash
dividends.  The regulation  establishes a three-tiered  system of  restrictions,
with the greatest flexibility afforded to thrifts that are both well-capitalized
and given favorable qualitative examination ratings by the OTS.

NOTE 3 - SECURITIES

The  amortized  cost and  estimated  fair values of  securities  at year-end are
summarized as follows:
<TABLE>
<CAPTION>
                                                                Gross           Gross          Estimated
                                               Amortized     Unrealized      Unrealized          Fair
                                                 Cost           Gains          Losses            Value
                                           ---------------    ----------    -----------     --------------
<S>                                        <C>                <C>           <C>             <C>           
1998
Securities available for sale
    U.S. Government agencies               $     3,998,936    $   21,459    $     4,505     $    4,015,890
                                           ===============    ==========    ===========     ==============
1997
Securities available for sale
    U.S. Government agencies               $     1,999,060    $   13,742    $         -     $    2,012,802
                                           ===============    ==========    ===========     ==============
Securities held to maturity
    U.S. Government agencies               $     1,999,375    $        -    $     2,580     $    1,996,795
                                           ===============    ==========    ===========     ==============
</TABLE>
                                  (Continued)
30
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996
 


NOTE 3 - SECURITIES (Continued)

The amortized  cost and estimated  fair value of securities at year-end 1998, by
contractual  maturity,  are shown  below.  Actual  maturities  could differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
                                                                                             Estimated
                                                                          Amortized            Fair
                                                                            Cost               Value
                                                                       --------------    ---------------
<S>                                                                    <C>               <C>            
        Securities available for sale
           Due in one year or less                                     $      999,717    $     1,006,720
           Due after one year through five years                            2,999,219          3,009,170
                                                                       --------------    ---------------
                                                                       $    3,998,936    $     4,015,890
                                                                       ==============    ===============
</TABLE>
No securities were pledged as collateral at year-end 1998 or 1997. No securities
were sold during the years ended June 30, 1998, 1997 and 1996.


NOTE 4 - LOANS RECEIVABLE

Year-end loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                                                              1998              1997
                                                                        ---------------   ----------------
<S>                                                                     <C>               <C>             
           Mortgage loans:
                1-4 family residential                                  $    79,690,787   $     75,808,323
                Multi-family residential                                        654,871            219,153
                Commercial real estate                                        6,608,207          5,842,476
                Real estate construction and
                  development                                                 6,776,389          6,551,430
                Land                                                            867,755          1,446,838
                                                                        ---------------   ----------------
                    Total mortgage loans                                     94,598,009         89,868,220
           Consumer and other loans                                           2,154,474          2,314,263
                                                                        ---------------   ----------------
                    Total loans receivable                                   96,752,483         92,182,483
           Less:
                Allowance for loan losses                                      (425,642)          (397,159)
                Loans in process                                             (2,078,937)        (2,702,795)
                Deferred loan fees                                             (195,373)          (158,190)
                                                                        ---------------   ----------------

                                                                        $    94,052,531   $     88,924,339
                                                                        ===============   ================
</TABLE>
<PAGE>
Activity in the  allowance for loan losses for years ended June 30 is summarized
as follows:
<TABLE>
<CAPTION>
                                                                   1998           1997           1996
                                                               ------------   ------------    ------------
<S>                                                            <C>            <C>             <C>         
         Balance at beginning of year                          $    397,159   $    307,308    $    250,880
         Provision for losses                                        41,240        102,743          68,447
         Charge-offs                                                (15,037)       (21,645)        (14,748)
         Recoveries                                                   2,280          8,753           2,729
                                                               ------------   ------------    ------------

         Balance at end of year                                $    425,642   $    397,159    $    307,308
                                                               ============   ============    ============
</TABLE>
                                  (Continued)
                                                                              31
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996

NOTE 4 - LOANS RECEIVABLE (Continued)

As of and for the  years  ended  June 30,  1998,  1997 and 1996,  no loans  were
required to be evaluated for  impairment on an individual  loan basis within the
scope of SFAS No. 114. Loans on nonaccrual status totaled approximately $713,000
and $719,000 at June 30, 1998 and 1997.

Certain  executive  officers,  directors  and  companies  with  which  they  are
affiliated are loan customers. The following is an analysis of loans aggregating
$60,000 or more to any one related party for the year ended June 30, 1998.

