EXHIBIT 13

                          Peoples Financial Corporation

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



General

PFC was incorporated for the purpose of owning all of the outstanding  shares of
Peoples Federal after the Conversion.  As a result,  the discussion that follows
focuses on Peoples Federal's financial condition and results of operations.  The
following  discussion  and analysis of the  financial  condition  and results of
operations of PFC and Peoples  Federal  should be read in  conjunction  with and
with reference to the consolidated  financial  statements and the notes thereto,
included in the Annual Report.

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

Without limiting the generality of the foregoing,  some of the statements in the
referenced sections of this discussion and analysis are forward looking and are,
therefore, subject to such risks and uncertainties:

     1.   Management's  determination  of the amount of the  allowance  for loan
          losses set forth under "Financial  Condition,"  "Comparison of Results
          of  Operations  for the Years Ended  September  30, 1999 and 1998" and
          "Comparison of Results of Operations for the Years Ended September 30,
          1998 and 1997;"

     2.   The  analysis  of  interest  rate  risk set  forth  under  "Asset  and
          Liability Management;"

     3.   The  discussion of the liquidity of Peoples  Federal's  assets and the
          regulatory  capital of Peoples Federal set forth under  "Liquidity and
          Capital Resources;"

     4.   The  discussion of legislation  enacted under the  "Gramm-Leach-Bliley
          Act," as set forth under "Potential  Impact of Current  Legislation on
          Future Results of Operations;"

     5.   Management's   estimate  as  to  the  effects  of  recent   accounting
          pronouncements  as set  forth  under  "Effects  of  Recent  Accounting
          Pronouncements;" and

     6.   Management's  determination  of the  effects of the year 2000 on PFC's
          information   technology   systems  as  set  forth  under  "Year  2000
          Compliance Matters."


Discussion  of  Changes  in  Financial  Condition  from  September  30,  1998 to
September 30, 1999

PFC's  consolidated  assets  totaled  $92.4  million at September  30, 1999,  an
increase of $6.1 million, or 7.1%, over the $86.3 million total at September 30,
1998. The principal  changes in the  composition of assets during the year ended
September  30,  1999,   consisted  of  an  increase  in  loans   receivable  and
interest-bearing  deposits in other financial institutions,  offset by decreases
in investment and mortgage-backed securities. This increase in assets was funded
primarily from increases of $7.0 million in borrowings and $479,000 in deposits,
which were partially offset by an $832,000 decrease in shareholders' equity.



                                       1

<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Discussion  of  Changes  in  Financial  Condition  from  September  30,  1998 to
September 30, 1999 (continued)

Interest-bearing  deposits in other financial  institutions totaled $2.5 million
at  September  30,  1999,  an increase of $311,000.  Investment  securities  and
mortgage-backed  securities  totaled  $13.7  million at September  30, 1999,  as
compared to $16.8 million at September 30, 1998, a decrease of $3.1 million,  or
18.4%.  Investment  securities  decreased due to maturities of a U.S. Government
agency obligation and municipal bonds totaling $1.0 million and sales of Federal
Home Loan Mortgage Corporation  ("FHLMC") common stock totaling $527,000,  which
were  partially  offset by  purchases  of FHLB  certificates  of deposit of $1.0
million.  Mortgage-backed  securities  decreased  due  to  principal  repayments
totaling  $4.7  million,  partially  offset by purchases of $2.3  million.  Such
proceeds,  coupled with FHLB advances,  were used principally to fund the growth
in the loan portfolio.

Loans  receivable  totaled  $73.1  million at September 30, 1999, an increase of
$8.8 million,  or 13.6%, over the $64.3 million total at September 30, 1998. The
increase was  comprised of a $9.4 million  increase in one- to  four-family  and
construction loans,  including a net increase in undisbursed loans in process of
$2.4 million.  Multi-family  and  nonresidential  real estate loans decreased by
$419,000 and consumer and other loans decreased by $137,000.  Loan disbursements
of $30.1 million were partially offset by principal  repayments of $21.4 million
during the year ended September 30, 1999. Fiscal 1998 loan disbursements totaled
$30.6 million and principal repayments amounted to $22.8 million.

Peoples  Federal's  allowance for loan losses totaled  $213,000 at September 30,
1999,  compared to the fiscal 1998  allowance of $196,000.  Nonperforming  loans
amounted to $114,000 at September  30,  1999,  compared to $115,000 at September
30, 1998. The allowance for loan losses represented .27% and .29% of total loans
at  September  30,  1999  and  1998,  respectively  and  186.8%  and  170.4%  of
nonperforming loans on the same dates.

Management believes that the allowance for loan loss level at September 30, 1999
is appropriate based on the available facts and  circumstances.  There can be no
assurance,  however,  that the allowance  will be adequate to absorb actual loan
losses during future periods.  The amount of loan loss  experienced may increase
due to growth in the loan  portfolio  generally;  increases in the amount of the
portfolio  consisting  of higher risk loan types,  such as  nonresidential  real
estate loans,  construction loans and consumer and other loans; economic changes
locally or nationally, including changes in interest rates, employment rates and
property  values;  and unexpected  problems with specific loans. If additions to
the allowance are necessary in future periods, such additions would reduce PFC's
net earnings.

Deposits  totaled  $66.3  million at September  30,  1999,  as compared to $65.8
million at September 30, 1998, an increase of $479,000,  or .7%. Certificates of
deposit  decreased  by  $184,000  as Peoples  Federal  continued  to offer rates
designed  to  maintain  certificates  and cost of funds  at  acceptable  levels.
Passbook  and money  market  demand  deposits  increased  by  $423,000,  and NOW
accounts increased by $240,000 for the year.




                                       2
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Discussion  of  Changes  in  Financial  Condition  from  September  30,  1998 to
September 30, 1999 (continued)

Borrowings consisted of advances from the FHLB of $11.0 million at September 30,
1999,  as compared to $4.0  million at September  30, 1998,  an increase of $7.0
million. These borrowings were used primarily to fund the increase in loans.

Shareholders'  equity totaled $14.2 million at September 30, 1999, a decrease of
$832,000,  or 5.5%,  from the  September 30, 1998 level.  The decrease  resulted
primarily  from payment of dividends  of $807,000,  purchases of treasury  stock
totaling  $768,000  and  a  decrease  in  net  unrealized  gains  on  securities
designated as available for sale of $366,000, which were partially offset by net
earnings of $754,000 and amortization of stock benefit plans of $355,000.

Comparison of Results of Operations  for the Years Ended  September 30, 1999 and
1998

General

The operating  results of PFC are affected by general economic  conditions,  the
monetary and fiscal policies of the U. S. Government and the regulatory policies
of agencies which regulate financial  institutions.  The net earnings of PFC and
Peoples  Federal are primarily  dependent on net interest  income,  which is the
difference  between interest earned on loans and other  interest-earning  assets
and interest expense incurred on deposits and borrowed funds.

Net earnings  totaled $754,000 for the year ended September 30, 1999, a decrease
of $164,000,  or 17.9%,  from net earnings of $918,000 recorded for fiscal 1998.
The  decrease in net  earnings  was due  primarily to a decrease in net interest
income  of  $36,000,  a  decrease  in net  gains on the sale of  investment  and
mortgage-backed   securities   of   $165,000   and  an   increase   in  general,
administrative  and other expense of $108,000,  which were partially offset by a
decrease in the provision  for losses on loans of $30,000,  an increase in other
income of $22,000 and a decrease of $93,000 in the provision for federal  income
taxes.

Net Interest Income

Total  interest  income for the year ended  September  30,  1999,  totaled  $6.3
million,  an increase of $154,000,  or 2.5%,  over the $6.1 million  recorded in
fiscal  1998.  Interest  income on loans  increased by  $425,000,  or 8.8%.  The
increase   resulted   primarily   from  an   $8.2   million   increase   in  the
weighted-average outstanding balance of loans receivable,  partially offset by a
32  basis   point  (100  basis   points   equals  one   percent)   decrease   in
weighted-average  yield to 7.59% in 1999, from 7.91% in 1998. Interest income on
mortgage-backed securities,  investment securities and interest-bearing deposits
decreased by $271,000,  or 21.0%.  The decrease  resulted  primarily from a $2.7
million  decrease  in the  average  balance of such  assets and a 73 basis point
decrease in  weighted-average  yield on mortgage-backed  securities,  a 31 basis
point decrease in weighted-average yield on investment securities and a 97 basis
point decrease in weighted average yield on interest-bearing deposits.


                                       3
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison of Results of Operations  for the Years Ended  September 30, 1999 and
1998 (continued)

Net Interest Income (continued)

Interest expense on deposits for the year ended September 30, 1999, totaled $3.2
million,  a decrease  of $56,000,  or 1.7%,  from the $3.2  million  recorded in
fiscal  1998.   This   decrease   was  due   primarily  to  a  decrease  in  the
weighted-average  cost of  deposits  of 19 basis  points,  to 4.76% in 1999 from
4.95%  in  1998,   partially   offset  by  a  $1.6   million   increase  in  the
weighted-average outstanding balance of deposits. Interest expense on borrowings
increased to $342,000 in fiscal 1999 from $96,000 in fiscal 1998.  This increase
was due primarily to a $5.3 million increase in the weighted-average outstanding
balance of advances  from the FHLB,  from $1.6 million to $6.9  million,  and an
increase in the weighted-average  interest rate paid of 10 basis points. Peoples
Federal had advances from the FHLB outstanding  throughout fiscal 1999, compared
to only  approximately  five  months in fiscal  1998,  while a note  payable was
outstanding for part of the first month of fiscal 1998 only.

As a result of the foregoing  changes in interest  income and interest  expense,
net interest income decreased by $36,000,  or 1.3%, to $2.8 million for the year
ended September 30, 1999. The interest rate spread  decreased to 2.43% in fiscal
1999,  from 2.53% in fiscal  1998,  while the net interest  margin  decreased to
3.16% in fiscal 1999, from 3.42% in fiscal 1998.

Provision for Losses on Loans

The provision for losses on loans totaled  $12,000 for the year ended  September
30, 1999, a decrease of $30,000,  or 71.4%, from the $42,000 provision  recorded
in fiscal 1998.  Management believes that the continuation of periodic increases
in the allowance for loan losses is prudent based upon the inherent risk of loss
related to loans, the increase in the outstanding portfolio balance, current and
anticipated  economic  conditions as measured by leading economic indicators and
local  employment  data,  the  level  of  nonperforming   loans  and  past  loss
experience.  There  can be no  assurance  that the loan loss  allowance  will be
adequate to cover losses on nonperforming assets in the future.

Other Income

Other income totaled $569,000 for the year ended September 30, 1999, compared to
$712,000  for fiscal  1998.  FHLMC  common stock with a book value of $9,000 was
sold during the year ended September 30, 1999 for $527,000,  resulting in a gain
of $518,000. During the year ended September 30, 1998, FHLMC common stock with a
book  value of  $15,000  was sold and a gain of  $696,000  was  realized,  while
mortgage-backed and investment securities with a book value of $3.5 million were
sold and a loss of $13,000 was realized.  Other  operating  income  increased by
$22,000 due to  increased  fee income,  including  ATM fees of $18,000 in fiscal
1999 compared to less than $1,000 in fiscal 1998,  and safe deposit box rentals.
Also included in other operating income are late charges on loans.




                                       4
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison of Results of Operations  for the Years Ended  September 30, 1999 and
1998 (continued)

General, Administrative and Other Expense

General,  administrative  and other  expense  totaled  $2.2 million for the year
ended September 30, 1999,  compared to $2.1 million for fiscal 1998, an increase
of $108,000, or 5.2%.

Employee compensation and benefits increased by $45,000, or 3.9% in fiscal 1999,
compared to fiscal 1998.  Salaries  and wages and  directors  fees  increased by
$22,000  due to normal  merit  increases  and  hiring of  additional  personnel.
Contributions to Peoples Federal's 401(k) benefit plan were frozen during fiscal
1999 and 1998,  and in fiscal  1998 an excess  provision  of $12,000 for Peoples
Federal's  401(k)  benefit  plans was  reversed.  Other  employee  benefit plans
increased by $3,000 in fiscal 1999 over fiscal 1998. Other  employment  benefits
increased by $8,000 primarily due to increases in health insurance premium rates
and payroll taxes.

Occupancy and equipment for the year ended September 30, 1999 totaled  $262,000,
an  increase of  $40,000,  or 18.0%,  over  fiscal  1998.  Depreciation  expense
increased by $22,000 primarily due to automated teller machine ("ATM") equipment
acquired in the fall of 1998.  Repairs and maintenance  increased by $26,000 due
to increased building and ground maintenance, maintenance agreement costs on ATM
equipment  and winter  weather.  A refund of rental  cost and an  adjustment  of
utility  costs  realized at the end of the first lease term of the North  Canton
lending office reduced fiscal 1999 occupancy costs by a net amount of $9,000.

Ohio  franchise  taxes for the year ended  September 30, 1999 were  $201,000,  a
decrease of $29,000,  or 12.6%,  from fiscal 1998, based on decreased tax rates.
Data  processing  totaled  $119,000 for fiscal 1999, an increase of $38,000,  or
46.9%,  over  fiscal  1998,  principally  due to ATM  operations  and year  2000
compliance testing.  Advertising totaled $41,000 for fiscal 1999, an increase of
$8,000, or 24.2%, over fiscal 1998, principally due to increased local newspaper
advertising.  Other  operating  expense  totaled  $328,000 for fiscal  1999,  an
increase of $6,000,  or 1.9%,  over fiscal  1998,  principally  due to year 2000
compliance costs.

