FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


[ X ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

             For the Fiscal Year Ended September 30, 1998

                           OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

             For the transition period from______________to___________________

         Commission File Number: 0-28838

                          PEOPLES FINANCIAL CORPORATION
                 (Name of small business issuer in its charter)

            Ohio                                                34-1822228
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                          Identification Number)

                   211 Lincoln Way East, Massillon, Ohio 44646
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (330) 832-7441

      Securities registered pursuant to Section 12(b) of the Exchange Act:
                                      None

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                        Common Shares, without par value
                                (Title of Class)

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

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

     The issuer's  revenues for the fiscal year ended  September 30, 1998,  were
$6.8 million.

     Based upon the  average  bid and asked  prices  quoted by The Nasdaq  Stock
Market, the aggregate market value of the voting stock held by non-affiliates of
the issuer on December 4, 1998, was $11.45 million.

     1,335,785  of the issuer's  common  shares were issued and  outstanding  on
December 4, 1998.


<PAGE>



Documents Incorporated by Reference

     The  following  sections  of Peoples  Financial  Corporation's  1998 Annual
Report to Shareholders  are  incorporated by reference into Part II of this Form
10-KSB:

     1.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations; and

     2.   Financial Statements.

     The  following  sections of the  definitive  Proxy  Statement  for the 1999
Annual Meeting of Shareholders of Peoples Financial Corporation are incorporated
by reference into Part III of this Form 10-KSB:

     1.   PROPOSAL ONE - ELECTION OF DIRECTORS;

     2.   COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS; and

     3.   VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT.

























                                       2
<PAGE>


                                     PART I

Item 1.       Description of Business

     Peoples Financial  Corporation ("PFC"), an Ohio corporation formed in 1995,
is a unitary  savings and loan holding  company which owns all of the issued and
outstanding  common stock of Peoples  Federal  Savings and Loan  Association  of
Massillon ("Peoples  Federal"),  a savings and loan association  chartered under
the laws of the United  States.  On September 12, 1996,  PFC acquired all of the
common stock issued by Peoples  Federal upon its conversion from mutual to stock
form (the "Conversion").

     Because PFC's activities have been limited  primarily to holding the common
stock of Peoples  Federal since  acquiring such common stock in connection  with
the Conversion,  the following  discussion  focuses primarily on the business of
Peoples Federal.

General

     Peoples Federal is principally  engaged in the business of making permanent
first and second mortgage loans secured by one- to four-family  residential real
estate  located in Peoples  Federal's  primary market area and investing in U.S.
Government and agency obligations,  interest-bearing deposits in other financial
institutions,  mortgage-backed  securities  and  municipal  securities.  Peoples
Federal also originates  loans for the  construction of residential  real estate
and  loans   secured  by   multifamily   real  estate   (over  four  units)  and
nonresidential  real  estate.  The  origination  of  consumer  loans,  including
unsecured  loans and loans  secured by deposits,  constitutes a small portion of
Peoples Federal's  lending  activities.  Loan funds are obtained  primarily from
deposits,  which are  insured up to  applicable  limits by the  Federal  Deposit
Insurance  Corporation  ("FDIC"),  and  loan  and  mortgage-backed  and  related
securities repayments.

     Peoples Federal  conducts  business from its main office and a full-service
branch  office,  both located in Massillon,  Ohio,  and a lending  office in the
Belden Village area of North Canton, Ohio. Massillon is located eight miles west
of Canton,  32 miles  south of Akron and 50 miles  south of  Cleveland.  Peoples
Federal's  primary  market area  consists of Stark  County,  Ohio,  and adjacent
counties.

     In addition to the historic  financial  information  included  herein,  the
following discussion contains forward-looking  statements that involve risks and
uncertainties.  Economic  circumstances  and PFC's operations and actual results
could  differ  significantly  from  those  discussed  in  those  forward-looking
statements.  Some  of the  factors  that  could  cause  or  contribute  to  such
differences  are discussed  herein,  but also include changes in the economy and
interest  rates in the nation and in PFC's general  market area.  See Exhibit 99
hereto,  "Safe  Harbor  Under the Private  Securities  Litigation  Reform Act of
1995," which is incorporated herein by reference.

Lending Activities

     General.  Peoples  Federal's primary lending activity is the origination of
conventional  mortgage  loans  secured by one- to  four-family  homes located in
Peoples  Federal's primary market area and home equity loans secured by first or
second mortgages on single-family,  owner-occupied  homes. In July 1998, Peoples
Federal  began   offering   home  equity  lines  of  credit  on   single-family,
owner-occupied  properties.  Loans for the  construction  of one- to four-family
homes and mortgage loans on multifamily properties containing five units or more
and  nonresidential  properties  are also  offered by Peoples  Federal.  Peoples
Federal does not originate loans insured by the Federal  Housing  Administration
or loans  guaranteed  by the  Veterans  Administration.  In addition to mortgage
lending,  Peoples  Federal makes  unsecured  loans and consumer loans secured by
deposits.  Peoples Federal has recently begun  originating its mortgage loans in
accordance with  traditional  secondary  market  guidelines but has not sold any
loans.



                                       3
<PAGE>
     Loan  Portfolio   Composition.   The  following   table  presents   certain
information with respect to the composition of Peoples  Federal's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>

                                                                               At September 30,

                                                                  1998                              1997 
                                                                          Percent                          Percent
                                                                          of total                         of total
                                                          Amount           loans             Amount         loans
                                                                             (Dollars in thousands)
<S>                                                         <C>             <C>                <C>            <C> 
Residential real estate loans:
   One- to four-family (first and second mortgage)        $52,762          76.86%            $48,026        77.32%
   Home equity (secured by mortgages)                       1,475           2.15               1,548         2.49
   Multifamily                                                320            .47                 345          .55
Nonresidential real estate loans                            3,897           5.68               2,653         4.27
Construction loans                                          9,831          14.32               9,140        14.72
                                                           ------         ------              ------       ------

     Total real estate loans                               68,285          99.48              61,712        99.35

Consumer loans:
   Loans on deposits                                          192            .28                 225          .36
   Other consumer loans                                       168            .24                 176          .29
                                                           ------         ------              ------       ------

     Total consumer loans                                     360            .52                 401          .65
                                                           ------         ------              ------       ------

Total loans                                                68,645         100.00%             62,113       100.00%
                                                                          ======                           ======
   Other items:
     Deferred loan origination costs                           26                                 48
     Loans in process                                      (4,134)                            (5,374)
     Allowance for loan losses                               (196)                              (145)
                                                           ------                             ------

     Net loans                                            $64,341                            $56,642
                                                           ======                             ======
</TABLE>


     Loan Maturity Schedule.  The following table sets forth certain information
as of  September  30, 1998,  regarding  the dollar  amount of loans  maturing in
Peoples Federal's portfolio based on their contractual terms to maturity. Demand
loans and loans having no stated  schedule of repayments and no stated  maturity
are reported as due in one year or less.

