**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**







(Mark
              one)x
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**For
                the fiscal year ended June 30, 2006o
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**For
                the transition period from ___________________________ to
                ___________________________





Commission
      File No. 0-22223





PEOPLES-SIDNEY
      FINANCIAL CORPORATION


(Name
      of
      small business issuer in its charter)





Delaware
            
            31-1499862(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                Number)101
                East Court Street, Sidney, Ohio
            
            45365(Address
                of principal executive offices)
            
            (Zip
                Code)





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








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





None





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





Common
      Stock, par value $0.01 per share


(Title
      of
      class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





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





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





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes
o No 
      x





Issuer’s
      revenues for the fiscal year ended June 30, 2006 were:
 $8,549,708.





At
      August
      31, 2006, there were issued and outstanding 1,384,268 of the Registrant’s Common
      Shares.





The
      aggregate market value of the voting and non-voting common stock held by
      non-affiliates as of August 22, 2006, was $16,605,000.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Parts
      II
      and IV of Form 10-KSB - Portions of the Annual Report to Stockholders for the
      fiscal year ended June 30, 2006.





Part
      III
      of Form 10-KSB - Portions of Proxy Statement for 2006 Annual Meeting of
      Stockholders.





Transitional
      Small Business Disclosure Form (check one):


Yes
o 
No 
      x












1.


**INDEX**


**FORM
      10-KSB**





Page(s)**PART
                I****Item
                1.**
            Description
                of Business
            3-36**Item
                2.**
            Description
                of Property
            37**Item
                3.**
            Legal
                Proceedings
            37**Item
                4.**
            Submission
                of Matters to a Vote of Security Holders
            37**PART
                II****Item
                5.**
            Market
                for Registrant’s Common Equity, Related Shareholder
                Mattersand
                Small Business Issuer Purchases of Equity Securities
            38**Item
                6.**
            Management’s
                Discussion and Analysis or Plan of Operation
            38**Item
                7.**
            Financial
                Statements
            38**Item
                8.**
            Changes
                in and Disagreements with Accountants onAccounting
                and Financial Disclosure
            38**Item
                8A.**
            Controls
                and Procedures
            38**Item
                8B.**
            Other
                Information
            39**PART
                III****Item
                9.**
            Directors,
                Executive Officers, Promoters and Control Persons;Compliance
                with Section 16(a) of the Exchange Act
            40**Item
                10.**
            Executive
                Compensation
            40**Item
                11.**
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder Matters
            40**Item
                12.**
            Certain
                Relationships and Related Transactions
            41**Item
                13.**
            Exhibits
            42**Item
                14.**
            Principal
                Accountant Fees and Services
            43**Signatures**
            
            44**Exhibits**







2.


**PART
      I**





**ITEM
      1 - DESCRIPTION OF BUSINESS**





**General**





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





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





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





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





**Forward-Looking
      Statements**





When
      used
      in this Form 10-KSB, the words or phrases “will likely result,” “are expected
      to,” “will continue,” “is anticipated,” “estimate,” “project” or similar
      expressions are intended to identify “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995. Such statements
      are subject to certain risks and uncertainties, including, among other things,
      changes in economic conditions in the Corporation’s market area, changes in
      policies by regulatory agencies, fluctuations in interest rates, demand for
      loans in the Corporation’s market area and competition, that could cause actual
      results to differ materially from historical earnings and those presently
      anticipated or projected. The Corporation wishes to caution readers not to
      place
      undue reliance on any such forward-looking statements, which speak only as
      of
      the date made. The Corporation wishes to advise readers that the factors listed
      above could affect the Corporation’s financial performance and could cause the
      Corporation’s actual results for future periods to differ materially from any
      opinions or statements expressed with respect to future periods in any current
      statements.










*Back
          to Index*
 3.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





**Lending
      Activities**





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





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





June
                30,2006
            
            2005Amount
            
            Percent
            
            Amount
            
            Percent(Dollars
                in thousands)Real
                estate loansOne-
                to four-family
            
            $
            92,408
            
            
            73.66
            %
            $
            94,594
            
            
            77.33
            %Construction
                and development
            
            
            2,982
            
            
            2.38
            
            
            1,442
            
            
            1.18Commercial
            
            
            12,801
            
            
            10.20
            
            
            12,564
            
            
            10.27Multi-family
            
            
            1,380
            
            
            1.10
            
            
            1,297
            
            
            1.06Land
            
            
            3,371
            
            
            2.69
            
            
            2,187
            
            
            1.79Total
                real estate loans
            
            
            112,942
            
            
            90.03
            
            
            112,084
            
            
            91.63Other
                loansConsumerAutomobile
            
            
            3,992
            
            
            3.18
            
            
            3,775
            
            
            3.08Deposit
                account
            
            
            245
            
            
            0.20
            
            
            314
            
            
            0.26Other
            
            
            1,556
            
            
            1.24
            
            
            967
            
            
            0.79Total
                consumer loans
            
            
            5,793
            
            
            4.62
            
            
            5,056
            
            
            4.13Commercial
                business loans
            
            
            6,715
            
            
            5.35
            
            
            5,185
            
            
            4.24Total
                loans
            
            
            125,450
            
            
            100.00
            %
            
            122,325
            
            
            100.00
            %Less:Deferred
                loan fees
            
            
            (385
            )
            
            
            
            
            (379
            )Allowance
                for loan losses
            
            
            (894
            )
            
            
            
            
            (836
            )Total
                loans, net
            
            $
            124,171
            
            
            
            
            $
            121,110








*Back
          to Index*
 4.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





June
                30,2006
            
            2005Amount
            
            Percent
            
            Amount
            
            Percent(Dollars
                in thousands)Fixed-rate
                loans:Real
                estateOne-
                to four-family
            
            $
            51,720
            
            
            41.23
            %
            $
            55,140
            
            
            45.08
            %Construction
                and development
            
            
            1,167
            
            
            0.93
            
            
            1,262
            
            
            1.03Commercial
            
            
            1,132
            
            
            0.90
            
            
            1,271
            
            
            1.04Multi-family
            
            
            --
            
            
            --
            
            
            --
            
            
            --Land
            
            
            1,183
            
            
            0.94
            
            
            1,018
            
            
            0.83Total
                real estate loans
            
            
            55,202
            
            
            44.00
            
            
            58,691
            
            
            47.98Consumer
                loans
            
            
            5,793
            
            
            4.62
            
            
            5,056
            
            
            4.13Commercial
                business loans
            
            
            4,160
            
            
            3.32
            
            
            2,616
            
            
            2.14Total
                fixed-rate loans
            
            
            65,155
            
            
            51.94
            
            
            66,363
            
            
            54.25Adjustable-rate
                loans:Real
                estateOne-
                to four-family
            
            
            40,688
            
            
            32.43
            
            
            39,454
            
            
            32.25Construction
                and development
            
            
            1,815
            
            
            1.45
            
            
            180
            
            
            0.15Commercial
            
            
            11,669
            
            
            9.30
            
            
            11,293
            
            
            9.23Multi-family
            
            
            1,380
            
            
            1.10
            
            
            1,297
            
            
            1.06Land
            
            
            2,188
            
            
            1.75
            
            
            1,169
            
            
            0.96Total
                real estate loans
            
            
            57,740
            
            
            46.03
            
            
            53,393
            
            
            43.65Consumer
                loans
            
            
            --
            
            
            --
            
            
            --
            
            
            --Commercial
                business loans
            
            
            2,555
            
            
            2.03
            
            
            2,569
            
            
            2.10Total
                adjustable rate loans
            
            
            60,295
            
            
            48.06
            
            
            55,962
            
            
            45.75Total
                loans
            
            
            125,450
            
            
            100.00
            %
            
            122,325
            
            
            100.00
            %Less:Deferred
                loan fees
            
            
            (385
            )
            
            
            
            
            (379
            )Allowance
                for loan losses
            
            
            (894
            )
            
            
            
            
            (836
            )Total
                loans, net
            
            $
            124,171
            
            
            
            
            $
            121,110








*Back
          to Index*
 5.