Federal Income Taxes

The  provision  for federal  income  taxes  totaled  $360,000 for the year ended
September 30, 1999, a decrease of $93,000, or 20.5%, from the $453,000 provision
recorded in fiscal 1998.  The decrease was  primarily due to the decrease in net
earnings  before taxes of $257,000,  or 18.7%.  PFC's  effective  tax rates were
32.3% for fiscal 1999 and 33.0% for fiscal 1998.





                                       5
<PAGE>



                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison of Results of Operations  for the Years Ended  September 30, 1998 and
1997

General

Net earnings totaled $918,000 for the year ended September 30, 1998, an increase
of $112,000,  or 13.9%,  over net earnings of $806,000 recorded for fiscal 1997.
The increase  resulted  primarily  from net gains on the sale of investment  and
mortgage-backed  securities  of  $683,000  in 1998  compared to $15,000 in 1997,
offset by a decrease in net interest income of $416,000,  an increase of $30,000
in the provision for losses on loans,  a decrease in other income of $8,000,  an
increase in general, administrative and other expense of $85,000 and an increase
of $17,000 in the provision for federal income taxes.

Net Interest Income

Total  interest  income for the year ended  September  30,  1998,  totaled  $6.1
million,  a decrease of $148,000,  or 2.4%,  from the $6.3  million  recorded in
fiscal 1997.  Interest  income on loans  increased by  $814,000,  or 20.4%.  The
increase   resulted   primarily   from  an  $11.2   million   increase   in  the
weighted-average outstanding balance of loans receivable,  partially offset by a
14 basis point decrease in  weighted-average  yield to 7.91% in 1998, from 8.05%
in 1997. Interest income on mortgage-backed  securities,  investment  securities
and  interest-bearing  deposits  decreased by $962,000,  or 42.7%.  The decrease
resulted  primarily from a $15.0 million decrease in the average balance of such
assets and an 84 basis point  decrease in  weighted-average  yield on investment
securities,  partially  offset by a 23 basis point increase in  weighted-average
yield  on  interest-earning  deposits  and a 17  basis  point  increase  in  the
weighted-average yield on mortgage-backed securities.

Interest expense on deposits for the year ended September 30, 1998, totaled $3.2
million,  an increase of $176,000,  or 5.8%,  over the $3.0 million  recorded in
fiscal 1997.  This increase was due primarily to a $1.9 million  increase in the
weighted-average  outstanding  balance of deposits,  coupled with an increase in
the  weighted-average  interest rate paid of 13 basis  points,  to 4.94% in 1998
from 4.81% in 1997.  Interest  expense  on  borrowings  increased  to $96,000 in
fiscal 1998 from $4,000 in fiscal 1997.  Advances from the FHLB were outstanding
for  approximately  5 months in fiscal  1998,  with no advances in fiscal  1997,
while a note payable was outstanding for less than a month during both years.

As a result of the foregoing  changes in interest  income and interest  expense,
net interest  income  decreased by $416,000,  or 13.0%,  to $2.8 million for the
year ended  September 30, 1998.  The interest rate spread  increased to 2.53% in
fiscal 1998, from 2.52% in fiscal 1997,  while the net interest margin decreased
to 3.42% in fiscal 1998, from 3.75% in fiscal 1997.




                                       6

<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison of Results of Operations  for the Years Ended  September 30, 1998 and
1997 (continued)

Provision for Losses on Loans

The provision for losses on loans totaled  $42,000 for the year ended  September
30, 1998, an increase of $30,000 over the $12,000  provision  recorded in fiscal
1997.  The  increase  was  recorded  primarily  because  of  growth  in the loan
portfolio in fiscal 1998.  Management believes that the continuation of periodic
increases in the  allowance for loan losses based upon the inherent risk of loss
related to loans, the increase in the outstanding portfolio balance, current and
anticipated  economic  conditions as measured by leading economic indicators and
local employment data, the level of nonperforming loans and past loss experience
is prudent.

Other Income

Other income totaled $712,000 for the year ended September 30, 1998, compared to
$52,000 for fiscal 1997. The increase resulted  primarily from net gains on sale
of securities  during 1998 of $683,000,  compared to net gains of $15,000 during
1997.  Mortgage-backed  and  investment  securities  with a book  value  of $4.2
million and $10.0 million were sold during  fiscal 1998 and 1997,  respectively.
Gains of $696,000  and losses of $13,000 were  realized in 1998,  while gains of
$41,000 and losses of $26,000 were realized in 1997.  Other operating income was
greater in fiscal 1997 by $8,000,  primarily  due to mortgage  loan late charges
from a December 1996 collection. The remainder of other operating income is made
up of service fees,  safe deposit box rentals and service  charges on negotiable
order of withdrawal ("NOW") accounts.

General, Administrative and Other Expense

General,  administrative  and other  expense  totaled  $2.1 million for the year
ended September 30, 1998,  compared to $2.0 million for fiscal 1997, an increase
of $85,000, or 4.2%.

Employee  compensation  and benefits  increased by $104,000,  or 9.8%, in fiscal
1998,  compared  to fiscal  1997.  Recording  the first full  year's cost of the
Recognition and Retention Plan ("RRP") and the change in average market value of
PFC stock increased  expense of employee benefit plans by $79,000.  Salaries and
wages and  directors  fees  increased by $41,000 due to normal merit  increases,
hiring of  additional  personnel  and deferral of a lesser amount of loan costs.
Cost of the 401(k)  benefit  plan  decreased  by  $32,000  as the  Corporation's
contributions  were frozen  during fiscal 1998 and the first half of fiscal 1997
and an excess  provision was reversed  during 1998.  Other  employment  benefits
increased by $16,000  primarily  due to increases  in health  insurance  premium
rates and payroll taxes on the first RRP distribution made in fiscal 1998.

The other significant change in general, administrative and other expense during
fiscal 1998 was a decrease of $21,000,  or 34.4%, in federal  deposit  insurance
premiums mostly due to decreased premium rates effective January 1, 1997.




                                       7
<PAGE>



                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Comparison of Results of Operations  for the Years Ended  September 30, 1998 and
1997 (continued)

Federal Income Taxes

The  provision  for federal  income  taxes  totaled  $453,000 for the year ended
September 30, 1998, an increase of $17,000, or 3.9%, over the $436,000 provision
recorded in fiscal 1997.  The increase was  primarily due to the increase in net
earnings  before taxes of $129,000,  or 10.4%.  PFC's  effective  tax rates were
33.0% for fiscal 1998 and 35.1% for fiscal 1997.









































                                       8
<PAGE>


                  AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA

    The following table presents certain information relating to PFC and Peoples
    Federal's  average balance sheet  information and reflects the average yield
    on  interest-earning   assets  and  the  average  cost  of  interest-bearing
    liabilities for the periods indicated.  Such yields and costs are derived by
    dividing  annual  income  or  expense  by the  average  monthly  balance  of
    interest-earning assets or interest-bearing liabilities,  respectively,  for
    the years presented.  Average balances are derived from month-end  balances,
    which include nonaccruing loans in the loan portfolio,  net of the allowance
    for loan losses.
<TABLE>
<CAPTION>
                                                                               Year ended September 30,
                                                                       1999                                 1998
                                                           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>
Interest-earning assets:
  Interest-bearing deposits                                $ 2,246     $  108      4.81%        $ 3,443     $  199     5.78%
  Investment securities                                      3,841        164      4.27           4,850        222     4.58
  Mortgage-backed and related securities                    11,916        748      6.28          12,413        870     7.01
  Loans receivable (1)                                      69,039      5,239      7.59          60,876      4,814     7.91
                                                            ------      -----    ------          ------      -----    -----

         Total interest-earning assets                      87,042      6,259      7.19          81,582      6,105     7.48

Non-interest-earning assets
  Cash and amounts due from depository institutions            264                                  273
  Premises and equipment, net                                1,442                                1,403
  Other non-earning assets                                     522                                  401
                                                            ------                               ------

         Total assets                                      $89,270                              $83,659
                                                            ======                               ======

Interest-bearing liabilities:
  NOW accounts                                             $ 1,942         24      1.24         $ 1,698         22      1.30
  Money market accounts                                      2,624         58      2.21           2,590         62      2.39
  Passbook savings accounts                                 10,778        216      2.00          10,799        217      2.01
  Certificates of deposit                                   51,311      2,865      5.58          50,013      2,918      5.83
  Borrowings                                                 6,917        342      4.94           1,814         96      5.29
                                                            ------      -----    ------          ------      -----     -----


         Total interest-bearing liabilities                 73,572      3,505      4.76          66,914      3,315      4.95
                                                                        -----    ------                      -----     -----
Non-interest-bearing liabilities                             1,325                                1,432
                                                            ------                               ------
         Total liabilities                                  74,897                               68,346

Shareholders' equity                                        14,373                               15,313
                                                            ------                               ------

         Total liabilities and shareholders' equity        $89,270                              $83,659
                                                            ======                               ======

Net interest income; interest rate spread                              $2,754      2.43%                    $2,790      2.53%
                                                                        =====    ======                      =====    ======

Net interest margin (net interest income as a percent of
  average interest-earning assets)                                                 3.16%                                3.42%
                                                                                 ======                               ======
Average interest-earning assets to average interest-bearing liabilities          118.31%                              121.92%
                                                                                 ======                               ======
</TABLE>


<TABLE>
<CAPTION>
                                                           Year ended September 30,
                                                                     1997
                                                         Average   Interest
                                                       tstanding    earned/       Yield/
                                                         balance       paid       rate
                                                           (Dollars in thousands)
<S>                                                       <C>          <C>        <C>
Interest-earning assets:
  Interest-bearing deposits                             $ 5,806      $  322        5.55%
  Investment securities                                   8,255         448        5.42
  Mortgage-backed and related securities                 21,674       1,483        6.84
  Loans receivable (1)                                   49,717       4,000        8.05
                                                         ------       -----       -----

         Total interest-earning assets                   85,452       6,253        7.32

Non-interest-earning assets
  Cash and amounts due from depository institutions          269
  Premises and equipment, net                              1,463
  Other non-earning assets                                   640
                                                         -------

         Total assets                                    $87,824
                                                          ======

Interest-bearing liabilities:
  NOW accounts                                           $ 1,536         18         1.17
  Money market accounts                                    2,708         57         2.10
  Passbook savings accounts                               12,026        241         2.00
  Certificates of deposit                                 46,941      2,727         5.81
  Borrowings                                                 250          4         1.60
                                                          ------      -----       ------

         Total interest-bearing liabilities               63,461      3,047         4.80
                                                                      -----       ------
Non-interest-bearing liabilities                           1,435
                                                          ------
         Total liabilities                                64,896

Shareholders' equity                                      22,928
                                                          ------

         Total liabilities and shareholders' equity      $87,824
                                                          ======

Net interest income; interest rate spread                            $3,206         2.52%
                                                                      =====       ======

Net interest margin (net interest income as a percent of
  average interest-earning assets)                                                  3.75%
                                                                                  ======
Average interest-earning assets to average interest-bearing liabilities           134.65%
                                                                                  ======
</TABLE>


(1)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     the allowance for loan losses.





                                       9
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Rate/Volume Table

The following  table describes the extent to which changes in interest rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected PFC and Peoples  Federal'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
(i) changes in volume  (change in volume  multiplied  by prior year rate),  (ii)
changes in rate  (change in rate  multiplied  by prior year  volume),  and (iii)
total changes in rate and volume. The combined effects of changes in both volume
and  rate,   which  cannot  be  separately   identified,   have  been  allocated
proportionately to the change due to volume and the change due to rate:
<TABLE>
<CAPTION>

                                                                                Year ended September 30,
                                                            1999 vs. 1998                           1998 vs. 1997
                                                          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-bearing deposits                           $ (58)     $ (33)      $(91)          $(136)     $  13      $(123)
  Investment securities                                 (43)       (15)       (58)           (156)       (70)      (226)
  Mortgage-backed and related securities                (32)       (90)      (122)           (648)        35       (613)
  Loans receivable                                      619       (194)       425             882        (68)       814
                                                        ---       ----        ---            ----       ----       ----
     Total interest income                              486       (332)       154             (58)       (90)      (148)

Interest expense attributable to:
  NOW accounts                                            3         (1)         2               2          3          5
  Money market accounts                                   1         (5)        (4)             (3)         7          4
  Passbook savings accounts                              -          (1)        (1)            (25)         1        (24)
  Certificates of deposit                                73       (126)       (53)            179         12        191
  Borrowings                                            252         (6)       246              83          9         92
                                                        ---       ----        ---            ----       ----       ----
     Total interest expense                             329       (139)       190             236         32        268
                                                        ---       ----        ---            ----       ----       ----

Increase (decrease) in net interest income             $157      $(193)      $(36)          $(294)     $(122)     $(416)
                                                        ===       ====        ===            ====       ====       ====
</TABLE>















                                       10
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Asset and Liability Management

Peoples Federal, 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,  Peoples  Federal  uses the Net  Portfolio  Value  ("NPV")
methodology  adopted  by the OTS as part of its  capital  regulations.  Although
Peoples  Federal is not  currently  subject to the 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%, the application of the NPV methodology
can illustrate Peoples Federal's degree of 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 which would
result from a theoretical 200 basis point change in market interest rates.  Both
a 200 basis  point  increase  in  market  interest  rates and a 200 basis  point
decrease in market interest rates are considered. If the NPV would decrease 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
the  decrease  in  excess  of such 2% in the  calculation  of the  institution's
risk-based capital. See "Liquidity and Capital Resources."