<TABLE>
<CAPTION>
                             Due during the year ending     Due 4-5       Due 6-10  Due 11-20     Due more than
                                   September 30,          years after   years after  years after  20 years after
                            1999       2000        2001      9/30/98      9/30/98     9/30/98         9/30/98       Total  
                                                                  (In thousands)
<S>                         <C>         <C>       <C>         <C>           <C>         <C>            <C>           <C>
Mortgage loans:
   One- to four-family   $11,741     $2,436      $2,531      $4,899      $11,507      $15,973        $13,506       $62,593
     (first mortgage)
   Home equity (first
     and second              104        114         120         261          621          255              -         1,475
     mortgage)
   Multifamily                13         14          15          35          117          126              -           320
   Nonresidential            155        279         191         402          873        1,557            440         3,897
Consumer loans               141        113          71          33            2            -              -           360
                          ------      -----       -----       -----       ------       ------         ------        ------
                                                                                            
     Total loans         $12,154     $2,956      $2,928      $5,630      $13,120      $17,911        $13,946       $68,645
                          ======      =====       =====       =====       ======       ======         ======        ======

</TABLE>

     Of the loans due more than one year after  September  30, 1998,  loans with
aggregate balances of $46.5 million have fixed rates of interest, and loans with
aggregate balances of $10.0 million have adjustable interest rates.

     One- to  Four-Family  Residential  Real Estate Loans.  The primary  lending
activity of Peoples Federal has been the  origination of permanent  conventional
loans  secured  by  one-  to  four-family  residences,  primarily  single-family
residences,  located within Peoples Federal's  designated  lending area. Peoples
Federal  also  originates  loans  for the  construction  of one- to  four-family

                                       4
<PAGE>
residences  and home  equity  loans  secured  by first or  second  mortgages  on
single-family,  owner-occupied,  residential real estate.  Each of such loans is
secured by a mortgage on the underlying real estate and improvements thereon, if
any.

     OTS  regulations  limit  the  amount  that  Peoples  Federal  may  lend  in
relationship to the appraised  value of the real estate and  improvements at the
time of loan origination.  In accordance with such regulations,  Peoples Federal
makes fixed-rate first mortgage loans on single-family or duplex, owner-occupied
residences  up to 95% of the  value of the real  estate  and  improvements  (the
"Loan-to-Value  Ratio" or "LTV"). Low- to moderate-income loans are granted with
LTVs up to 95% on  single-family  or  duplex,  owner-occupied  residences.  Home
equity  loans  secured  by first or  second  mortgages  are made  with a maximum
combined LTV for the first and second  mortgages of 80%.  Peoples  Federal makes
adjustable-rate  first  mortgage  loans  for  investment  purposes  on  one-  to
four-family,  nonowner-occupied  residences  in amounts  up to 75% LTV.  Peoples
Federal requires private mortgage  insurance  ("PMI") for the amount of loans in
excess  of 85% of the  value of the real  estate  securing  such  loans.  PMI is
required  for the  amount  of any loan in excess of 85% of the value of the real
estate  and  improvements  for  low-  to   moderate-income   loans.   Fixed-rate
residential  real estate loans are offered by Peoples Federal for terms of up to
30 years.

     Adjustable-rate  mortgage loans are offered by Peoples Federal for terms of
up to 30  years  and  with  various  alternative  features.  The  interest  rate
adjustment  periods on ARMs are either one year, three years or a fixed rate for
10 years followed by one-year adjustment periods.  The interest rate adjustments
on ARMs  presently  originated  by  Peoples  Federal  are tied to changes in the
weekly  average  yield  on  the  one-  and  three-year  U.S.  Treasury  constant
maturities index, respectively. Rate adjustments are computed by adding a stated
margin,  typically 2.75%, to the index. The maximum allowable adjustment at each
adjustment  date is usually 1% with a maximum  adjustment of 3% over the term of
the loan,  although Peoples Federal will make available an ARM with a 2% maximum
adjustment at each adjustment date and a maximum  adjustment of 6% over the term
of the loan.  The initial rate is dependent,  in part, on how often the rate can
be  adjusted.  Peoples  Federal  also  offers  an ARM  on  two-  to  four-family
properties  with a  margin  of  3.5%  over  the  index  and  2%  and 6%  maximum
adjustments at each adjustment date and over the term of the loan, respectively.
Peoples Federal originates ARMs which have initial interest rates lower than the
sum of the index plus the margin.  Such loans are subject to  increased  risk of
delinquency or default due to increasing  monthly payments as the interest rates
on such loans  increase to the  fully-indexed  level,  although such increase is
considered in Peoples  Federal's  underwriting of any such loans with a one-year
adjustment period.

     The aggregate amount of Peoples  Federal's one- to four-family  residential
real estate loans,  excluding  construction loans,  equaled  approximately $54.2
million at September 30, 1998, and represented  79.0% of loans at such date. The
largest  individual loan balance on a one- to four-family  loan at such date was
$452,000. At such date, one loan secured by one- to four-family residential real
estate  in  the  amount  of  $115,000  was  more  than  90  days  delinquent  or
nonaccruing.

     In April 1997,  Peoples  Federal began offering loans to borrowers to build
or buy a new residence  using the equity in their current  residence as the down
payment.  Bridge loans are structured as temporary mortgage loans, with interest
payments only  required,  at a fixed rate with a term of two years.  The maximum
loan amount offered is $125,000. In addition, the maximum total amount of bridge
loans Peoples Federal's policy authorizes to have outstanding at any one time is
$1,000,000. If the current residence is not sold within the two-year period, the
bridge loan must be converted to a non-owner-occupied mortgage loan.

     Bridge loans are  considered to involve a greater degree of risk due to the
fact that the borrower may also have a construction loan from Peoples Federal at
the same time.  The risk is reduced by requiring  any other liens on the current
residence  to be paid  off  with the  proceeds  of the loan or  before a loan is
granted,  requiring a maximum LTV of 80% of the current residence and evaluating
the  credit  history  of the  borrower.  The  risk is also  reduced  by  Peoples
Federal's  overall  limitation.  At  September  30,  1998,  one- to  four-family
mortgage  loans  included  $179,000,  or .3% of total loans,  invested in bridge
loans secured by property located within the primary lending area. At such date,
no bridge loans were delinquent.