**ITEM
      1 - DESCRIPTION OF BUSINESS**  (Continued)





The
      following schedule presents the contracted maturities of the Corporation’s loan
      portfolio at June 30, 2006. The schedule does not reflect the effects of
      possible prepayments or enforcement of the due-on-sale clauses. The amortizing
      loans, such as one- to four-family and installment loans, show the entire
      current principal balance as being due at maturity.





Real
                EstateOne-
                to Four-Family
                and
            
            Multi-family,Construction
                and
            
            Commercial
            
            
            
            
            
            CommercialDevelopment
            
            and
                Land
            
            Consumer
            
            Business
            
            TotalWeighted
            
            Weighted
            
            Weighted
            
            Weighted
            
            WeightedAverage
            
            Average
            
            Average
            
            Average
            
            AverageAmount
            
            Rate
            
            Amount
            
            Rate
            
            Amount
            
            Rate
            
            Amount
            
            Rate
            
            Amount
            
            Rate(Dollars
                in thousands)1
                year or less*
            
            $
            175
            
            
            6.55
            %
            $
            272
            
            
            5.92
            %
            $
            916
            
            
            7.74
            %
            $
            1,329
            
            
            8.05
            %
            $
            2,692
            
            
            7.63
            %Over
                1 year - 3 years
            
            
            339
            
            
            7.34
            
            
            919
            
            
            6.88
            
            
            1,693
            
            
            7.56
            
            
            2,444
            
            
            7.82
            
            
            5,395
            
            
            7.55Over
                3 years - 5 years
            
            
            870
            
            
            6.99
            
            
            946
            
            
            8.51
            
            
            2,603
            
            
            7.13
            
            
            2,309
            
            
            7.17
            
            
            6,728
            
            
            7.32Over
                5 years - 10 years
            
            
            5,496
            
            
            6.53
            
            
            1,175
            
            
            6.36
            
            
            528
            
            
            5.99
            
            
            633
            
            
            7.49
            
            
            7,832
            
            
            6.55Over
                10 years - 20 years
            
            
            55,369
            
            
            6.34
            
            
            9,805
            
            
            6.55
            
            
            53
            
            
            8.00
            
            
            --
            
            
            --
            
            
            65,227
            
            
            6.37Over
                20 years
            
            
            33,141
            
            
            6.36
            
            
            4,435
            
            
            6.49
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            37,576
            
            
            6.38Total
            
            $
            95,390
            
            
            6.37
            %
            $
            17,552
            
            
            6.63
            %
            $
            5,793
            
            
            7.26
            %
            $
            6,715
            
            
            7.61
            %
            $
            125,450
            
            
            6.51
            %





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





The
      total
      amount of loans due after June 30, 2007 that have predetermined interest rates
      is $63,261, while the total amount of loans due after such dates which have
      floating or adjustable interest rates is $59,497.








*Back
          to Index*
 6.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





Under
      federal law, the aggregate amount of loans that the Association is permitted
      to
      make to any one borrower is generally limited to 15% of unimpaired capital
      and
      surplus (25% if the security for such loan has a “readily ascertainable” value
      or 30% for certain residential development loans). At June 30, 2006, based
      on the above limitation, the Association’s regulatory loan-to-one borrower limit
      was approximately $2.3 million. On the same date, the Association had no
      borrowers with outstanding balances in excess of this amount. As of June 30,
      2006, the largest dollar amount of indebtedness of one borrower or group of
      related borrowers was $1,620,337, and is secured by a church. The next largest
      loan to one borrower or group of related borrowers had an outstanding balance
      of
      $1,588,857 at June 30, 2006 and is secured by multiple one-to four-family real
      estate properties. **** As
      of
      June 30, 2006, such loans were performing in accordance with their terms.





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





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





**One-
      to Four-Family Residential Real Estate Lending**





The
      cornerstone of the Association’s lending program has long been the origination
      of long-term permanent loans secured by mortgages on owner-occupied one- to
      four-family residences. At June 30, 2006, $92.4 million, or 73.66% of the
      Association’s loan portfolio, consisted of permanent loans on one- to
      four-family residences. At that date, the average outstanding residential loan
      balance was $72,477 and the largest outstanding residential loan had a principal
      balance of $1,214,772. **** Virtually
      all of the residential loans originated by the Association are secured by
      properties located in the Association’s market area.





The
      Association originates fixed-rate residential loans in amounts and at rates
      that
      are monitored for compliance with the Association’s asset/liability management
      policy. Currently, the Association originates fixed-rate loans with maturities
      of up to 20 years for retention in its own portfolio. Limiting the contractual
      term to 20 years, as opposed to the more traditional 30 year period, allows
      for
      accelerated principal repayment and equity build up for the borrower. Currently,
      all such loans are made on owner-occupied properties. All fixed-rate loans
      originated by the Association are retained and serviced by it. At June 30,
      2006,
      the Association had $51.7 million of fixed-rate permanent one-to four-family
      residential loans, constituting 41.23% of the Association’s loan portfolio at
      such date.










*Back
          to Index*
 7.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





The
      Association has offered adjustable rate mortgage (“ARM”) loans at rates, terms
      and points determined in accordance with market and competitive factors. The
      Association’s current one- to four-family residential ARMs are fully amortizing
      loans with contractual maturities of up to 30 years. Applicants are qualified
      using a fully indexed rate, and no ARMs allow for negative amortization. The
      interest rates on the ARMs originated by the Association are generally subject
      to adjustment at one, three, and five-year intervals based on a margin over
      the
      analogous Treasury Securities Constant Maturity Index. Decreases or increases
      in
      the interest rate of the Association’s ARMs are generally limited to 6% above or
      below the initial interest rate over the life of the loan, and up to 2% per
      adjustment period. The Association’s ARMs are not convertible into fixed-rate
      loans, and do not contain prepayment penalties. ARM loans may be assumed on a
      case-by-case basis with the Association’s consent. At June 30, 2006, the total
      balance of one- to four-family ARMs was $40.7 million, or 32.43% of the
      Corporation’s loan portfolio. All ARMs originated by the Association are
      retained and serviced by it.





The
      Association has a program specifically tailored to first-time homebuyers. These
      loans are made on a five-year adjustable basis with a term up to 30 years.
      The
      margin, which is lower than other products currently offered, is 200 basis
      points. Additionally, somewhat higher debt-to-income ratios are permitted,
      although mandatory escrows for taxes and insurance, an acceptable credit rating
      and an employment history of at least one year are required. The maximum loan
      amount under this program, which requires that the property be owner-occupied,
      is currently $75,000 unless Board of Director approval is obtained, which can
      be
      the lesser of the purchase price or 90% of appraised value. At June 30, 2006,
      the Association had approximately $1.5 million of first-time homebuyer loans
      in
      its portfolio.





