PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  Sidney, Ohio

                                  ANNUAL REPORT
                                  June 30, 2004


<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                                  Sidney, Ohio

                                  ANNUAL REPORT
                                  June 30, 2004

                                    CONTENTS

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

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

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

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ..................    21

CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

       Consolidated Statements of Cash Flows .............................    27

       Notes to Consolidated Financial Statements ........................    28

SHAREHOLDER INFORMATION...................................................    49

CORPORATE INFORMATION.....................................................    50

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                                                                              1.
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BUSINESS OF PEOPLES-SIDNEY FINANCIAL CORPORATION

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

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

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

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

The Corporation had 1,432,648 common shares outstanding on August 31, 2004,
which were held of record by 816 shareholders. Price information with respect to
the Corporation's common shares is quoted on The NASDAQ National Market System.
The high and low daily closing prices for the common shares of the Corporation
as quoted by The NASDAQ Stock Market, Inc., and cash dividends paid by quarter,
are shown below.

                          September 30,  December 31,   March 31,      June 30,
                              2003          2003          2004           2004
                          -------------  ------------  -----------    ----------
      High                  $  15.00      $  15.88      $  18.50      $  17.67
      Low                      13.25         13.25         14.69         15.77
      Cash Dividends            0.13          0.23          0.14          0.14

                          September 30,  December 31,   March 31,      June 30,
                              2002          2002          2003           2003
                          -------------  ------------  -----------    ----------
      High                  $  12.35      $  12.95      $  14.84      $  15.15
      Low                      11.75         11.75         12.35         13.93
      Cash Dividends            0.09          0.16          0.12          0.12

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

A subsidiary of a savings and loan holding company must file a notice or an
application with the OTS before it can declare and pay a dividend (1) if the
proposed distribution would cause total distributions for that calendar year to
exceed net income for that year to date plus the savings association's retained
net income for the preceding two years; (2) if the savings association will not
be at least adequately capitalized following the capital distribution; (3) if
the proposed distribution would violate a prohibition contained in any
applicable statute, regulations or agreement between the savings association and
the OTS (or the FDIC), or a condition imposed on the savings association in an
OTS-approved application or notice; or, (4) if the savings association has not
received certain favorable examination ratings from the OTS. If a savings
association subsidiary of a holding company is not required to file an
application, it must file a notice with the OTS. As of July 1, 2004, the
Association must obtain regulatory approval to pay dividends to the holding
company until fiscal 2005 net income exceeds $130,944.

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                                                                              5.
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SELECTED CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA

The following tables set forth certain information concerning the consolidated
financial condition and earnings of, and other data regarding, the Corporation
at the dates and for the periods indicated.

<TABLE>
<CAPTION>
                                                                     At June 30,
Selected Financial Condition                -------------------------------------------------------------
  and Other Data:                              2004         2003         2002         2001         2000
                                            ---------    ---------    ---------    ---------    ---------
                                                                    (In thousands)
<S>                                         <C>          <C>          <C>          <C>          <C>
Total amount of:
      Assets                                $ 135,771    $ 143,568    $ 134,854    $ 134,304    $ 129,287
      Securities available for sale             5,288       11,517        3,526        3,002        8,447
      FHLB stock                                1,601        1,539        1,475        1,397        1,023
      Loans, net (1)                          115,652      115,260      121,225      120,482      114,650
      Deposits                                 86,764       93,452       94,787       91,341       93,057
      Borrowed funds                           31,140       32,190       22,456       25,475       19,000
      Shareholders' equity                     17,431       17,384       17,194       17,150       16,960

<CAPTION>
                                                                 Year ended June 30,
                                            -------------------------------------------------------------
Selected Operations Data:                      2004         2003         2002         2001         2000
                                            ---------    ---------    ---------    ---------    ---------
                                                                    (In thousands)
<S>                                         <C>          <C>          <C>          <C>          <C>
Interest income                             $   7,910    $   8,782    $   9,667    $  10,130    $   9,170
Interest expense                                3,404        4,423        5,579        6,266        5,376
                                            ---------    ---------    ---------    ---------    ---------
Net interest income                             4,506        4,359        4,088        3,864        3,794
Provision for loan losses                          53           69           52           73           61
                                            ---------    ---------    ---------    ---------    ---------
Net interest income after
  provision for loan losses                     4,453        4,291        4,036        3,791        3,733
Noninterest income                                135          135          130          204           68
Noninterest expense                             3,039        3,114        3,066        2,837        2,787
                                            ---------    ---------    ---------    ---------    ---------
Income before income taxes                      1,549        1,311        1,100        1,158        1,014
Income tax expense                                574          475          393          418          378
                                            ---------    ---------    ---------    ---------    ---------
Net income                                  $     975    $     836    $     707    $     740    $     636
                                            =========    =========    =========    =========    =========
Earnings per common
  share - basic                             $     .71    $     .61    $     .51    $     .52    $     .43
                                            =========    =========    =========    =========    =========
Earnings per common
  share - diluted                           $     .71    $     .61    $     .51    $     .52    $     .43
                                            =========    =========    =========    =========    =========
Dividends declared per share                $     .64    $     .49    $     .35    $     .31    $     .28
                                            =========    =========    =========    =========    =========
</TABLE>

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6.
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Selected Financial Ratios and Other Data:

<TABLE>
<CAPTION>
Performance Ratios:                             2004       2003       2002       2001       2000
                                                ----       ----       ----       ----       ----
<S>                                            <C>        <C>        <C>        <C>        <C>
      Return on assets (ratio of net
        income to average total assets)         0.70%      0.60%      0.52%      0.56%      0.51%
      Return on equity (ratio of net
        income to average equity)               5.65       4.85       4.15       4.33       3.70
      Dividend payout ratio (6)                90.14      80.33      68.63      59.62      65.12
      Interest rate spread (2)                  3.05       2.83       2.57       2.38       2.53
      Net interest margin (3)                   3.36       3.23       3.09       3.01       3.14
      Ratio of operating expense to
        average total assets                    2.20       2.24       2.25       2.15       2.23
      Ratio of average interest-earning
        assets to average interest-bearing
        liabilities                            1.12x      1.12x      1.12x      1.13x      1.14x
Quality Ratios:
      Nonperforming assets to total
        assets at end of period (4)             0.96%      1.47%      0.79%      0.94%      0.81%
      Allowance for loan losses to
        nonperforming loans                    62.17      38.26      66.12      52.32      56.59
      Allowance for loan losses to
        gross loans (5)                         0.65       0.66       0.58       0.55       0.51
Capital Ratios:
      Shareholders' equity to total
        assets at end of period                12.84      12.11      12.75      12.77      13.12
      Average equity to average assets         12.47      12.39      12.49      12.92      13.77
Other Data:
      Number of full service offices               4          4          4          4          3
</TABLE>

(1)   Loans are shown net of net deferred loan fees, loans in process and the
      allowance for loan losses.

(2)   The average interest rate spread represents the difference between the
      weighted average yield on interest-earning assets and the weighted average
      cost of interest-bearing liabilities.

(3)   The net interest margin represents net interest income as a percent of
      average interest-earning assets.

(4)   Nonperforming assets consist of nonperforming loans and foreclosed assets.
      Nonperforming loans consist of all accruing loans 90 days or more past due
      and all nonaccrual loans.

(5)   Gross loans are stated at unpaid principal balances, net of deferred loan
      fees and loans in process.

(6)   Dividends declared per share divided by basic earnings per common share.

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                                                                              7.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following is management's analysis of the Corporation's consolidated
financial condition and consolidated results of operations as of and for the
year ended June 30, 2004, compared to prior years. This discussion is designed
to provide a more comprehensive review of the operating results and financial
position than could otherwise be obtained from an examination of the
consolidated financial statements alone. This analysis should be read in
conjunction with the consolidated financial statements and related footnotes and
the selected financial data included elsewhere in this report.

The Corporation provides financial services through its main office in Sidney,
Ohio, and branch offices in Sidney, Anna, and Jackson Center, Ohio. The
Corporation's primary deposits products are checking, savings and term
certificate accounts. Its primary lending products are residential mortgage,
commercial and installment loans. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets and real
estate. Commercial loans are expected to be repaid from cash flow from
operations of businesses. Real estate loans are secured by both residential and
commercial real estate. Substantially all revenues and services are derived from
financial institution products and services in Shelby County and contiguous
counties.

Despite the Corporation's strong results, events underlying the fiscal year
financial results were somewhat mixed. With interest rates at all-time lows, the
Corporation was very cautious in over-booking record numbers of long-term fixed
rate loans. As a portfolio lender, and with the anticipation of interest rates
rising in the near term, the interest rate risk of lower rate, long term fixed
rate loans would have a definite impact on future earnings for the Corporation.
The Corporation did, however, continue to leverage its fixed rate loan portfolio
with mortgage-matched advances from the Federal Home Loan Bank. This will
continue to provide a measure of protection for the Corporation since interest
rates have now begun to rise. In addition, the Corporation continually monitored
the cost of funds and operational expenses by using "wholesale funds" versus
"retail deposits" to support operations as market rates continued to decline.
Regardless, some business moved to competitors who originate and immediately
sell their mortgage products, as well as depositors who moved funds in search of
higher interest rates. The Corporation also anticipates that loan demand will
remain just moderate during the months ahead as the larger volume of refinancing
that occurred last year would not be repeated in a higher interest rate
environment.

Forward-Looking Statements

When used in this discussion or future filings by the Corporation with the
Securities and Exchange Commission (the "SEC"), or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Corporation
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected.

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                                   (Continued)


8.
<PAGE>

The Corporation is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on its liquidity,
capital resources or operations except as discussed herein. The Corporation is
not aware of any current recommendations by regulatory authorities that would
have such effect if implemented.

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

Comparison of Financial Condition at June 30, 2004 and June 30, 2003

Total assets at June 30, 2004 were $135.8 million compared to $143.6 million at
June 30, 2003, a decrease of $7.8 million. The decrease in total assets was due
primarily to a decrease in cash and cash equivalents and securities, resulting
from a decrease in deposits and borrowed funds.

While the current interest rate environment remains at the lowest levels in many
years, Management continues to focus on interest rate spread. Loan demand has
been moderate, as the high volume of low interest rate driven activity has
subsided. On the deposit side, some customers have elected not to renew maturing
certificates to search for higher returns on their deposits or to spend rather
than save due to the low interest rate environment. As the economy begins to
recover and interest rates rise, Management anticipates that deposits will flow
back into passbook accounts and eventually into certificates of deposit again.

Cash and cash equivalents decreased $2.3 million from $12.3 million at June 30,
2003 to $10.0 million at June 30, 2004 as an offset to the decrease in savings
deposits.

The securities portfolio, which is classified as available for sale, decreased
$6.2 million from $11.5 million at June 30, 2003 to $5.3 million at June 30,
2004. The Corporation sold a $2.0 million security at par and also had $4.0
million in securities called prior to maturity by the issuing agency during the
fiscal year ended June 30, 2004 ("Fiscal 2004"). The proceeds from the sale and
called securities were also used as an offset to the decrease in savings
deposits.

Federal Home Loan Bank stock increased $62,400 from June 30, 2003 to June 30,
2004 due to dividends received during the period.

Loans increased $0.4 million from $115.3 million at June 30, 2003 to $115.7
million at June 30, 2004. The most significant changes were in commercial real
estate loans, which increased $1.5 million from $10.3 million at June 30, 2003
to $11.8 million at June 30, 2004, and commercial loans, which increased $0.7
million from $4.0 million to $4.7 million during the same period. The change was
due to increased commercial lending activity coupled with the addition of a $1.3
million commercial real estate loan during Fiscal 2004. Offsetting these
increases were decreases in multi-family residential, real estate construction
and development, land and consumer loans. The largest decrease of $1.0 million
was in real estate construction and development loans. The Corporation actually
has more real estate construction and development loans at June 30, 2004 than at
June 30, 2003. However, the projects in the loan portfolio at June 30, 2004 have
more undrawn amounts, so that the net balance is less at June 30, 2004 than at
June 30, 2003. The change to the one- to four-family loan category was not
significant.