     In July 1998,  Peoples  Federal  began  offering home equity line of credit
loans secured by the equity in single-family owner-occupied residences. The home
equity line of credit loan is an adjustable-rate  mortgage loan with an interest
rate one percent over the prime rate as  published  in the Wall Street  Journal,
monthly payments of 1.5% of the previous month's balance and a term of up to ten
years. The maximum loan available is $50,000. The maximum combined LTV of a home
equity  line of credit  loan and any other  mortgage  loan  secured  by the same
property is 80%.


                                       5
<PAGE>
     Multifamily  Residential Real Estate Loans. In addition to loans on one- to
four-family  properties,  Peoples  Federal  makes loans  secured by  multifamily
properties  containing  over four  units.  Such  loans are made with  adjustable
interest rates, a maximum LTV of 75% and a maximum term of 30 years.

     Multifamily  lending is generally  considered to involve a higher degree of
risk because the loan amounts are larger and the borrower typically depends upon
income  generated by the project to cover  operating  expenses and debt service.
The  profitability  of  a  project  can  be  affected  by  economic  conditions,
government  policies  and other  factors  beyond the  control  of the  borrower.
Peoples Federal attempts to reduce the risk associated with multifamily  lending
by evaluating the creditworthiness of the borrower and the projected income from
the project and by obtaining  personal  guarantees on loans made to corporations
and  partnerships.  Peoples Federal  currently  requires that borrowers agree to
submit  financial  statements,  rent rolls and tax  returns  annually  to enable
Peoples Federal to monitor the loans.

     At September 30, 1998,  loans  secured by  multifamily  properties  totaled
approximately  $320,000,  or less than one  percent of its total  loans,  all of
which were secured by property located within Peoples  Federal's  primary market
area and all of which  were  performing  in  accordance  with their  terms.  The
largest property securing such a loan is a twelve-unit apartment building.

     Construction  Loans.  Peoples  Federal makes loans for the  construction of
residential  and  nonresidential  real  estate.  Such  loans are  structured  as
permanent  loans with fixed rates of  interest  and for terms of up to 30 years.
Although  most  of  the   construction   loans  originated  by  Peoples  Federal
historically were made to owner-occupants  for the construction of single-family
homes by a general contractor,  throughout the last three fiscal years,  Peoples
Federal has also made loans to  developers  who did not have a purchaser for the
property at the time the loan was made.

     Construction loans generally involve greater underwriting and default risks
than  do  loans  secured  by  mortgages  on  existing   properties  due  to  the
concentration  of principal in a limited  number of loans and  borrowers and the
effects of general economic conditions on real estate developments,  developers,
managers and builders.  In addition,  such loans are more  difficult to evaluate
and  monitor.  Loan funds are advanced  upon the  security of the project  under
construction,  which  is more  difficult  to  value  before  the  completion  of
construction.  Moreover,  because of the  uncertainties  inherent in  estimating
construction  costs, it is relatively  difficult to evaluate  accurately the LTV
and the total loan funds required to complete a project.  In the event a default
on a construction loan occurs and foreclosure follows, Peoples Federal must take
control  of the  project  and  attempt  either  to  arrange  for  completion  of
construction or dispose of the unfinished  project.  Additional risk exists with
respect to loans made to developers who do not have a buyer for the property, as
the  developer  may lack funds to pay the loan if the  property is not sold upon
completion. Peoples Federal attempts to reduce such risks on loans to developers
by requiring  personal  guarantees  and  reviewing  current  personal  financial
statements and tax returns and other projects undertaken by the developers.

     At September 30, 1998, a total of $9.8 million,  or approximately  14.3% of
Peoples Federal's total loans,  consisted of construction  loans. All of Peoples
Federal's  construction  loans are secured by property  located  within  Peoples
Federal's  primary  market  area,  and the economy of such lending area has been
relatively  stable.  At September 30, 1998, all of such loans were performing in
accordance with their terms.

     Nonresidential Real Estate Loans.  Peoples Federal also makes loans secured
by  nonresidential  real estate  consisting of retail stores,  office buildings,
churches,  a theater,  manufacturing  facilities,  an industrial  facility and a
warehouse.  Such loans generally are originated with terms of up to 20 years and
a minimum  loan amount of $20,000 and a maximum  loan amount of  $500,000.  Such
loans  have a  maximum  LTV  of  75%.  Peoples  Federal  makes  loans  for  land
development in amounts up to 75% LTV and a maximum term of three years.  Peoples
Federal  also  makes  loans on  undeveloped  land in amounts up to 65% LTV and a
maximum  term of five  years,  and on  improved  lots  (streets  with  all  city
utilities) in amounts up to 75% LTV for five years.

     Nonresidential  real estate  lending is generally  considered  to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts  and the  effects  of  general  economic  conditions  on the  successful
operation of  income-producing  properties.  If the cash flow on the property is
reduced,  for  example,  as leases are not obtained or renewed,  the  borrower's
ability to repay may be impaired.  Peoples Federal has endeavored to reduce such
risk by evaluating the credit history and past performance of the borrower,  the
location of the real  estate,  the quality of the  management  constructing  and
operating the property,  the debt service ratio, the quality and characteristics
of the income stream  generated by the property and  appraisals  supporting  the
property's valuation.  Peoples Federal also requires personal guarantees on such
loans.


                                       6
<PAGE>
     At September 30, 1998, Peoples Federal had a total of $3.9 million invested
in  nonresidential  real  estate  loans,  all of which were  secured by property
located  within Peoples  Federal's  primary  market area.  Such loans  comprised
approximately  5.7% of Peoples Federal's total loans at such date. At such date,
Peoples Federal had no delinquent nonresidential real estate loans.

     Federal regulations limit the amount of nonresidential mortgage loans which
an association may make to 400% of its tangible capital.  At September 30, 1998,
Peoples  Federal's  nonresidential  mortgage  loans  totaled  35.6%  of  Peoples
Federal's tangible capital.

     Consumer  Loans.  Peoples  Federal makes  various types of consumer  loans,
including  unsecured  loans and loans  secured by deposits.  Such loans are made
only at fixed rates of interest for terms of up to five years.  Peoples  Federal
has been  attempting  to increase  its  consumer  loan  portfolio as part of its
interest rate risk  management  efforts and because a higher rate of interest is
received on consumer loans.

     Consumer loans may entail greater credit risk than do residential  mortgage
loans.  The risk of  default  on  consumer  loans  increases  during  periods of
recession,  high  unemployment and other adverse economic  conditions.  Although
Peoples  Federal has not had  significant  delinquencies  on consumer  loans, no
assurance can be provided that delinquencies will not increase.