         Balance at beginning of period                         $      412,402
         New loans                                                           -
         Principal repayments                                          (29,305)
         Other changes                                                 (71,929)
                                                                --------------

         Balance at end of period                               $      311,168
                                                                ==============

Other changes are the result  excluding  certain loans that were included in the
beginning balance but no longer meet the criteria for disclosure.

NOTE 5 - ACCRUED INTEREST RECEIVABLE

Year-end accrued interest receivable is summarized as follows:

                                                        1998             1997
                                                   ------------     ------------

         Loans                                     $    655,509     $    635,372
         Securities                                      66,579           49,779
         Interest-bearing deposits in other
           financial institutions                           313           50,311
                                                   ------------     ------------

                                                   $    722,401     $    735,462
                                                   ============     ============

NOTE 6 - PREMISES AND EQUIPMENT

Year-end premises and equipment is summarized as follows:

                                                        1998             1997
                                                   ------------     ------------

         Land                                      $    225,166    $     185,166
         Buildings and improvements                     995,468          989,091
         Furniture and equipment                        590,421          564,022
         Construction in progress                       196,212                -
                                                   ------------     ------------
              Total cost                              2,007,267        1,738,279
         Accumulated depreciation                     1,033,864          982,993
                                                   ------------     ------------

                                                   $    973,403     $    755,286
                                                   ============     ============

                                  (Continued)
32
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 7 - FEDERAL INCOME TAXES

The  provision  for federal  income tax for the years ended June 30 consisted of
the following:
<TABLE>
<CAPTION>

                                                                      1998           1997          1996
                                                                 ------------   ------------  ------------
<S>                                                              <C>            <C>           <C>         
         Current tax expense                                     $    707,589   $    324,719  $    396,004
         Deferred tax expense/(benefit)                                (1,101)       (12,778)       44,507
                                                                 ------------   ------------  ------------
          
                                                                 $    706,488   $    311,941  $    440,511
                                                                 ============   ============  ============
</TABLE>
The sources of gross deferred tax assets and gross  deferred tax  liabilities at
year-end are as follows:
<TABLE>
<CAPTION>
                                                                                  1998            1997
                                                                             ------------     ------------
<S>                                                                          <C>              <C>                       
         Items giving rise to deferred tax assets
              Deferred loan fees                                             $     43,422     $     33,693              
              Reserve for delinquent interest                                       7,607            8,092
              Other                                                                10,420            2,824
                                                                             ------------     ------------
                  Total deferred tax assets                                        61,449           44,609

         Items giving rise to deferred tax liabilities
              Depreciation                                                        (45,387)         (43,727)
              Federal Home Loan Bank
                stock dividends                                                   (93,432)         (74,052)
              Allowance for loan losses                                           (52,754)         (58,055)
              Unrealized gain on securities available for sale                     (5,764)          (4,672)
                                                                             ------------     ------------
                  Total deferred tax liabilities                                 (197,337)        (180,506)
                                                                             ------------     ------------

                  Net deferred tax liability                                 $   (135,888)    $   (135,897)
                                                                             ============     ============ 
</TABLE>


The  difference  between  the  financial  statement  tax  provision  and amounts
computed  by applying  the  statutory  federal  income tax rate of 34% to income
before income taxes is primarily because of the difference  between the cost and
market value of ESOP shares  released.  The  reconciled  difference  between the
financial  statement  provision and the amounts  computed by using the statutory
rate for the years ended June 30 is as follows:
<PAGE>
<TABLE>
<CAPTION>
                                                                  1998            1997            1996
                                                             ------------    ------------     ------------
<S>                                                          <C>             <C>              <C>         
         Income taxes computed at the statutory
           tax rate on pretax income                         $    659,531    $    297,971     $    439,361
         Add tax effect of:
             ESOP                                                  46,546          11,559                -
             Nondeductible expenses and other                         411           2,411            1,150
                                                             ------------    ------------     ------------

                                                             $    706,488    $    311,941     $    440,511
                                                             ============    ============     ============

         Statutory tax rate                                          34.0%           34.0%            34.0%
                                                             ============    ============     ============
         Effective tax rate                                          36.4%           35.6%            34.1%
                                                             ============    ============     ============
</TABLE>
                                  (Continued)
                                                                              33
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 7 - FEDERAL INCOME TAXES (Continued)

Prior to the enactment of legislation discussed below, thrifts which met certain
tests  relating to the  composition  of assets had been  permitted  to establish
reserves for bad debts and to make annual additions thereto which could,  within
specified  formula limits,  be taken as a deduction in computing  taxable income
for federal  income tax purposes.  The amount of the bad debt reserve  deduction
for  "nonqualifying  loans" was computed under the experience method. The amount
of the bad debt reserve  deduction for "qualifying real property loans" could be
computed under either the experience  method or the percentage of taxable income
method, based on an annual election.