Premises and equipment increased $0.3 million from $1.8 million at June 30, 2003
to $2.1 million at June 30, 2004. This increase resulted from the purchase of
the previously leased office building at the Corporation's Jackson Center branch
for $387,000. Offsetting this increase, in part, was the normal depreciation of
existing assets.

Total deposits decreased $6.7 million from $93.5 million at June 30, 2003 to
$86.8 million at June 30, 2004 due to decreases in certificates of deposit and
money market accounts, partially offset by increases in savings and NOW
accounts. Certificates of deposit decreased $8.5 million as a result of matured
certificates, that were not renewed due to the low interest rate environment.
This prompted a partial shift of funds to more liquid savings and NOW accounts,
which increased $2.0 million and $0.3 million, respectively from June 30, 2003
to June 30, 2004. The overall decrease in deposits occurred as customers
searched for higher returns on their deposits or elected to spend

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                                   (Continued)


                                                                              9.
<PAGE>

rather than save. Noninterest-bearing demand and money market accounts also
decreased $8,000 and $0.5 million, respectively since June 30, 2003.

Borrowed funds decreased $1.1 million from $32.2 million at June 30, 2003 to
$31.1 million at June 30, 2004. This decrease was the result of scheduled
repayments of the long-term advances, which offset the addition of a $1.0
million select pay mortgage-matched advance. See Note 8 to the consolidated
financial statements for the detail of all the Corporation's FHLB advances and
the scheduled principal payments.

Total shareholders' equity increased $47,000 from June 30, 2003 to June 30,
2004. This nominal increase is due to the continued purchase of treasury stock
and the payment of dividends equal to 89.5% of the Corporation's earnings for
Fiscal 2004. Maintaining capital at the current level is part of Management's
capital planning strategy.

Comparison of Results of Operations for the
  Year Ended June 30, 2004 and June 30, 2003

Net Income. The Corporation earned net income of $975,000 for the year ended
June 30, 2004 compared to net income of $836,000 for the year ended June 30,
2003. The increase in net income was due primarily to an increase in net
interest income coupled with a decrease in noninterest expense and the provision
for loan losses, partially offset by an increase in federal income tax expense.

Net Interest Income. Net interest income totaled $4,506,000 for the year ended
June 30, 2004 compared to $4,359,000 for the year ended June 30, 2003, an
increase of $147,000, or 3.4%. The increase was the result of a larger decrease
in interest expense on deposits compared to the decline in interest income on
loans and other sources of interest income with the exception of interest income
on securities, which increased.

Interest and fees on loans decreased $868,000, or 10.3%, from $8,442,000 for the
year ended June 30, 2003 to $7,574,000 for the year ended June 30, 2004. The
decrease in interest income was due primarily to lower interest rates on loans
and to a lesser extent due to a decrease in average loans receivable during the
Fiscal 2004. The yield earned on loans decreased from 7.10% for Fiscal 2003 to
6.50% for Fiscal 2004 due to the decreasing interest rate environment that
continued during Fiscal 2004.

Interest earned on securities totaled $235,000 for the year ended June 30, 2004
compared to $204,000 for the year ended June 30, 2003. Interest on
interest-bearing demand, time and overnight deposits with other financial
institutions decreased to $39,000 for the year ended June 30, 2004 compared to
$72,000 for the year ended June 30, 2003. The increase in interest on securities
was the result of an increase in the average balance partially offset by a
decrease to the average yield earned. The decrease in interest earned on
deposits with other financial institutions was the result of a lower average
yield earned on such investments as well as a decrease in the average balance.

Dividends on FHLB stock decreased over the comparable period due to a decrease
in dividends paid by FHLB.

Interest paid on deposits decreased $1,140,000, or 39.7% for the year ended June
30, 2004 compared to the year ended June 30, 2003. The decrease resulted from a
substantial decline in the average interest rate paid on deposits combined with
lower average balance of deposits. The average balance of deposits at June 30,
2003 was $92.2 million at an average cost of 3.11% compared to an average
balance of deposits at June 30, 2004 of $88.3 million at an average cost of
1.96%

Interest paid on borrowed funds increased slightly from $1,555,000 for the year
ended June 30, 2003 to $1,676,000 for the year ended June 30, 2004. This
increase was caused by a higher average balance of borrowings partially offset
by a lower average cost of borrowed funds resulting from the lower interest rate
environment that continued during Fiscal 2004. For further discussion about the
Corporation's interest-rate risk management, see the Asset and Liability
Management section.

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                                   (Continued)


10.
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In the months ahead, Management will continue to focus on the cost of funds and
loan yields. As the economy begins to recover and interest rates begin to rise,
we anticipate to see a shift from liquid savings deposits into longer term
certificates of deposit bearing higher rates.

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

The provision for loan losses for the year ended June 30, 2004 totaled $53,000
compared to $69,000 for the year ended June 30, 2003, a decrease of $16,000. The
allowance for loan losses totaled $753,000, or 0.65% of loans receivable and
62.2% of total nonperforming loans at June 30, 2004, compared with $766,000, or
0.66% of loans receivable and 38.3% of total nonperforming loans at June 30,
2003. The decrease in the provision for loan losses was the result of a decrease
in nonaccrual loans during Fiscal 2004. The decrease in nonaccrual loans is the
result of Management's ongoing efforts to resolve problem loans. Historically,
charge-offs experienced by the Corporation have related primarily to consumer
and other non-real estate loans. However, during Fiscal 2004, the Corporation
also experienced minimal charge-off activity in the one- to four-family
residential mortgage category. The Corporation's low historical charge-off
history is the product of a variety of factors, including the Corporation's
underwriting guidelines, which generally require a loan-to-value or projected
completed value ratio of 90% for purchase or construction of one- to four-family
residential properties and 75% for commercial real estate and land loans,
established income information and defined ratios of debt to income.

Noninterest income. Noninterest income, which includes service fees and other
miscellaneous income and gains or losses on sale of available-for-sale
securities, remained unchanged and totaled $135,000 for the years ended June 30,
2004 and 2003.

Noninterest expense. Noninterest expense totaled $3,039,000 for the year ended
June 30, 2004 compared to $3,114,000 for the year ended June 30, 2003, a
decrease of $75,000. The change was primarily the result of a decrease in
compensation and benefits as it related to the MRP. All outstanding MRP shares
finished vesting in May 2003. This provided a decrease of $175,000 in
compensation and benefits expense for the current year ended June 30, 2004. This
decrease was partially offset by normal increases in compensation plus the
impact of the Corporation's increased stock price on the ESOP plan. Occupancy
and equipment expense also decreased $39,000 from $444,000 for the year ended
June 30, 2003 to $405,000 for the year ended June 30, 2004. The decrease is
related primarily to the benefits associated with owning the Jackson Center
branch office building as opposed to leasing. Other expense increased $46,000
from $314,000 for the year ended June 30, 2003 to $360,000 for the year ended
June 30, 2004, primarily due to increases in charitable contributions and
expenses and losses related to other real estate owned.

Income Tax Expense. The volatility of income tax expense is primarily
attributable to income before income taxes. Income tax expense totaled $574,000
for the year ended June 30, 2004 compared to $475,000 for the year ended June
30, 2003, an increase of $99,000. The effective tax rates were 37.1% and 36.2%
for the years ended June 30, 2004 and 2003, respectively. The increase in the
effective tax rate primarily relates to the Corporation's stock-based benefit
plans and their related tax impact.

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                                   (Continued)


                                                                             11.
<PAGE>

Comparison of Results of Operations for the
  Year Ended June 30, 2003 and June 30, 2002 ("Fiscal 2002")

Net Income. The Corporation earned net income of $836,000 for the year ended
June 30, 2003 compared to net income of $707,000 for the year ended June 30,
2002. The increase in net income was due primarily to an increase in net
interest income, partially offset by the increase in noninterest expense and
federal income tax expense.

Net Interest Income. Net interest income totaled $4,359,000 for the year ended
June 30, 2003 compared to $4,088,000 for the year ended June 30, 2002, an
increase of $271,000, or 6.6%. The increase was the result of an increase in the
volume of average interest-earning assets combined with an increase in the net
interest spread.

Interest and fees on loans decreased $831,000, or 9.0%, from $9,273,000 for the
year ended June 30, 2002 to $8,442,000 for the year ended June 30, 2003. The
decrease in interest income was due primarily to lower interest rates on loans
and to a lesser extent due to a decrease in average loans receivable during the
year. The yield earned on loans decreased from 7.70% for Fiscal 2002 to 7.10%
for Fiscal 2003 due to the decreasing interest rate environment that continued
during Fiscal 2003.

Interest earned on securities totaled $204,000 for the year ended June 30, 2003
compared to $216,000 for the year ended June 30, 2002. Interest on
interest-bearing demand, time and overnight deposits with other financial
institutions decreased to $72,000 for the year ended June 30, 2003 compared to
$100,000 for the year ended June 30, 2002. The decrease in interest on
securities was the result lower yield earned on securities partially offset by
increased average balance. The decrease in interest earned on deposits with
other financial institutions was primarily the result of significantly lower
average yield earned on such investments.

Dividends on FHLB stock decreased over the comparable period due to a decrease
in amounts paid by FHLB.

Interest paid on deposits decreased $1,207,000 for the year ended June 30, 2003
compared to the year ended June 30, 2002. The average balance of
interest-bearing deposits decreased from Fiscal 2002 to Fiscal 2003 modestly.
However, the average cost of deposits decreased from 4.38% for the year ended
June 30, 2002 to 3.11% for the year ended June 30, 2003, resulting in the
significant decrease in deposit interest expense.

Interest paid on borrowed funds slightly increased from $1,504,000 for the year
ended June 30, 2002 to $1,555,000 for the year ended June 30, 2003. This
increase was caused by higher average balance of borrowings partially offset by
lower average cost of borrowed funds resulting from lower interest rate
environment that continued during Fiscal 2003.

Provision for Loan Losses. The provision for loan losses for the year ended June
30, 2003 totaled $69,000 compared to $52,000 for the year ended June 30, 2002,
an increase of $17,000, or 31.1%. The allowance for loan losses totaled
$766,000, or 0.66% of loans receivable and 38.3% of total nonperforming loans at
June 30, 2003, compared with $708,000, or 0.58% of loans receivable and 66.1% of
total nonperforming loans at June 30, 2002. Although charge-offs continued to be
minimal and the loan balance declined, the provision increased over Fiscal 2002
due to an increase in nonperforming loans. Charge-offs experienced by the
Corporation have primarily related to consumer and other non-real estate loans.
As indicated previously, such loans make up a small portion of the Corporation's
total loan portfolio.

Noninterest income. Noninterest income, which includes service fees and other
miscellaneous income and gains or losses on sale of available-for-sale
securities, totaled $135,000 for the year ended June 30, 2003 compared to
$131,000 for the year ended June 30, 2002.

Noninterest expense. Noninterest expense totaled $3,114,000 for the year ended
June 30, 2003 compared to $3,066,000 for the year ended June 30, 2002, an
increase of $48,000, or 1.6%. The increase was primarily related to higher
compensation and benefits.

Compensation and benefits expense increased $76,000, or 4.6% due to normal
annual salary adjustments, increased hospitalization premiums and higher expense
associated with the Corporation's ESOP. ESOP expense was higher in Fiscal 2003
due to the Corporation's higher average stock price during the period.

--------------------------------------------------------------------------------
                                   (Continued)


12.
<PAGE>

Income Tax Expense. The volatility of income tax expense was primarily
attributable to income before income taxes. Income tax expense totaled $475,000
for the year ended June 30, 2003 compared to $393,000 for the year ended June
30, 2002, an increase of $82,000, or 20.8%. The effective tax rates were 36.2%
and 35.7% for the years ended June 30, 2003 and 2002, respectively. The increase
in the effective tax rate related primarily to the Corporation's stock-based
benefit plans and their related tax impact.