     At September 30, 1998, Peoples Federal had approximately  $360,000, or less
than one percent of its total loans,  invested in consumer  loans.  None of such
loans was more than 90 days delinquent or nonaccruing.

     Loan  Solicitation and Processing.  Loan  originations are developed from a
number of sources, including continuing business with depositors,  borrowers and
real  estate   developers,   periodic   newspaper   and  radio   advertisements,
solicitations by Peoples Federal's lending staff and walk-in customers.

     Loan applications for permanent mortgage loans are taken by loan personnel.
Peoples  Federal  obtains a credit report,  verification of employment and other
documentation concerning the credit-worthiness of the borrower.  Peoples Federal
limits the ratio of mortgage loan payments to the  borrower's  income to 28% and
the ratio of the  borrower's  total debt payments to income to 38%. An appraisal
of the fair market  value of the real estate on which  Peoples  Federal  will be
granted  a  mortgage  to  secure  the loan is  prepared  by an  independent  fee
appraiser  approved by the Board of Directors.  Since 1993,  Peoples Federal has
required a survey of the  property  securing  every real estate  loan.  In 1994,
Peoples  Federal  adopted an  environmental  policy.  Pursuant  to such  policy,
Peoples Federal requires a Phase I Environmental  Site Assessment by an approved
environmental  consultant during processing of an application for any commercial
real estate loan in the amount of $250,000 or greater and before  foreclosing on
any real estate.  For  nonresidential  real estate loans of less than  $250,000,
single-family  homes,  duplexes and multi-family homes, the borrower is required
to complete an Environmental Inspection  Questionnaire.  For larger multi-tenant
properties,  including apartment buildings,  nursing homes and day care centers,
tests for lead  paint,  lead in the  drinking  water  and  radon are  performed.
Significant negative information from any such questionnaire or tests may result
in further investigation.

     For multifamily and nonresidential  mortgage loans, a personal guarantee of
the borrower's  obligation to repay the loan is required.  Peoples  Federal also
obtains  information  with respect to prior projects  completed by the borrower.
Upon the  completion  of the  appraisal  and the receipt of  information  on the
borrower,  the  application  for a loan  is  submitted  to the  Loan  Committee,
comprised of certain management officials, for approval or rejection if the loan
amount does not exceed $300,000.  If the loan amount exceeds $300,000, or if the
application does not conform in all respects with Peoples Federal's underwriting
guidelines, the application is accepted or rejected by the Board of Directors.

     If a mortgage loan application is approved, title insurance is now obtained
on the title to the real estate  which will secure the mortgage  loan.  Prior to
April 1, 1994, Peoples Federal did not require title insurance but did obtain an
attorney's  opinion of title.  Borrowers are required to carry satisfactory fire
and casualty insurance and flood insurance,  if applicable,  and to name Peoples
Federal as an insured mortgagee.

     The  procedure  for  approval  of  construction  loans  is the  same as for
permanent mortgage loans, except that an appraiser evaluates the building plans,
construction specifications and estimates of construction costs. Peoples Federal
also  evaluates the  feasibility  of the proposed  construction  project and the
experience and record of the builder.


                                       7
<PAGE>
     Consumer  loans  are  underwritten  on the basis of the  borrower's  credit
history and an analysis of the borrower's income and expenses,  ability to repay
the loan and the value of the collateral, if any.

     Peoples Federal's loans carry no pre-payment  penalties but do provide that
the entire  balance of the loan is due upon sale of the  property  securing  the
loan. Peoples Federal generally enforces such due-on-sale provisions.

     Loan  Originations,  Purchases and Sales.  Peoples Federal  originated only
fixed-rate  loans until July 1995.  Peoples Federal has never sold loans but has
recently begun originating its mortgage loans in accordance with FHLMC secondary
market guidelines.

     The following table presents  Peoples  Federal's  mortgage loan origination
and participation activity for the periods indicated:
<TABLE>
<CAPTION>

                                                        Year ended September 30,  
                                                       1998               1997
                                                            (In thousands)
<S>                                                     <C>                <C>
Loans originated:
   One- to four-family residential (1)                $28,879            $27,771
   Multifamily residential                                188                  -
   Nonresidential                                       1,209                599
   Consumer                                               276                332
                                                       ------             ------
     Total loans originated                            30,552             28,702
                                                       ------             ------

Reductions:
   Principal repayments                               (22,834)           (16,323)
Increase (decrease) in other items, net (2)             1,167                989
                                                       ------             ------
     Net increase                                     $ 7,699            $12,436
                                                       ======             ======
</TABLE>

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

(1)  Includes construction loans.

(2)  Consists of unearned  and deferred  fees,  costs and  undisbursed  loans in
     process and the allowance for loan losses.


     Office  of  Thrift  Supervision  ("OTS")  regulations  generally  limit the
aggregate  amount that a savings  association may lend to any one borrower to an
amount equal to 15% of the  association's  total  capital  under the  regulatory
capital  requirements  plus any  additional  loan  reserve not included in total
capital. A savings association may lend to one borrower an additional amount not
to exceed 10% of total capital plus additional reserves if the additional amount
is fully  secured by certain  forms of  "readily  marketable  collateral."  Real
estate is not  considered  "readily  marketable  collateral."  In addition,  the
regulations  require that loans to certain  related or  affiliated  borrowers be
aggregated  for  purposes of such limits.  An exception to these limits  permits
loans to one borrower of up to $500,000 "for any purpose."

     Based on such limits,  Peoples Federal was able to lend  approximately $1.7
million to one  borrower at  September  30,  1998.  The largest  amount  Peoples
Federal had outstanding to one borrower at September 30, 1998, was $1.5 million,
consisting  of eight  loans.  Such  loans were  secured  by three  single-family
residences and five nonresidential properties. All of such loans were current at
September 30, 1998.

     Delinquent  Loans,  Nonperforming  Assets  and  Classified  Assets.  When a
borrower fails to make a required payment on a loan, Peoples Federal attempts to
cause the  delinquency  to be cured by contacting  the borrower.  In most cases,
delinquencies are cured promptly.

     When a loan is fifteen  days or more  delinquent,  the  borrower  is sent a
delinquency  notice.  When a loan is thirty  days  delinquent,  Peoples  Federal
generally  telephones the borrower.  Depending upon the  circumstances,  Peoples
Federal  may  also   inspect  the  property  and  inform  the  borrower  of  the
availability of credit counseling from Peoples Federal and counseling  agencies.
Before a loan  becomes 90 days  delinquent,  Peoples  Federal  will make further
contact with the borrower and,  depending  upon the  circumstances,  may arrange


                                       8
<PAGE>
appropriate  alternative  payment  arrangements.  After a loan  becomes  90 days
delinquent, Peoples Federal may refer the matter to an attorney for foreclosure.
A decision as to whether and when to initiate  foreclosure  proceedings is based
on such  factors  as the  amount  of the  outstanding  loan in  relation  to the
original indebtedness,  the extent of the delinquency and the borrower's ability
and willingness to cooperate in curing  delinquencies.  If a foreclosure occurs,
the real estate is sold at public sale and may be purchased by Peoples Federal.