In August  1996,  legislation  was enacted  that  repeals the reserve  method of
accounting  used by many thrifts to calculate their bad debt reserve for federal
income tax  purposes.  Therefore,  small  thrifts such as the  Association  must
recapture  that  portion of the reserve  that exceeds the amount that could have
been taken under the experience  method for tax years  beginning  after December
31, 1987.  The  legislation  also requires  thrifts to account for bad debts for
federal income tax purposes on the same basis as commercial  banks for tax years
beginning  after  December 31, 1995.  The  recapture  will occur over a six-year
period,  the commencement of which will be delayed until the first  taxable-year
beginning  after  December 31,  1997,  provided the  institution  meets  certain
residential  lending  requirements.  At  June  30,  1998,  the  Association  had
approximately  $581,000 in bad debt  reserves  subject to recapture  for federal
income tax  purposes.  The deferred tax  liability  related to the recapture has
been  previously  established.  In  fiscal  1998,  no  bad  debt  reserves  were
recaptured as the Association met the residential lending requirements.

Retained  earnings at June 30, 1998 and 1997 included  approximately  $2,174,000
for which no  provision  for  federal  income  taxes had been made.  This amount
represents the qualifying and  nonqualifying tax bad debt reserve as of December
31,  1987,  which is the end of the  Association's  base  year for  purposes  of
calculating  the bad debt  deduction  for tax  purposes.  The related  amount of
unrecognized deferred tax liability was approximately  $739,000 at June 30, 1998
and 1997.  If this  portion of  retained  earnings is used in the future for any
purpose  other  than to absorb  bad  debts,  it will be added to future  taxable
income.


NOTE 8 - DEPOSITS

A summary of year-end deposits is as follows:

                                                    1998               1997
                                             ---------------    ----------------
         Noninterest-bearing
           demand deposits                   $       168,836    $        150,161
         NOW accounts                              3,362,538           3,469,190
         Money market accounts                       981,958             776,507
         Savings accounts                         18,455,589          17,685,203
         Certificates of deposit                  56,084,765          54,964,369
                                             ---------------    ----------------

                                             $    79,053,686    $     77,045,430
                                             ===============    ================
<PAGE>

The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000 was $4,057,000 and $4,219,000 at June 30, 1998 and 1997,  respectively.
Deposits more than $100,000 are not insured by the FDIC.

                                  (Continued)
34
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 8 - DEPOSITS (Continued)

The scheduled  maturities of  certificates of deposit as of June 30, 1998 are as
follows:

                     1999                                      $      28,489,582
                     2000                                             14,878,399
                     2001                                              8,415,274
                     2002                                              1,257,516
                     2003                                              3,043,994
                                                               -----------------
                                                               $      56,084,765
                                                               =================

NOTE 9 - BORROWED FUNDS

At June 30, 1998, the  Association had a cash management line of credit enabling
it to borrow up to  $5,100,000  from the  Federal  Home Loan Bank of  Cincinnati
("FHLB").  The line of credit must be renewed on an annual basis.  There were no
borrowings outstanding on this line of credit at June 30, 1998 or 1997.

As a member  of the FHLB  system,  the  Association  has the  ability  to obtain
borrowings up to a maximum total of  $16,930,000,  including the line of credit.
The  Association had one fixed-rate  borrowing,  with an interest rate of 6.13%,
totaling  $7,000,000  at June 30, 1998,  while there were no such  borrowings at
June 30, 1997.  The original  term of the borrowing was 120 months with interest
due monthly  and  principal  due upon  maturity  on June 25,  2008.  The maximum
month-end balance of advances  outstanding was $7,000,000 in 1998 and $3,500,000
in 1997.  Average balances of borrowings  outstanding  during 1998 and 1997 were
$96,000  and   $1,163,000.   Advances   under  the  borrowing   agreements   are
collateralized  by a blanket pledge of the  Association's  residential  mortgage
loan portfolio and its FHLB stock.