Yields Earned and Rates Paid. The following table sets forth certain information
relating to the Corporation's average balance sheet and reflects the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balances of interest-earning assets or
interest-bearing liabilities, respectively, for the periods presented. Average
balances are derived from average daily balances. Nonaccruing loans have been
included in the table as loans carrying a zero yield.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             13.
<PAGE>

<TABLE>
<CAPTION>
                                                             Year ended June 30,
                                     ---------------------------------------------------------------------
                                                    2004                                2003
                                     ---------------------------------   ---------------------------------
                                       Average     Interest                Average     Interest
                                     outstanding    earned/     Yield/   outstanding    earned/     Yield/
                                       balance       paid        rate      balance       paid        rate
                                       -------       ----        ----      -------       ----        ----
                                                                      (Dollars in thousands)
<S>                                   <C>          <C>            <C>     <C>          <C>            <C>
ASSETS:
Interest-earning assets:
Interest-earning deposits             $   8,869    $     39       0.44%   $   9,045    $     72       0.79%
Securities available for sale (1)         7,091         234       3.24        5,599         203       3.67
Loans (2)                               116,607       7,574       6.50      118,824       8,442       7.10
FHLB stock                                1,562          63       4.00        1,500          65       4.31
                                      ---------    --------               ---------    --------
Total interest-
  earning assets                        134,132       7,910       5.89      134,968       8,782       6.51
                                      ---------    --------    -------    ---------    --------    -------
Noninterest-earning
  assets:
Cash and due from banks                   1,072                               1,064
Premises and equipment, net               2,080                               1,940
Accrued interest and other assets         1,135                               1,065
                                      ---------                           ---------
Total noninterest-earning assets          4,287                               4,069
                                      ---------                           ---------

Total assets                          $ 138,416                           $ 139,037
                                      =========                           =========

LIABILITIES AND
  SHAREHOLDERS' EQUITY:
Interest-bearing
  liabilities:
Savings deposits                      $  29,460    $    219       0.75%   $  25,525    $    387       1.52%
Demand and NOW deposits                  11,020          42       0.38        9,884         102       1.04
Certificate accounts                     47,826       1,467       3.07       56,835       2,379       4.18
                                      ---------    --------               ---------    --------
Total deposits                           88,306       1,729       1.96       92,244       2,868       3.11
Borrowed funds                           31,379       1,676       5.34       28,052       1,555       5.54
                                      ---------    --------               ---------    --------
Total interest-bearing liabilities      119,685       3,404       2.84      120,296       4,423       3.68
                                      ---------    --------    -------    ---------    --------    -------

Noninterest-bearing liabilities
Demand deposits                             910                                 845
Accrued interest payable and
 other liabilities                          557                                 674
                                      ---------                           ---------
Total noninterest-bearing
  liabilities                             1,467                               1,519
                                      ---------                           ---------

Total liabilities                       121,152                             121,815
Total shareholders'equity                17,264                              17,222
                                      ---------                           ---------
Total liabilities and
  shareholders'equity                 $ 138,416                           $ 139,037
                                      =========                           =========

Net interest income;
  interest rate spread (3)                         $  4,506       3.05%                $  4,359       2.83%
                                                   ========    =======                 ========    =======

Net earning assets                    $  14,444                           $  14,672
                                      =========                           =========

Net interest margin (4)                                           3.36%                               3.23%
                                                               =======                             =======
Average interest-earning assets
  to interest- bearing liabilities         1.12x                               1.12x
                                      =========                           =========

<CAPTION>
                                        Year ended June 30,
                                     ----------------------------------
                                                    2002
                                     ----------------------------------
                                       Average     Interest
                                     outstanding    earned/      Yield/
                                       balance       paid         rate
                                       -------       ----         ----
<S>                                    <C>         <C>             <C>
ASSETS:
Interest-earning assets:
Interest-earning deposits              $  6,562    $     100       1.53%
Securities available for sale (1)         3,845          216       5.65
Loans (2)                               120,487        9,273       7.70
FHLB stock                                1,430           78       5.43
                                       --------    ---------
Total interest-
  earning assets                        132,324        9,667       7.31
                                       --------    ---------    -------
Noninterest-earning
  assets:
Cash and due from banks                                1,026
Premises and equipment, net                            2,092
Accrued interest and other assets                      1,046
                                                   ---------
Total noninterest-earning assets                       4,164
                                                   ---------

Total assets                                       $ 136,488
                                                   =========

LIABILITIES AND
  SHAREHOLDERS' EQUITY:
Interest-bearing
  liabilities:
Savings deposits                       $ 21,364    $     489       2.29%
Demand and NOW deposits                   8,315          129       1.55
Certificate accounts                     63,264        3,457       5.47
                                       --------    ---------
Total deposits                           92,943        4,075       4.38
Borrowed funds                           24,836        1,504       6.05
                                       --------    ---------
Total interest-bearing liabilities      117,779        5,579       4.74
                                       --------    ---------    -------

Noninterest-bearing liabilities
Demand deposits                             825
Accrued interest payable and
 other liabilities                          834
                                       --------
Total noninterest-bearing
  liabilities                             1,659
                                       --------

Total liabilities                       119,438
Total shareholders'equity                17,050
                                       --------
Total liabilities and
  shareholders'equity                  $136,488
                                       ========

Net interest income;
  interest rate spread (3)                         $   4,088       2.57%
                                                   =========    =======

Net earning assets                     $ 14,545
                                       ========

Net interest margin (4)                                            3.09%
                                                                =======
Average interest-earning assets
  to interest- bearing liabilities         1.12x
                                       ========
</TABLE>

(1)   Average balance includes unrealized gains and losses while yield is based
      on amortized cost.

(2)   Calculated net of deferred loan fees, loan discounts, loans in process and
      allowance for loan losses and includes nonperforming loans.

(3)   Net interest rate spread represents the difference between the yield on
      interest-earning assets and the cost of interest-bearing liabilities.

(4)   Net interest margin represents net interest income divided by average
      interest-earning assets.

--------------------------------------------------------------------------------
                                   (Continued)


14.
<PAGE>

The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Corporation's interest income and expense during the years
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
volume (multiplied by prior year rate), (2) changes in rate (multiplied by prior
year volume) and (3) total changes in rate and volume. The combined effects of
changes in both volume and rate, that are not separately identified, have been
allocated proportionately to the change due to volume and change due to rate:

<TABLE>
<CAPTION>
                                                                          Year ended June 30,
                                               -------------------------------------------------------------------------
                                                         2004 vs. 2003                           2003 vs. 2002
                                               ----------------------------------     ----------------------------------
                                                     Increase                               Increase
                                                    (decrease)                             (decrease)
                                                      due to                                 due to
                                               ---------------------                  ---------------------
                                                Volume        Rate        Total        Volume        Rate        Total
                                                ------        ----        -----        ------        ----        -----
                                                                            (In thousands)
<S>                                            <C>          <C>          <C>          <C>          <C>          <C>
Interest income attributable to:
    Interest-earning deposits                  $     (2)    $    (31)    $    (33)    $     30     $    (58)    $    (28)
    Securities available for sale                    57          (26)          31           78          (91)         (13)
    Loans receivable                               (155)        (713)        (868)        (126)        (705)        (831)
    FHLB stock                                        3           (5)          (2)           4          (17)         (13)
                                               --------     --------     --------     --------     --------     --------

         Total interest-earning assets         $    (97)    $   (775)    $   (872)    $    (14)    $   (871)    $   (885)
                                               ========     ========     ========     ========     ========     ========

Interest expense attributable to:
    Savings deposits                           $     53     $   (221)    $   (168)    $     83     $   (185)    $   (102)
    Demand and NOW deposits                          11          (71)         (60)          21          (48)         (27)
    Certificates accounts                          (340)        (572)        (912)        (326)        (752)      (1,078)
    Borrowed funds                                  179          (58)         121          185         (134)          51
                                               --------     --------     --------     --------     --------     --------

         Total interest-bearing liabilities    $    (97)    $   (922)    $ (1,019)    $    (37)    $ (1,119)      (1,156)
                                               ========     ========     ========     ========     ========     --------

Net interest income                                                      $    147                               $    271
                                                                         ========                               ========
</TABLE>

Asset and Liability Management

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

Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV that would
result from a theoretical 200 basis point (1 basis point equals 0.01%) change in
market interest rates. Usually, both a 200 basis point increase in market
interest rates and a 200 basis point decrease in market interest rates are
considered. However, due to the current interest rate environment, a 200 basis
point decrease in interest rates in not realistic. If the NPV would decrease by
more than 2% of the present value of the institution's assets with either an
increase or a decrease in market rates, the institution must deduct 50% of the
amount of decrease in excess of such 2% in the calculation of the institution's
risk-based capital.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             15.
<PAGE>

Presented below, as of March 31, 2004, is an analysis of the Association's
interest-rate risk as measured by changes in the NPV for instantaneous and
sustained parallel shifts of 100 basis points in market interest rates. The
table below represents the Thrift Bulletin 13a reporting requirements and the
target limits set by the Association. As illustrated in the table, the
Association is more sensitive to declining rates than increasing rates as it was
in the March 2003 report. This is due to the continued historically low
short-term interest rates that have prevailed throughout the past two year as
the result of actions taken by the Federal Reserve. The Board of Directors and
Management continued to monitor interest rates during the past year and
anticipate that there will be further increases in short-term rates, which began
in June 2004, during fiscal 2005. Over the preceding 12 months, Management
worked to lower the overall cost of funds through reductions in deposit interest
rates as the market permitted and adding a 3.31% $1.0 million Federal Home Loan
Bank mortgage-matched advance. The greatest interest rate sensitivity at March
31, 2004 was a 129 basis point decline in the NPV ratio if interest rates
decreased 100 basis points. This is less than the same quarter last year when
the NPV ratio declined 171 basis points if interest rates decreased 100 basis
points. Management does not consider declining interest rates to be a problem
with interest rates at historically low levels. Management believes the greater
risk continues to be from rising interest rates in the future.

                                 March 31, 2004

                                                                    Target Limit
                              Economic Value           NPV Ratio     Under Asset
                              --------------           ---------     Liability
       Change       Market Value     Market Value         MVE/       Management
      In Rates         Equity           Assets            MVTA         Policy
      --------         ------           ------            ----         ------
                          (Dollars in thousands)
      +400            $   *           $    *               *              4%
      +300              19,566          136,565          14.33%           4
      +200              20,655          139,815          14.77            6
      +100              21,177          142,708          14.84            7
      STATIC            20,775          144,913          14.34
      -100              19,066          146,072          13.05            7
      -200                *                *               *              6
      -300                *                *               *              4
      -400                *                *               *              4

*     Not currently reported by OTS

                                 March 31, 2003

                                                                    Target Limit
                            Economic Value             NPV Ratio     Under Asset
                            --------------             ---------     Liability
       Change       Market Value     Market Value         MVE/       Management
      In Rates         Equity           Assets            MVTA         Policy
      --------         ------           ------            ----         ------
                          (Dollars in thousands)
      +400            $   *           $    *               *              4%
      +300              20,311          143,991          14.11%           4
      +200              20,496          146,972          13.95            6
      +100              20,087          149,596          13.43            7
      STATIC            18,791          151,610          12.39
      -100              16,322          152,797          10.68            7
      -200                *                *               *              6
      -300                *                *               *              4
      -400                *                *               *              4

*     Not currently reported by OTS

--------------------------------------------------------------------------------
                                   (Continued)


16.
<PAGE>

As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making risk calculations.

Liquidity and Capital Resources

The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the years ended June 30, 2004, 2003 and
2002.