     Real  estate  acquired  by  Peoples  Federal  as a  result  of  foreclosure
proceedings  is classified  as real estate owned ("REO") until it is sold.  When
property is so  acquired,  it is  initially  recorded by Peoples  Federal at the
lower of cost or fair value of the real estate,  less  estimated  costs to sell.
Any  reduction  in fair value is  reflected  in a  valuation  allowance  account
established by a charge to income. Costs incurred to carry other real estate are
charged to expense. Peoples Federal had no REO property at September 30, 1998.

     Peoples  Federal  evaluates a loan for nonaccrual  status when the payments
are 90 days or more past due.

     The following table reflects the amount of loans in a delinquent  status as
of the dates indicated:

<TABLE>
<CAPTION>
                                                    September 30,  

                                        1998                              1997  
                                       ------                            -----
                                                   Percent                           Percent
                                                   of total                         of total
                             Number     Amount      loans     Number    Amount        loans
                                                  (Dollars in thousands)
<S>                            <C>        <C>       <C>         <C>       <C>           <C>
Loans delinquent for (1):
  30 - 59 days                   4       $  97      .14%           6       $150         .24%
  60 - 89 days                   2          19      .03            5         51         .08
  90 days and over               1         115      .17            1          2         .01
                                 -        ----      ---           --       ----         ---
   Total delinquent loans        7        $231      .34%          12       $203         .33%
                                 =        ====      ===           ==       ====         ===
</TABLE>

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

(1)  The  number  of days a loan is  delinquent  is  measured  from  the day the
     payment was due under the terms of the loan agreement.


     The following table sets forth  information with respect to the accrual and
nonaccrual  status of Peoples Federal's loans which are 90 days or more past due
and other nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>

                                                      At September 30,  
                                                    1998               1997
                                                    ----               ----
                                                    (Dollars in thousands)
Loans accounted for on a nonaccrual basis:
<S>                                                <C>                  <C>
   Real estate:
     Residential                                   $115              $   -
     Nonresidential                                   -                  -
   Consumer                                           -                  2
                                                   ----               ----

     Total nonaccruing loans                        115                  2

Accruing loans contractually past due 
  90 days or more:
     Real estate:
       Residential                                    -                  -
       Nonresidential                                 -                  -
     Consumer                                         -                  -
                                                   ----               ----
     Total accruing loans contractually
       past due 90 days or more                       -                  -

Automobile loan pass-through certificates             -                 33
                                                   ----               ----

     Total nonperforming assets                    $115               $ 35
                                                   ====               ====

     Total loan loss allowance                     $196               $145
                                                   ====               ====

     Total nonperforming assets as
        a percentage of total assets                .13%               .04%
                                                    ===                ===
Loan loss allowance as a percent
   of nonperforming loans                           170%             7,250%
                                                    ===              =====

</TABLE>

                                       9
<PAGE>
     For the year ended  September 30, 1998,  gross interest  income which would
have been recorded had non-accruing  loans been current in accordance with their
original terms was $7,000.  During the year ended  September 30, 1998, less than
$1,000 was recorded as interest income as former nonaccruing loans were returned
to accrual status. During the periods shown, Peoples Federal had no restructured
loans within the meaning of Statement of Financial Accounting Standards ("SFAS")
No. 15. There are no loans which are not  currently  classified  as  nonaccrual,
more than 90 days past due or restructured but which may be so classified in the
near future  because  management has concerns as to the ability of the borrowers
to comply with repayment terms.

     OTS  regulations  require  that each thrift  institution  classify  its own
assets on a regular  basis.  Problem  assets are  classified  as  "substandard,"
"doubtful" or "loss."  "Substandard"  assets have one or more defined weaknesses
and are characterized by the distinct  possibility that the insured  institution
will sustain some loss if the deficiencies are not corrected.  "Doubtful" assets
have  the  same  weaknesses  as  "substandard"   assets,   with  the  additional
characteristics  that (i) the weaknesses  make collection or liquidation in full
on the basis of currently existing facts, conditions and values questionable and
(ii)  there  is a high  possibility  of  loss.  An asset  classified  "loss"  is
considered  uncollectible  and of such little value that its  continuance  as an
asset of the  institution  is not  warranted.  The  regulations  also  contain a
"special mention"  category,  consisting of assets which do not currently expose
an  institution  to a sufficient  degree of risk to warrant  classification  but
which possess credit deficiencies or potential weaknesses deserving management's
close attention.

     Generally,  Peoples Federal  classifies as "substandard" all loans that are
delinquent more than 90 days, unless management  believes the delinquency status
is short-term due to unusual circumstances.  Loans delinquent fewer than 90 days
may also be classified  if the loans have the  characteristics  described  above
rendering classification appropriate.

     No loans in Peoples  Federal's  portfolio were classified as problem assets
at September 30, 1998.

     Federal examiners are authorized to classify an association's assets. If an
association does not agree with an examiner's classification of an asset, it may
appeal this  determination to the Regional  Director of the OTS. Peoples Federal
had no disagreements  with the examiners  regarding the classification of assets
at the time of the last examination.

     OTS  regulations  require that Peoples  Federal  establish  prudent general
allowances  for loan losses for any loan  classified as substandard or doubtful.
If an asset, or portion  thereof,  is classified as loss, the  association  must
either  establish  specific  allowances  for losses in the amount of 100% of the
portion of the asset classified loss, or charge off such amount.

     Allowance for Loan Losses.  Peoples Federal maintains an allowance for loan
losses based upon a number of relevant factors,  including,  but not limited to,
trends in the level of nonperforming  assets and classified  loans,  current and
anticipated   economic  conditions  in  the  primary  lending  area,  past  loss
experience,  possible losses arising from specific problem assets and changes in
the composition of the loan portfolio.

     The single largest component of Peoples  Federal's loan portfolio  consists
of one- to four-family residential real estate loans. Substantially all of these
loans are secured by  residential  real estate and require a down payment of 20%
of the  lower of the  sales  price or  appraised  value of the real  estate.  In
addition,  all of these  loans are  secured by  property  in  Peoples  Federal's
primary  lending area.  Peoples  Federal's  practice of making loans only in its
local market area and  requiring a 20% down payment  have  contributed  to a low
charge-off history.