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





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





The
      Association uses the same underwriting standards for home equity lines of credit
      as it uses for one- to four-family residential mortgage loans. The Association’s
      home equity lines of credit are originated in amounts, which, together with
      the
      amount of the first mortgage, generally do not exceed 80% of the appraised
      value
      of the property securing the loan. At June 30, 2006, the Association had
      $768,000 of home equity lines of credit and an additional $913,000 of funds
      committed, but undrawn, under such lines.







*Back
          to Index*
 8.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Construction
      and Development Lending**





The
      Association makes construction loans to individuals for the construction of
      their primary or secondary residences and loans to individuals, builders or
      developers for the construction of single-family homes, multi-family units
      and
      commercial real estate projects. Loans to individuals for the construction
      of
      their residences or for residential rentals typically run for 12 months. The
      borrower pays interest only during the construction period. Residential
      construction loans are generally underwritten pursuant to the same guidelines
      used for originating permanent residential loans. At June 30, 2006, the
      Association had 23 construction and development loans with outstanding aggregate
      balances of $2,982,000 secured by residential and commercial real estate
      properties. Of this amount, $1,151,000 in loans was outstanding directly to
      borrowers intending to live in the properties upon completion of construction.
      Loans outstanding to borrowers intending to rent the properties totaled
      $590,000.





The
      Association makes loans to builders and developers to finance the construction
      of residential property. Such loans generally have adjustable interest rates
      based upon prime or treasury indexes with terms ranging from six months to
      one
      year. The proceeds of the loan are advanced during construction based upon
      the
      percentage of completion as determined by an inspection. The loan amount
      normally does not exceed 85% of projected completed value for homes that have
      been pre-sold to the ultimate occupant. For loans to builders for the
      construction of homes not yet pre-sold, which may carry a higher risk, the
      loan-to-value ratio is generally limited to 80%. Whether the Association is
      willing to provide permanent takeout financing to the purchaser of the home
      is
      determined independently of the construction loan by separate underwriting.
      In
      the event that upon completion the house is not sold, the builder is required
      to
      make principal and interest payments until the house is sold. At June 30, 2006,
      the Association did not have any construction loans with builders that pre-sold
      their homes and had 6 loans with an outstanding aggregate balance of $894,000
      secured by one-to four-family residential properties constructed by builders
      who
      have not pre-sold their homes to individual purchasers. The Association also
      makes a limited number of commercial real estate development loans with the
      loan
      amount generally not to exceed 75% of the completed value. At June 30, 2006,
      the
      Association had two commercial real estate development loans with an outstanding
      aggregate balance of $347,000.





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










*Back
          to Index*
 9.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Commercial
      Real Estate Lending**





The
      Association’s commercial real estate loan portfolio consists of loans secured by
      a variety of non-residential properties including retail facilities, small
      office buildings, farm real estate and churches. At June 30, 2006 the
      Association’s largest commercial real estate loan totaled $1,620,337. At that
      date, the Association had commercial real estate loans, totaling $12,801,000
      or
      10.20% of gross loans receivable.





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





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





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





**Multi-Family
      Lending**





The
      Association has historically made permanent multi-family loans in its primary
      market area. However, the amount of such loans has been insignificant. At June
      30, 2006 multi-family loans totaled $1,380,000, or 1.10% of gross loans
      receivable.





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









*Back
          to Index*
 10.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Land
      Lending**





Land
      loans include loans to develop vacant or raw land and are made to various
      builders and developers with whom the Association has had long-standing
      relationships. All of such loans are secured by land zoned for residential
      or
      commercial developments and located within the Association’s market area.
      Proceeds are used for excavation, utility placements and street improvements.
      Disbursements related to acquisition and development land loans are typically
      based on inspections to determine the progress of the project. As lots are
      sold,
      a portion of the sale price is applied to the principal of the outstanding
      loan
      in order to ensure the loan is paid in full prior to all lots in the development
      being sold. Interest payments are required at regular intervals (quarterly
      or
      semi-annually) and loan terms typically are written for three years. At June
      30,
      2006, the Association had $257,000 of loans receivable in this
      category.





The
      Association also makes loans to individuals who purchase and hold land for
      various reasons, such as the future construction of a residence. Such loans
      are
      generally originated with terms of five years and have maximum loan- to- value
      ratios of 85% for loans on improved residential building lots and 75% on
      undeveloped acreage. At June 30, 2006, the Association had $3,114,000 in land
      loans to individuals. ****





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





**Consumer
      Lending**





Management
      believes that offering consumer loan products helps to expand the Association’s
      customer base and to create stronger ties with its existing customer base.
      In
      addition, because consumer loans generally have shorter terms to maturity and
      carry higher rates of interest than do residential mortgage loans, they can
      be
      valuable asset/liability management tools. The Association currently originates
      substantially all of its consumer loans in its market area. At June 30, 2006,
      the Association’s consumer loans totaled $5,793,000, or 4.62% of the
      Association’s gross loan portfolio.





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





The
      largest component of the Association’s consumer lending program is automobile
      loans. At June 30, 2006, automobile loans totaled $3,992,000, or 3.18% of
      gross loans receivable. The Association makes loans directly to the consumer
      to
      aid in the purchase of new and used vehicles, which serve as collateral for
      the
      loan. The Association also employs other underwriting criteria discussed below
      in deciding whether to extend credit.





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










*Back
          to Index*
 11.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





**Commercial
      Business Lending**





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





Most
      of
      the Association’s commercial business loans have terms ranging from three months
      to one year and may carry fixed or adjustable interest rates. The underwriting
      process for commercial business loans generally includes consideration of the
      borrower’s financial statements, tax returns, projections of future business
      operations and inspection of the subject collateral, if any. At June 30, 2006,
      commercial business loans totaled $6,715,000, or 5.35% of the Association’s
      gross loans receivable.





**Originations,
      Purchases and Sales of Loans**





The
      Association originates real estate and other loans through employees located
      at
      the Association’s offices. Walk-in customers and referrals from real estate
      brokers and builders are also important sources of loan originations. The
      Association has historically not utilized the services of mortgage or loan
      brokers, nor purchased or sold loans from or to other lenders. However, the
      Association recently initiated a new mortgage program which will afford the
      opportunity to make and sell both 15 and 30 year fixed rate products at existing
      market rates. No loans have been originated for sale to date.










*Back
          to Index*
 12.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Delinquencies
      and Nonperforming Assets**





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





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





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





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

















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          to Index*
 13.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





The
      following table sets forth the Corporation’s loan delinquencies by type, by
      amount and by percentage of type at June 30, 2006.