At September 30, 1999, 2% of the present value of Peoples  Federal's  assets was
approximately $1.8 million.  Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point  decrease) was $5.1 million at September 30, 1999,  Peoples
Federal  would have been required to deduct  approximately  $1.7 million (50% of
the approximate $3.3 million difference) from its capital in determining whether
Peoples  Federal met its  risk-based  capital  requirement.  Regardless  of such
reduction,  however, Peoples Federal's risk-based capital at September 30, 1999,
would still have exceeded the regulatory requirement by $3.6 million.

Presented  below,  as of September  30, 1999 and 1998, is an analysis of Peoples
Federal's interest rate risk as measured by changes in NPV for instantaneous and
sustained  parallel  shifts of 100 basis points in market  interest  rates.  The
table also  contains the policy  limits set by the Board of Directors of Peoples
Federal as the maximum change in NPV that the Board of Directors deems advisable
in the event of  various  changes  in  interest  rates.  Such  limits  have been
established with  consideration of the dollar impact of various rate changes and
Peoples Federal's strong capital position.  The declaration of the $3.00 special
dividend in September 30, 1999, caused Peoples Federal to temporarily exceed the
Board's preexisting NPV policy limits.  Management believes Peoples Federal will
be operating within the Board policy limits by March 31, 2000.

As illustrated in the table,  Peoples  Federal's NPV is more sensitive to rising
rates than declining rates.  Such difference in sensitivity  occurs  principally
because,  as rates rise,  borrowers do not prepay fixed-rate loans as quickly as
they do when interest  rates are  declining.  At September 30, 1999,  fixed-rate
loans constituted  approximately  89.0% of Peoples Federal's loan portfolio.  In
addition,  because Peoples  Federal has not originated  loans in accordance with
traditional  secondary  market  guidelines,  the sale of fixed rate loans may be
difficult.  As a result,  in a rising interest rate  environment,  the amount of
interest  Peoples  Federal would receive on its loans would increase  relatively
slowly  as loans are  slowly  prepaid  and new  loans at higher  rates are made.
Moreover,  the interest Peoples Federal would pay on its deposits would increase
rapidly because  Peoples  Federal's  deposits  generally have shorter periods of
repricing.  Assumptions  in  calculating  the  amounts  in  this  table  are OTS
assumptions.

                                       11
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Asset and Liability Management (continued)
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                           September 30, 1999             September 30, 1998
Change in interest rate        Board limit            $ Change          % Change       $ Change       % Change
    (Basis Points)              % change                in NPV            in NPV         in NPV         in NPV
                                                                       (Dollars in thousands)
<S>                              <C>                     <C>                <C>           <C>            <C>
       +300                        (70)%               $(7,743)            (84)%       $(5,668)         (40)%
       +200                        (45)                 (5,098)            (55)         (3,494)         (25)
       +100                        (25)                 (2,440)            (26)         (1,578)         (11)
         -                         -                        -                -              -             -
       -100                        (25)                  1,913              21           1,177            8
       -200                        (45)                  3,489              38           2,500           18
       -300                        (70)                  5,095              55           4,138           29
</TABLE>

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 the risk calculations.

If interest rates rise, Peoples Federal's net interest income will be negatively
affected.   Moreover,  rising  interest  rates  may  negatively  affect  Peoples
Federal's earnings due to diminished loan demand.

Liquidity and Capital Resources

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






                                       12
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Liquidity and Capital Resources (continued)

OTS regulations at September 30, 1999,  required  Peoples Federal to maintain an
average daily balance of cash,  investments in United States Treasury and agency
securities and other  investments  having maturities of five years or less in an
amount equal to 4% of the sum of Peoples  Federal's average daily balance of net
withdrawable  deposit  accounts  and  advances  from  the  FHLB.  The  liquidity
requirement,  which  may be  changed  from  time to  time by the OTS to  reflect
changing  economic  conditions,  is intended  to provide a source of  relatively
liquid  funds upon which  Peoples  Federal may rely if necessary to fund deposit
withdrawals or other  short-term  funding needs. At September 30, 1999,  Peoples
Federal's  regulatory  liquidity ratio was 17.2%. At such date,  Peoples Federal
had commitments to originate  loans totaling $1.4 million and, in addition,  had
undisbursed  loans in process of $6.5 million.  At September  30, 1999,  Peoples
Federal had no commitments to purchase or sell loans.  Peoples Federal considers
its  liquidity  and  capital  sufficient  to meet  its  outstanding  short-  and
long-term  needs.  At September 30, 1999,  Peoples  Federal had  commitments for
capital  expenditures  and fees in connection  with a new branch office totaling
approximately $250,000.

PFC's liquidity, primarily represented by cash and cash equivalents, is a result
of the funds used in or provided by PFC's  operating,  investing  and  financing
activities.  These activities are summarized below for the years ended September
30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                                                           Year ended September 30,
                                                   1999              1998             1997
                                                               (In thousands)
<S>                                                <C>               <C>              <C>
Net earnings                                     $  754            $  918          $   806

Adjustments to reconcile net earnings to
  net cash from operating activities               (718)              511             (289)
                                                  -----             -----           ------

Net cash from operating activities                   36             1,429              517

Net cash from investing activities               (5,741)           (3,239)          (2,803)

Net cash from financing activities                5,904              (552)          (5,464)
                                                  -----             -----           ------

Net change in cash and cash equivalents             199            (2,362)          (7,750)

Cash and cash equivalents at
  beginning of year                               2,421             4,783           12,533
                                                  -----             -----           ------

Cash and cash equivalents at end
  of year                                        $2,620            $2,421          $ 4,783
                                                  =====             =====           ======
</TABLE>






                                       13

<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Liquidity and Capital Resources (continued)

Peoples  Federal is required by  applicable  law and  regulation to meet certain
minimum capital  standards.  Such capital  standards  include a tangible capital
requirement,  a core capital  requirement,  or leverage ratio,  and a risk-based
capital requirement.

The tangible  capital  requirement  requires  savings  associations  to maintain
"tangible  capital" of not less than 1.5% of the  association's  adjusted  total
assets.  Tangible  capital is defined in OTS  regulations  as core capital minus
intangible assets.

"Core capital" is comprised of common  shareholders'  equity (including retained
earnings), noncumulative preferred stock and related surplus, minority interests
in  consolidated  subsidiaries,  certain  nonwithdrawable  accounts  and pledged
deposits of mutual associations. OTS regulations require savings associations to
maintain  core capital of at least 4% or 5% of the  association's  total assets,
except for those associations with the highest examination rating and acceptable
levels of risk.

OTS regulations require that savings associations  maintain "risk-based capital"
in an amount not less than 8% of "risk-weighted  assets."  Risk-based capital is
defined as adjusted core capital plus certain additional items of capital, which
in the case of  Peoples  Federal  includes  a  general  loan loss  allowance  of
$213,000 at September 30, 1999.

Peoples Federal exceeded all of its regulatory capital requirements at September
30, 1999. The following table summarizes  Peoples Federal's  regulatory  capital
requirements and regulatory capital at September 30, 1999:
<TABLE>
<CAPTION>

                                                                                       Excess of
                                                                                   regulatory capital
                                                                                      over current           Applicable
                                Regulatory capital        Current requirement          requirement                asset
                                Amount      Percent       Amount      Percent       Amount       Percent          total
                                                                (Dollars in thousands)
<S>                              <C>           <C>          <C>          <C>          <C>          <C>             <C>
Tangible capital                $8,160         8.9%       $1,370         1.5%       $6,790         7.4%         $91,365

Core capital                     8,160         8.9%        3,655         4.0%        4,505         4.9%          91,365

Risk-based capital               8,881        19.3%        3,673         8.0%        5,208        11.3%          45,909

</TABLE>









                                       14
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Effect of Recent Accounting Pronouncements

In June 1997,  the  Financial  Accounting  Standards  Board (the "FASB")  issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  130,  "Reporting
Comprehensive  Income."  SFAS No. 130  established  standards  for reporting and
display of comprehensive income and its components  (revenues,  expenses,  gains
and losses) in a full set of general-purpose financial statements.  SFAS No. 130
requires  that all items that are  required to be  recognized  under  accounting
standards  as  components  of  comprehensive  income be  reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  It does not require a specific format for that financial  statement
but  requires  that  an  enterprise   display  an  amount   representing   total
comprehensive income for the period in that financial statement.

SFAS  No.  130  requires  that  an  enterprise   (a)  classify  items  of  other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in  capital.  SFAS No. 130 is effective for fiscal
years  beginning  after  December  15,  1997.   Reclassification   of  financial
statements for earlier periods  provided for  comparative  purposes is required.
Management  adopted  SFAS No. 130 as of October 1, 1998,  as  required,  without
material impact on the Corporation's financial statements.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information." SFAS No. 131 significantly changes the way
that public business  enterprises report information about operating segments in
annual financial  statements and requires that those enterprises report selected
information  about reportable  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management  approach" to disclose  financial and descriptive  information about
the way that management  organizes the segments within the enterprise for making
operating  decisions  and  assessing  performance.  For  many  enterprises,  the
management  approach  will likely  result in more segments  being  reported.  In
addition,  SFAS No. 131 requires  significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements  and also requires that selected  information  be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective October 1, 1998, as
required, without material impact on the Corporation's financial statements.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities,"  which requires  entities to recognize all
derivatives  in their  financial  statements  as either  assets  or  liabilities
measured at fair value.  SFAS No. 133 also  specifies  new methods of accounting
for hedging  transactions,  prescribes  the items and  transactions  that may be
hedged,  and  specifies  detailed  criteria  to be  met  to  qualify  for  hedge
accounting.

The definition of a derivative  financial instrument is complex, but in general,
it is an instrument  with one or more  underlyings,  such as an interest rate or
foreign exchange rate, that is applied to a notional  amount,  such as an amount
of currency,  to determine the settlement  amount(s).  It generally  requires no
significant initial investment and can be settled net or by delivery of an asset
that is  readily  convertible  to cash.  SFAS No.  133  applies  to  derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.


                                       15
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Effect of Recent Accounting Pronouncements (continued)

SFAS No.  133,  as amended  by SFAS No.  137,  is  effective  for  fiscal  years
beginning  after June 15, 2000. On adoption,  entities are permitted to transfer
held-to-maturity  debt securities to the  available-for-sale or trading category
without  calling into  question  their intent to hold other debt  securities  to
maturity in the future.  SFAS No. 133 is not expected to have a material  impact
on the Corporation's financial position or results of operations.


Potential Impact of Current Legislation on Future Results of Operations

On November 12,  1999,  the  Gramm-Leach-Bliley  Act (the "GLB Act") was enacted
into law. The GLB Act makes sweeping changes in the financial  services in which
various types of financial  institutions  may engage.  The  Glass-Steagall  Act,
which had  generally  prevented  banks  from  affiliating  with  securities  and
insurance firms,  was repealed.  A new "financial  holding  company," which owns
only  well  capitalized  and  well  managed  depository  institutions,  will  be
permitted to engage in a variety of financial  activities,  including  insurance
and securities underwriting and agency activities.

The GLB Act permits unitary  savings and loan holding  companies in existence on
May 4, 1999,  including PFC, to continue to engage in all  activities  that they
were  permitted to engage in prior to the enactment of the Act. Such  activities
are  essentially  unlimited,  provided  that the  thrift  subsidiary  remains  a
qualified  thrift lender.  Any thrift holding  company formed after May 4, 1999,
will be subject to the same  restrictions as a multiple thrift holding  company.
In addition,  a unitary thrift holding  company in existence on May 4, 1999, may
be sold only to a financial  holding company  engaged in activities  permissible
for multiple savings and loan holding companies.

The GLB Act is not expected to have a material effect on the activities in which
PFC and Peoples Federal currently engage,  except to the extent that competition
with other  types of  financial  institutions  may  increase  as they  engage in
activities not permitted prior to enactment of the GLB Act.


Year 2000 Compliance Matters

As with most providers of financial services,  Peoples Federal's  operations are
heavily  dependent  on  information  technology  systems.  Peoples  Federal  has
addressed  the  potential  problems  associated  with the  possibility  that the
computers  that  control or operate  Peoples  Federal's  information  technology
system and  infrastructure  may not be programmed to read  four-digit date codes
and, upon arrival of the year 2000, may recognize the two-digit code "00" as the
year 1900, causing systems to fail to function or to generate erroneous data.


                                       16
<PAGE>


                          Peoples Financial Corporation

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



Year 2000 Compliance Matters (continued)

PFC's primary data processing  applications are handled by a third-party service
bureau  which  has  advised  PFC  that  it  has  transferred  to  a  fully  year
2000-compliant  processing  system that was fully tested prior to June 30, 1999.
Management  has also  reviewed  PFC's  ancillary  equipment and has provided the
appropriate remedial measures.  Total cost incurred to make Peoples Federal Year
2000  compliant,   of  approximately  $40,000,  has  been  charged  to  general,
administrative and other expense.