     In addition to one- to four-family  residential real estate loans,  Peoples
Federal makes  additional real estate loans  including home equity,  multifamily
residential  real estate,  nonresidential  real estate and  construction  loans.
These real estate  loans are secured by  property in Peoples  Federal's  lending
area and also require the borrower to provide a down  payment.  Peoples  Federal
has  not  experienced  any  charge-offs   from  these  other  real  estate  loan
categories.

     Management  believes that maintenance of the allowance at current levels is
prudent.  The  allowance  for loan losses is reviewed  quarterly by the Board of
Directors.  While  the  Board  of  Directors  believes  that  it uses  the  best
information  available to determine the  allowance  for loan losses,  unforeseen
market conditions could result in material  adjustments,  and net earnings could
be significantly  adversely affected, if circumstances differ substantially from
the assumptions used in making the final determination.


                                       10
<PAGE>
     The following table sets forth an analysis of Peoples  Federal's  allowance
for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                               For the year ended September 30,
                                                   1998                 1997
                                                    (Dollars in thousands)
<S>                                                <C>                   <C>
Balance at beginning of period                      $145                 $193

Charge-offs                                            -                  (60)
Recoveries                                             9                    -
Provision for loan losses (charged to
   operations)                                        42                   12
                                                    ----                 ----
Balance at end of period                            $196                 $145
                                                    ====                 ====
Ratio of net charge-offs (recoveries) to
   average net loans outstanding during
   the period                                       (.01)%                .12%
Ratio of allowance for loan losses to
   total loans                                       .29%                 .23%

</TABLE>

     At  September  30,  1998,  $30,000  of the  allowance  for loan  losses was
allocated to  nonresidential  loans and $166,000  was  allocated to  residential
loans.  At September  30,  1997,  $20,000 of the  allowance  for loan losses was
allocated to  nonresidential  loans and $125,000  was  allocated to  residential
loans.

Mortgage-Backed and Related Securities

     Peoples  Federal  maintains  a  significant  portfolio  of  mortgage-backed
securities  in the form of Federal  Home Loan  Mortgage  Corporation  ("FHLMC"),
Federal National Mortgage  Association ("FNMA") and Government National Mortgage
Association ("GNMA") participation certificates,  as well as two mortgage-backed
securities  not  issued  by  government  agencies.   Mortgage-backed  securities
generally entitle Peoples Federal to receive a portion of the cash flows from an
identified  pool  of  mortgages.  FHLMC,  FNMA  and  GNMA  securities  are  each
guaranteed by their respective agencies as to principal and interest.

     The FHLMC is a corporation  chartered by the U.S. Government and guarantees
the  timely  payment  of  interest  and the  ultimate  return  of  principal  on
participation  certificates.  The FNMA is a  corporation  chartered  by the U.S.
Congress and  guarantees  the timely  payment of principal  and interest on FNMA
securities.  Although FHLMC and FNMA securities are not backed by the full faith
and credit of the U.S.  Government,  these  securities are generally  considered
among the highest  quality  investments  with minimal credit risk. The GNMA is a
government   agency.   GNMA   securities   are   backed   by   Federal   Housing
Authority-insured  and  Veterans  Administration-guaranteed  loans.  The  timely
payment of principal  and interest on GNMA  securities is guaranteed by the GNMA
and backed by the full faith and credit of the U.S. Government.

     Peoples Federal has also invested in  mortgage-backed  securities issued by
two other issuers.  The first security represents a $700,000 interest in a trust
fund  consisting  primarily of a pool of conventional  adjustable-rate  mortgage
loans secured by first liens on multifamily  residential real estate  originated
by  Guardian  Savings  and Loan  Association  located in  California  ("Guardian
Savings").  Peoples  Federal  receives a portion of the  principal  and interest
payments made on the underlying loans. The risks of such securities  include the
possibility  that borrowers will default on the loans or that borrowers will pay
the loans before maturity, reducing the yield on Peoples Federal's investment.

     The second such  security  represents  the right to receive  principal  and
interest payments from mortgage loans obtained by persons  purchasing  timeshare
units in Discovery  Beach Resort and Tennis Club in Cocoa  Beach,  Florida.  The
loans are secured by mortgages on the underlying  timeshare  units.  As with the
Guardian Savings  securities,  this security's risks include default on or early
repayment of the loans. As the collateral for the loans is vacation property, it
can  reasonably  be  anticipated  that a borrower  might  default on such a loan
rather than default on a loan secured by a primary  residence.  The market value
of such security at September 30, 1998, was $91,000.

     Neither of the privately issued  mortgage-backed  securities is guaranteed.
Peoples Federal is receiving timely payments on both securities.


                                       11
<PAGE>
     Peoples Federal has also invested in  collateralized  mortgage  obligations
("CMOs").  CMOs are securities issued by special purpose entities and secured by
mortgage-backed securities. The cash flow from the mortgages underlying a CMO is
segmented  and paid in  accordance  with a  predetermined  priority to investors
holding various CMO classes.  Each class has its own stated maturity,  estimated
average  life,  coupon  rate  and  prepayment  characteristics.  All of  Peoples
Federal's  CMOs are performing in accordance  with their terms.  All of People's
Federal's CMOs are issued by and  guaranteed by FNMA and FHLMC.  None of Peoples
Federal's CMOs are considered "high risk" under OTS pronouncements.

     Mortgage-backed and related securities generally yield less than individual
loans originated by Peoples Federal.  In addition,  a high rate of prepayment of
the underlying  loans could have a material  negative effect on the yield on the
securities,  which are  purchased  at a premium  over their  original  principal
amounts.  Mortgage-backed  and related  securities present less credit risk than
loans  originated  by Peoples  Federal  and held in its  portfolio,  and Peoples
Federal has purchased adjustable-rate  mortgage-backed and related securities as
part of its effort to reduce its interest rate risk.  If interest  rates rise in
general, including the interest paid by Peoples Federal on its liabilities,  the
interest rates on the loans backing the  mortgage-backed  and related securities
will also  adjust  upward.  At  September  30,  1998,  $8.2  million  of Peoples
Federal's mortgage-backed and related securities had adjustable rates.