<TABLE>
<CAPTION>
                                                          Year Ended June 30,
                                                    --------------------------------
                                                      2004        2003        2002
                                                    --------    --------    --------
<S>                                                 <C>         <C>         <C>
Net income                                          $    975    $    836    $    707
Adjustments to reconcile net income to net
  cash from operating activities                         401         706         744
                                                    --------    --------    --------
Net cash from operating activities                     1,376       1,542       1,451
Net cash from investing activities                     5,059      (2,245)     (1,628)
Net cash from financing activities                    (8,702)      7,415        (585)
                                                    --------    --------    --------
Net change in cash and cash equivalents               (2,267)      6,712         762
Cash and cash equivalents at beginning of period      12,301       5,589       6,351
                                                    --------    --------    --------
Cash and cash equivalents at end of period          $ 10,034    $ 12,301    $  5,589
                                                    ========    ========    ========
</TABLE>

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

The Association is subject to various regulatory capital requirements
administered by the federal regulatory agencies. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classifications are also subject to qualitative judgments by
the regulators about the Association's components, risk weightings and other
factors. Failure to meet minimum capital requirements can initiate certain
mandatory actions that, if undertaken, could have a direct material effect on
the Corporation's financial statements. At June 30, 2004 and 2003, management
believes the Association complies with all regulatory capital requirements.
Based on the Association's computed regulatory capital ratios, the Association
is considered well capitalized under the Federal Deposit Insurance Act at June
30, 2004 and 2003. No conditions or events have occurred subsequent to the last
notification by regulators that management believes would have changed the
Association's category.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             17.
<PAGE>

The following table summarizes the Association's minimum regulatory capital
requirements and actual capital at June 30, 2004.

<TABLE>
<CAPTION>
                                                                      Excess of Actual
                                                                   Capital Over Current
                        Actual capital       Current requirement        Requirement
                     --------------------   ---------------------  --------------------   Applicable
                      Amount     Percent      Amount     Percent    Amount     Percent    Asset Total
                      ------     -------      ------     -------    ------     -------    -----------
                                            (Dollars in thousands)
<S>                  <C>           <C>      <C>            <C>     <C>           <C>       <C>
Total risk-based
  capital            $ 15,448      20.0%    $  6,176       8.0%    $  9,272      12.0%     $ 77,199
Tier 1 risk-based
  capital              14,855      19.2        3,088       4.0       11,767      15.2        77,199
Core capital           14,855      10.9        5,440       4.0        9,415       6.9       136,010
Tangible capital       14,855      10.9        2,040       1.5       12,815       9.4       136,010
</TABLE>

Impact of New Accounting Standards

In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
This Statement is effective for contracts entered into or modified after June
30, 2003, with certain exceptions, and for hedging relationships designated
after June 30, 2003. The adoption of this statement did not have an impact on
the Corporation's financial statements since it does not have any of these types
of instruments.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). This Statement is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial instruments of
nonpublic entities. The adoption of this Statement did not have an impact on the
Corporation's financial statements since it does not have any of these types of
instruments.

In December 2003, FASB issued FASB Interpretation FIN 45, "Grantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This Interpretation requires recognizing the fair value
of guarantees made and information about the maximum potential payments that
might be required, as well as the collateral or other recourse obtainable.
Interpretation 45 covers guarantees such as standby letters of credit,
performance guarantees, and direct or indirect guarantees of the indebtedness of
others, but not guarantees of funding. The adoption of this Statement did not
have an impact on the Corporation's financial statements since it does not have
any of these types of instruments.

In December 2003, FASB issued FIN 46, "Consolidation of Variable Interest
Entities." This Interpretation, as revised in December 2003, changes the
accounting model for consolidation from one based on consideration of control
through voting interests. Whether to consolidate an entity will now also
consider whether that entity has sufficient equity at risk to enable it to
operate without additional financial support, whether the equity owners in that
entity lack the obligation to absorb expected losses or the right to receive
residual returns of the entity, or whether voting rights in the entity are not
proportional to the equity interest and substantially all the entity's
activities are conducted for an investor with few voting rights. The adoption of
this Statement did not have an impact on the Corporation's financial statements.

--------------------------------------------------------------------------------
                                   (Continued)


18.
<PAGE>

In November 2003, the updated Emerging Issues Task Force ("EITF") Issue 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" to require additional numerical and narrative disclosures for debt
and marketable equity securities that have unrealized losses. The Corporation
included the disclosures in the 2004 consolidated financial statements.

This consensus also addresses the issue of determining the meaning of
other-than-temporary impairment and its application to investments classified as
either available-for-sale or held-to-maturity and investments accounted for
under the cost method or the equity method. For equity securities (including
cost method investments), and for debt securities that can contractually be
prepaid or otherwise settled in such a way that the investor would not recover
substantially all of its cost, an impairment is other-than-temporary unless the
investor has the ability and intent to hold an investment for a reasonable
period of time sufficient for a forecasted recovery of fair value up to (or
beyond) the cost of the investment, and evidence indicating that the cost of the
investment is recoverable within a reasonable period of time outweighs evidence
to the contrary. For all other debt securities, an impairment shall be deemed
other than temporary if the investor does not have the ability and intent to
hold an investment until a forecasted recovery of fair value up to (or beyond)
the cost of the investment, which in certain cases may mean until maturity, or
it is probable that the investor will be unable to collect all amounts due
according to the contractual terms of the debt security.

If the impairment is other than temporary, the investor should recognize
impairment equal to the difference between the investment's cost and its fair
value. The impairment loss should be recognized in earnings equal to the
difference between cost and fair value of the investment at the end of the
reporting period. The fair value becomes the new cost basis of the investment
and should not be adjusted for subsequent recoveries in fair value.

Beginning with interim periods starting July 1, 2004 and thereafter, EITF 03-01
has been further updated and states that "Although not presumptive, a pattern of
selling investments at a loss prior to the forecasted recovery of fair value may
call into question the investor's intent" to hold the securities until they
recover from their loss position. Thus, such an investor may not be able to
demonstrate that it has the ability and intent to hold other available for sale
securities in a loss position until their fair value recovers. As of June 30,
2004, the Corporation did not have any securities with unrealized losses where
the impairment was classified as other-than-temporary.

Critical Accounting Policies and Estimates

The accounting and reporting policies of the Corporation are in accordance with
accounting principles generally accepted within the United States of America and
conform to general practices within the banking industry. Accounting and
reporting policy for the allowance for loan losses is deemed critical since it
involves the use of estimates and requires significant management judgments.
Application of assumptions different than those used by management could result
in material changes in the Corporation's financial position or results of
operations. Note 1 (Summary of Significant Accounting Policies) and Note 3
(Loans), as described in the notes to the financial statements, provide detail
with regard to the Corporation's methodology and reporting of the allowance for
loan losses.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             19.
<PAGE>

Impact of Inflation and Changing Prices

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

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

--------------------------------------------------------------------------------
                                   (Continued)


20.
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Peoples-Sidney
Financial Corporation as of June 30, 2004 and 2003, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended June 30, 2004. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples-Sidney
Financial Corporation as of June 30, 2004 and 2003, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2004, in conformity with U.S. generally accepted accounting principles.


                                        Crowe Chizek and Company LLC

Columbus, Ohio
July 15, 2004

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


                                                                             21.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             June 30, 2004 and 2003
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   2004              2003
                                                                   ----              ----
<S>                                                            <C>               <C>
ASSETS
Cash and due from financial institutions                       $   1,327,745     $     818,123
Interest-bearing deposits in other financial institutions          4,705,943         6,482,475
Overnight deposits                                                 4,000,000         5,000,000
                                                               -------------     -------------
      Total cash and cash equivalents                             10,033,688        12,300,598
Securities available for sale                                      5,288,280        11,517,255
Federal Home Loan Bank stock                                       1,601,400         1,539,000
Loans, net of allowance of $752,900 and $766,000                 115,651,910       115,259,841
Accrued interest receivable                                          670,521           740,197
Premises and equipment, net                                        2,124,986         1,831,839
Other real estate owned                                               99,085           109,303
Other assets                                                         301,160           269,981
                                                               -------------     -------------

      Total assets                                             $ 135,771,030     $ 143,568,014
                                                               =============     =============

LIABILITIES
Deposits                                                       $  86,764,253     $  93,451,901
Borrowed funds                                                    31,140,388        32,190,354
Accrued interest payable and other liabilities                       435,476           541,479
                                                               -------------     -------------
      Total liabilities                                          118,340,117       126,183,734

SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized,
  none issued and outstanding                                             --                --
Common stock, $.01 par value, 3,500,000 shares authorized,
  1,785,375 shares issued                                             17,854            17,854
Additional paid-in capital                                        10,748,851        10,706,209
Retained earnings                                                 11,642,982        11,540,186
Treasury stock, 352,727 and 345,874 shares at cost                (4,113,716)       (4,021,200)
Unearned employee stock ownership plan shares                       (727,121)         (872,192)
Accumulated other comprehensive income (loss)                       (137,937)           13,423
                                                               -------------     -------------
      Total shareholders' equity                                  17,430,913        17,384,280
                                                               -------------     -------------

      Total liabilities and shareholders' equity               $ 135,771,030     $ 143,568,014
                                                               =============     =============
</TABLE>

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


22.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                    Years Ended June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                           2004           2003           2002
                                                           ----           ----           ----
<S>                                                    <C>            <C>            <C>
Interest income
      Loans, including fees                            $ 7,573,870    $ 8,442,163    $ 9,273,433
      Securities                                           234,765        203,964        216,044
      Demand, time and overnight deposits                   39,446         71,581        100,352
      Dividends on Federal Home Loan Bank stock             62,575         64,662         77,616
                                                       -----------    -----------    -----------
           Total interest income                         7,910,656      8,782,370      9,667,445

Interest expense
      Deposits                                           1,728,572      2,868,309      4,075,347
      Borrowed funds                                     1,675,789      1,554,935      1,503,717
                                                       -----------    -----------    -----------
           Total interest expense                        3,404,361      4,423,244      5,579,064
                                                       -----------    -----------    -----------

Net interest income                                      4,506,295      4,359,126      4,088,381

Provision for loan losses                                   53,450         68,605         52,341
                                                       -----------    -----------    -----------

Net interest income after provision for loan losses      4,452,845      4,290,521      4,036,040

Noninterest income
      Service fees and other charges                       135,414        134,571        130,866
                                                       -----------    -----------    -----------
           Total noninterest income                        135,414        134,571        130,866

Noninterest expense
      Compensation and benefits                          1,603,600      1,720,274      1,644,187
      Director fees                                         97,200         97,200         97,200
      Occupancy and equipment                              404,661        444,306        449,276
      Computer processing                                  249,180        251,092        267,821
      Professional services                                120,573        100,420         97,615
      State franchise taxes                                204,670        187,410        185,434
      Other                                                359,589        313,537        324,941
                                                       -----------    -----------    -----------
           Total noninterest expense                     3,039,473      3,114,239      3,066,474
                                                       -----------    -----------    -----------

Income before income taxes                               1,548,786      1,310,853      1,100,432

Income tax expense                                         574,200        475,051        393,224
                                                       -----------    -----------    -----------

Net income $                                               974,586    $   835,802    $   707,208
                                                       ===========    ===========    ===========

Earnings per common share - basic                      $       .71    $       .61    $       .51
                                                       ===========    ===========    ===========
Earnings per common share - diluted                    $       .71    $       .61    $       .51
                                                       ===========    ===========    ===========
</TABLE>

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


                                                                             23.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    Years Ended June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                             Additional                                       Unearned
                                                 Common       Paid-In         Retained        Treasury          ESOP
                                                  Stock       Capital         Earnings          Stock          Shares
                                                  -----       -------         --------          -----          ------
<S>                                            <C>          <C>             <C>             <C>             <C>
Balance, July 1, 2001                          $   17,854   $ 10,705,048    $ 11,150,845    $ (3,178,640)   $ (1,182,471)

Comprehensive income:

   Net income for the year ended
     June 30, 2002                                     --             --         707,208              --              --

   Change in net unrealized gain (loss)
     on securities available for sale,
     net of reclassification and tax effects           --             --              --              --              --


      Total comprehensive income

Cash dividends - $.35 per share                        --             --        (486,103)             --              --

Commitment to release 13,512 employee
  stock ownership plan shares                          --        (15,248)             --              --         158,543

Purchase of 49,399 treasury shares,
  at cost                                              --             --              --        (525,077)             --