As a result of the  foregoing,  PFC has not  identified  any  material  specific
expenses that are reasonably  likely to be incurred by Peoples Federal in future
periods in connection  with this issue and does not expect to incur  significant
additional expense to implement the necessary corrective measures.  No assurance
can be given,  however,  that significant expense will not be incurred in future
periods.  In the event that Peoples  Federal is ultimately  required to purchase
replacement  computer  systems,  programs and  equipment,  or incur  substantial
expense to make Peoples Federal's  current systems,  programs and equipment year
2000  compliant,  PFC's net earnings and financial  condition could be adversely
affected.

While  Peoples  Federal has  endeavored  to ensure  that its  computer-dependent
operations  are year 2000  compliant,  no assurance  can be given that some year
2000  problems  will not  occur.  Peoples  Federal  has  developed  a Year  2000
contingency/business   resumption   plan  which  calls  for  manual  posting  of
customers'  accounts and passbooks.  Under the plan, general ledger accounts and
other company records will also be posted manually.  Management  believes manual
posting is possible due to the size of Peoples Federal,  the relative simplicity
of products and records, the number of personnel available to participate in the
additional  record  keeping  and the fact  that all loan and  deposit  accounts,
except NOW accounts and home equity line of credit loans, are passbook accounts.

In addition  to possible  expense  related to its own  systems,  PFC could incur
losses if year 2000 issues  adversely  affect  Peoples  Federal's  depositors or
borrowers.  Such problems  could include  delayed loan payments due to year 2000
problems affecting any significant borrowers or impairing the payroll systems of
large  employers  in Peoples  Federal's  primary  market area.  Because  Peoples
Federal's  loan  portfolio  is highly  diversified  with  regard  to  individual
borrowers and types of businesses and Peoples  Federal's  primary market area is
not significantly dependent upon one employer or industry,  Peoples Federal does
not  expect any  significant  or  prolonged  difficulties  that will  affect net
earnings or cash flow.  Finally,  Peoples  Federal has  developed a cash demand,
sources of funding and cash delivery  plan as part of its Year 2000  contingency
planning  to meet  anticipated  additional  cash  needs  between  now and  early
calendar  year 2000.  PFC could be  adversely  affected  if  customers  react to
publicity  about year 2000 by  withdrawing  deposits or if other third  parties,
such as governmental agencies,  clearing houses, telephone companies,  utilities
and other services, fail to prepare properly.





                                       17
<PAGE>




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Peoples Financial Corporation

We have audited the accompanying  consolidated statements of financial condition
of Peoples  Financial  Corporation  as of September  30, 1999 and 1998,  and the
related consolidated statements of earnings, comprehensive income, shareholders'
equity and cash flows for each of the years ended  September 30, 1999,  1998 and
1997. These  consolidated  financial  statements are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of Peoples Financial
Corporation as of September 30, 1999 and 1998, and the  consolidated  results of
its  operations  and its cash flows for each of the years  ended  September  30,
1999,  1998  and  1997,  in  conformity  with  generally   accepted   accounting
principles.



/s/GRANT THORNTON LLP


Cincinnati, Ohio
November 9, 1999







                                       18
<PAGE>




                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                  September 30,
                        (In thousands, except share data)


         ASSETS                                                                                1999                1998
<S>                                                                                            <C>                 <C>
Cash and due from banks                                                                     $   157             $   269
Interest-bearing deposits in other financial institutions                                     2,463               2,152
                                                                                             ------              ------
         Cash and cash equivalents                                                            2,620               2,421

Investment securities designated as available
  for sale - at market                                                                        1,150               2,591
Investment securities held to maturity - at cost, approximate market value
  of $2,000 and $1,045 as of September 30, 1999 and 1998                                      1,956                 967
Mortgage-backed securities designated as available for
  sale - at market                                                                            7,394               8,859
Mortgage-backed securities held to maturity - at amortized cost,
  approximate market value of $3,288 and $4,521
  as of September 30, 1999 and 1998                                                           3,218               4,400
Loans receivable - net                                                                       73,084              64,341
Office premises and equipment - at depreciated cost                                           1,389               1,471
Stock in Federal Home Loan Bank - at cost                                                       924                 861
Accrued interest receivable                                                                     311                 298
Prepaid federal income taxes                                                                    230                 -
Prepaid expenses and other assets                                                               161                  87
                                                                                             ------              ------

         Total assets                                                                       $92,437             $86,296
                                                                                             ======              ======

         LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                                                    $66,276             $65,797
Advances from the Federal Home Loan Bank                                                     11,000               4,000
Other liabilities                                                                               285                 251
Accrued federal income taxes                                                                    -                   329
Deferred federal income taxes                                                                   675                 886
                                                                                             ------              ------
         Total liabilities                                                                   78,236              71,263

Commitments                                                                                      -                   -

Shareholders' equity
  Preferred stock - authorized 1,000,000 shares without par
    value; no shares issued                                                                      -                   -
  Common stock - authorized 6,000,000 shares without par or
    stated value; 1,491,012 shares issued                                                        -                   -
  Additional paid-in capital                                                                  7,360               7,287
  Retained earnings - restricted                                                              9,874               9,927
  Accumulated comprehensive income, unrealized gains on securities
    designated as available for sale, net of related tax effects                                729               1,095
  Shares acquired by stock benefit plans                                                       (625)             (1,097)
  Less 225,904 and 139,327 treasury shares, at cost                                          (3,137)             (2,179)
                                                                                             ------              ------
         Total shareholders' equity                                                          14,201              15,033
                                                                                             ------              ------

         Total liabilities and shareholders' equity                                         $92,437             $86,296
                                                                                             ======              ======
</TABLE>


The accompanying notes are an integral part of these statements.

                                       19
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                       CONSOLIDATED STATEMENTS OF EARNINGS

                            Year ended September 30,
                        (In thousands, except share data)

                                                              1999            1998         1997
<S>                                                           <C>             <C>          <C>
Interest income
  Loans                                                     $5,239          $4,814       $4,000
  Mortgage-backed securities                                   748             870        1,483
  Investment securities                                        164             222          448
  Interest-bearing deposits and other                          108             199          322
                                                             -----           -----        -----

         Total interest income                               6,259           6,105        6,253

Interest expense
  Deposits                                                   3,163           3,219        3,043
  Borrowings                                                   342              96            4
                                                             -----           -----        -----
         Total interest expense                              3,505           3,315        3,047
                                                             -----           -----        -----


         Net interest income                                 2,754           2,790        3,206

Provision for losses on loans                                   12              42           12
                                                             -----           -----        -----

         Net interest income after
           provision for losses on loans                     2,742           2,748        3,194

Other income
  Gain on sale of investment and mortgage-backed
    securities designated as available for sale                518             683           15
  Other operating                                               51              29           37
                                                             -----           -----        -----
         Total other income                                    569             712           52

General, administrative and other expense
  Employee compensation and benefits                         1,206           1,161        1,057
  Occupancy and equipment                                      262             222          228
  Franchise taxes                                              201             230          227
  Federal deposit insurance premiums                            40              40           61
  Data processing                                              119              81           75
  Advertising                                                   41              33           37
  Other operating                                              328             322          319
                                                             -----           -----        -----
         Total general, administrative
           and other expense                                 2,197           2,089        2,004
                                                             -----           -----        -----

         Earnings before income taxes                        1,114           1,371        1,242

Federal income taxes
  Current                                                      381             455          275
  Deferred                                                     (21)             (2)         161
                                                             -----           -----        -----
         Total federal income taxes                            360             453          436
                                                             -----           -----        -----

         NET EARNINGS                                       $  754          $  918       $  806
                                                             =====           =====        =====

         EARNINGS PER SHARE
           Basic                                              $.60            $.68         $.57
                                                               ===             ===         ====

           Diluted                                            $.60            $.67         $.57
                                                               ===             ===          ===
</TABLE>

The accompanying notes are an integral part of these statements.

                                       20
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                            Year ended September 30,
                                 (In thousands)

                                                                                1999             1998              1997
<S>                                                                             <C>               <C>               <C>
Net earnings                                                                    $754           $  918            $  806

Other comprehensive income, net of tax:
  Unrealized holding gains (losses) on securities during
    the period, net of tax (credits) of $(12), $239 and $231
    for the years ended September 30, 1999, 1998 and 1997                        (24)             463               448
  Reclassification adjustment for realized gains included
    in earnings, net of tax of $176, $232 and $5 for the
    years ended September 30, 1999, 1998 and 1997                               (342)            (451)              (10)
                                                                                 ---            -----             -----

Comprehensive income                                                            $388           $  930            $1,244
                                                                                 ===            =====             =====

Accumulated comprehensive income                                                $729           $1,095            $1,083
                                                                                 ===            =====             =====
</TABLE>





























The accompanying notes are an integral part of these statements.

                                       21

<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
             For the years ended September 30, 1999, 1998 and 1997
                        (In thousands, except share data)
                                                                                                         Unrealized
                                                                                      Shares               gains on
                                                                                    acquired             securities
                                                                       Additional   by stock Treasury    designated
                                                                Common    paid-in    benefit  shares,  as available Retained
                                                                 stock    capital      plans  at cost      for sale earnings   Total
<S>                                                                <C>       <C>         <C>     <C>           <C>      <C>     <C>
Balance at October 1, 1996                                         $-     $14,203    $ (597) $    -       $  645   $9,455   $23,706

Return of capital distribution to shareholders                      -      (7,083)       -        -           -        -     (7,083)
Purchase of shares for stock benefit plan                           -          -       (919)      -           -        -       (919)
Purchase of treasury shares                                         -          -         -    (1,285)         -        -     (1,285)
Amortization expense of stock benefit plans                         -          45       100       -           -        -        145
Dividends of $.325 per share                                        -          -         -        -           -      (482)     (482)
Net earnings for the year ended September 30, 1997                  -          -         -        -           -       806       806
Unrealized gains on securities designated as available
  for sale, net of related tax effects                              -          -         -        -          438       -        438
                                                                    --     ------     -----   ------       -----    -----    ------

Balance at September 30, 1997                                       -       7,165    (1,416)  (1,285)      1,083    9,779    15,326

Issuance of shares under stock option plan                          -         (25)       -       101          -        -         76
Purchase of treasury shares                                         -          -         -      (995)         -        -       (995)
Amortization expense of stock benefit plans                         -         147       319       -           -        -        466
Dividends of $.55 per share                                         -          -         -        -           -      (770)     (770)
Net earnings for the year ended September 30, 1998                  -          -         -        -           -       918       918
Unrealized gains on securities designated as available
  for sale, net of related tax effects                              -          -         -        -           12       -         12
                                                                    --     ------     -----   ------       -----    -----    ------

Balance at September 30, 1998                                       -       7,287    (1,097)  (2,179)      1,095    9,927    15,033

Purchase of treasury shares                                         -          -         -      (768)         -        -       (768)
Transfer of shares to treasury upon stock benefit plan termination  -          -        190     (190)         -        -         -
Amortization expense of stock benefit plans                         -          73       282       -           -        -        355
Dividends of $.62 per share                                         -          -         -        -           -      (807)     (807)
Net earnings for the year ended September 30, 1999                  -          -         -        -           -       754       754
Decrease in unrealized gains on securities designated as
  available for sale, net of related tax effects                    -          -         -        -         (366)      -       (366)
                                                                    --     ------     -----   ------       -----    -----    ------

Balance at September 30, 1999                                      $-     $ 7,360    $ (625) $(3,137)     $  729   $9,874   $14,201
                                                                    ==     ======     ======  =======      =====    =====    ======
</TABLE>

The accompanying notes are an integral part of these statements.