Loans
                Delinquent For:30-89
                Days
            
            90
                Days and Over
            
            Total
                Delinquent LoansNumber
            
            Amount
            
            Category
            
            Number
            
            Amount
            
            Category
            
            Number
            
            Amount
            
            Category(Dollars
                in thousands)Real
                estate:One-
                to four-family
            
            
            34
            
            $
            2,287
            
            
            2.47
            %
            
            17
            
            $
            1,276
            
            
            1.38
            %
            
            51
            
            $
            3,563
            
            
            3.85
            %Construction
                and development
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Commercial
            
            
            --
            
            
            --
            
            
            --
            
            
            2
            
            
            46
            
            
            0.36
            
            
            2
            
            
            46
            
            
            0.36Multi-family
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Land
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Consumer
            
            
            26
            
            
            170
            
            
            2.94
            
            
            12
            
            
            46
            
            
            0.79
            
            
            38
            
            
            216
            
            
            3.73Commercial
                business
            
            
            1
            
            
            16
            
            
            0.24
            
            
            8
            
            
            329
            
            
            4.91
            
            
            9
            
            
            345
            
            
            5.15Total
            
            
            61
            
            $
            2,473
            
            
            1.97
            %
            
            39
            
            $
            1,697
            
            
            1.35
            %
            
            100
            
            $
            4,170
            
            
            3.32
            %










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          to Index*
 14.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





On
      the
      basis of management’s review of its assets, at June 30, 2006, the Association
      had classified a total of $1,908,000 of its loans, as follows:





One-
            
            CommercialTo
                Four-
            
            Real
            
            
            
            
            
            CommercialFamily
            
            Estate
            
            Land
            
            Consumer
            
            Business
            
            Total(Dollars
                in thousands)Special
                Mention
            
            $
            1,289
            
            $
            47
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            1,336Substandard
            
            
            189
            
            
            --
            
            
            --
            
            
            17
            
            
            98
            
            
            304Doubtful
            
            
            --
            
            
            --
            
            
            --
            
            
            27
            
            
            28
            
            
            55Loss
            
            
            --
            
            
            --
            
            
            --
            
            
            10
            
            
            203
            
            
            213$
            1,478
            
            $
            47
            
            $
            --
            
            $
            54
            
            $
            329
            
            $
            1,908





The
      Association’s classified assets consist of the (i) nonperforming loans and (ii)
      loans and other assets of concern discussed herein. As of June 30, 2006, these
      asset classifications are consistent with those of the OTS and FDIC.





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










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          to Index*
 15.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)




June
                30,2006
            
            2005(Dollars
                in thousands)Nonaccruing
                loansOne-
                to four-family
            
            $
            1,479
            
            $
            1,287Construction
                andDevelopment
            
            
            --
            
            
            --Commercial
                real estate
            
            
            46
            
            
            31Multi-family
            
            
            --
            
            
            --Land
            
            
            --
            
            
            --Consumer
            
            
            --
            
            
            --Commercial
                business
            
            
            --
            
            
            --Total
            
            
            1,525
            
            
            1,318Accruing
                loans delinquentmore
                than 90 daysOne-
                to four-family
            
            
            --
            
            
            131Construction
                andDevelopment
            
            
            --
            
            
            --Commercial
                real estate
            
            
            --
            
            
            --Multi-family
            
            
            --
            
            
            --Land
            
            
            --
            
            
            --Consumer
            
            
            46
            
            
            21Commercial
                business
            
            
            329
            
            
            197Total
            
            
            375
            
            
            349Foreclosed
                assetsOne-
                to four-family
            
            
            100
            
            
            --Construction
                anddevelopment
            
            
            --
            
            
            --Commercial
                real estate
            
            
            --
            
            
            --Multi-family
            
            
            --
            
            
            --Land
            
            
            --
            
            
            --Consumer
            
            
            --
            
            
            --Commercial
                business
            
            
            --
            
            
            --Total
            
            
            100
            
            
            --Total
                nonperforming assets
            
            $
            2,000
            
            $
            1,667Total
                as a percentage oftotal
                assets
            
            
            1.44
            %
            
            1.22
            %





For
      the
      year ended June 30, 2006 gross interest income which would have been recorded
      had the nonaccruing loans been current in accordance with their original terms
      amounted to $113,559. The amount that was included in interest income on such
      loans was $58,613 for the year ended June 30, 2006.





Other
      Assets of Concern :
      As of
      June 30, 2006, the Association had no assets that are not now disclosed because
      of known information about the possible credit problems of the borrowers or
      the
      cash flows of the security property which would cause management to have some
      doubts as to the ability of the borrowers to comply with present loan repayment
      terms and which may result in the future inclusion of such items in the
      nonperforming asset categories.










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          to Index*
 16.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





A
      loan is
      impaired when full payment under the terms of the loan is not expected.
      Commercial and commercial real estate loans are individually evaluated for
      impairment. If a loan is impaired, a portion of the allowance is allocated
      so
      that the loan is reported, net, at the present value of estimated future cash
      flows using the loan’s existing rate or at the fair value of collateral if
      repayment is expected solely from the collateral. Large groups of smaller
      balance homogeneous loans, such as consumer and residential real estate loans,
      are collectively evaluated for impairment.





As
      of
      June 30, 2006, the Association’s allowance for loan losses as a percent of gross
      loans receivable and as a percent of nonperforming loans amounted to 0.71%
      and
      47.03%, respectively. As of June 30, 2005, the Association’s allowance for loan
      losses as a percent of gross loans receivable and as a percent of nonperforming
      loans amounted to 0.69% and 50.12%, respectively. In light of the level of
      nonperforming assets to total assets and the nature of these assets, management
      believes that the allowance for loan losses is adequate. While management
      believes that it uses the best information available to determine the allowance
      for loan losses, unforeseen market conditions could result in adjustments to
      the
      allowance for loan losses, and net earnings could be significantly affected,
      if
      circumstances differ substantially from the assumptions used in making the
      final
      determination.














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          to Index*
 17.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





Year
                ended June 30,2006
            
            2005(Dollars
                in thousands)Balance
                at beginning of period
            
            $
            836
            
            $
            753Charge-offsOne-
                to four-family
            
            
            --
            
            
            --Construction
                andDevelopment
            
            
            --
            
            
            --Commercial
                real estate
            
            
            --
            
            
            --Multi-family
            
            
            --
            
            
            --Consumer
            
            
            17
            
            
            9Commercial
                business
            
            
            --
            
            
            --17
            
            
            9RecoveriesOne-
                to four-family
            
            
            --
            
            
            --Construction
                andDevelopment
            
            
            --
            
            
            --Commercial
                real estate
            
            
            --
            
            
            --Multi-family
            
            
            --
            
            
            --Consumer
            
            
            2
            
            
            1Commercial
                business
            
            
            --
            
            
            --2
            
            
            1Net
                charge-offs
            
            
            15
            
            
            8Additions
                charged to operations
            
            
            73
            
            
            91Balance
                at end of period
            
            $
            894
            
            $
            836Ratio
                of net charge-offs during the period toaverage
                loans outstanding* during the period
            
            
            0.01
            %
            
            0.01
            %Ratio
                of net charge-offs during the period tononperforming
                assets at the end of the period
            
            
            0.72
            %
            
            0.53
            %*Calculated
                net of deferred loan fees and the allowance for loan
                losses.