NOTE 10 - SAVINGS ASSOCIATION INSURANCE FUND  RECAPITALIZATION

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


NOTE 11 - RETIREMENT PLANS

Pension  Plan:  Prior  to  January  31,  1997,  the  Association   maintained  a
noncontributory  defined  benefit  pension plan  covering all  employees who met
certain  minimum  service  requirements.  The  Plan's  funds  were  invested  in
certificates of deposit of the Association with varying  maturities and interest
rates,  as selected by the  trustees.  The amount of benefit was computed  based
upon  average  monthly  compensation  and  number  of years of  employment.  The
Association's  policy was to fund the plan  sufficiently to meet minimum funding
requirements set forth in the Employee  Retirement  Income Security Act of 1974,
plus such  additional  amounts  as the  Association  may have  determined  to be
appropriate up to the maximum amount deductible for federal income tax purposes.

                                  (Continued)
                                                                              35
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 11 - RETIREMENT PLANS (Continued)

On November 8, 1996,  the Board of Directors  approved a resolution to terminate
the pension plan  effective  January 31, 1997.  This  eliminated  the accrual of
benefits for future  services,  except for additional  benefits that accrued for
employees during the Plan year beginning July 1, 1996. The nonvested accumulated
benefit  obligation  as of January 31, 1997 became  vested.  The vested  benefit
obligation  was  settled by a lump-sum  payment to each  covered  employee.  The
pension expense for the year ended June 30, 1997 was $29,617.

Net  pension  cost for the year  ended  June 30,  1996  included  the  following
components:

                                                                       1996

         Service cost - benefits earned during the period         $     24,407
         Interest cost on projected benefit obligation                  27,182
         Actual return on plan assets                                  (30,641)
         Net amortization and deferral                                  20,648

                                                                  $     41,596

Significant assumptions used in determining the net pension cost for 1996 were:

         Discount rate                                                    7.50%
         Rate of increase in compensation levels                          4.00
         Expected long-term rate of return on assets                      5.00

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


NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN

The Corporation offers an employee stock ownership plan ("ESOP") for the benefit
of substantially  all employees of the Corporation and the  Association.  During
July, 1997, the ESOP received a favorable determination letter from the Internal
Revenue Service on the qualified status of the ESOP under applicable  provisions
of the Internal Revenue Code.

           
                                   (Continued)
36
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)

The ESOP borrowed  funds from the  Corporation in order to acquire common shares
of the  Corporation.  The loan is secured by the shares  purchased with the loan
proceeds  and will be  repaid  by the ESOP  with  funds  from the  Association's
discretionary  contributions  to the  ESOP  and  earnings  on ESOP  assets.  All
dividends  on  unallocated  shares  received  by the  ESOP  are used to pay debt
service.  The shares  purchased  with the loan  proceeds  are held in a suspense
account for allocation among participants as the loan is repaid. As payments are
made and the shares are released from the suspense account,  such shares will be
validly issued, fully paid and nonassessable.

In June 1998, the ESOP accrued the purchase of an additional 26,000 shares using
the  proceeds  provided  from a $4.00 per share  return of  capital  paid by the
Corporation.  The ESOP received approximately $539,000 as a return of capital on
134,626  unallocated  shares.  The additional  shares  purchased will be held in
suspense and allocated to  participants in a manner similar to the original ESOP
shares.

The  Corporation  accounts for its ESOP in accordance with Statement of Position
(SOP)  93-6.  Accordingly,  the shares  pledged as  collateral  are  reported as
unearned ESOP shares in the Consolidated  Balance Sheets. As shares are released
from  collateral,  the  Corporation  reports  compensation  expense equal to the
current  market  price of the  shares  and the  shares  become  outstanding  for
earnings-per-share computations. Dividends on allocated ESOP shares are recorded
as a reduction of retained  earnings;  dividends on unallocated  ESOP shares are
recorded as a reduction of debt and accrued interest.  ESOP compensation expense
was $249,570 and $136,017 for the years ended June 30, 1998 and 1997.