     The  following  table sets forth the  carrying  value of Peoples  Federal's
mortgage-backed and related securities at the dates indicated.
<TABLE>
<CAPTION>

                                                          At September 30,  
                                                    1998                 1997
                                                          (In thousands)
<S>                                                  <C>                  <C>
FNMA certificates                                 $    895             $  1,379
GNMA certificates                                    4,925                6,470
FHLMC certificates                                   2,743                4,260
Guardian Savings and Loan certificate                  700                  897
Discovery Resort Limited Partnership Notes              91                  179
FNMA and FHLMC real estate mortgage
   investment conduits ("REMICs")                    3,905                2,313
                                                   -------              -------
   Total mortgage-backed  and related
     securities                                    $13,259              $15,498
                                                   =======              =======
</TABLE>
















                                       12


<PAGE>


     The following table sets forth information  regarding scheduled maturities,
amortized costs,  market value and weighted average yields of Peoples  Federal's
mortgage-backed   and  related  securities  at  September  30,  1998.   Expected
maturities will differ from contractual  maturities due to scheduled  repayments
and because  borrowers may have the right to call or prepay  obligations with or
without   prepayment   penalties.   The  following  table  does  not  take  into
consideration  the effects of  scheduled  repayments  or the effects of possible
prepayments.
<TABLE>
<CAPTION>

                                                                 At September 30, 1998
                                                                                                                         
                           One year or less       After one to five years  After five to ten years     After ten years   
                          Carrying    Average     Carrying      Average    Carrying     Average     Carrying    Average  
                            value       yield       value        yield       value       yield        value       yield  
                                                                                 (Dollars in thousands)
<S>                           <C>       <C>           <C>        <C>          <C>         <C>         <C>           <C>  
FNMA certificates          $   -          - %      $   -            - %       $275        7.69%     $   620        7.02% 
GNMA certificates              -          -            -            -            -          -         4,925        6.83  
FHLMC certificates             -          -            -            -          593        8.23        2,150        7.10  
Guardian Savings and
   Loan certificate            -          -            -            -            -          -           700        6.55  
Discovery Resort
   Limited Partnership         -          -           91          7.86           -          -             -          -   
   Notes
FHLMC  REMICs                  -          -            -            -            -          -         3,905        6.22  
                            ----        ----         ---          ----         ---        ----       ------        ----  
      Total                $   -          - %       $ 91          7.86%       $868        8.06%     $12,300        6.68% 
                            ====        ====         ===          ====         ===        ====       ======        ====  



                                At September 30, 1998
                      Total mortgage-backed and related securities    
                                     portfolio
                       Carrying        Market        Average
                         value         value          yield
                                 (Dollars in thousands)
                      
<S>                         <C>         <C>             <C>
FNMA certificates      $   895        $   941          7.22%
GNMA certificates        4,925          4,964          6.83
FHLMC certificates       2,743          2,779          7.34
Guardian Savings and
   Loan certificate        700            700          6.55
Discovery Resort
   Limited Partnership      91             91          7.86
   Notes
FHLMC  REMICs            3,905          3,905          6.22
                        ------         ------          ----
      Total            $13,259        $13,380          6.77%
                        ======         ======          ====

</TABLE>



         For  additional  information,  see Note B of the Notes to  Consolidated
Financial Statements.



                                       13
<PAGE>

Investment Activities

     OTS regulations  require that Peoples Federal  maintain a minimum amount of
liquid assets, which may be invested in U. S. Treasury  obligations,  securities
of various federal agencies,  certificates of deposit at insured banks, bankers'
acceptances  and  federal  funds.  Peoples  Federal  is also  permitted  to make
investments in certain commercial paper,  corporate debt securities rated in one
of the four  highest  rating  categories  by one or more  nationally  recognized
statistical rating organizations, and mutual funds, as well as other investments
permitted by federal regulations.

     Peoples  Federal's  investments  include three automobile loan pass-through
certificates.  Such  certificates  represent  interests  in pools of  automobile
loans.  In  November  1996,  Duff  &  Philips   withdrew  its  ratings  on  some
certificates, without stating a reason. At September 30, 1997, these investments
were  written down to  estimated  realizable  value.  During  fiscal  1998,  all
collections  were  applied  to  principal  until  the  recorded  values  of  the
investments were eliminated.  Further collections were recorded as a recovery to
the allowance for loan losses.

     The  following  table  sets  forth the  composition  of  Peoples  Federal's
certificates of deposit in the Federal Home Loan Bank (the "FHLB") of Cincinnati
and investment securities at the dates indicated:
<TABLE>
<CAPTION>

                                                                  At September 30,   

                                                  1998                                        1997  
                                 Carrying     % of     Market      % of      Carrying     % of     Market      % of
                                   value     Total      value     Total        value     Total     value      Total
                                                               (Dollars in thousands)
<S>                                 <C>        <C>       <C>       <C>        <C>        <C>       <C>       <C>
Certificates of deposit in
   the FHLB                     $      -         - %$       -         - %     $1,000     16.48%    $1,000     16.35%
Investment securities:
   U.S. government and federal
     agency securities             1,003     22.70      1,003     22.30        1,496     24.66      1,496     24.45
   FHLB and FHLMC stock            2,449     55.42      2,449     54.46        2,451     40.41      2,451     40.06
   Automobile loan pass-through
     certificates                      -         -          -         -          146      2.41        146      2.39
   Municipal securities              967     21.88      1,045     23.24          973     16.04      1,025     16.75
                                 -------     -----      -----     -----       ------    ------     ------    ------
Total interest-bearing deposits
   and investment securities      $4,419    100.00%    $4,497    100.00%      $6,066    100.00%    $6,118    100.00%
                                  ======    ======     ======    ======       ======    ======     ======    ======

</TABLE>
















                                       14

<PAGE>


     The following tables set forth the contractual maturities, carrying values,
market values and average yields for Peoples  Federal's  certificates of deposit
in the FHLB of Cincinnati and investment securities at September 30, 1998.
<TABLE>
<CAPTION>

                                                                   At September 30, 1998   
                                          One year or less          After one to five years              After five
                                                                                                            years  
                                     Carrying        Average        Carrying        Average        Carrying        Average
                                       value           yield          value           yield          value           yield  
                                                                     (Dollars in thousands)
<S>                                     <C>             <C>             <C>            <C>             <C>            <C>
Investment securities:
   U.S. government and federal
     agency securities                $     -             - %         $1,003          6.13%           $   -              - %
   FHLB and FHLMC stock                 2,449          3.18                -               -              -              -
   Municipal securities                    12          6.50              123          6.31              832           6.08
                                       ------          ----           ------          ----             ----           ----
     Total                             $2,461          3.20%          $1,126          6.15%            $832           6.08%
                                       ======          ====           ======          ====             ====           ====

</TABLE>




<TABLE>
<CAPTION>

                                                            At September 30, 1998
                                      Average                                                 Weighted
                                        life             Carrying            Market           average
                                      in years             value             value              yield
                                                          (Dollars in thousands)
<S>                                    <C>                  <C>                 <C>              <C>
Investment securities:
   U.S. government and federal
     agency securities                 4.32                $1,003              $1,003           6.13%
   FHLB and FHLMC stock                   -                 2,449               2,449           3.18
   Municipal securities                6.20                   967               1,045           6.11
                                                           ------              ------           ----

     Total                             5.26                $4,419              $4,497           4.49%
                                                           ======              ======           ====
</TABLE>


Deposits and Borrowings

     General.  Deposits have  traditionally  been the primary  source of Peoples
Federal's funds for use in lending and other investment activities.  In addition
to deposits,  Peoples Federal derives funds from interest payments and principal
repayments  on loans  and  mortgage-backed  and  related  securities,  income on
earning assets,  service charges and gains on the sale of assets.  Loan payments
are a relatively  stable  source of funds,  while  deposit  inflows and outflows
fluctuate  more  in  response  to  general   interest  rates  and  money  market
conditions.  Peoples  Federal first received FHLB advances in April 1998 and PFC
borrowed funds for a brief period in September and October 1997.