                                       22
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Year ended September 30,
                                 (In thousands)


                                                                                    1999            1998           1997
<S>                                                                                 <C>             <C>            <C>
Cash flows from operating activities:
  Net earnings for the year                                                      $   754         $   918        $   806
  Adjustments to reconcile net earnings to net cash
  provided by (used in) operating activities:
    Amortization of premiums and discounts on
      investments and mortgage-backed securities - net                                30              20             36
    Gain on sale of investment and mortgage-backed
      securities designated as available for sale                                   (518)           (683)           (15)
    Amortization of deferred loan origination fees                                   (27)            (32)            (9)
    Depreciation and amortization                                                    120              98            102
    Provision for losses on loans                                                     12              42             12
    Amortization expense of stock benefit plans                                      355             466            145
    Recovery of loss on investments                                                    5               9             -
    Federal Home Loan Bank stock dividends                                           (62)            (60)           (54)
    Increase (decrease) in cash due to changes in:
      Accrued interest receivable                                                    (13)             18             81
      Prepaid expenses and other assets                                              (74)            392           (384)
      Other liabilities                                                                3             (91)          (347)
      Accrued interest payable                                                        31              15              5
      Federal income taxes
        Current                                                                     (559)            319            (22)
        Deferred                                                                     (21)             (2)           161
                                                                                  ------          ------         ------
         Net cash provided by operating activities                                    36           1,429            517

Cash flows provided by (used in) investing activities:
  Purchase of mortgage-backed securities designated
    as available for sale                                                         (2,258)         (4,085)        (3,498)
  Proceeds from sale of mortgage-backed securities
    designated as available for sale                                                  -            1,998          6,501
  Principal repayments on mortgage-backed securities                               4,749           4,348          4,616
  Purchase of investment securities designated as available
    for sale                                                                          -             (999)        (1,500)
  Proceeds from sale of investment securities designated
    as available for sale                                                            527           2,211          3,499
  Purchase of investment securities designated as
    held to maturity                                                              (1,000)             -          (2,000)
  Principal repayments and  maturities of investment securities                    1,012           1,153          1,967
  Loan principal repayments                                                       21,389          22,834         16,323
  Loan disbursements                                                             (30,123)        (30,552)       (28,702)
  Purchase of office premises and equipment                                          (37)           (147)            (9)
                                                                                  ------          ------         ------
         Net cash used in investing activities                                    (5,741)         (3,239)        (2,803)
                                                                                  ------          ------         ------

         Net cash used in operating and investing
           activities (balance carried forward)                                   (5,705)         (1,810)        (2,286)
                                                                                  ------          ------         ------
</TABLE>



                                       23
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                            Year ended September 30,
                                 (In thousands)


                                                                                    1999            1998           1997
<S>                                                                                 <C>             <C>            <C>
         Net cash used in operating and investing
           activities (balance brought forward)                                  $(5,705)        $(1,810)       $(2,286)


Cash flows provided by (used in) financing activities:
  Net increase in deposit accounts                                                   479             137          1,305
  Proceeds from note payable                                                          -               -           3,000
  Repayment of note payable                                                           -           (3,000)            -
  Proceeds from Federal Home Loan Bank advances                                   18,000           4,000             -
  Repayment of Federal Home Loan Bank advances                                   (11,000)             -              -
  Return of capital distribution on common stock                                      -               -          (7,083)
  Purchase of treasury shares                                                       (768)           (995)        (1,285)
  Purchase of shares for stock benefit plans                                          -               -            (919)
  Dividends paid on common stock                                                    (807)           (770)          (482)
  Proceeds from exercise of stock options                                             -               76             -
                                                                                  ------          ------         ------
         Net cash provided by (used in) financing activities                       5,904            (552)        (5,464)
                                                                                  ------          ------         ------

Net increase (decrease) in cash and cash equivalents                                 199          (2,362)        (7,750)

Cash and cash equivalents at beginning of year                                     2,421           4,783         12,533
                                                                                  ------          ------         ------

Cash and cash equivalents at end of year                                         $ 2,620         $ 2,421        $ 4,783
                                                                                  ======          ======         ======

Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Federal income taxes                                                         $   929         $   135        $   298
                                                                                  ======          ======         ======

    Interest on deposits and borrowings                                          $ 3,474         $ 3,304        $ 3,039
                                                                                  ======          ======         ======

  Unrealized gains (losses) on securities designated as
    available for sale, net of related tax effects                               $  (366)        $    12        $   438
                                                                                  ======          ======         ======
</TABLE>










The accompanying notes are an integral part of these statements.

                                       24
<PAGE>


                          Peoples Financial Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 1999, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Peoples  Financial  Corporation  (the  "Corporation")  is a savings and loan
    holding company whose activities are primarily  limited to holding the stock
    of  Peoples  Federal   Savings  and  Loan   Association  of  Massillon  (the
    "Association").  The  Association  conducts a general  banking  business  in
    northeast Ohio which consists of attracting deposits from the general public
    and  applying  those  funds to the  origination  of loans  for  residential,
    consumer and  nonresidential  purposes.  The Association's  profitability is
    significantly  dependent on its net interest income, which is the difference
    between interest income generated from  interest-earning  assets (i.e. loans
    and  investments)   and  the  interest  expense  paid  on   interest-bearing
    liabilities (i.e. customer deposits and borrowed funds). Net interest income
    is  affected  by  the  relative  amount  of   interest-earning   assets  and
    interest-bearing  liabilities  and the  interest  received  or paid on these
    balances.  The level of interest  rates paid or received by the  Association
    can be significantly  influenced by a number of environmental  factors, such
    as governmental monetary policy, that are outside of management's control.

    The consolidated financial information presented herein has been prepared in
    accordance  with  generally  accepted  accounting  principles  ("GAAP")  and
    general  accounting  practices within the financial  services  industry.  In
    preparing   consolidated  financial  statements  in  accordance  with  GAAP,
    management  is required to make  estimates and  assumptions  that affect the
    reported  amounts of assets and liabilities and the disclosure of contingent
    assets and liabilities at the date of the financial  statements and revenues
    and expenses during the reporting  period.  Actual results could differ from
    such estimates.

    A summary of significant  accounting  policies which have been  consistently
    applied  in the  preparation  of  the  accompanying  consolidated  financial
    statements follows:

    1.  Principles of Consolidation

    The  consolidated   financial   statements   include  the  accounts  of  the
    Corporation and the Association, and its wholly-owned subsidiary,  Massillon
    Community  Service  Corporation  ("Massillon")  . At September  30, 1999 and
    1998,  Massillon had no assets and was inactive.  All intercompany  balances
    and  transactions  have been  eliminated  in the  accompanying  consolidated
    financial statements.

    2.  Investment Securities and Mortgage-Backed Securities

    The Corporation  accounts for investments and mortgage-backed  securities in
    accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
    "Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
    115 requires that investments be categorized as  held-to-maturity,  trading,
    or available for sale. Securities classified as held-to-maturity are carried
    at cost only if the  Corporation has the positive intent and ability to hold
    these securities to maturity.  Trading securities and securities  designated
    as available  for sale are carried at fair value with  resulting  unrealized
    gains  or  losses   recorded  to   operations   or   shareholders'   equity,
    respectively.   The  Corporation's  shareholders'  equity  reflected  a  net
    unrealized  gain on  securities  designated  as available  for sale totaling
    approximately  $729,000  and $1.1  million at  September  30, 1999 and 1998,
    respectively.


                                       25
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    2.  Investment Securities and Mortgage-Backed Securities (continued)

    Realized gains and losses on sales of securities  are  recognized  using the
specific identification method.

    3.  Loans Receivable

    Loans receivable are stated at the principal balance  outstanding,  adjusted
    for deferred  loan  origination  fees and costs and the  allowance  for loan
    losses.  Interest is accrued as earned unless the collectibility of the loan
    is in doubt.  Interest on loans that are  contractually  past due is charged
    off,  or  an  allowance  is  established  based  on  management's   periodic
    evaluation.  The  allowance is  established  by a charge to interest  income
    equal  to all  interest  previously  accrued,  and  income  is  subsequently
    recognized  only to the extent that cash  payments  are received  until,  in
    management's  judgment, the borrower's ability to make periodic interest and
    principal  payments  has  returned  to  normal,  in  which  case the loan is
    returned to accrual status. If the ultimate collectibility of the loan is in
    doubt,  in whole or in part, all payments  received on nonaccrual  loans are
    applied to reduce principal until such doubt is eliminated.

    4.  Loan Origination Fees

    The Association  accounts for loan  origination fees and costs in accordance
    with SFAS No. 91 "Accounting  for  Nonrefundable  Fees and Costs  Associated
    with  Originating  or Acquiring  Loans and Initial  Direct Costs of Leases".
    Pursuant to the  provisions of SFAS No. 91,  origination  fees received from
    loans, net of certain direct  origination  costs, are deferred and amortized
    to interest  income using the  level-yield  method,  giving effect to actual
    loan prepayments.  Additionally, SFAS No. 91 generally limits the definition
    of loan origination costs to the direct costs  attributable to originating a
    loan,  i.e.,  principally  actual  personnel  costs.  Fees received for loan
    commitments that are expected to be drawn upon,  based on the  Association's
    experience  with similar  commitments,  are deferred and amortized  over the
    life  of the  loan  using  the  level-yield  method.  Fees  for  other  loan
    commitments are deferred and amortized over the loan commitment  period on a
    straight-line basis.

    5.  Allowance for Loan Losses

    It is the Association's policy to provide valuation allowances for estimated
    losses  on  loans  based  on  past  loan  loss  experience,  changes  in the
    composition  of the loan  portfolio,  trends in the level of delinquent  and
    problem loans,  adverse situations that may affect the borrower's ability to
    repay,  the estimated  value of any  underlying  collateral  and current and
    anticipated  economic  conditions  in the  primary  lending  area.  When the
    collection  of  a  loan  becomes  doubtful,   or  otherwise  troubled,   the
    Association  records a charge-off  equal to the difference  between the fair
    value of the property securing the loan and the loan's carrying value. Major
    loans and  major  lending  areas  are  reviewed  periodically  to  determine
    potential  problems  at an early  date.  The  allowance  for loan  losses is
    increased  by charges to  earnings  and  decreased  by  charge-offs  (net of
    recoveries).


                                       26
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    5.  Allowance for Loan Losses (continued)

    The Association accounts for impaired loans in accordance with SFAS No. 114,
    "Accounting  by Creditors for  Impairment of a Loan".  SFAS No. 114 requires
    that  impaired  loans be measured  based upon the present  value of expected
    future cash flows discounted at the loan's effective interest rate or, as an
    alternative,  at the  loan's  observable  market  price or fair value of the
    collateral if the loan is collateral dependent.

    A loan is  defined  under SFAS No. 114 as  impaired  when,  based on current
    information  and events,  it is probable  that a creditor  will be unable to
    collect all  amounts  due  according  to the  contractual  terms of the loan
    agreement.  In applying  the  provisions  of SFAS No. 114,  the  Association
    considers  its  investment  in one- to  four-family  residential  loans  and
    consumer  installment  loans to be homogeneous  and therefore  excluded from
    separate  identification  for evaluation of impairment.  With respect to the
    Association's investment in nonresidential and multi-family residential real
    estate  loans,  and its  evaluation of  impairment  thereof,  such loans are
    generally  collateral dependent and, as a result, are carried as a practical
    expedient at the lower of cost or fair value.

    Collateral  dependent  loans which are more than ninety days  delinquent are
    considered  to  constitute  more than a minimum  delay in repayment  and are
    evaluated for impairment under SFAS No. 114 at that time.

    At September 30, 1999 and 1998, the  Association  had no loans that would be
defined as impaired under SFAS No. 114.

    6.  Real Estate Acquired through Foreclosure

    Real  estate  acquired  through  foreclosure  is carried at the lower of the
    loan's unpaid principal  balance (cost) or fair value less estimated selling
    expenses  at the  date of  acquisition.  Real  estate  loss  provisions  are
    recorded if the properties' fair value subsequently declines below the value
    determined at the recording  date. In determining  the lower of cost or fair
    value at  acquisition,  costs  relating to  development  and  improvement of
    property are  capitalized.  Costs  relating to holding real estate  acquired
    through  foreclosure,  net of rental income, are charged against earnings as
    incurred.










                                       27
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    7.  Office Premises and Equipment

    Office  premises and equipment are carried at cost and include  expenditures
    which extend the useful lives of existing assets.  Maintenance,  repairs and
    minor   renewals  are  expensed  as  incurred.   For  financial   reporting,
    depreciation and amortization are provided on the straight-line  method over
    the  useful  lives  of the  assets,  estimated  to be  fifty  years  for the
    building,  ten to thirty  years for  building  improvements  and five to ten
    years for furniture and  equipment.  An  accelerated  method is used for tax
    reporting purposes.

    8.  Income Taxes

    The Corporation  accounts for federal income taxes pursuant to SFAS No. 109,
    "Accounting  for Income Taxes".  In accordance with SFAS No. 109, a deferred
    tax  liability  or deferred  tax asset is  computed by applying  the current
    statutory  tax rates to net  taxable  or  deductible  temporary  differences
    between the tax basis of an asset or liability  and its  reported  amount in
    the  consolidated  financial  statements  that will result in net taxable or
    deductible amounts in future periods.  Deferred tax assets are recorded only
    to the extent that the amount of net  deductible  temporary  differences  or
    carryforward  attributes may be utilized  against  current period  earnings,
    carried back against prior years' earnings, offset against taxable temporary
    differences  reversing  in future  periods,  or  utilized  to the  extent of
    management's  estimate of future taxable  income.  A valuation  allowance is
    provided  for  deferred  tax  assets  to the  extent  that the  value of net
    deductible  temporary   differences  and  carryforward   attributes  exceeds
    management's  estimates of taxes payable on future taxable income.  Deferred
    tax   liabilities  are  provided  on  the  total  amount  of  net  temporary
    differences taxable in the future.

    Deferral of income taxes results  primarily  from the  different  methods of
    accounting for deferred loan origination  fees and costs,  Federal Home Loan
    Bank  stock  dividends,  general  loan loss  allowances  and  percentage  of
    earnings bad debt deductions.  Additional temporary  differences result from
    depreciation computed using accelerated methods for tax purposes.

    9.  Benefit Plans

    The  Corporation  has an  Employee  Stock  Ownership  Plan  ("ESOP"),  which
    provides  retirement  benefits  for  substantially  all  employees  who have
    completed  one  year  of  service  and  have  attained  the  age of 21.  The
    Corporation  accounts for the ESOP in accordance  with Statement of Position
    ("SOP") 93-6,  "Employers'  Accounting for Employee Stock Ownership  Plans".
    SOP 93-6 requires the measure of compensation  expense recorded by employers
    to equal the fair value of ESOP shares  allocated to  participants  during a
    fiscal year. Expense  recognized  related to the ESOP totaled  approximately
    $218,000,  $215,000 and $203,000  for the fiscal years ended  September  30,
    1999,  1998 and  1997,  respectively.  During  1999,  the  Board  adopted  a
    resolution   terminating  the  ESOP.   Accordingly,   the  remaining  18,930
    unallocated  ESOP shares have been  reflected as treasury  shares  following
    retirement of the outstanding ESOP loan.