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          to Index*
 18.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





June
                30,2006
            
            2005Allowance
            
            Category
            
            Loans
            
            Allowance
            
            Category
            
            Loans(Dollars
                in thousands)One-
                to four-family
            
            $
            388
            
            $
            92,408
            
            
            73.66
            %
            $
            434
            
            $
            94,594
            
            
            77.33
            %Construction
                and development
            
            
            4
            
            
            2,982
            
            
            2.38
            
            
            4
            
            
            1,442
            
            
            1.18Commercial
                real estate
            
            
            19
            
            
            12,801
            
            
            10.20
            
            
            35
            
            
            12,564
            
            
            10.27Multi-family
            
            
            1
            
            
            1,380
            
            
            1.10
            
            
            3
            
            
            1,297
            
            
            1.06Land
            
            
            4
            
            
            3,371
            
            
            2.69
            
            
            5
            
            
            2,187
            
            
            1.79Consumer
            
            
            140
            
            
            5,793
            
            
            4.62
            
            
            105
            
            
            5,056
            
            
            4.13Commercial
                business
            
            
            338
            
            
            6,715
            
            
            5.35
            
            
            250
            
            
            5,185
            
            
            4.24Unallocated
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Total
            
            $
            894
            
            $
            125,450
            
            
            100.00
            %
            $
            836
            
            $
            122,325
            
            
            100.00
            %








**Investment
      Activities**





As
      part
      of its asset/liability management strategy, the Corporation invests in U.S.
      Government and agency obligations and mortgage-backed securities to supplement
      its lending activities. The Association’s investment policy also allows for
      investments in overnight funds and certificates of deposit. The Association
      may
      consider the expansion of investments into other securities if deemed
      appropriate. At June 30, 2006, the Corporation did not own any securities of
      a
      single issuer that exceeded 10% of the Association’s equity, other than U.S.
      Government or federal agency obligations. See Note 2 of the Notes to the
      Consolidated Financial Statements for additional information regarding the
      Association’s securities portfolio.





As
      of
      June 30, 2006 the Corporation had securities totaling $5.3 million classified
      as
      available for sale while there were no securities classified as held to
      maturity. As future securities are acquired, the Corporation may elect to
      classify them as either available for sale or held to maturity.










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          to Index*
 19.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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


June
                30,2006
            
            2005Carrying
            
            %
                of
            
            Carrying
            
            %
                ofValue
            
            Total
            
            Value
            
            Total(Dollars
                in thousands)U.S.
                Government Agencies
            
            $
            5,250
            
            
            74.81
            %
            $
            5,434
            
            
            76.45
            %FHLB
                stock
            
            
            1,768
            
            
            25.19
            
            
            1,674
            
            
            23.55Total
                securities
            
            $
            7,018
            
            
            100.00
            %
            $
            7,108
            
            
            100.00
            %Average
                remaining life of securities
            
            4.19
              years
            
            
            
            
            5.24
              yearsOther
                interest-earning assetsInterest-bearing
                deposits with banks
            
            $
            3,816
            
            
            100.00
            %
            $
            3,954
            
            
            100.00
            %Overnight
                deposits
            
            
            --
            
            
            --
            
            
            --
            
            
            --Total
            
            $
            3,816
            
            
            100.00
            %
            $
            3,954
            
            
            100.00
            %

















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          to Index*
 20.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





June
                30, 2006Less
                than 1 year
            
            1
                to 5 years
            
            5
                to 10 years
            
            Total
                SecuritiesCarrying
            
            Fair
            
            Carrying
            
            Fair
            
            Carrying
            
            Fair
            
            Carrying
            
            FairValue
            
            Value
            
            Value
            
            Value
            
            Value
            
            Value
            
            Value
            
            Value(Dollars
                in thousands)U.S.
                Government Agenciesavailable
                for sale
            
            $
            498
            
            $
            498
            
            $
            2,931
            
            $
            2,931
            
            $
            1,821
            
            $
            1,821
            
            $
            5,250
            
            $
            5,250$
            498
            
            $
            498
            
            $
            2,931
            
            $
            2,931
            
            $
            1,821
            
            $
            1,821
            
            $
            5,250
            
            $
            5,250Weighted
                average yield
            
            
            4.40
            %
            
            4.40
            %
            
            4.00
            %
            
            4.00
            %
            
            4.00
            %
            
            4.00
            %
            
            4.04
            %
            
            4.04
            %















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          to Index*
 21.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Sources
      of Funds**





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





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





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





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





At
      June
      30, 2006, the Association had approximately $4,408,000 in certificate accounts
      in amounts of $100,000 or more maturing as follows:





WeightedAverageMaturity
                Period
            
            Amount
            
            Rate(Dollars
                in thousands)Three
                months or less
            
            $
            706
            
            
            3.98
            %Over
                three through six months
            
            
            554
            
            
            3.86Over
                six through 12 months
            
            
            522
            
            
            4.48Over
                12 months
            
            
            2,626
            
            
            4.24Total
            
            $
            4,408
            
            
            4.18
            %





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









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          to Index*
 22.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Borrowings**





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





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





Year
                Ended June 30,2006
            
            2005(Dollars
                in thousands)FHLB
                advancesBalance
                at end of period
            
            $
            38,511
            
            $
            32,589Weighted
                average rate at period end
            
            
            5.32
            %
            
            5.21
            %Maximum
                balance at any month-end during the period
            
            $
            38,511
            
            $
            32,589Average
                balance for the period
            
            $
            35,412
            
            $
            30,792Weighted
                average rate for the period
            
            
            5.24
            %
            
            5.30
            %





**Service
      Corporations**





As
      a
      federally chartered savings association, the Association is permitted by OTS
      regulations to invest up to 2.0% of its assets, or $2.8 million at June 30,
      2006
      in the stock of, or loans to, service corporation subsidiaries. As of such
      date,
      the Association had no investments in service corporations.








**REGULATION**





**General**





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





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










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          to Index*
 23.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





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




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




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




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




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





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





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





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





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


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


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









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 24.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





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





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





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





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





**Federal
      Deposit Insurance Reform Act of 2005.** The
      FDIRA, signed into law on February 8, 2006, amended current laws regarding
      the
      federal deposit insurance system. Pursuant to the FDIRA, the FDIC merged the
      Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”)
      into one deposit insurance fund, the DIF, on March 31, 2006. The new legislation
      also abolishes the prior minimum 1.25% reserve ratio and the mandatory
      assessments when the ratio falls below 1.25%. Under the FDIRA, the FDIC, at
      the
      beginning of each year, has the flexibility to adjust the DIF’s reserve ratio
      between 1.15% and 1.50% depending upon a variety of factors, including projected
      losses, economic considerations and assessment rates.









*Back
          to Index*
 25.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





Deposit
      insurance coverage limits are raised under the FDIRA from $100,000 to $250,000
      for certain types of Individual Retirement Accounts, 401(k) plans and other
      retirement savings accounts (including Keough accounts and “457” plan accounts,
      among others). The current $100,000 limit continues to apply to individual
      accounts and municipal deposits; however, Congress included in the FDIRA the
      authority for the FDIC to review all levels of insurance coverage after March
      31, 2010, and index such insurance coverage to inflation. Additionally, the
      FDIRA states that undercapitalized financial institutions cannot accept employee
      benefit plan deposits.





Certain
      one-time deposit premium assessment credits are also authorized under the FDIRA,
      and regulations related to the apportionment of such credits have recently
      been
      issued by the FDIC. To date, however, the credit program has not been finalized
      and the credits will not be rebated but instead may be applied against premiums
      at any time, subject to limited exceptions.





The
      Act
      also provides that the FDIC must promulgate final regulations implementing
      the
      FDIRA no later than 270 days after its enactment (e.g., November 5, 2006).
      Because such final regulations are not yet in place, it is difficult to predict
      the effect, if any, such regulations will have on our banking operations.





**Federal
      Regulation of Savings Associations**





The
      OTS
      has extensive authority over the operations of savings associations, such as
      the
      Association. As part of this authority, the Association is required to file
      periodic reports with the OTS and is subject to periodic examinations by the
      OTS. The last regular OTS examination of the Association was as of December
      7,
      2004. When these examinations are conducted by the OTS, the examiners may
      require the Association to provide for higher general or specific loan loss
      reserves and take other corrective action. All savings associations are subject
      to a semi-annual assessment, based upon the savings association’s total assets,
      to fund the operations of the OTS. The Association’s OTS assessment for the
      fiscal year ended June 30, 2006 was $50,000.