The ESOP shares as of June 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
                                                                              1998               1997
                                                                       ---------------      --------------
<S>                                                                    <C>                  <C>  
         Allocated shares                                                       24,122               8,204
         Shares committed to be released for allocation                              -               1,998
         Unreleased shares                                                     144,708             132,628
                                                                       ---------------      --------------
              Total ESOP shares                                                168,830             142,830

         Fair value of unreleased shares                               $     2,568,567      $    1,865,081
                                                                       ===============      ==============
</TABLE>
NOTE 13 - STOCK OPTION AND INCENTIVE PLAN

Upon approval of the Stock Option and Incentive Plan by the  shareholders of the
Corporation on May 22, 1998, the Board of Directors  granted options to purchase
138,809  shares  of common  stock at an  exercise  price of  $20.00  to  certain
officers and directors of the Association and  Corporation.  No options had been
previously awarded. One-fifth of the options awarded become first exercisable on
each of the first five  anniversaries  of the date of grant.  The option  period
expires 10 years from the date of grant. No options were exercisable at June 30,
1998.  In  addition,  39,729  options to purchase  common stock are reserved for
future grants.

                                  (Continued)
                                                                              37
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 13 - STOCK OPTION AND INCENTIVE PLAN (Continued)

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

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

                  Net income as reported                     $    1,233,309
                  Pro forma net income                            1,219,735


NOTE 14 - MANAGEMENT RECOGNITION PLAN

A Management  Recognition Plan ("MRP") was adopted by the Board of Directors and
approved by the shareholders of the Corporation on May 22, 1998. The MRP will be
used  as a means  of  providing  directors  and  certain  key  employees  of the
Association and Corporation  with an ownership  interest in the Corporation in a
manner  designed to compensate  such directors and key employees for services to
the Association and  Corporation.  The MRP will purchase 71,415 common shares in
the open market,  which is equal to 4% of the common  shares sold in  connection
with the conversion. As of June 30, 1998, no shares have been purchased.

In  conjunction  with the  adoption  of the MRP on May 22,  1998,  the  Board of
Directors  awarded  57,128  shares to  certain  directors  and  officers  of the
Association and Corporation. No shares had been previously awarded. One-fifth of
such  shares  will be  earned  and  nonforfeitable  on each  of the  first  five
anniversaries  of the date of the award. In the event of the death or disability
of a  participant  or a change  in  control  of the  Corporation,  however,  the
participant's  shares will be deemed to be earned and  nonforfeitable  upon such
date.  At June 30, 1998,  there were 14,287 shares  reserved for future  awards.
Compensation expense related to MRP shares is based upon the cost of the shares.
For the year ended June 30,  1998,  the  Corporation  has  accrued  compensation
expense  totaling  $20,000 based upon the estimated cost of the number of shares
earned during fiscal 1998. No  compensation  expense was  recognized  during the
years ended June 30, 1997 and 1996.

                                  (Continued)

38
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 15 - REGULATORY CAPITAL REQUIREMENTS

The  Association  is  subject  to  various   regulatory   capital   requirements
administered by the federal regulatory agencies. Failure to meet minimum capital
requirements can initiate certain mandatory  actions that, if undertaken,  could
have a direct material affect on the Corporation's  financial statements.  Under
capital adequacy  guidelines and the regulatory  framework for prompt corrective
action,  the  Association  must meet specific  capital  guidelines  that involve
quantitative  measures  of the  Association's  assets,  liabilities  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Association's   capital  amounts  and   classifications   are  also  subject  to
qualitative judgments by the regulators about the Association's components, risk
weightings and other factors. At June 30, 1998 and 1997, management believes the
Association  complies with all  regulatory  capital  requirements.  Based on the
Association's  computed regulatory capital ratios, the Association is considered
well  capitalized  under the Federal Deposit  Insurance Act at June 30, 1998 and
1997.  Management is not aware of any matters occurring after June 30, 1998 that
would cause the Association's capital category to change.