11,426 shares earned under
  management recognition plan                          --             --              --              --              --
                                               ----------   ------------    ------------    ------------    ------------

Balance, June 30, 2002                         $   17,854   $ 10,689,800    $ 11,371,950    $ (3,703,717)   $ (1,023,928)
                                               ==========   ============    ============    ============    ============

<CAPTION>
                                                               Accumulated
                                                 Unearned         Other
                                                    MRP       Comprehensive
                                                  Shares      Income (Loss)      Total
                                                  ------      -------------      -----
<S>                                            <C>             <C>           <C>
Balance, July 1, 2001                          $   (365,394)   $    2,371    $ 17,149,613

Comprehensive income:

   Net income for the year ended
     June 30, 2002                                       --            --         707,208

   Change in net unrealized gain (loss)
     on securities available for sale,
     net of reclassification and tax effects             --        14,624          14,624
                                                                             ------------

      Total comprehensive income                                                  721,832

Cash dividends - $.35 per share                          --            --        (486,103)

Commitment to release 13,512 employee
  stock ownership plan shares                            --            --         143,295

Purchase of 49,399 treasury shares,
  at cost                                                --            --        (525,077)

11,426 shares earned under
  management recognition plan                       190,648            --         190,648
                                               ------------    ----------    ------------

Balance, June 30, 2002                         $   (174,746)   $   16,995    $ 17,194,208
                                               ============    ==========    ============
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)


24.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
                    Years Ended June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                             Additional                                      Unearned
                                                 Common       Paid-In        Retained        Treasury          ESOP
                                                 Stock        Capital        Earnings          Stock          Shares
                                                 -----        -------        --------          -----          ------
<S>                                            <C>          <C>            <C>             <C>             <C>
Balance, July 1, 2002                          $   17,854   $ 10,689,800   $ 11,371,950    $ (3,703,717)   $ (1,023,928)

Comprehensive income:

   Net income for the year ended
     June 30, 2003                                     --             --        835,802              --              --

   Change in net unrealized gain (loss)
     on securities available for sale,
     net of reclassification and tax effects           --             --             --              --              --


      Total comprehensive income

Cash dividends - $.49 per share                        --             --       (667,566)             --              --

Commitment to release 12,932 employee
  stock ownership plan shares                          --         16,409             --              --         151,736

Purchase of 24,646 treasury shares,
  at cost                                              --             --             --        (317,483)             --

11,426 shares earned under
  management recognition plan                          --             --             --              --              --
                                               ----------   ------------   ------------    ------------    ------------

Balance, June 30, 2003                         $   17,854   $ 10,706,209   $ 11,540,186    $ (4,021,200)   $   (872,192)
                                               ==========   ============   ============    ============    ============

<CAPTION>
                                                               Accumulated
                                                  Unearned        Other
                                                     MRP      Comprehensive
                                                   Shares     Income (Loss)      Total
                                                   ------     ------------       -----
<S>                                            <C>             <C>           <C>
Balance, July 1, 2002                          $   (174,746)   $   16,995    $ 17,194,208

Comprehensive income:

   Net income for the year ended
     June 30, 2003                                       --            --         835,802

   Change in net unrealized gain (loss)
     on securities available for sale,
     net of reclassification and tax effects             --        (3,572)         (3,572)
                                                                             ------------

      Total comprehensive income                                                  832,230

Cash dividends - $.49 per share                          --            --        (667,566)

Commitment to release 12,932 employee
  stock ownership plan shares                            --            --         168,145

Purchase of 24,646 treasury shares,
  at cost                                                --            --        (317,483)

11,426 shares earned under
  management recognition plan                       174,746            --         174,746
                                               ------------    ----------    ------------

Balance, June 30, 2003                         $         --    $   13,423    $ 17,384,280
                                               ============    ==========    ============
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             25.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
                    Years Ended June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                 Additional                                     Unearned
                                                    Common        Paid-In       Retained        Treasury          ESOP
                                                    Stock         Capital       Earnings          Stock          Shares
                                                    -----         -------       --------          -----          ------
<S>                                               <C>          <C>            <C>             <C>             <C>
Balance, July 1, 2003                             $   17,854   $ 10,706,209   $ 11,540,186    $ (4,021,200)   $   (872,192)

Comprehensive income:

      Net income for the year ended
        June 30, 2004                                     --             --        974,586              --              --

      Change in net unrealized gain (loss)
        on securities available for sale,
        net of reclassification and tax effects           --             --             --              --              --


           Total comprehensive income

Cash dividends - $.64 per share                           --             --       (871,790)             --              --

Commitment to release 12,364 employee
  stock ownership plan shares                             --         42,642             --              --         145,071

Purchase of 6,853 treasury shares,
  at cost                                                 --             --             --         (92,516)             --
                                                  ----------   ------------   ------------    ------------    ------------

Balance, June 30, 2004                            $   17,854   $ 10,748,851   $ 11,642,982    $ (4,113,716)   $   (727,121)
                                                  ==========   ============   ============    ============    ============

<CAPTION>
                                                   Accumulated
                                                      Other
                                                  Comprehensive
                                                  Income (Loss)       Total
                                                  -------------       -----
<S>                                                <C>             <C>
Balance, July 1, 2003                              $     13,423    $ 17,384,280

Comprehensive income:

      Net income for the year ended
        June 30, 2004                                        --         974,586

      Change in net unrealized gain (loss)
        on securities available for sale,
        net of reclassification and tax effects        (151,360)       (151,360)
                                                                   ------------

           Total comprehensive income                                   823,226

Cash dividends - $.64 per share                              --        (871,790)

Commitment to release 12,364 employee
  stock ownership plan shares                                --         187,713

Purchase of 6,853 treasury shares,
  at cost                                                    --         (92,516)
                                                   ------------    ------------

Balance, June 30, 2004                             $   (137,937)   $ 17,430,913
                                                   ============    ============
</TABLE>

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


26.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Years Ended June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   2004            2003            2002
                                                                   ----            ----            ----
<S>                                                            <C>             <C>             <C>
Cash flows from operating activities
    Net income                                                 $    974,586    $    835,802    $    707,208
    Adjustments to reconcile net income to net cash
      from operating activities
         Depreciation                                               197,281         206,804         211,186
         Provision for loan losses                                   53,450          68,605          52,341
         Net amortization (accretion) of securities                    (360)           (620)             --
         Loss (gain) on sale of real estate owned                     4,829          (4,388)             --
         FHLB stock dividends                                       (62,400)        (64,400)        (77,400)
         Deferred taxes                                              (3,284)        (65,800)        (49,082)
         Compensation expense for ESOP shares                       187,713         168,145         143,295
         Compensation expense for MRP shares                             --         174,746         190,648
         Change in:
              Accrued interest receivable and other assets          119,756          68,635          82,208
              Accrued interest payable and other liabilities       (106,003)        123,815         120,222
              Deferred loan fees                                     10,759          30,548          70,571
                                                               ------------    ------------    ------------
                   Net cash from operating activities             1,376,327       1,541,892       1,451,197

Cash flows from investing activities
    Purchase of securities available for sale                            --     (18,496,295)     (2,500,000)
    Proceeds from maturities of securities
      available for sale                                          4,000,000      10,500,000       2,000,000
    Proceeds from sale of securities
      available for sale                                          2,000,000              --              --
    Net change in loans                                            (808,689)      5,542,902        (865,791)
    Premises and equipment expenditures                            (490,428)         (9,648)       (262,746)
    Proceeds from sale of real estate owned                         357,800         217,963              --
                                                               ------------    ------------    ------------
         Net cash from investing activities                       5,058,683      (2,245,078)     (1,628,537)

Cash flows from financing activities
    Net change in deposits                                       (6,687,648)     (1,334,722)      3,445,422
    Proceeds from long-term FHLB advances                         1,000,000      11,000,000              --
    Repayments of long-term FHLB advances                        (2,049,966)       (765,459)     (3,518,783)
    Net change in short-term FHLB advances                               --        (500,000)        500,000
    Cash dividends paid                                            (871,790)       (667,566)       (486,103)
    Purchase of treasury shares                                     (92,516)       (317,483)       (525,077)
                                                               ------------    ------------    ------------
         Net cash from financing activities                      (8,701,920)      7,414,770        (584,541)
                                                               ------------    ------------    ------------

Net change in cash and cash equivalents                          (2,266,910)      6,711,584        (761,881)
Cash and cash equivalents at beginning of year                   12,300,598       5,589,014       6,350,895
                                                               ------------    ------------    ------------

Cash and cash equivalents at end of year                       $ 10,033,688    $ 12,300,598    $  5,589,014
                                                               ============    ============    ============

Supplemental cash flow information
         Interest paid                                         $  3,424,342    $  4,332,326    $  5,548,361
         Income taxes paid                                          557,000         576,000         396,000

Supplemental noncash disclosures
         Transfer from loans to real estate owned                   352,411         322,877              --
</TABLE>

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


                                                                             27.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Nature of Operations: The Corporation provides financial services through its
main office in Sidney, Ohio, and branch offices in Sidney, Anna and Jackson
Center, Ohio. Its primary deposit products are checking, savings and term
certificate accounts, and its primary lending products are residential mortgage,
commercial and installment loans. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets and
commercial and residential real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Other financial
instruments, which potentially represent concentrations of credit risk, include
deposit accounts in other financial institutions and overnight deposits.
Substantially all revenues and services are derived from financial institution
products and services in Shelby County and contiguous counties. Management
considers the Corporation to operate primarily in one segment, banking.

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

Cash Flows: Cash and cash equivalents include cash, deposits with financial
institutions, overnight deposits and time deposits with original maturities of
90 days or less. Overnight deposits are sold for one-day periods. Net cash flows
are reported for loan and deposit transactions, as well as short-term borrowings
under its cash management line of credit with the Federal Home Loan Bank of
Cincinnati.

Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains or losses reported in other comprehensive income.
Other securities such as Federal Home Loan Bank stock are carried at cost.

Interest income includes amortization of premiums and accretion of discounts.
Realized gains and losses on sales of securities are determined using the
amortized cost of the specific security sold. Securities are written down to
fair value when a decline in fair value is not temporary.

Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, less net deferred loan fees and the allowance for loan
losses.

Interest income is reported on the interest method and includes amortization of
net deferred loan fees over the loan term. Interest income on loans is
discontinued at the time the loan is 90 days delinquent unless the credit is
well-secured and in process of collection. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful.

--------------------------------------------------------------------------------
                                   (Continued)


28.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

All interest accrued but not received for loans placed on nonaccrual is reversed
against interest income. Interest received on such loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses. Loan losses are charged against
the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.
Management estimates the allowance balance required using 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.

The allowance consists of specific and general components. The specific
component relates to loans that are individually classified as impaired or loans
otherwise classified as substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience adjusted for
current factors.

A loan is impaired when full payment under the loan terms 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, and accordingly, they are not
separately identified for impairment disclosures.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
initially recorded at fair value at acquisition, establishing a new cost basis.
Any reduction to fair value from the carrying value of the related loan at the
time the property is acquired is accounted for as a loan charge-off. After
acquisition, a valuation allowance reduces the reported amount to the lower of
the initial amount or fair value less costs to sell. Expenses, gains and losses
on disposition, and changes in the valuation allowance are reported in net gain
or loss on other real estate.

Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Depreciation expense is calculated
using the straight-line method based on the estimated useful lives of the
assets. The useful lives range from 10 years to 40 years for building and
improvements, 3 years to 20 years for furniture and equipment and 5 years for
automobiles. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable. Maintenance and repairs are charged to
expense as incurred and improvements are capitalized.

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

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             29.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employee Stock Ownership Plan: The cost of shares issued to the Employee Stock
Ownership Plan ("ESOP"), but not yet allocated to participants, is shown as a
reduction of shareholders' equity. Compensation expense is based on the market
price of shares as they are committed to be released to participant accounts.
Dividends on allocated ESOP shares reduce retained earnings; dividends on
unearned ESOP shares reduce debt and accrued interest.