                                       28
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    9.  Benefit Plans (continued)

    The Association also provides retirement benefits through contributions to a
    discretionary  401(k) plan.  Expense recorded under the plan totaled $21,000
    for fiscal 1997. Due to contributions  made to the ESOP, the Company did not
    make matching contributions to the 401(k) plan during fiscal 1999 and 1998.

    The  Corporation   also  has  a  Recognition  and  Retention  Plan  ("RRP").
    Subsequent to the common stock  offering the RRP purchased  59,640 shares of
    the Corporation's  common stock in the open market. A total of 49,501 shares
    available  under the RRP have been awarded to officers and  directors of the
    Corporation,  leaving 10,139 shares  available for allocation.  Common stock
    awarded under the RRP is earned by plan participants and distributed ratably
    over a five year period,  commencing  with the date of grant. A provision of
    $147,000  related to the RRP was  charged to expense  for each of the fiscal
    years ended September 30, 1999 and 1998 and $80,000 for fiscal 1997.

    10.  Earnings Per Share and Capital Distributions

    Basic earnings per share is computed based upon the weighted-average  shares
    outstanding  during the period less shares in the ESOP that are  unallocated
    and not  committed to be released.  Weighted-average  common  shares  deemed
    outstanding, which gives effect to a reduction for 31,812, 45,676 and 59,132
    weighted-average  unallocated  shares held by the ESOP,  totaled  1,265,566,
    1,354,032 and 1,420,414 for the fiscal years ended  September 30, 1999, 1998
    and 1997, respectively.

    Diluted  earnings  per share is computed  taking into  consideration  common
    shares  outstanding and dilutive  potential common shares to be issued under
    the Corporation's stock option plan.  Weighted-average  common shares deemed
    outstanding  for purposes of computing  diluted  earnings per share  totaled
    1,265,566,  1,372,595 and 1,420,414 for the fiscal years ended September 30,
    1999, 1998 and 1997, respectively. Incremental shares related to the assumed
    exercise of stock options  included in the  calculation of diluted  earnings
    per share  totaled  18,563 for the fiscal  year ended  September  30,  1998.
    Options to purchase 131,422, 3,000 and 104,371 shares of common stock with a
    respective  weighted  average  exercise price of $12.38,  $12.50 and $12.41,
    were  outstanding at September 30, 1999,  1998 and 1997,  respectively,  but
    were excluded  from the  computation  of diluted  earnings per share because
    their  exercise  prices were  greater  than the average  market price of the
    common shares.

    During fiscal 1997, the Corporation declared capital  distributions of $5.32
    per common share.  Of this amount $5.00 per share was paid in September 1997
    from funds  retained by the  Corporation in the conversion to stock form and
    was  deemed  by  management  to  constitute  a  return  of  excess  capital.
    Accordingly,  the Corporation charged the return of capital  distribution to
    additional   paid-in-capital.   Additionally,   management  determined  that
    approximately  $5.00 of the  distribution  constituted a tax-free  return of
    capital. In October 1999, the Corporation declared a special $3.00 per share
    distribution which is payable in November 1999.


                                       29
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    11.  Cash and Cash Equivalents

    For purposes of reporting cash flows, cash and cash equivalents include cash
    and  due  from  banks  and  interest-bearing  deposits  in  other  financial
    institutions with original terms to maturity of less than ninety days.

    12.  Fair Value of Financial Instruments

    SFAS No.  107,  "Disclosures  about  Fair Value of  Financial  Instruments",
    requires disclosure of fair value of financial instruments,  both assets and
    liabilities,  whether or not  recognized  in the  consolidated  statement of
    financial condition, for which it is practicable to estimate that value. For
    financial  instruments  where quoted market prices are not  available,  fair
    values  are based on  estimates  using  present  value  and other  valuation
    methods.

    The methods used are greatly affected by the assumptions applied,  including
    the discount  rate and estimates of future cash flows.  Therefore,  the fair
    values  presented  may not  represent  amounts  that could be realized in an
    exchange for certain financial instruments.

    The  following  methods  and  assumptions  were used by the  Corporation  in
    estimating its fair value disclosures for financial instruments at September
    30, 1999 and 1998:

                  Cash and cash  equivalents:  The carrying amounts presented in
                  the  consolidated  statements of financial  condition for cash
                  and cash equivalents are deemed to approximate fair value.

                  Investment and mortgage-backed  securities: For investment and
                  mortgage-backed  securities, fair value is deemed to equal the
                  quoted market price.

                  Loans receivable:  The loan portfolio has been segregated into
                  categories  with  similar  characteristics,  such  as  one- to
                  four-family   residential,    multi-family   residential   and
                  nonresidential real estate. These loan categories were further
                  delineated into fixed-rate and adjustable-rate loans. The fair
                  values for the  resultant  loan  categories  were computed via
                  discounted  cash flow analysis,  using current  interest rates
                  offered for loans with  similar  terms to borrowers of similar
                  credit quality. For loans on deposit accounts and consumer and
                  other  loans,  fair values  were deemed to equal the  historic
                  carrying  values.  The historical  carrying  amount of accrued
                  interest on loans is deemed to approximate fair value.

                  Federal Home Loan Bank stock: The carrying amount presented in
                  the consolidated  statements of financial  condition is deemed
                  to approximate fair value.

                  Deposits:  The fair value of NOW accounts,  passbook accounts,
                  and money market demand  deposits is deemed to approximate the
                  amount   payable  on  demand.   Fair  values  for   fixed-rate
                  certificates of deposit have been estimated using a discounted
                  cash flow  calculation  using  the  interest  rates  currently
                  offered for deposits of similar remaining maturities.



                                       30
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    12.  Fair Value of Financial Instruments (continued)

                  Advances  from the Federal  Home Loan Bank:  The fair value of
                  these advances is estimated using the interest rates currently
                  offered for advances of similar remaining  maturities or, when
                  available, quoted market prices.

                  Commitments   to   extend    credit:    For   fixed-rate   and
                  adjustable-rate  loan  commitments,  the fair  value  estimate
                  considers the  difference  between  current levels of interest
                  rates and committed  rates.  The  difference  between the fair
                  value and notional amount of outstanding  loan  commitments at
                  September 30, 1999 and 1998, was not material.

    Based on the foregoing methods and assumptions,  the carrying value and fair
    value of the  Corporation's  financial  instruments  at  September 30 are as
    follows:
<TABLE>
<CAPTION>

                                                                            1999                            1998
                                                                 Carrying         Fair            Carrying         Fair
                                                                    value        value               value        value
                                                                                      (In thousands)
<S>                                                                 <C>           <C>                <C>            <C>
    Financial assets
      Cash and cash equivalents                                   $ 2,620      $ 2,620             $ 2,421      $ 2,421
      Investment securities                                         3,106        3,150               3,558        3,636
      Mortgage-backed securities                                   10,612       10,682              13,259       13,380
      Loans receivable                                             73,084       71,731              64,341       67,752
      Federal Home Loan Bank stock                                    924          924                 861          861
                                                                   ------       ------              ------       ------

                                                                  $90,346      $89,107             $84,440      $88,050
                                                                   ======       ======              ======       ======

    Financial liabilities
      Deposits                                                    $66,276      $66,234             $65,797      $66,094
      Advances from the Federal Home Loan Bank                     11,000       10,999               4,000        4,001
                                                                   ------       ------              ------       ------

                                                                  $77,276      $77,233             $69,797      $70,095
                                                                   ======       ======              ======       ======
</TABLE>

    13.  Reclassifications

    Certain  prior year  amounts have been  reclassified  to conform to the 1999
consolidated financial statement presentation.














                                       31
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES

    The amortized cost, gross unrealized  gains,  gross unrealized  losses,  and
    estimated  fair value of  investment  securities  at September  30, 1999 and
    1998, are as follows:
<TABLE>
<CAPTION>

                                                                                         1999
                                                                               Gross               Gross      Estimated
                                                            Amortized     unrealized          unrealized           fair
                                                                 cost          gains              losses          value
                                                                                     (In thousands)
<S>                                                             <C>             <C>                 <C>             <C>
    Held to maturity:
      Municipal obligations                                    $  956         $   47                $  3         $1,000
      Federal Home Loan Bank obligations                        1,000            -                    -           1,000
                                                                -----          -----                 ---          -----
                                                                1,956             47                   3          2,000

    Available for sale:
      FHLMC stock                                                  22          1,128                 -            1,150
                                                                -----          -----                 ---          -----

         Total investment securities                           $1,978         $1,175                $  3         $3,150
                                                                =====          =====                 ===          =====
</TABLE>

<TABLE>
<CAPTION>

                                                                                         1998
                                                                               Gross               Gross      Estimated
                                                            Amortized     unrealized          unrealized           fair
                                                                 cost          gains              losses          value
                                                                                     (In thousands)
<S>                                                              <C>            <C>                 <C>             <C>
    Held to maturity:
      Municipal obligations                                    $  967         $   82                $  4         $1,045

    Available for sale:
      U.S. Government obligations                                 999              4                  -           1,003
      FHLMC stock                                                  31          1,557                  -           1,588
                                                                -----          -----                 ---          -----
         Total investments available for sale                   1,030          1,561                  -           2,591
                                                                -----          -----                 ---          -----

         Total investment securities                           $1,997         $1,643                $  4         $3,636
                                                                =====          =====                 ===          =====
</TABLE>







                                       32
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)

    The  amortized  cost and estimated  fair value of  investment  securities at
    September 30, 1999,  including  those  designated as available for sale, are
    shown below by term to maturity.
<TABLE>
<CAPTION>

                                                                              Estimated
                                                            Amortized              fair
                                                                 cost             value
                                                                      (In thousands)
<S>                                                              <C>               <C>
    Due in one year or less                                    $1,012           $ 1,012
    Due after one year through five years                         143               143
    Due in five to ten years                                      170               175
    Due after ten years                                           631               670
                                                                -----             -----
                                                                1,956             2,000
    FHLMC stock                                                    22             1,150
                                                                -----             -----

                                                               $1,978            $3,150
                                                                =====             =====
</TABLE>

    The amortized cost, gross  unrealized  gains,  gross  unrealized  losses and
    estimated fair value of mortgage-backed securities at September 30, 1999 and
    1998, are shown below:
<TABLE>
<CAPTION>

                                                                                          1999
                                                                                 Gross             Gross      Estimated
                                                            Amortized       unrealized        unrealized           fair
                                                                 cost            gains            losses          value
                                                                                      (In thousands)
<S>                                                             <C>              <C>                <C>            <C>
    Held to maturity:
      Government National Mortgage
        Association participation certificates                $ 1,664             $ 23             $  -         $ 1,687
      Federal Home Loan Mortgage
        Corporation participation certificates                    874               18                -             892
      Federal National Mortgage Association
        participation certificates                                680               29                -             709
                                                               ------              ---              ---          ------
         Total mortgage-backed securities
           held to maturity                                     3,218               70                -           3,288

    Available for sale:
      Government National Mortgage
        Association participation certificates                  1,898               12                 6          1,904
      Federal Home Loan Mortgage
        Corporation participation certificates                  3,665               13                 8          3,670
      Federal National Mortgage Association
        participation certificates                              1,007               -                 28            979
      Collateralized mortgage obligation -
        FHLMC REMIC                                               121                2                -             123
      Guardian Savings and Loan participation
        certificates                                              694               -                 10            684
      Discovery Resort Limited, partnership notes                  34               -                 -              34
                                                               ------              ---               ---         ------
         Total mortgage-backed securities
           available for sale                                   7,419               27                52          7,394
                                                               ------              ---               ---         ------

         Total mortgage-backed securities                     $10,637             $ 97              $ 52        $10,682
                                                               ======              ===               ===         ======
</TABLE>


                                       33

<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997

NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
                                                                                          1998
                                                                                 Gross             Gross      Estimated
                                                            Amortized       unrealized        unrealized           fair
                                                                 cost            gains            losses          value
                                                                                      (In thousands)
<S>                                                            <C>              <C>                 <C>             <C>
    Held to maturity:
      Government National Mortgage
        Association participation certificates                $ 2,308             $ 38             $  -         $ 2,346
      Federal Home Loan Mortgage
        Corporation participation certificates                  1,197               37                -           1,234
      Federal National Mortgage Association
        participation certificates                                895               46                -             941
                                                               ------              ---               ---         ------
         Total mortgage-backed securities
           held to maturity                                     4,400              121                -           4,521

    Available for sale:
      Government National Mortgage
        Association participation certificates                  2,549               68                -           2,617
      Federal Home Loan Mortgage
        Corporation participation certificates                  5,200               53                15          5,238
      Collateralized mortgage obligation -
        FHLMC REMIC                                               207                6                -             213
      Guardian Savings and Loan participation
        certificates                                              714               -                 14            700
      Discovery Resort Limited, partnership
        notes                                                      91               -                 -              91
                                                               ------              ---               ---         ------
         Total mortgage-backed securities
           available for sale                                   8,761              127                29          8,859
                                                               ------              ---               ---         ------