At year-end 1998 and 1997, the  Association's  actual capital levels and minimum
required levels were:
<TABLE>
<CAPTION>
                                                                                                      Minimum
                                                                                                  Required To Be
                                                                        Minimum Required         Well Capitalized
                                                                           For Capital        Under Prompt Corrective
                                                   Actual               Adequacy Purposes       Action Regulations
                                               Amount    Ratio          Amount     Ratio         Amount      Ratio
                                               ------    -----          ------     -----         ------      -----
                                                                     (Dollars in thousands)
<S>                                          <C>           <C>         <C>           <C>        <C>          <C>  
1998
Total capital (to risk-weighted assets)      $  18,743     27.6%       $   5,426     8.0%       $   6,783    10.0%
Tier 1 (core) capital (to risk-weighted
  assets)                                       18,330     27.0            2,713     4.0            4,070     6.0
Tier 1 (core) capital (to adjusted
  total assets)                                 18,330     17.3            4,240     4.0            5,300     5.0
Tangible capital (to adjusted total assets)     18,330     17.3            1,590     1.5              N/A

1997
Total capital (to risk-weighted assets)      $  17,481     26.9%       $   5,208     8.0%       $   6,510    10.0%
Tier 1 (core) capital (to risk-weighted
  assets)                                       17,088     26.3            2,604     4.0            3,906     6.0
Tier 1 (core) capital (to adjusted
  total assets)                                 17,088     16.6            3,094     3.0            5,156     5.0
Tangible capital (to adjusted total assets)     17,088     16.6            1,547     1.5              N/A
</TABLE>
In addition to certain federal income tax  considerations,  the Office of Thrift
Supervision  (OTS) regulations  imposes  limitations on the payment of dividends
and other capital distributions by savings  associations.  Under OTS regulations
applicable to converted savings  associations,  the Association is not permitted
to pay a cash dividend on its common shares if its regulatory  capital would, as
a result of payment of such dividends,  be reduced below the amount required for
the Liquidation  Account,  or below applicable  regulatory capital  requirements
prescribed by the OTS.

                                  (Continued)
                                                                              39
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 15 - REGULATORY CAPITAL REQUIREMENTS (Continued)

OTS regulations  applicable to all savings and loan associations  provide that a
savings  association  which immediately prior to, and on a pro forma basis after
giving  effect to, a proposed  capital  distribution  (including a dividend) has
total capital (as defined by OTS  regulations)  that is equal to or greater than
the amount of its  capital  requirements  is  generally  permitted  without  OTS
approval  (but  subsequent  to 30 days prior  notice to the OTS) to make capital
distributions,  including dividends,  during a calendar year in an amount not to
exceed the greater of (1) 100% of its net  earnings to date during the  calendar
year,  plus an amount equal to one-half  that which its total  capital to assets
ratio  exceeded  it required  capital to assets  ratio at the  beginning  of the
calendar  year, or (2) 75% of its net earnings for the most recent  four-quarter
period.   Savings   associations  with  total  capital  more  than  the  capital
requirements  that have been  notified  by the OTS that they are in need of more
than normal supervision will be subject to restrictions on dividends.  A savings
association  that  fails  to  meet  current  minimum  capital   requirements  is
prohibited from making any capital  distributions  without the prior approval of
the OTS.

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


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

Various  contingent  liabilities are not reflected in the financial  statements,
including  claims and legal actions  arising in the ordinary course of business.
In the  opinion  of  management,  after  consultation  with legal  counsel,  the
ultimate  disposition of these matters is not expected to have a material effect
on financial condition or results of operations.

Some  financial  instruments  are used in the normal  course of business to meet
financing needs of customers and reduce exposure to interest rate changes. These
financial  instruments include commitments to extend credit,  standby letters of
credit and financial guarantees.  These involve, to varying degrees,  credit and
interest rate risk more than amounts reported in the financial statements.

Exposure to credit loss if the other  party does not perform is  represented  by
the  contractual  amount for  commitments to extend credit,  standby  letters of
credit and financial  guarantees written.  The same credit policies are used for
commitments  and  conditional  obligations as are used for loans.  The amount of
collateral  obtained,  if deemed  necessary,  on extension of credit is based on
management's   credit  evaluation  and  generally  consists  of  residential  or
commercial real estate.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there  is  no  violation  of  any  condition   established  in  the  commitment.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee. Since many of the commitments are expected to
expire without being used, the total  commitments do not  necessarily  represent
future cash requirements.