Stock-Based Compensation: Employee compensation expense under stock option plans
is reported using the intrinsic value method. No stock-based compensation cost
is reflected in net income, as all options granted had an exercise price equal
to or greater than the market price of the underlying common stock at the date
of grant. All outstanding options finished vesting during the year ended June
30, 2003. The following table illustrates the effect on net income and earnings
per share if expense were measured using the fair value recognition provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation.

<TABLE>
<CAPTION>
                                                       2004          2003          2002
                                                       ----          ----          ----
<S>                                                 <C>           <C>           <C>
      Net income as reported                        $  974,586    $  835,802    $  707,208
      Deduct: Stock-based expense
        determined under fair value based method            --       190,671       211,536
                                                    ----------    ----------    ----------

      Pro forma net income                          $  974,586    $  645,131    $  495,672
                                                    ==========    ==========    ==========

      Basic earnings per share as reported          $      .71    $      .61    $      .51
      Pro forma basic earnings per share                   .71           .47           .36

      Diluted earnings per share as reported        $      .71    $      .61    $      .51
      Pro forma diluted earnings per share                 .71           .47           .36
</TABLE>

Loan Commitments and Related Financial Instruments: Financial instruments
include off-balance sheet credit instruments, such as commitments to make loans,
issued to meet customer financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.

Earnings Per Common Share: Basic earnings per common share ("EPS") is net income
divided by the weighted average number of common shares outstanding during the
period. ESOP shares are considered outstanding for this calculation unless
unearned. Management recognition plan ("MRP") shares are considered outstanding
as they become vested. Diluted EPS includes the dilutive effect of MRP shares
and the additional potential common shares issuable under stock options.

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

--------------------------------------------------------------------------------
                                   (Continued)


30.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains and losses on securities available for sale, which are also
recognized as a separate component of equity.

Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.

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

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

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             31.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 2 - SECURITIES AVAILABLE FOR SALE

The fair value of available for sale securities and the related gross unrealized
gains and losses recognized in accumulated other comprehensive income (loss)
were as follows.

                                                      Gross           Gross
                                      Fair          Unrealized      Unrealized
                                      Value           Gains           Losses
                                      -----           -----           ------
2004
    U.S. Government agencies       $  5,288,280    $     13,280    $   (222,275)
                                   ============    ============    ============

2003
    U.S. Government agencies       $ 11,517,255    $     54,132    $    (33,792)
                                   ============    ============    ===========

Contractual maturities of securities available for sale at year-end 2004 were as
follows. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

                                                              Fair
                                                              Value
                                                              -----

      Due after one year through five years                $ 2,498,280
      Due after five years through ten years                 2,790,000
                                                           -----------
                                                           $ 5,288,280
                                                           ===========

No securities were pledged as collateral at year-end 2004 or 2003. Proceeds from
the sale of securities available for sale totaled $2,000,000 for 2004. There was
no gain or loss realized on this sale. There were no sales of securities in 2003
or 2002.

Securities with unrealized losses at year-end 2004, aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, are as follows.

<TABLE>
<CAPTION>
                               Less than 12 Months          12 Months or More                  Total
                               -------------------          -----------------                  -----
                              Fair        Unrealized       Fair        Unrealized        Fair       Unrealized
Description of Securities     Value          Loss          Value          Loss           Value         Loss
-------------------------     -----          ----          -----          ----           -----         ----
<S>                         <C>           <C>            <C>           <C>            <C>           <C>
U.S. Government agencies    $2,949,380    $  (50,109)    $1,825,620    $ (172,166)    $4,775,000    $ (222,275)
                            ==========    ==========     ==========    ==========     ==========    ==========
</TABLE>

Unrealized losses on the investment securities have not been recognized into
income because the securities are of high credit quality, management has the
intent and ability to hold for the foreseeable future, and the decline in fair
value is largely due to changes in interest rates. The fair value is expected to
recover as the securities approach their maturity date or reset date.

--------------------------------------------------------------------------------
                                   (Continued)


32.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 3 - LOANS

Year-end loans were as follows.

                                                       2004            2003
                                                       ----            ----
      Mortgage loans:
        1-4 family residential                    $  89,974,734   $  89,930,505
        Multi-family residential                      1,330,844       1,656,877
        Commercial real estate                       11,847,794      10,306,608
        Real estate construction and development      3,056,172       4,039,165
        Land                                          1,694,844       1,812,733
                                                  -------------   -------------
             Total mortgage loans                   107,904,388     107,745,888
      Consumer loans                                  4,211,193       4,636,034
      Commercial loans                                4,662,070       4,006,001
                                                  -------------   -------------
             Total loans                            116,777,651     116,387,923
      Less:
        Allowance for loan losses                      (752,900)       (766,000)
        Deferred loan fees                             (372,841)       (362,082)
                                                  -------------   -------------

                                                  $ 115,651,910   $ 115,259,841
                                                  =============   =============

Activity in the allowance for loan losses was as follows.

                                          2004           2003           2002
                                          ----           ----           ----

      Balance at beginning of year     $  766,000     $  708,000     $  660,800
      Provision for losses                 53,450         68,605         52,341
      Charge-offs                         (67,244)       (15,409)        (5,941)
      Recoveries                              694          4,804            800
                                       ----------     ----------     ----------

      Balance at end of year           $  752,900     $  766,000     $  708,000
                                       ==========     ==========     ==========

Impaired loans were as follows.

                                                                          2004
                                                                          ----

Period-end impaired loans with no allowance for loan losses allocated  $      --
Period-end impaired loans with allowance for loan losses allocated       129,000
Amount of the allowance allocated to impaired loans                      129,000

Average of impaired loans during the year                                 22,000
Interest income recognized during the year                                 1,000
Cash-basis interest income recognized                                      1,000

Impaired loans as of June 30, 2003 and for the years ended June 30, 2003 and
2002 were not material.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             33.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 3 - LOANS (Continued)

Nonperforming loans at year-end were as follows.

                                                            2004         2003
                                                            ----         ----

      Loans past due over 90 days still on accrual      $  587,000    $  398,000
      Nonaccrual loans                                     624,000     1,604,000

Nonperforming loans include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually classified impaired
loans.

Loans to executive officers, directors and companies with which they are
affiliated for the year ended June 30, 2004, were as follows.

      Balance at beginning of period                                 $  360,106
      New loans                                                         311,410
      Principal repayments                                             (152,721)
                                                                     ----------

      Balance at end of period                                       $  518,795
                                                                     ==========

NOTE 4 - ACCRUED INTEREST RECEIVABLE

Year-end accrued interest receivable was as follows.

                                                            2004          2003
                                                            ----          ----

      Loans                                               $660,604      $687,136
      Securities                                             9,917        53,061
                                                          --------      --------

                                                          $670,521      $740,197
                                                          ========      ========

NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment was as follows.

                                                        2004            2003
                                                        ----            ----

      Land                                          $   225,166     $   225,166
      Buildings and improvements                      2,438,537       2,029,210
      Furniture and equipment                         1,510,775       1,452,118
      Automobile                                         22,416          22,416
                                                    -----------     -----------
           Total cost                                 4,196,894       3,728,910
      Accumulated depreciation                       (2,071,908)     (1,897,071)
                                                    -----------     -----------

                                                    $ 2,124,986     $ 1,831,839
                                                    ===========     ===========

--------------------------------------------------------------------------------
                                   (Continued)


34.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 5 - PREMISES AND EQUIPMENT (Continued)

The Jackson Center branch facility had been leased under an operating lease that
began in September 1998. During 2004, the Association exercised its option to
purchase the property. The Association entered into a lease for a branch in the
Super Wal-Mart in Sidney that commenced in June 2002. The lease term is for five
years with two five-year renewal options. Annual rent is $31,800 for the first
five years and increases to $39,750 annually for the first five-year renewal
period and $49,688 annually for the second five-year renewal period. Total
rental expense was $35,301, $56,071 and $56,071 for the years ended June 30,
2004, 2003 and 2002.

Rental commitment under the noncancelable operating lease was as follows, before
considering renewal options.

      Year ending June 30,
              2005                                                      $ 31,800
              2006                                                        30,828
                                                                        --------

                                                                        $ 62,628
                                                                        ========

NOTE 6 - FEDERAL INCOME TAXES

Income tax expense was as follows.

                                           2004           2003           2002
                                           ----           ----           ----

      Current                           $ 577,484      $ 540,851      $ 442,306
      Deferred                             (3,284)       (65,800)       (49,082)
                                        ---------      ---------      ---------

                                        $ 574,200      $ 475,051      $ 393,224
                                        =========      =========      =========

Effective tax rates differ from federal statutory rates applied to financial
statement income due to the following.

<TABLE>
<CAPTION>
                                                               2004          2003          2002
                                                               ----          ----          ----
<S>                                                         <C>           <C>           <C>
      Income taxes computed at the statutory
        tax rate on pretax income                           $ 526,587     $ 445,690     $ 374,147
      Add tax effect of:
          ESOP fair value book expense and tax deduction       28,590        20,317        10,215
          MRP cost in excess of fair value                         --            37        13,506
          Nondeductible expenses and other                     19,023         9,007        (4,644)
                                                            ---------     ---------     ---------

                                                            $ 574,200     $ 475,051     $ 393,224
                                                            =========     =========     =========

      Statutory tax rate                                         34.0%         34.0%         34.0%
                                                            =========     =========     =========
      Effective tax rate                                         37.1%         36.2%         35.7%
                                                            =========     =========     =========
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             35.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 6 - FEDERAL INCOME TAXES (Continued)

Year-end deferred tax assets and deferred tax liabilities were due to the
following.

<TABLE>
<CAPTION>
                                                                2004          2003
                                                                ----          ----
<S>                                                          <C>           <C>
      Items giving rise to deferred tax assets
          Deferred loan fees                                 $ 124,324     $ 117,770
          Reserve for delinquent interest                        5,202        13,673
          Allowance for loan losses                            255,986       227,515
          Accrued compensation                                   2,605            --
          Unrealized loss on securities available for sale      71,058            --
          Accrued ESOP expense                                  31,542        30,995
                                                             ---------     ---------
               Total deferred tax assets                       490,717       389,953

      Items giving rise to deferred tax liabilities
         Unrealized gain on securities available for sale           --        (6,917)
         Securities accretion                                     (122)           --
         Depreciation                                          (85,623)      (80,539)
         FHLB stock dividends                                 (238,000)     (216,784)
                                                             ---------     ---------
              Total deferred tax liabilities                  (323,745)     (304,240)
                                                             ---------     ---------

              Net deferred tax asset                         $ 166,972     $  85,713
                                                             =========     =========
</TABLE>

Retained earnings at June 30, 2004 and 2003 included approximately $2,174,000
for which no provision for federal income taxes had been made. This amount
represents the qualifying and nonqualifying tax bad debt reserve as of December
31, 1987, which is the end of the Association's base year for purposes of
calculating the bad debt deduction for tax purposes. The related amount of
unrecognized deferred tax liability was approximately $739,000 at June 30, 2004
and 2003. If this portion of retained earnings is used in the future for any
purpose other than to absorb bad debts, it will be added to future taxable
income.

--------------------------------------------------------------------------------
                                   (Continued)


36.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 7 - DEPOSITS

Year-end deposits were as follows.

<TABLE>
<CAPTION>
                                                         2004            2003
                                                         ----            ----
<S>                                                  <C>             <C>
      Noninterest-bearing
        demand deposits                              $   797,172     $   804,838
      NOW accounts                                     6,690,579       6,360,941
      Money market accounts                            3,940,498       4,445,140
      Savings accounts                                30,516,298      28,558,508
      Certificates of deposit                         44,819,706      53,282,474
                                                     -----------     -----------

                                                     $86,764,253     $93,451,901
                                                     ===========     ===========
</TABLE>

The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $4,710,000 and $5,123,000 at June 30, 2004 and 2003, respectively.
Deposits more than $100,000 are not insured by the FDIC. Related party deposits
were $751,000 and $485,000 at June 30, 2004 and 2003.