         Total mortgage-backed securities                     $13,161             $248              $ 29        $13,380
                                                               ======              ===               ===         ======
</TABLE>

    The amortized cost and estimated fair values of  mortgage-backed  securities
    at September 30, 1999, including those designated as available for sale, are
    shown below by contractual term to maturity. Expected maturities will differ
    from  contractual   maturities   because   borrowers  may  generally  prepay
    obligations without prepayment penalties.
<TABLE>
<CAPTION>
                                                                           Estimated
                                                    Amortized                   fair
                                                         cost                  value
                                                               (In thousands)
<S>                                                    <C>                       <C>
    Due after one through five years                  $    34                $    34
    Due in five to ten years                              954                    979
    Due after ten years                                 9,649                  9,669
                                                       ------                 ------

                                                      $10,637                $10,682
                                                       ======                 ======
</TABLE>



                                       34
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE C - LOANS RECEIVABLE

    The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>

                                                              1999           1998
                                                                 (In thousands)
<S>                                                          <C>             <C>
    Residential real estate
      One- to four-family                                  $63,605        $54,237
      Multi-family                                             392            320
      Construction                                          12,215          9,831
    Nonresidential real estate                               3,406          3,897
    Consumer and other loans                                   223            360
                                                            ------         ------
                                                            79,841         68,645
    Less:
      Deferred loan origination fees (costs), net               16            (26)
      Undisbursed portion of loans in process                6,528          4,134
      Allowance for losses on loans                            213            196
                                                            ------         ------

                                                           $73,084        $64,341
                                                            ======         ======
</TABLE>

    The  Association's  lending  efforts  have  historically  focused on one- to
    four-family  residential  real estate loans,  which  comprise  approximately
    $69.1  million,  or 95%, of the total loan  portfolio at September 30, 1999,
    and  approximately  $59.9 million,  or 93% of the total loan  portfolio,  at
    September  30, 1998.  Generally,  such loans have been  underwritten  on the
    basis of no more than an 80%  loan-to-value  ratio,  which has  historically
    provided the Association with adequate  collateral  coverage in the event of
    default.  Nevertheless, the Association, as with any lending institution, is
    subject to the risk that real estate values could deteriorate in its primary
    lending  area  of  northeast  Ohio,  thereby  impairing  collateral  values.
    However,  management  is of  the  belief  that  real  estate  values  in the
    Association's primary lending area are presently stable.

    In the ordinary  course of business,  the Association has made loans to some
    of its  directors,  officers and their related  business  interests.  In the
    opinion  of  management,  such  loans  are  consistent  with  sound  lending
    practices and are within  applicable  regulatory  lending  limitations.  The
    balance  of such  loans  totaled  approximately  $290,000  and  $263,000  at
    September 30, 1999 and 1998, respectively.

    From time to time, the  Corporation has retained a director to perform legal
    services.  Fees paid for such services totaled approximately $16,000 in each
    of the years  ended  September  30,  1999 and 1998 and  $17,000 for the year
    ended September 30, 1997.










                                       35
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE D - ALLOWANCE FOR LOAN LOSSES

The activity in the  allowance  for loan losses is summarized as follows for the
years ended September 30:
<TABLE>
<CAPTION>

                                                    1999           1998           1997
                                                             (In thousands)
<S>                                                  <C>           <C>            <C>
    Balance at beginning of year                    $196           $145         $  193
    Provision for losses on loans                     12             42             12
    Charge-offs                                       -              -             (60)
    Recoveries                                         5              9             -
                                                     ---            ---            ---

    Balance at end of year                          $213           $196           $145
                                                     ===            ===            ===
</TABLE>

    As of September 30, 1999,  the  Association's  allowance for loan losses was
    comprised solely of a general loan loss allowance,  which is includible as a
    component of regulatory risk-based capital.

    Nonperforming  and  nonaccrual  loans at September 30, 1999,  1998 and 1997,
    totaled $114,000, $115,000 and $2,000,  respectively.  There was no material
    loss of interest income on nonperforming loans for the years ended September
    30, 1999, 1998 and 1997.


NOTE E - OFFICE PREMISES AND EQUIPMENT

    Office premises and equipment at September 30 is comprised of the following:
<TABLE>
<CAPTION>

                                                          1999           1998
                                                             (In thousands)
<S>                                                       <C>            <C>
    Land                                                $  355         $  355
    Building and improvements                            1,216          1,216
    Furniture and equipment                              1,028            990
                                                         -----          -----
                                                         2,599          2,561
      Less accumulated depreciation and
        amortization                                     1,210          1,090
                                                         -----          -----

                                                        $1,389         $1,471
                                                         =====          =====
</TABLE>






                                       36
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE F - DEPOSITS

    Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>

    Deposit type and weighted-
    average interest rate                                                1999                           1998
                                                               Amount          %                  Amount         %
                                                                                (Dollars in thousands)
<S>                                                             <C>           <C>                  <C>            <C>
    NOW accounts
      1999 - 1.50%                                            $ 2,064         3.1%
      1998 - 1.75%                                                                               $ 1,824         2.8%
    Passbook
      1999 - 2.00%                                             10,869        16.4
      1998 - 2.00%                                                                                10,433        15.8
    Money market demand accounts
      1999 - 2.19%                                              2,603         3.9
      1998 - 2.19%                                                                                 2,616         4.0
                                                               ------       -----                 ------       -----
    Total demand, transaction and
      passbook deposits                                        15,536        23.4                 14,873        22.6

    Certificates of deposit
      Original maturities of:
        Up to 12 months
          1999 - 4.69%                                         11,085        16.8
          1998 - 5.25%                                                                            12,507        19.0
        Over 12 months to 94 months
          1999 - 5.67%                                         39,567        59.7
          1998 - 5.98%                                                                            38,291        58.2
      Individual retirement accounts
        1999 - 1.50%                                               88          .1
        1998 - 1.50%                                                                                 126          .2
                                                               ------       -----                 ------       -----

    Total certificates of deposit                              50,740        76.6                 50,924        77.4
                                                               ------       -----                 ------       -----

    Total deposit accounts                                    $66,276       100.0%               $65,797       100.0%
                                                               ======       =====                 ======       =====
</TABLE>

     At September 30, 1999 and 1998, the Association  had deposit  accounts with
     balances of  $100,000  or more  totaling  $5.4  million  and $5.9  million,
     respectively.

     Interest  expense on deposits is  summarized as follows for the years ended
     September 30:
<TABLE>
<CAPTION>

                                                    1999            1998           1997
                                                               (In thousands)
<S>                                                 <C>              <C>          <C>
    NOW accounts                                  $   24          $   22         $   18
    Passbook                                         216             217            241
    Money market demand accounts                      58              62             57
    Certificates of deposit                        2,865           2,918          2,727
                                                   -----           -----          -----

                                                  $3,163          $3,219         $3,043
                                                   =====           =====          =====
</TABLE>


                                       37
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE F - DEPOSITS (continued)

    Maturities  of  outstanding  certificates  of  deposit at  September  30 are
summarized as follows:
<TABLE>
<CAPTION>

                                                  1999                1998
                                                       (In thousands)
<S>                                              <C>                 <C>
    Up to one year                             $28,674             $29,268
    Over one year to two years                  12,562              14,383
    Over two years to three years                5,144               3,310
    Over three years to four years               3,750               1,413
    Over four years to five years                  593               2,218
    Over five years                                 17                 332
                                                ------              ------

                                               $50,740             $50,924
                                                ======              ======
</TABLE>


NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

    Advances  from the Federal Home Loan Bank,  collateralized  at September 30,
    1999 and 1998, by pledges of certain  residential  mortgage  loans  totaling
    $16.5  million  and  $6.0  million,   respectively,  and  the  Association's
    investment in Federal Home Loan Bank stock, are summarized as follows:
<TABLE>
<CAPTION>

                                      Maturing fiscal
    Interest rate                      year ending in                    1999                 1998
                                                                              (In thousands)
<S>                                          <C>                        <C>                    <C>
    5.69% - 5.90%                          1999                       $     -               $4,000
    5.39% - 5.57%                          2000                        11,000                   -
                                                                       ------                -----

                                                                      $11,000               $4,000
                                                                       ======                =====

    Weighted-average interest rate                                       5.45%                5.74%
                                                                         ====                 ====
</TABLE>














                                       38
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE H - FEDERAL INCOME TAXES

    Federal  income  taxes  differ  from the amounts  computed at the  statutory
    corporate tax rate for the years ended September 30 as follows:
<TABLE>
<CAPTION>

                                                                            1999           1998           1997
                                                                                     (In thousands)
<S>                                                                         <C>              <C>           <C>
    Federal income taxes at statutory rate                                  $379           $466           $422
    Increase (decrease) in taxes resulting from:
      Interest on municipal obligations                                      (17)           (12)           (12)
      Other                                                                   (2)            (1)            26
                                                                             ---            ---            ---
    Federal income taxes per consolidated
      financial statements                                                  $360           $453           $436
                                                                             ===            ===            ===

    Effective tax rate                                                      32.3%          33.0%          35.1%
                                                                            ====           ====           ====
</TABLE>

    The composition of the Corporation's net deferred tax liability at September
30 is as follows:
<TABLE>
<CAPTION>


    Taxes (payable) refundable on temporary                                   1999         1998
    differences at statutory rate:                                             (In thousands)
<S>                                                                            <C>          <C>
    Deferred tax assets:
      Net deferred loan origination fees                                     $  81       $   71
      General loan loss allowance                                               72           67
      Employee benefit plan expense                                             73           27
      Other                                                                     -            11
                                                                              ----        -----
         Deferred tax assets                                                   226          176

    Deferred tax liabilities:
      Federal Home Loan Bank stock dividends                                  (215)        (194)
      Difference between book and tax depreciation                            (121)        (115)
      Percentage of earnings bad debt deduction                               (189)        (189)
      Unrealized gains on securities designated as available for sale         (374)        (564)
      Other                                                                     (2)          -
                                                                              ----        -----
         Deferred tax liabilities                                             (901)      (1,062)
                                                                              ----        -----

         Net deferred tax liability                                          $(675)      $ (886)
                                                                              ====        =====
</TABLE>

    The Association was allowed a special bad debt deduction  generally  limited
    to 8% of otherwise  taxable income and subject to certain  limitations based
    on aggregate loans and deposit  account  balances at the end of the year. If
    the amounts that previously qualified as deductions for federal income taxes
    are  later  used  for  purposes  other  than  bad  debt  losses,   including
    distributions in liquidation,  such distributions will be subject to federal
    income  taxes  at the then  current  corporate  income  tax  rate.  Retained
    earnings at September 30, 1999, include approximately $2.4 million for which
    federal  income  taxes have not been  provided.  The  approximate  amount of
    unrecognized  deferred tax  liability  relating to the  cumulative  bad debt
    deduction was approximately  $630,000 at September 30, 1999. The Association
    is required to recapture as taxable income approximately $560,000 of its bad
    debt reserve,  which represents the post-1987 additions to the reserve,  and
    is unable to utilize  the  percentage  of  earnings  method to  compute  its
    reserve in the future.  The Association has provided deferred taxes for this
    amount and will  amortize  the  recapture of its bad debt reserve over a six
    year period, commencing in fiscal 1999.


                                       39
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE I - LOAN COMMITMENTS

    The Association is a party to financial  instruments with  off-balance-sheet
    risk in the normal  course of  business to meet the  financing  needs of its
    customers including  commitments to extend credit. Such commitments involve,
    to varying degrees,  elements of credit and interest-rate  risk in excess of
    the amount recognized in the consolidated  statement of financial condition.
    The contract or notional  amounts of the  commitments  reflect the extent of
    the Association's involvement in such financial instruments.

    The Association's  exposure to credit loss in the event of nonperformance by
    the other party to the financial instrument for commitments to extend credit
    is represented by the contractual notional amount of those instruments.  The
    Association  uses  the  same  credit  policies  in  making  commitments  and
    conditional obligations as those utilized for on-balance-sheet instruments.

    At September  30, 1999,  the  Association  had  outstanding  commitments  of
    approximately $1.4 million to originate loans. Additionally, the Association
    had  undisbursed  loans in process of $6.5 million at September 30, 1999. In
    the  opinion  of  management,  all  loan  commitments  equaled  or  exceeded
    prevalent market interest rates as of September 30, 1999, and will be funded
    from normal cash flow from operations.


NOTE J - REGULATORY CAPITAL

    The  Association is subject to the regulatory  capital  requirements  of the
    Office of Thrift  Supervision  (the "OTS").  Failure to meet minimum capital
    requirements  can  initiate  certain  mandatory  - and  possibly  additional
    discretionary actions by regulators that, if undertaken, could have a direct
    material effect on the  Association's  financial  statements.  Under capital
    adequacy  guidelines  and the  regulatory  framework  for prompt  corrective
    action,  the Association must meet specific capital  guidelines 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  classification  are also subject to
    qualitative  judgments by the regulators about components,  risk-weightings,
    and other factors.