                                  (Continued)
40
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


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

As of year-end 1998 and 1997, the Corporation had commitments to make fixed-rate
commercial and  residential  real estate  mortgage loans at current market rates
approximating   $621,000  and  $156,000,   and   variable-rate   commercial  and
residential  real estate  mortgage loans at current  market rates  approximating
$687,000 and $876,000.  Loan commitments are generally for 30 days. The interest
rates on fixed-rate  commitments ranged from 7.50% to 8.25% at June 30, 1998 and
were 8.25% at June 30, 1997.  The interest  rates on  variable-rate  commitments
ranged from 7.25% to 8.00% at June 30, 1998 and 7.25% to 8.50% at June 30, 1997.

The  Corporation  also had unused  lines of credit  approximating  $548,000  and
$622,000 at year-end 1998 and 1997.

At June 30, 1998 and 1997,  the  Association  was required to have  $299,000 and
$298,000 on deposit  with its  correspondent  banks as a  compensating  clearing
requirement.

The  Association  entered  employment  agreements  with certain  officers of the
Corporation and Association.  The agreements  provide for a term of one to three
years and a salary and  performance  review by the Board of  Directors  not less
often than  annually,  as well as  inclusion  of the  employee  in any  formally
established employee benefit,  bonus, pension and profit-sharing plans for which
management  personnel are eligible.  The agreements provide for extensions for a
period of one year on each  annual  anniversary  date,  subject  to  review  and
approval of the extension by disinterested  members of the Board of Directors of
the  Association.  The employment  agreements also provide for vacation and sick
leave.

<PAGE>

NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Corporation's financial instruments at year-end
are as follows:
<TABLE>
<CAPTION>


                                                       1998                                    1997
                                                               Estimated                                Estimated
                                            Carrying              Fair               Carrying              Fair
                                              Value              Value                Value               Value
                                        ---------------     ---------------     ---------------    ----------------
<S>                                     <C>                 <C>                 <C>                <C>             
Financial assets:
     Cash and cash equivalents          $     4,947,253     $     4,947,000     $     2,795,826    $      2,796,000
     Time deposits in other
       financial institutions                   100,000             100,000           5,000,000           5,000,000
     Securities available for sale            4,015,890           4,016,000           2,012,802           2,013,000
     Securities held to maturity                      -                   -           1,999,375           1,997,000
     Loans receivable, net                   94,052,531          93,954,000          88,924,339          88,015,000
     Accrued interest receivable                722,401             722,000             735,462             735,000
     Federal Home Loan Bank
       stock available for sale                 846,500             847,000             762,500             763,000

Financial liabilities:
     Deposits                               (79,053,686)        (79,500,000)        (77,045,430)        (77,542,000)
     Borrowed funds                          (7,000,000)         (7,000,000)                  -                   -
     Accrued interest payable                   (34,538)            (35,000)            (36,095)            (36,000)
</TABLE>

                                  (Continued)
                                                                              41
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


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

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


NOTE 18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial  information of Peoples-Sidney  Financial  Corporation as of
and for the year ended June 30,  1998 and as of June 30, 1997 and for the period
beginning April 25, 1997, the effective date of the conversion, through June 30,
1997 is as follows:
<TABLE>
<CAPTION>

                                       CONDENSED BALANCE SHEETS
                                        June 30, 1998 and 1997

                                                                       1998                1997
                                                                 ---------------    ----------------
<S>                                                              <C>                <C>             
     Assets
     Cash and cash equivalents                                   $        47,373    $        290,815
     Investment in subsidiary                                         18,341,302          17,097,380
     Loans receivable                                                  1,224,257           8,326,279
     Other assets                                                         13,084                   -
                                                                 ---------------    ----------------

         Total assets                                            $    19,626,016    $     25,714,474
                                                                 ===============    ================

     Liabilities
     Other liabilities                                           $             -    $          2,761

     Shareholders' Equity                                             19,626,016          25,711,713
                                                                 ---------------    ----------------
         Total liabilities and shareholders' equity              $    19,626,016    $     25,714,474
                                                                 ===============    ================

</TABLE>
                                   (Continued)

42
<PAGE>
                     PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


NOTE 18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
<TABLE>
<CAPTION>
                                           CONDENSED STATEMENTS OF INCOME