*Back
          to Index*
 26.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





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





The
      Association’s general permissible lending limit for loans-to-one-borrower is
      equal to the greater of $500,000 or 15% of unimpaired capital and surplus
      (except for loans fully secured by certain readily marketable collateral, in
      which case this limit is increased to 25% of unimpaired capital and surplus).
      At
      June 30, 2006, the Association’s lending limit under this restriction was $2.3
      million. The Association is in compliance with the loans-to-one-borrower
      limitation.





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










*Back
          to Index*
 27.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Insurance
      of Accounts and Regulation by the FDIC**





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





The
      FDIC’s deposit insurance premiums, which, pursuant to the FDIRA, must now be
      assessed annually on all banks and savings institutions, are assessed through
      a
      risk-based system under which all insured depository institutions are placed
      into one of nine categories and assessed insurance premiums based upon their
      level of capital and supervisory evaluation. Under the system, institutions
      classified as well capitalized (i.e., a Tier 1 capital ratio of at least 5%,
      a
      ratio of Tier 1 capital to risk-weighted assets (“Tier 1 risk-based capital”) of
      at least 6% and a risk-based capital ratio of at least 10%) and considered
      healthy, pay the lowest premium, while institutions that are less than
      adequately capitalized (i.e., Tier 1 or Tier 1 risk-based capital ratios of
      less
      than 4% or a risk-based capital ratio of less than 8%) and considered of
      substantial supervisory concern pay the highest premium. Risk classification
      of
      all insured institutions will be made by the FDIC for each semi-annual
      assessment period. The FDIRA authorizes the FDIC to revise its current
      risk-based system, subject to public notice and comment, although no deadline
      was given by Congress for the creation or implementation of such
      regulations.





DIF-insured
      institutions are required to pay a Financing Corporation (FICO) assessment,
      in
      order to fund the interest on bonds issued to resolve thrift failures in the
      1980s. For the quarter ended December 31, 2005, the FICO assessment was equal
      to
      1.34 basis points for each $100 in domestic deposits. The first quarter rate
      for
      2006 was 1.32 basis points for each $100 in domestic deposits. These
      assessments, which may be revised based upon the level of DIF deposits, will
      continue until the bonds mature in the years 2017 through 2019.





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











*Back
          to Index*
 28.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Regulatory
      Capital Requirements**





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





The
      capital regulations require tangible capital of at least 1.5% of adjusted total
      assets (as defined by regulation). Tangible capital generally includes common
      stockholders’ equity and retained income, and certain noncumulative perpetual
      preferred stock and related income. In addition, all intangible assets, other
      than a limited amount of purchased mortgage servicing rights, must be deducted
      from tangible capital for calculating compliance with the requirement. At June
      30, 2006, the Association did not have any intangible assets.





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





At
      June
      30, 2006, the Association had tangible capital of $15,368,000, or 11.0% of
      adjusted total assets. The minimum requirement was 1.5 % of adjusted total
      assets on that date.





The
      capital standards also effective require core capital equal to at least 4%
      of
      adjusted total assets. Core capital generally consists of tangible capital
      plus
      certain intangible assets, including a limited amount of purchased credit card
      receivables. At June 30, 2006, the Association had core capital equal to
      $15,368,000, or 11.0% of adjusted total assets. The minimum leverage ratio
      requirement was 4.0% and the well capitalized requirement was 5.0% on that
      date.





The
      OTS
      risk-based requirement requires savings associations to have total capital
      of at
      least 8% of risk-weighted assets. Total capital consists of core capital, as
      defined above, and supplementary capital. Supplementary capital consists of
      certain permanent and maturing capital instruments that do not qualify as core
      capital and general valuation loan and lease loss allowances up to a maximum
      of
      1.25% of risk-weighted assets. Supplementary capital may be used to satisfy
      the
      risk-based requirement only to the extent of core capital. The OTS is also
      authorized to require a savings association to maintain an additional amount
      of
      total capital to account for concentration of credit risk and the risk of
      non-traditional activities. At June 30, 2006, the Association had $680,000
      of
      its total $894,000 of allowance for loan losses that were general loss reserves,
      which was less than 1.25% of risk-weighted assets. Certain exclusions from
      capital and assets are required to be made for the purpose of calculating total
      capital. The Association had no such exclusions from capital and assets at
      June
      30, 2006. In determining the amount of risk-weighted assets, all assets,
      including certain off-balance sheet items, will be multiplied by a risk weight,
      ranging from 0% to 100%, based on the risk inherent in the type of asset. For
      example, the OTS has assigned a risk weight of 50% for prudently underwritten
      permanent one- to four-family first lien mortgage loans not more than 90 days
      delinquent and having a loan to value ratio of not more than 80% at origination
      unless insured to such ratio by an insurer approved by the FNMA or FHLMC. On
      June 30, 2006, the Association had total capital of $16,048,000 (including
      $15,368,000 in core capital and $680,000 in qualifying supplementary capital)
      and risk-weighted assets of $84,734,000 or total capital of 18.9% of
      risk-weighted assets. The minimum requirement was 8.0 % and the well capitalized
      requirement was 10.0% on that date.







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 29.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Prompt
      Corrective Action**





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





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





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





**Limitations
      on Dividends and Other Capital Distributions**





OTS
      regulations impose various restrictions on savings associations with respect
      to
      their ability to make distributions of capital, which include dividends, stock
      redemptions or repurchases, cash-out mergers and other transactions charged
      to
      the capital account. Assuming the absence of supervisory problems, OTS
      regulations generally permit a federal savings association to pay dividends
      in
      any calendar year equal to net income for that year plus retained earnings
      for
      the preceding two years less any dividends paid. In addition to current year
      earnings, approximately $94,000 is available to pay dividends to the holding
      company during the fiscal year ending June 30, 2007 without prior regulatory
      approval.





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










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 30.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





**Qualified
      Thrift Lender Test**





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





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





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





**Community
      Reinvestment Act**





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







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 31.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





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





**Activities
      of Associations and Their Subsidiaries**





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





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





**Transactions
      with Affiliates**





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





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




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










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 32.


**ITEM
      1 - DESCRIPTION OF BUSINESS (Continued)**





**Regulatory
      and Criminal Enforcement Provisions**





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





**Holding
      Company Regulation of Peoples**





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





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





**Federal
      Securities Law**





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





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





**Federal
      Reserve System**





The
      Federal Reserve Board requires all depository institutions to maintain
      noninterest-bearing reserves at specified levels against their transaction
      accounts (primarily checking, NOW and Super NOW checking accounts). At June
      30,
      2006, the Association was in compliance with these reserve requirements. The
      balances maintained to meet the reserve requirements imposed by the Federal
      Reserve Board may be used to satisfy liquidity requirements that may be imposed
      by the OTS. See “-Liquidity.”





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









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 33.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Federal
      Home Loan Bank System**





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





As
      a
      member, the Association is required to purchase and maintain stock in the FHLB
      of Cincinnati. At June 30, 2006, the Association had $1,768,000 in FHLB stock,
      which was in compliance with this requirement.