    Such  minimum  capital  standards   generally  require  the  maintenance  of
    regulatory  capital  sufficient  to meet  each of three  tests,  hereinafter
    described as the tangible capital requirement,  the core capital requirement
    and the risk-based  capital  requirement.  The tangible capital  requirement
    provides for minimum tangible capital (defined as stockholders'  equity less
    all  intangible  assets) equal to 1.5% of adjusted  total  assets.  The core
    capital requirement provides for minimum core capital (tangible capital plus
    certain  forms of  supervisory  goodwill  and  other  qualifying  intangible
    assets)  generally  equal to 4.0% of adjusted  total assets except for those
    associations  with the highest  examination  rating and acceptable levels of
    risk.




                                       40
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE J - REGULATORY CAPITAL (continued)

    The risk-based capital requirement  provides for the maintenance of adjusted
    core capital plus general  loss  allowances  equal to 8.0% of  risk-weighted
    assets. In computing  risk-weighted  assets, the Association  multiplies the
    value of each asset on its  statement  of  financial  condition by a defined
    risk-weighting  factor,  e.g.,  one-to-four family residential loans carry a
    risk-weighted factor of 50%.

    During the calendar  year, the  Association  was notified from its regulator
    that it was categorized as "well-capitalized" under the regulatory framework
    for prompt corrective  action. To be categorized as  "well-capitalized"  the
    Association  must  maintain  minimum  capital  ratios  as set  forth  in the
    following table.

    As of September 30, 1999 and 1998,  management believes that the Association
    met all capital  adequacy  requirements  to which it was subject.  The major
    cause of changes in capital and ratios presented below is the declaration of
    dividends of $3.8 million from the  Association  to the  Corporation  during
    fiscal 1999.
<TABLE>
<CAPTION>
                                                                As of September 30, 1999
                                                                                                 To be "well-
                                                                                              capitalized" under
                                                                     For capital               prompt corrective
                                             Actual                adequacy purposes          action provisions
                                         Amount    Ratio           Amount    Ratio             Amount     Ratio
                                                                  (Dollars in thousands)
<S>                                        <C>       <C>             <C>       <C>               <C>        <C>
    Tangible capital                     $8,160      8.9%        =>$1,370    =>1.5%          =>$4,568     => 5.0%

    Core capital                         $8,160      8.9%        =>$3,655    =>4.0%          =>$5,482     => 6.0%

    Risk-based capital                   $8,881     19.3%        =>$3,673    =>8.0%          =>$4,591     =>10.0%
</TABLE>


<TABLE>
<CAPTION>
                                                                As of September 30, 1998
                                                                                                 To be "well-
                                                                                              capitalized" under
                                                                      For capital             prompt corrective
                                             Actual                adequacy purposes          action provisions
                                         Amount    Ratio           Amount    Ratio             Amount     Ratio
                                                                  (Dollars in thousands)
<S>                                        <C>      <C>             <C>         <C>              <C>         <C>
    Tangible capital                    $10,947    13.0%         =>$1,267    =>1.5%          =>$4,223     => 5.0%

    Core capital                        $10,947    13.0%         =>$2,534    =>3.0%          =>$5,068     => 6.0%

    Risk-based capital                  $11,143    26.0%         =>$3,433    =>8.0%          =>$4,292     =>10.0%

</TABLE>




                                       41
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE J - REGULATORY CAPITAL (continued)

    The  Corporation's  management  believes that, under the current  regulatory
    capital  regulations,  the  Association  will  continue to meets its minimum
    capital requirements in the foreseeable future.  However,  events beyond the
    control of  management,  such as  increased  interest  rates or an  economic
    downturn in the  Association's  market area,  could adversely  affect future
    earnings and,  consequently,  the ability to meet future minimum  regulatory
    capital requirements.


NOTE K - CONDENSED FINANCIAL STATEMENTS OF PEOPLES FINANCIAL CORPORATION

    The  following  condensed  financial   statements  summarize  the  financial
    position of Peoples Financial Corporation as of September 30, 1999 and 1998,
    and the  results of its  operations  and its cash flows for the years  ended
    September 30, 1999, 1998 and 1997.

                          Peoples Financial Corporation
<TABLE>
<CAPTION>
                        STATEMENTS OF FINANCIAL CONDITION
                                  September 30,
                                 (In thousands)

         ASSETS                                                                    1999              1998
<S>                                                                                 <C>               <C>
    Cash and due from banks                                                      $1,145           $    -
    Interest-bearing deposits in other financial institutions                        13               205
    Loan receivable from ESOP                                                        -                336
    Investment in Peoples Federal Savings and Loan Association
      of Massillon                                                                8,889            12,042
    Prepaid expenses and other assets                                                66                70
    Accounts receivable from Peoples Federal Savings and Loan
      Association of Massillon                                                    4,097             2,405
                                                                                 ------            ------

         Total assets                                                           $14,210           $15,058
                                                                                 ======            ======

         LIABILITIES AND SHAREHOLDERS' EQUITY

    Other liabilities                                                           $     9           $    25

    Shareholders' equity
      Additional paid-in capital                                                  7,360             7,287
      Unrealized gains on securities designated as available
        for sale, net of related tax effects                                        729             1,095
      Retained earnings                                                           9,874             9,927
      Shares acquired by stock benefit plans                                       (625)           (1,097)
      Treasury shares                                                            (3,137)           (2,179)
                                                                                 ------            ------
         Total shareholders' equity                                              14,201            15,033
                                                                                 ------            ------

         Total liabilities and shareholders' equity                             $14,210           $15,058
                                                                                 ======            ======
</TABLE>





                                       42
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE  K -  CONDENSED  FINANCIAL  STATEMENTS  OF  PEOPLES  FINANCIAL  CORPORATION
(continued)

                          Peoples Financial Corporation
<TABLE>
<CAPTION>
                             STATEMENTS OF EARNINGS
                            Year ended September 30,
                                 (In thousands)

                                                          1999               1998                1997
<S>                                                        <C>                <C>                 <C>
    Revenue
      Interest income                                     $ 46             $   54              $  437
      Other income                                          -                  -                    4
      Equity in earnings of subsidiary                     805                997                 664
                                                           ---              -----               -----
         Total revenue                                     851              1,051               1,105

    Interest expense                                        -                  19                  20

    General and administrative expenses                    123                154                 198
                                                           ---              -----               -----

         Earnings before income taxes (credits)            728                878                 887

    Federal income taxes (credits)                         (26)               (40)                 81
                                                           ---              -----               -----

         NET EARNINGS                                     $754             $  918              $  806
                                                           ===              =====               =====

</TABLE>






























                                       43
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE  K -  CONDENSED  FINANCIAL  STATEMENTS  OF  PEOPLES  FINANCIAL  CORPORATION
(continued)

                          Peoples Financial Corporation
<TABLE>
<CAPTION>
                            STATEMENTS OF CASH FLOWS
                            Year ended September 30,
                                 (In thousands)

                                                                                    1999            1998           1997
<S>                                                                                 <C>              <C>           <C>
    Cash flows provided by (used in) operating activities:
      Net earnings for the year                                                   $  754          $  918         $  806
      Adjustments to reconcile net earnings to net cash
      provided by (used in) operating activities:
        Undistributed earnings of consolidated subsidiary                           (805)           (997)          (809)
        Amortization of expense related to stock benefit plans                       147             147            145
        Gain on sale of securities designated as available for sale                   -               -              (4)
        Increases (decreases) in cash due to changes in:
          Other assets                                                                 4             330           (362)
          Other liabilities                                                          (16)            (65)             1
          Other                                                                       -               -            (530)
                                                                                   -----           -----          -----
         Net cash provided by (used in) operating activities                          84             333           (753)

    Cash flows provided by (used in) investing activities:
      Purchase of securities available for sale                                       -               -          (3,020)
      Dividends received from subsidiary                                           2,108           4,090             -
      Maturities of investment securities                                             -               -           3,502
      Proceeds from sale of securities designated as available
        for sale                                                                      -               -           4,293
      Repayments on ESOP loan                                                        336             161            100
                                                                                   -----           -----          -----
         Net cash provided by investment activities                                2,444           4,251          4,875

    Cash flows provided by (used in) financing activities:
      Proceeds from (repayment of) note payable                                       -           (3,000)         3,000
      Return of capital distribution                                                  -               -          (7,083)
      Dividends on common stock                                                     (807)           (770)          (482)
      Purchase of shares for stock benefit plan                                       -               -            (919)
      Purchase of treasury stock                                                    (768)           (995)        (1,285)
      Proceeds from exercise of stock options                                         -               76             -
                                                                                   -----           -----          -----
         Net cash used in financing activities                                    (1,575)         (4,689)        (6,769)
                                                                                   -----           -----          -----

    Net increase (decrease) in cash and cash equivalents                             953            (105)        (2,647)

    Cash and cash equivalents at beginning of year                                   205             310          2,957
                                                                                   -----           -----          -----

    Cash and cash equivalents at end of year                                      $1,158          $  205         $  310
                                                                                   =====           =====          =====
</TABLE>


                                       44
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE L - STOCK OPTION PLAN

    During fiscal 1997, the Board of Directors  adopted a Stock Option Plan that
    provided  for the  issuance of 104,371  shares of  authorized,  but unissued
    shares of common  stock at the fair market  value at the date of grant.  The
    Corporation  granted  options to  purchase  37,275  shares to members of the
    Board of  Directors  and 67,096  shares to certain  employees at an exercise
    price of $16.00  per share.  In order to give  effect to a return of capital
    distribution  paid in fiscal 1997, the number of shares granted under option
    and the  exercise  price were  adjusted in fiscal 1998 to 134,427 and $12.41
    per share, respectively.

    The  Corporation  accounts for the stock option plan in accordance with SFAS
    No. 123,  "Accounting for Stock-Based  Compensation,"  which contains a fair
    value-based  method for valuing  stock-based  compensation that entities may
    use,  which measures  compensation  cost at the grant date based on the fair
    value of the award. Compensation is then recognized over the service period,
    which is usually the  vesting  period.  Alternatively,  SFAS No. 123 permits
    entities  to  continue  to account  for stock  options  and  similar  equity
    instruments  under  Accounting  Principles  Board  ("APB")  Opinion  No. 25,
    "Accounting  for Stock  Issued to  Employees."  Entities  that  continue  to
    account for stock  options using APB Opinion No. 25 are required to make pro
    forma  disclosures  of net earnings  and earnings per share,  as if the fair
    value-based method of accounting defined in SFAS No. 123 had been applied.

    The Corporation  applies APB Opinion No. 25 and related  Interpretations  in
    accounting for its stock option plan. Accordingly,  no compensation cost has
    been recognized for the plan. Had  compensation  cost for the  Corporation's
    stock option plan been determined based on the fair value at the grant dates
    for awards under the plan consistent with the accounting  method utilized in
    SFAS No. 123,  the  Corporation's  net earnings and earnings per share would
    have been  reduced to the pro forma  amounts  indicated  below for the years
    ended September 30:
<TABLE>
<CAPTION>

                                                                            1999           1998           1997
<S>                                              <C>                          <C>           <C>            <C>
    Net earnings (In thousands)             As reported                     $754           $918           $806
                                                                             ===            ===            ===

                                              Pro-forma                     $752           $917           $767
                                                                             ===            ===            ===

    Earnings per share
      Basic                                 As reported                     $.60           $.68           $.57
                                                                             ===            ===            ===

                                              Pro-forma                     $.59           $.68           $.54
                                                                             ===            ===            ===

      Diluted                               As reported                     $.60           $.67           $.57
                                                                             ===            ===            ===

                                              Pro-forma                     $.59           $.67           $.54
                                                                             ===            ===            ===
</TABLE>

    The fair value of each option  grant is estimated on the date of grant using
    the  modified   Black-Scholes   options-pricing  model  with  the  following
    assumptions used for grants in fiscal 1999, 1998 and 1997; dividend yield of
    1.7% and expected  volatility of 12.0%;  risk-free interest rate of 6.5% and
    expected life of ten years.



                                       45
<PAGE>

                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 1999, 1998 and 1997


NOTE L - STOCK OPTION PLAN (continued)

    A  summary  of the  status  of the  Corporation's  stock  option  plan as of
    September 30, 1999,  1998 and 1997, and changes during the years then ended,
    is presented below:
<TABLE>
<CAPTION>

                                               1999                            1998                       1997
                                                   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    131,262      $12.50         104,371          $16.00             -        $  -
    Adjustment for return of capital
      distribution                           -          -            30,056           (3.59)            -           -
    Granted                               5,761        9.69           3,000           16.44         104,371       16.00
    Exercised                                -          -            (6,165)          12.41             -           -
    Forfeited                            (5,601)      12.41              -              -               -           -
                                        -------       -----         -------           -----         -------       -----

    Outstanding at end of year          131,422      $12.38         131,262          $12.50         104,371      $16.00
                                        =======       =====         =======           =====         =======       =====

    Options exercisable at year-end      46,053      $12.46          20,716          $12.41             -        $  -
                                        =======       =====         =======           =====         =======       =====
    Weighted-average fair value of
      options granted during the year                $ 3.41                          $ 1.96                      $ 4.76
                                                      =====                           =====                       =====
</TABLE>


    The following  information  applies to options  outstanding at September 30,
1999:

    Number outstanding                                                 131,422
    Exercise price                                              $9.69 - $16.44
    Weighted-average exercise price                                     $12.38
    Weighted-average remaining contractual life                      7.6 years



















                                       46