The scheduled maturities of certificates of deposit as of June 30, 2003 were as
follows.

      Year ended June 30,
             2005                                                   $ 23,558,122
             2006                                                     11,568,438
             2007                                                      7,009,951
             2008                                                      1,896,576
             2009                                                        786,619
                                                                    ------------

                                                                    $ 44,819,706
                                                                    ============

NOTE 8 - BORROWED FUNDS

At June 30, 2004, the Association had a cash management line of credit enabling
it to borrow up to $8,000,000 from the Federal Home Loan Bank of Cincinnati
("FHLB"). All cash management advances have an original maturity of 90 days. The
line of credit must be renewed on an annual basis. There were no borrowings
outstanding on this line of credit at June 30, 2004 or 2003.

At June 30, 2004, based on the Association's current FHLB stock ownership, total
assets and pledgable residential mortgage loan portfolio, the Association had
the ability to obtain borrowings up to a maximum of $67.0 million.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             37.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 8 - BORROWED FUNDS (Continued)

Advances from the Federal Home Loan Bank at year-end were as follows.

<TABLE>
<CAPTION>
                                                                    2004            2003
                                                                    ----            ----
<S>                                                            <C>             <C>
      6.13% fixed-rate advance, due June 25, 2008              $  7,000,000    $  7,000,000
      6.00% convertible advance, fixed-rate until September
        2004, due June 11, 2009                                   5,000,000       5,000,000
      6.27% convertible advance, fixed-rate until
        September 2004, due September 8, 2010                     5,000,000       5,000,000
      5.30% select pay mortgage-matched advance, final
        maturity May 1, 2011                                      1,087,505       1,349,272
      5.35% select pay mortgage-matched advance, final
        maturity July 1, 2011                                     2,466,217       3,050,211
      3.92% select pay mortgage-matched advance, final
        maturity November 1, 2012                                   823,214         951,791
      4.09% select pay mortgage-matched advance, final
        maturity November 1, 2017                                   828,866         971,474
      4.72% select pay mortgage-matched advance, final
        maturity November 1, 2022                                 2,709,021       2,946,610
      4.38% select pay mortgage-matched advance, final
        maturity December 1, 2022                                   903,923         984,185
      3.92% select pay mortgage-matched advance, final
        maturity December 1, 2022                                   854,173         983,358
      3.55% select pay mortgage-matched advance, final
        maturity March 1, 2013                                      893,507         979,077
      3.64% select pay mortgage-matched advance, final
        maturity March 1, 2023                                    2,582,569       2,974,376
      3.31% select pay mortgage-matched advance, final
        maturity April 1, 2019                                      991,393              --
                                                               ------------    ------------

                                                               $ 31,140,388    $ 32,190,354
                                                               ============    ============
</TABLE>

The interest rates on the convertible advances are fixed for a specified number
of years, then convertible on a quarterly basis to a variable rate at the option
of the FHLB. If the convertible option is exercised, the advance may be prepaid
without penalty. The select pay mortgage-matched advances require monthly
principal and interest payments and annual additional principal payments.

The maximum month-end balance of advances outstanding was $31,811,000 in 2004
and $32,633,000 in 2003. Average balances of borrowings outstanding during 2004
and 2003 were $31,379,000 and $28,052,000. Advances under the borrowing
agreements were collateralized by the Association's FHLB stock owned and
$42,039,524 of qualifying mortgage loans.

--------------------------------------------------------------------------------
                                   (Continued)


38.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 8 - BORROWED FUNDS (Continued)

Maturities of FHLB advances for the next fives years and thereafter were as
follows.

      Year ended June 30,
              2005                                                 $   2,031,334
              2006                                                     1,814,754
              2007                                                     1,623,201
              2008                                                     8,453,778
              2009                                                     6,303,941
           Thereafter                                                 10,913,380
                                                                   -------------

                                                                   $  31,140,388
                                                                   =============

NOTE 9 - RETIREMENT PLANS

The Corporation maintains a 401(k) profit sharing plan. With certain exceptions,
all employees who have attained the age of 21 and who have completed one year of
employment, during which they worked at least 1,000 hours, are eligible to
participate in the plan. The Corporation provides a matching contribution on
behalf of participants who make elective compensation deferrals at the rate of
50% of the first 6% of participant contributions up to a maximum match of 3% of
the participant's compensation. The Corporation may also contribute additional
amounts at its discretion. Employee contributions are vested at all times and
the Corporation's matching contributions vest evenly over 5 years of service.
The cash contribution and related expense included in salaries and employee
benefits was $33,561, $30,328 and $27,484 for the years ended June 30, 2004,
2003 and 2002.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             39.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN

The Corporation offers an employee stock ownership plan ("ESOP") for the benefit
of substantially all employees of the Corporation. The ESOP received a favorable
determination letter from the Internal Revenue Service on the qualified status
of the ESOP under applicable provisions of the Internal Revenue Code. The ESOP
borrowed funds from Peoples in order to acquire common shares of Peoples. The
loan is secured by the shares purchased with the loan proceeds and will be
repaid by the ESOP with funds from the Association's discretionary contributions
to the ESOP, dividends on unallocated shares received by the ESOP and earnings
on ESOP assets. When loan payments are made, ESOP shares are allocated to
participants based on relative compensation. Dividends on allocated shares
increase participant accounts.

ESOP compensation expense was $187,713, $168,145 and $143,295 for the years
ended June 30, 2004, 2003 and 2002.

Year-end ESOP shares were as follows.

                                                        2004            2003
                                                        ----            ----

      Allocated shares                                   106,864          94,500
      Unreleased shares                                   61,966          74,330
                                                     -----------     -----------

           Total ESOP shares                             168,830         168,830
                                                     ===========     ===========

      Fair value of unreleased shares                $   991,456     $ 1,035,417
                                                     ===========     ===========

--------------------------------------------------------------------------------
                                   (Continued)


40.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 11 - STOCK OPTION AND INCENTIVE PLAN

The Stock Option and Incentive Plan was approved by the shareholders of the
Corporation on May 22, 1998. The Board of Directors has granted options to
purchase shares of common stock to certain employees, officers and directors of
the Corporation. One-fifth of the options awarded become first exercisable on
each of the first five anniversaries of the date of grant. The option period
expires 10 years from the date of grant.

A summary of the activity in the plan was as follows.

<TABLE>
<CAPTION>
                                                 2004                    2003                   2002
                                                 ----                    ----                   ----
                                                     Weighted                Weighted               Weighted
                                                     Average                 Average                Average
                                                     Exercise                Exercise               Exercise
                                           Shares     Price       Shares      Price      Shares      Price
                                           ------     -----       ------      -----      ------      -----
<S>                                        <C>        <C>         <C>        <C>         <C>        <C>
      Outstanding at beginning of year     140,824    $ 16.03     140,824    $ 16.03     140,824    $ 16.03
      Granted                                   --         --          --         --          --         --
      Exercised                                 --         --          --         --          --         --
      Forfeited                                 --         --          --         --          --         --
                                          --------    -------    --------    -------    --------    -------
      Outstanding at end of year           140,824    $ 16.03     140,824    $ 16.03     140,824    $ 16.03
                                          ========    =======    ========    =======    ========    =======

      Options exercisable at year-end      140,824    $ 16.03     140,824    $ 16.03     112,659    $ 16.03
      Remaining shares available
        for grant                           37,714                 37,714                 37,714
</TABLE>

Options outstanding at year-end were as follows.

                                                   Weighted Average
                                                      Remaining
           Exercise                      Number      Contractual       Number
           Prices                     Outstanding        Life        Exercisable
           ------                     -----------        ----        -----------

           $16.01                        139,579       3.90 yrs        139,579
           $18.75                          1,245       3.95 yrs          1,245
                                        --------       --------       --------

           Outstanding at year-end       140,824       3.90 yrs        140,824
                                        ========       ========       ========

NOTE 12 - MANAGEMENT RECOGNITION PLAN

A Management Recognition Plan ("MRP") was adopted by the Board of Directors and
approved by the shareholders of the Corporation on May 22, 1998 to purchase
71,415 common shares. The MRP is used as a means of providing directors and
certain key employees of the Corporation with an ownership interest in the
Corporation in a manner designed to compensate such directors and key employees
for services to the Corporation.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             41.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 12 - MANAGEMENT RECOGNITION PLAN (Continued)

In conjunction with the adoption of the MRP on May 22, 1998, the Board of
Directors awarded 57,128 shares to certain directors, officers and employees of
the Corporation. No shares had been previously awarded. One-fifth of such shares
were earned and nonforfeitable on each of the first five anniversaries of the
date of the award. All MRP shares outstanding fully vested on May 22, 2003. At
June 30, 2004, there were 14,287 shares reserved for future awards and held as
treasury stock. Compensation expense related to MRP shares is based upon the
cost of the shares, which approximates fair value at the date of grant.
Compensation expense totaled $174,746 for the year ended June 30, 2003 and
$190,648 for the year ended June 30, 2002. There was no compensation expense in
2004.

NOTE 13 - REGULATORY MATTERS

The Association is subject to various regulatory capital requirements
administered by the federal regulatory agencies. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators.
Failure to meet minimum capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.

At June 30, 2004 and 2003, management believes the Association complies with all
regulatory capital requirements. Based on the Association's computed regulatory
capital ratios, the Association is considered well capitalized under the Federal
Deposit Insurance Act at June 30, 2004 and 2003. No conditions or events have
occurred subsequent to the last notification by regulators that management
believes would have changed the Association's category.

At year-end 2004 and 2003, the Association's actual capital levels and minimum
required levels were as follows.

--------------------------------------------------------------------------------
                                   (Continued)


42.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 13 - REGULATORY MATTERS (Continued)

<TABLE>
<CAPTION>
                                                                                                      To Be Well
                                                                                                  Capitalized Under
                                                                             For Capital          Prompt Corrective-
                                                      Actual              Adequacy Purposes       Action Regulations
                                                      ------              -----------------       ------------------
                                                Amount      Ratio         Amount      Ratio        Amount     Ratio
                                                ------      -----         ------      -----        ------     -----
                                             (Dollars in thousands)
<S>                                            <C>           <C>         <C>           <C>       <C>          <C>
2004
Total capital (to risk-weighted assets)        $ 15,448      20.0%       $  6,176      8.0%      $  7,720     10.0%
Tier 1 (core) capital (to risk-weighted
  assets)                                        14,855      19.2           3,088      4.0          4,632      6.0
Tier 1 (core) capital (to adjusted
  total assets)                                  14,855      10.9           5,440      4.0          6,801      5.0
Tangible capital (to adjusted total assets)      14,855      10.9           2,040      1.5            N/A

2003
Total capital (to risk-weighted assets)        $ 16,372      18.8%       $  6,981      8.0%      $  8,727     10.0%
Tier 1 (core) capital (to risk-weighted
  assets)                                        15,617      17.9           3,491      4.0          5,236      6.0
Tier 1 (core) capital (to adjusted
  total assets)                                  15,617      10.9           5,742      4.0          7,178      5.0
Tangible capital (to adjusted total assets)      15,617      10.9           2,153      1.5            N/A
</TABLE>

The Qualified Thrift Lender test requires at least 65% of assets be maintained
in housing-related finance and other specified areas. If this test is not met,
limits are placed on growth, branching, new investments, FHLB advances and
dividends, or the Association must convert to a commercial bank charter.
Management believes the Association satisfies this test.

When the Association converted from a mutual to a stock institution, a
"liquidation account" was established at $9,307,000, which was net worth
reported in the conversion prospectus. Eligible depositors who have maintained
their accounts, less annual reductions to the extent they have reduced their
deposits, would receive a distribution from this account if the Association
liquidated. Dividends may not reduce shareholders' equity below the required
liquidation account balance.

OTS regulations limit capital distributions by savings associations. Generally,
capital distributions are limited to the current year to date undistributed net
income and prior two years' undistributed net income, as long as the institution
remains well capitalized after the proposed distribution. As of July 1, 2004,
the Association must obtain regulatory approval to pay dividends to the holding
company until fiscal 2005 net income exceeds $130,944.