Under
      federal law, the FHLB is required to provide funds for the resolution of
      troubled savings institutions and to contribute to low and moderately priced
      housing programs through direct loans or interest subsidies on advances targeted
      for community investment and low- and moderate-income housing projects. These
      contributions have affected adversely the level of FHLB dividends paid and
      could
      continue to do so in the future. These contributions also could have an adverse
      effect on the value of FHLB stock in the future. In addition, the federal agency
      that regulates the FHLBs has required each bank to register its stock with
      the
      SEC, which will increase the costs of each bank and may have other effects
      that
      are not possible to predict at this time. Finally, the FHFB has proposed
      regulations that could strengthen the capital composition of the FHLBs, and
      that
      would establish a FHLB rating system. Neither the regulation has been passed
      in
      final form, and therefore no prediction can be made on the effect that such
      regulations if passed, would have on the Corporation.





For
      the
      year ended June 30, 2006, dividends paid by the FHLB of Cincinnati to the
      Association totaled $94,500, which constitutes a $21,800 increase over the
      amount of dividends received in fiscal year 2005. The $25,000 dividend for
      the
      quarter ended June 30, 2006 reflects an annualized rate of 5.73%.





**Federal
      and State Taxation**





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





A
      portion
      of the Association’s reserves for losses on loans may not, without adverse tax
      consequences, be utilized for the payment of cash dividends or other
      distributions to a shareholder (including distributions on redemption,
      dissolution or liquidation) or for any other purpose (except to absorb bad
      debt
      losses). As of June 30, 2006, the portion of the Association’s reserves subject
      to this treatment for tax purposes totaled approximately $2.2 million.





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










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 34.


**ITEM
      1 - DESCRIPTION OF BUSINESS (Continued)**





The
      Corporation has been audited by the IRS, or the statute of limitations for
      assessment has closed, with respect to federal income tax returns through June
      30, 2002. With respect to years examined by the IRS, either all deficiencies
      have been satisfied or sufficient reserves have been established to satisfy
      asserted deficiencies. In the opinion of management, any examination of still
      open returns (including returns of subsidiaries and predecessors of, or entities
      merged into the Corporation) would not result in a deficiency that could have
      a
      material adverse effect on the financial condition of the
      Corporation.





*Ohio
      Taxation* :
      The
      Association conducts its business in Ohio and consequently is subject to the
      Ohio corporate franchise tax. A financial institution subject to the Ohio
      corporate franchise tax levied by the Ohio Revised Code pays a tax equal to
      1.3
      times its apportioned net worth. The apportionment factor consists of a gross
      receipts factor, determined by reference to the total receipts of the financial
      institution from all sources, a property factor, determined by reference to
      the
      net book value of all loans and fixed assets owned by the financial institution
      and a payroll factor. The Corporation also files an Ohio franchise tax return
      and pays tax on its Ohio taxable income. However, the only income recorded
      by
      the Corporation is the income generated by the Association, therefore the
      Corporation is required to only pay the minimum annual filing amount of
      $50.00.





*Delaware
      Taxation* :
      As a
      Delaware holding company, Peoples is exempted from Delaware corporate income
      tax
      but is required to file an annual report with and pay an annual fee to the
      State
      of Delaware. This tax is calculated on the Assumed Par Value method, which
      is
      based on a capital valuation amount as opposed to net income.















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 35.


**ITEM
      1 - DESCRIPTION OF BUSINESS** (Continued)





**Competition**





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





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





**Employees**





At
      June
      30, 2006, the Association had a total of 32 full-time employees, 15 of whom
      have
      been employed by the Association for at least 10 years, and 7 part-time
      employees. None of the Association’s employees are represented by any collective
      bargaining group. Management considers its employee relations to be
      good.








**Executive
      Officers of the Registrant Who are Not Directors**





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





David
      R. Fogt .
      Mr.
      Fogt, age 55, is Vice President of Operations and Financial Services of the
      Association. He is responsible for the overall administration of the Association
      with direct responsibilities in consumer lending and asset and liability
      management. He has been employed by the Association since 1983.





Gary
      N. Fullenkamp *.* Mr.
      Fullenkamp, age 50, is Vice President of Mortgage Loans and Corporate Secretary
      of the Association. He is responsible for mortgage lending operations of the
      Association, including underwriting and processing of mortgage loan activity.
      He
      has been employed by the Association since 1979.





Debra
      A. Geuy *.* Mrs.
      Geuy, age 48, is Chief Financial Officer and Treasurer of the Association.
      She
      is responsible for overseeing the financial functions of the Association. She
      has been employed by the Association since 1978.










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 36.


**ITEM
      2 - DESCRIPTION OF PROPERTY**





The
      following table sets forth information concerning the main and branch offices
      and a drive-in facility of the Association at June 30, 2006. The Association
      believes that its current facilities are adequate. The Association also
      maintains a 24-hour ATM at its main and branch office locations.





Net
                BookValue
                atYear
            Owned
            June
                30,Opened
            or
                Leased
            2006**Main
                Office**101
                East Court Street
            1917
            Owned
            $218,736Sidney,
                Ohio 45365**Drive-In**232
                South Ohio Avenue
            1971
            Owned
            $150,273Sidney,
                Ohio 45365**Anna
                Branch**403
                South Pike Street
            1998
            Owned
            $513,767Anna,
                Ohio 45302**Jackson
                Center Branch**115
                East Pike Street
            1998
            Owned
            $388,664Jackson
                Center, Ohio 45334**Sidney
                Wal-Mart Branch**2400
                West Michigan Avenue
            2001
            Leased
            $136,537Sidney,
                Ohio 45365





The
      Association’s depositor and borrower customer files are maintained by an
      independent data processing company. The net book value of the data processing
      and computer equipment utilized by the Association at June 30, 2006 was
      approximately $144,267.








**ITEM
      3 - LEGAL PROCEEDINGS**





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








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





No
      matter
      was submitted to a vote of security holders, through the solicitation of proxies
      or otherwise, during the quarter ended June 30, 2006.










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 37.


**PART
      II**





**ITEM
      5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER**


**** **MATTERS
      AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES**





Page
      4 of
      Peoples’ 2006 Annual Report to Stockholders, attached hereto as Exhibit 13, is
      incorporated herein by reference.








**ITEM
      6 - MANAGEMENT’S DISCUSSION AND ANALYSIS
      OR**


**** **PLAN
      OF OPERATION**





Pages
      8
      through 20 of the Peoples’ 2006 Annual Report to Stockholders, attached hereto
      as Exhibit 13, are incorporated herein by reference.








**ITEM
      7 - FINANCIAL STATEMENTS**





Pages
      21
      through 48 of the Peoples’ 2006 Annual Report to Stockholders, attached hereto
      as Exhibit 13, are incorporated herein by reference.








**ITEM
      8 - CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS**


**** **ON
      ACCOUNTING AND FINANCIAL DISCLOSURE**





Not
      applicable.








**ITEM
      8A - CONTROLS AND PROCEDURES**





The
      Corporation’s management, with the participation of the Corporation’s Chief
      Executive Officer and Chief Financial Officer, has evaluated the effectiveness
      of the Company’s disclosure controls and procedures, as such term is defined
      Rules 13a-15(e) and 15d-15(e) of the securities Exchange Act of 1934 (Exchange
      Act) as of the end of the period covered by the report.





Based
      upon that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that as of June 30, 2006 our disclosure controls and procedures were
      effective to provide reasonable assurance that (i) the information required
      to
      be disclosed by us in this Report was recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules an forms, and (ii)
      information required to be disclosed by us in our reports that we file or submit
      under the Exchange Act is accumulated and communicated to our management,
      including our principal executive and principal financial officers, or person
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure.