                                                                                                      Period from
                                                                                     Year           April 25, 1997
                                                                                     Ended              through
                                                                                 June 30, 1998       June 30, 1997
                                                                                ---------------    ----------------
<S>                                                                             <C>                <C>             
     Interest on loans                                                          $       515,584    $         23,006
     Operating expenses                                                                 100,294              14,884
                                                                                ---------------    ----------------
     Income before income taxes and equity in
       undistributed earnings of subsidiary                                             415,290               8,122
     Income tax expense                                                                 139,211               2,761
                                                                                ---------------    ----------------
     Income before equity in undistributed earnings of subsidiary                       276,079               5,361
     Equity in undistributed earnings of subsidiary                                     957,230             144,937
                                                                                ---------------    ----------------

     Net income                                                                 $     1,233,309    $        150,298
                                                                                ===============    ================
<CAPTION>
                                        CONDENSED STATEMENTS OF CASH FLOWS

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

     Cash flows from investing activities
     Purchase of stock in Peoples Federal Savings and
       Loan Association                                                                       -          (8,608,972)
     Loan to ESOP                                                                             -          (1,428,300)
     Loan to subsidiary                                                                       -          (7,000,000)
     Proceeds from loan principal repayments                                          7,102,022             102,020
                                                                                ---------------    ----------------
              Net cash from investing activities                                      7,102,022         (16,935,252)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>                <C>             
     Cash flows from financing activities
     Proceeds from issuance of common stock, net of conversion costs                          -          17,217,944
     Return of capital                                                               (7,141,500)                  -
     Cash dividends paid                                                               (429,195)                  -
     Dividends on unallocated ESOP shares                                               (35,003)                  -
                                                                                ---------------    ----------------
              Net cash from financing activities                                     (7,605,698)         17,217,944

     Net change in cash and cash equivalents                                           (243,442)            290,815
     Cash and cash equivalents at beginning of year                                     290,815                   -
                                                                                ---------------    ----------------

     Cash at end of year                                                        $        47,373    $        290,815
                                                                                ===============    ================

</TABLE>
                                                                              43

<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                             SHAREHOLDER INFORMATION


ANNUAL MEETING

The Annual Meeting of Shareholders will be held at 11:00 a.m., Sidney, Ohio time
on October 9, 1998 at the Holiday Inn, I-75 and S.R. 47, Sidney, Ohio.


STOCK LISTING

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


SHAREHOLDERS AND GENERAL INQUIRIES                    TRANSFER AGENT

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


ANNUAL AND OTHER REPORTS

A copy of Peoples-Sidney  Financial  Corporation's  Annual Report on Form 10-KSB
for the year ended June 30,  1998,  as filed with the  Securities  and  Exchange
Commission,  may be  obtained  without  charge by  contacting  Douglas  Stewart,
President and Chief Executive Officer, Peoples-Sidney Financial Corporation, 101
East Court Street, P.O. Box 727, Sidney, Ohio 45365-3021.

44
<PAGE>
                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                              CORPORATE INFORMATION

CORPORATION AND ASSOCIATION ADDRESS

101 East Court Street                             Telephone:      (937) 492-6129
P.O. Box 727                                      Fax:            (937) 498-4554
Sidney, Ohio 45365-3021


DIRECTORS OF THE BOARD
<TABLE>
<CAPTION>
<S>                                                   <C>

Douglas Stewart                                       Richard T. Martin (Chairman of the Board)                                  
     President and Chief Executive Officer of               Certified Public Accountant, in private practice       
     Peoples Federal Savings and Loan Association                                                             
                                                                                                              
                                                      Harry N. Faulkner                                       
Robert W. Bertsch                                           Partner in the law firm of Faulkner, Garmhausen,       
     Retired Treasurer of Peoples Federal                   Keister & Shenk LPA                                    
                                                                                                                   
                                                                                                              
John W. Sargeant                                      James W. Kerber                                              
     Part Owner of Sidney Tool and Die Co. and              Owner of James W. Kerber CPA, a private practice       
     BenSar Development, a warehouse provider               accounting firm                                   
                                                      
</TABLE>
Officers of the Corporation and the Association:

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


Special Counsel                                    Independent Auditors
---------------                                    --------------------

Silver, Freedman & Taff, L.L.P.                    Crowe, Chizek and Company LLP
1100 New York Avenue, N.W.                         One Columbus
Washington, D.C. 20005-3934                        10 West Broad Street
                                                   Columbus, OH  43215


                                                                              45