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             43.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 14 - OFF-BALANCE-SHEET ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters of
credit and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was
as follows at year-end.

<TABLE>
<CAPTION>
                                             2004                          2003
                                             ----                          ----
                                      Fixed        Variable         Fixed        Variable
                                      Rate           Rate           Rate           Rate
                                      ----           ----           ----           ----
<S>                               <C>            <C>            <C>            <C>
      Residential real estate     $   299,000    $   212,000    $ 2,867,000    $   151,000
      Commercial real estate               --        265,000             --             --
      Interest rates                5.88-6.75%     5.50-6.75%     5.00-6.00%     5.25-6.00%
</TABLE>

Commitments to make loans are generally made for a period of 30 days or less.
Maturities for fixed-rate loan commitments range from 10 years to 20 years.

The Corporation also had unused lines of credit approximating $823,000 and
$818,000 at year-end 2004 and 2003.

At June 30, 2004 and 2003, the Association was required to have $3,454,000 and
$2,526,000 on deposit with its correspondent banks as a compensating clearing
requirement.

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

--------------------------------------------------------------------------------
                                   (Continued)


44.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts and estimated fair values of financial instruments at year-end
were as follows.

<TABLE>
<CAPTION>
                                                       2004                                2003
                                                       ----                                ----
                                                              Estimated                            Estimated
                                             Carrying           Fair             Carrying            Fair
                                               Value            Value              Value             Value
                                               -----            -----              -----             -----
<S>                                       <C>               <C>               <C>               <C>
      Financial assets:
         Cash and cash equivalents        $  10,033,688     $  10,033,688     $  12,300,598     $  12,300,598
         Securities available for sale        5,288,280         5,288,280        11,517,255        11,517,255
         Federal Home Loan Bank stock         1,601,400         1,601,400         1,539,000         1,539,000
         Loans, net                         115,651,910       114,746,495       115,259,841       116,611,846
         Accrued interest receivable            670,521           670,521           740,197           740,197

      Financial liabilities:
         Deposits                           (86,764,253)      (87,259,460)      (93,451,901)      (94,906,030)
         Borrowed funds                     (31,140,388)      (31,471,009)      (32,190,354)      (37,774,346)
         Accrued interest payable              (151,899)         (151,899)         (171,880)         (171,880)
</TABLE>

The estimated fair value approximates carrying amounts for all items except
those described below. Security fair values are based on market prices or dealer
quotes, and if no such information is available, on the rate and term of the
security and information about the issuer. For fixed rate loans or deposits and
for variable rate loans or deposits with infrequent repricing or repricing
limits, fair value is based on discounted cash flows using current market rates
applied to the estimated life and credit risk. Fair values for impaired loans
are estimated using discounted cash flow analysis or underlying collateral
values. Fair value of debt is based on current rates for similar financing. The
fair value of off-balance-sheet items is based on the current fees or cost that
would be charged to enter into or terminate such arrangements, which are not
material.

NOTE 16 - EARNINGS PER SHARE

The factors used in the earnings per share computation follow.

<TABLE>
<CAPTION>
                                                        2004            2003            2002
                                                        ----            ----            ----
<S>                                                 <C>             <C>             <C>
      Basic
           Net income                               $   974,586     $   835,802     $   707,208
                                                    ===========     ===========     ===========

           Weighted average common shares
             outstanding                              1,435,138       1,449,086       1,486,144
           Less:  Average unallocated ESOP shares       (68,148)        (80,796)        (94,018)
           Less:  Average nonvested MRP shares               --          (4,792)        (16,184)
                                                    -----------     -----------     -----------
           Weighted average common shares
             outstanding for basic earnings per
             common share                             1,366,990       1,363,498       1,375,942
                                                    ===========     ===========     ===========

           Basic earnings per common share          $       .71     $       .61     $       .51
                                                    ===========     ===========     ===========
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)


                                                                             45.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 16 - EARNINGS PER SHARE (Continued)

<TABLE>
<CAPTION>
                                                     2004          2003          2002
                                                     ----          ----          ----
<S>                                               <C>           <C>           <C>
      Diluted
          Net income                              $  974,586    $  835,802    $  707,208
                                                  ==========    ==========    ==========

          Weighted average common shares
            outstanding for basic earnings per
            common share                           1,366,990     1,363,498     1,375,942
          Add:  Dilutive effects of average
            nonvested MRP shares                          --            --            --
          Add:  Dilutive effects of assumed
            exercises of stock options                 1,690            --            --
                                                  ----------    ----------    ----------
          Weighted average common shares
            and dilutive potential common
            shares outstanding                     1,368,680     1,363,498     1,375,942
                                                  ==========    ==========    ==========

          Diluted earnings per common share       $      .71    $      .61    $      .51
                                                  ==========    ==========    ==========
</TABLE>

For the years ending June 30, 2004, 2003 and 2002, there were 1,245, 140,824 and
140,824 stock options outstanding that were not dilutive as the exercise price
of outstanding options was greater than the average market price for the
periods. Unearned MRP shares did not have a dilutive effect on EPS for the year
ended June 30, 2004 as all MRP shares outstanding fully vested on May 22, 2003.
Unearned MRP shares did not have a dilutive effect for the years ended June 30,
2003 and 2002 as the fair value of the MRP shares on the date of grant was
greater than the average market price for the periods.

NOTE 17 - OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes were as follows.

<TABLE>
<CAPTION>
                                                         2004          2003          2002
                                                         ----          ----          ----
<S>                                                   <C>           <C>           <C>
      Unrealized holding gains and (losses) on
        available-for-sale securities                 $(229,335)    $  (5,410)    $  22,157
      Reclassification adjustments for (gains) and
        losses later recognized in income                    --            --            --
                                                      ---------     ---------     ---------
      Net unrealized gains and losses                  (229,335)       (5,410)       22,157
      Tax effect                                         77,975         1,838        (7,533)
                                                      ---------     ---------     ---------

      Other comprehensive income (loss)               $(151,360)    $  (3,572)    $  14,624
                                                      =========     =========     =========
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)


46.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Following is condensed financial information of Peoples-Sidney Financial
Corporation as of June 30, 2004 and 2003, and for the periods ended June 30,
2004, 2003 and 2002.

                            CONDENSED BALANCE SHEETS
                             June 30, 2004 and 2003

<TABLE>
<CAPTION>
                                                             2004            2003
                                                             ----            ----
<S>                                                      <C>             <C>
      Assets
      Cash and cash equivalents                          $  2,109,097    $  1,047,181
      Investment in subsidiary                             14,716,801      15,629,764
      Loans receivable from ESOP                              612,129         714,150
                                                         ------------    ------------

           Total assets                                  $ 17,438,027    $ 17,391,095
                                                         ============    ============

      Liabilities
      Other liabilities                                  $      7,114    $      6,815

      Shareholders' Equity                                 17,430,913      17,384,280
                                                         ------------    ------------

           Total liabilities and shareholders' equity    $ 17,438,027    $ 17,391,095
                                                         ============    ============
</TABLE>

                         CONDENSED STATEMENTS OF INCOME
                    Years Ended June 30, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                                                   2004            2003            2002
                                                                   ----            ----            ----
<S>                                                            <C>             <C>             <C>
      Income
         Dividend income from subsidiary                       $ 2,000,000     $        --     $        --
         Interest on loans                                          49,952          56,932          64,049
                                                               -----------     -----------     -----------
                                                                 2,049,952          56,932          64,049
      Other expenses                                                93,379          93,022          92,480
                                                               -----------     -----------     -----------
      Income (loss) before taxes and undistributed earnings
        of subsidiary                                            1,956,573         (36,090)        (28,431)
      Income tax benefit                                           (14,900)         (5,949)        (17,182)
                                                               -----------     -----------     -----------
      Income (loss) before undistributed earnings
        of subsidiary                                            1,971,473         (30,141)        (11,249)
      Equity in undistributed earnings of subsidiary
        (distributions in excess of earnings)                     (996,887)        865,943         718,457
                                                               -----------     -----------     -----------
         Net income                                            $   974,586     $   835,802     $   707,208
                                                               ===========     ===========     ===========
</TABLE>

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


                                                                             47.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 2004, 2003 and 2002
--------------------------------------------------------------------------------

NOTE 18 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                    Years Ended June 30, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                                               2004            2003            2002
                                                               ----            ----            ----
<S>                                                        <C>             <C>             <C>
      Cash flows from operating activities
         Net income                                        $   974,586     $   835,802     $   707,208
         Adjustments to reconcile net income to cash
           provided by operations:
         (Equity in undistributed income of subsidiary)
           distributions in excess of earnings                 996,887        (865,943)       (718,457)
         Net change in other assets and liabilities                300           4,922           2,166
                                                           -----------     -----------     -----------
             Net cash from operating activities              1,971,773         (25,219)         (9,083)

      Cash flows from investing activities
         Proceeds from loan principal repayments               102,021         102,021         102,022
                                                           -----------     -----------     -----------
             Net cash from investing activities                102,021         102,021         102,022

      Cash flows from financing activities
         Purchase of treasury shares                           (92,516)       (317,483)       (525,077)
         Cash dividends paid                                  (871,790)       (667,566)       (486,103)
         Dividends on unallocated ESOP shares                  (47,572)        (42,759)        (35,272)
                                                           -----------     -----------     -----------
             Net cash from financing activities             (1,011,878)     (1,027,808)     (1,046,452)
                                                           -----------     -----------     -----------

      Net change in cash and cash equivalents                1,061,916        (951,006)       (953,513)
      Cash and cash equivalents at beginning of year         1,047,181       1,998,187       2,951,700
                                                           -----------     -----------     -----------

      Cash at end of year                                  $ 2,109,097     $ 1,047,181     $ 1,998,187
                                                           ===========     ===========     ===========
</TABLE>

--------------------------------------------------------------------------------
                                   (Continued)


48.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION

                             SHAREHOLDER INFORMATION

ANNUAL MEETING

The Annual Meeting of Shareholders will be held at 11:00 a.m., Sidney, Ohio on
October 15, 2004, at the Holiday Inn, I-75 and S.R. 47, Sidney, Ohio.

STOCK LISTING

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

SHAREHOLDERS AND GENERAL INQUIRIES                    TRANSFER AGENT

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

ANNUAL AND OTHER REPORTS

A copy of Peoples-Sidney Financial Corporation's Annual Report on Form 10-KSB
for the year ended June 30, 2004, as filed with the Securities and Exchange
Commission, may be obtained without charge by contacting Douglas Stewart,
President and Chief Executive Officer, Peoples-Sidney Financial Corporation, 101
East Court Street, P.O. Box 727, Sidney, Ohio 45365-3021.

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


                                                                             49.
<PAGE>

                      PEOPLES-SIDNEY FINANCIAL CORPORATION

                              CORPORATE INFORMATION

<TABLE>
<S>                                                                 <C>
CORPORATION AND ASSOCIATION ADDRESS

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

DIRECTORS OF THE BOARD

Douglas Stewart                                                     Harry N. Faulkner
      President and Chief Executive Officer of Peoples Federal         Partner in the law firm of Faulkner, Garmhausen,
      Savings and Loan Association                                     Keister & Shenk LPA

John W. Sargeant                                                    James W. Kerber
      Part Owner of Sidney Tool and Die Co. and BenSar                 Owner of James W. Kerber CPA, a private practice
      Development, a warehouse provider                                accounting firm

Richard T. Martin (Chairman of the Board)
      Certified Public Accountant, in private
      practice

Officers of the Corporation and the Association:
-----------------------------------------------

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

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

Katten Muchin Zavis Rosenman                                        Crowe Chizek and Company LLC
1025 Thomas Jefferson Street, N.W.                                  One Columbus
East Lobby, Suite 700                                               10 West Broad Street
Washington, D.C. 20007-5201                                         Columbus, Ohio  43215
</TABLE>

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


50.