There
      have not been any changes in the Corporation’s internal control over financial
      reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
      Exchange Act) during the fiscal year to which this report relates that have
      materially affected, or are reasonably likely to materially affect, the
      Corporation’s internal control over financial reporting.





Section
      404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and
      annually report on their systems of internal control over financial reporting.
      We will begin the process of evaluating, documenting and testing our system
      of
      internal control over financial reporting to provide the basis for our report
      that we anticipate, for the first time, will be a required part of our annual
      report on Form 10-KSB for the fiscal year ending June 30, 2008. Due to the
      ongoing evaluation and testing of our









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 38.


internal
      controls, there can be no assurance that if any control deficiencies are
      identified they will be corrected before the end of the 2008 fiscal year, or
      that there may not be significant deficiencies or material weaknesses that
      would
      be required to be reported. In addition, we expect the evaluation process and
      any required remediation, if applicable, to increase our accounting, legal
      and
      other costs and divert management resources from core business
      operations.








**ITEM
      8B - OTHER INFORMATION**





Not
      applicable.












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 39.


**PART
      III**





**ITEM
      9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
      CONTROL**


**** **PERSONS;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**





**Directors**





Information
      concerning directors of Peoples is incorporated herein by reference from
      Peoples’ definitive Proxy Statement for the Annual Meeting of Stockholders to be
      held in 2006, which was filed with the SEC on September 12, 2006.





**Executive
      Officers**





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





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Information
      concerning compliance with Section 16(a) reporting requirements by Peoples’
directors and executive officers is incorporated herein by reference from the
      Peoples’ definitive Proxy Statement for the Annual Meeting of Stockholders to be
      held in 2006, which was filed with the SEC on September 12, 2006.





**Code
      of Ethics**





We
      have
      adopted a Code of Ethics for Principal Executive Officers and Senior Financial
      Officers within the meaning of Item 406(b) of Regulation S-K. This Code of
      Ethics applies to our principal executive officer, principal financial officer,
      principal accounting officer and others performing similar functions. The Code
      of Ethics is attached hereto as Exhibit 14. If we make substantive amendments
      to
      the Code of Ethics that are applicable to our principal executive of financial
      officers, or grant any waiver, including any implicit waiver of any provision
      of
      the code as applicable to our principal executive or financial officers, we
      will
      disclose the nature of such amendment or waiver in a report on Form 8-K in
      a
      timely manner.








**ITEM
      10 - EXECUTIVE COMPENSATION**





Information
      concerning executive compensation is incorporated herein by reference from
      Peoples’ definitive Proxy Statement for the Annual Meeting of Stockholders to be
      held in 2006, which was filed with the SEC on September 12, 2006.








**ITEM
      11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS**


**** **AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS**





Information
      concerning security ownership of certain beneficial owners and management is
      incorporated herein by reference from Peoples’ definitive Proxy Statement for
      the Annual Meeting of Stockholders to be held in 2006, which was filed with
      the
      SEC on September 12, 2006.









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          to Index*
 40.


The
      following table provides information as of June 30, 2006 related to our equity
      compensation plans in effect at that time.





**Equity
      Compensation Plan Information**





(a)
            (b)
            (c)Plan
                Category
            Number
                of securities
              to
                be issued upon
              exercise
                of
              outstanding
                options
            Weighted-average
              exercise
                price of
              outstanding
                options
            Number
                of securities
              remaining
                available for
              future
                issuance under
              equity
                compensation
              plans
                (excluding
              securities
              reflected
                in column (a))Equity
                compensation
              plans
                approved by
              security
                holders.
            128,898
            $16.04
            49,640





Additional
      information concerning security ownership of certain beneficial owners and
      management is incorporated herein by reference from the definitive Proxy
      Statement for the Annual Meeting of Stockholders to be held in 2006, a copy
      of
      which was filed with the SEC on September 12, 2006.





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





Information
      concerning certain relationships and related transactions is incorporated herein
      by reference from Peoples’ definitive Proxy Statement for the Annual Meeting of
      Stockholders to be held in 2006, which has been filed with the SEC on September
      12, 2006.










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          to Index*
 41.


**ITEM
      13 - EXHIBITS**





IncorporationbyReference
                toRegulation
                S-B
            
            Prior
                Filing orExhibit
            
            Exhibit
                NumberNumber
            Description
                of Document
            Attached
                Hereto3(i)
            Certificate
                of Incorporation
            *3(ii)
            By-Laws
            *4
            Instruments
                defining the rights of holders, including indentures
            *10.1
            Employee
                Stock Ownership Plan
            *10.2
            Form
                of Employment Agreement with Douglas Stewart
            *10.3
            Forms
                of Employment Agreements with David R. Fogt, Gary N. Fullenkamp,
                Debra A.
                Geuy and Steven Goins
            *10.4
            401(k)
                Plan
            *10.5
            Incentive
                Bonus Plan
            *10.6
            Peoples-Sidney
                Financial Corporation Amended and Restated 1998 Stock Option and
                Incentive
                Plan
            **10.7
            Peoples-Sidney
                Financial Corporation Amended and Restated 1998 Management Recognition
                Plan
            **11
            Statement
                re: computation of per-share earnings
            See
                Note 16 to the Consolidated Financial Statements on pages 45-46 of
                the
                2006 Annual Report Stockholders attached hereto as Exhibit
                1313
            Annual
                report to Stockholders
            1314
            Code
                of Ethics for the Principal ExecutiveOfficer
                and Senior Financial Officer ofPeoples-Sidney
                Financial Corporation
            1421
            Subsidiaries
                of Registrant
            2123
            Consents
                of experts and counsel
            2331.1
            Certification
                of the Chief Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            31.131.2
            Certification
                of the Chief Financial Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            31.232.1
            Certification
                of the Chief Executive Officer Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002
            32.132.2
            Certification
                of the Chief Financial Officer Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002
            32.2












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          to Index*
 42.






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





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








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





Information
      concerning principal accountant fees and services is incorporated herein by
      reference from Peoples’ definitive Proxy Statement for The Annual Meeting of
      Stockholders to be held in 2006, which was filed with the SEC on September
      12,
      2006.

















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          to Index*
 43.


**SIGNATURES**





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





September
                28, 2006
            
            **PEOPLES-SIDNEY
                FINANCIAL CORPORATION**DateBy:
            /s/DOUGLAS
                STEWARTDouglas
                StewartPresident,
                CEO and Director





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities indicated on September 28, 2006.




Signatures
            
            Signatures/s/
                DOUGLAS STEWART
            
            /s/JAMES
                W. KERBERDouglas
                Stewart
            
            James
                W. KerberDouglas
                Stewart, President, CEO and Director
            
            DirectorSeptember
                28, 2006
            
            September
                28, 2006/s/RICHARD
                T. MARTIN
            
            /s/JOHN
                W. SARGEANTRichard
                T. Martin
            
            John
                W. SargeantChairman
                of the Board
            
            DirectorSeptember
                28, 2006
            
            September
                28, 2006/s/HARRY
                N. FAULKNER
            
            /s/DEBRA
                A. GEUYHarry
                N. Faulkner
            
            Debra
                A. GeuyDirector
            
            Chief
                Financial Officer and TreasurerSeptember
                28, 2006
            
            September
                28, 2006











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44.