     Deposits.  Deposits are attracted principally from within Peoples Federal's
primary  market  area  through  the  offering  of a broad  selection  of deposit
instruments,  including  negotiable order of withdrawal ("NOW") accounts,  money
market  accounts,  passbook  savings  accounts  and term  certificate  accounts.
Although  Peoples  Federal has some  individual  retirement  accounts  ("IRAs"),
Peoples Federal has not offered new IRAs for several years. Interest rates paid,
maturity terms,  service fees and withdrawal  penalties for the various types of
accounts are established periodically by the management of Peoples Federal based
on Peoples  Federal's  liquidity  requirements,  growth goals and interest rates
paid by competitors. Peoples Federal does not use brokers to attract deposits.

     At September 30, 1998,  Peoples  Federal's  certificates of deposit totaled
$50.9 million,  or 77% of total deposits.  Of such amount,  approximately  $29.3
million  in  certificates  of  deposit  mature  within  one year.  Based on past
experience  and Peoples  Federal's  prevailing  pricing  strategies,  management
believes that a  substantial  percentage  of such  certificates  will renew with
Peoples Federal at maturity. If there is a significant deviation from historical
experience,  Peoples  Federal  can  utilize  borrowings  from  the  FHLB  as  an
alternative to this source of funds.



                                       15
<PAGE>
     The following table sets forth the dollar amount of deposits in the various
types of savings programs offered by Peoples Federal at the dates indicated:
<TABLE>
<CAPTION>

                                                        At September 30, 
                                             1998                          1997  
                                                  Percent                       Percent
                                                 of total                      of total
                                     Amount      deposits           Amount     deposits
                                                   (Dollars in thousands)
<S>                                    <C>           <C>              <C>         <C>
Transaction accounts:
 NOW accounts (1)                    $ 1,824         2.77%          $ 2,497        3.80%
 Money market accounts (2)             2,616         3.97             2,588        3.94
 Passbook savings accounts (3)        10,433        15.86            11,395       17.36
                                     -------       ------           -------      ------

  Total transaction accounts          14,873        22.60            16,480       25.10

Certificates of deposit:
   2.01 -  4.00%                         126          .19               160         .24
   4.01 -  6.00%                      36,181        54.99            29,971       45.65
   6.01 -  8.00%                      14,617        22.22            19,049       29.01
                                     -------       ------           -------      ------

  Total certificates of deposit       50,924        77.40            49,180       74.90
                                     -------       ------           -------      ------

  Total deposits (4)                 $65,797       100.00%          $65,660      100.00%
                                     =======       ======           =======      ======
</TABLE>

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

(1)  Peoples  Federal's  weighted  average  interest  rate paid on NOW  accounts
     fluctuates  with the  general  movement  of interest  rates.  The  weighted
     average rate on NOW accounts was 1.75% and 1.50% at September  30, 1998 and
     1997, respectively.

(2)  Peoples  Federal's  weighted  average  interest  rate paid on money  market
     accounts  fluctuates  with the  general  movement of  interest  rates.  The
     weighted  average  rate on money  market  accounts  was  2.19% and 2.10% at
     September 30, 1998 and 1997, respectively.

(3)  Peoples  Federal's  weighted  average  rate on  passbook  savings  accounts
     fluctuates  with the  general  movement  of interest  rates.  The  weighted
     average rate on passbook accounts was 2.00% at September 30, 1998 and 1997.

(4)  IRAs are included in the various  certificates  of deposit  balances.  IRAs
     totaled   $126,000  and  $160,000  as  of  September  30,  1998  and  1997,
     respectively.

















                                       16
<PAGE>

     The  following  table  shows  rate and  maturity  information  for  Peoples
Federal's certificates of deposit as of September 30, 1998:
<TABLE>
<CAPTION>
                                                      Amount Due  
                                            Over         Over
                             Up to       1 year to    2 years to       Over
      Rate                  one year      2 years       3 years      3 years        Total
                                                    (In thousands)
<S>                           <C>             <C>         <C>            <C>          <C>
2.01 -   4.00%              $    60       $     66       $    -        $    -       $   126
4.01 -   6.00                20,922         11,318        1,635         2,306        36,181
Over  6.01                    8,286          2,999        1,675         1,657        14,617
                            -------        -------       ------        ------       -------

Total certificates
  of deposit                $29,268        $14,383       $3,310        $3,963       $50,924
                            =======        =======       ======        ======       =======

</TABLE>

     The following table presents the amount of Peoples  Federal's  certificates
of  deposit of  $100,000  or more by the time  remaining  until  maturity  as of
September 30, 1998:
<TABLE>
<CAPTION>

    Maturity                                                Amount
                                                        (In thousands)
<S>                                                          <C>
    Three months or less                                   $   744
    Over 3 months to 6 months                                  439
    Over 6 months to 12 months                               2,315
    Over 12 months                                           2,400
                                                           -------

        Total                                              $ 5,898
                                                           =======
</TABLE>


     The following  table sets forth Peoples  Federal's  deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>

                                                Year ended September 30,
                                                1998               1997
                                                 (Dollars in thousands)
<S>                                                <C>               <C>
   Beginning balance                            $65,660            $64,355

   Deposits                                      53,991             46,296
   Withdrawals                                   56,220            (47,260)
                                                -------            -------
   Net decreases before interest credited        (2,229)              (964)
   Interest credited                              2,366              2,269
                                                -------            -------
   Ending balance                               $65,797            $65,660
                                                =======            =======

     Net increase                               $   137            $ 1,305

     Percent increase                               .21%              2.03%

</TABLE>

     Borrowings.  The FHLB System  functions as a central reserve bank providing
credit for its member institutions and certain other financial institutions.  As
a  member  in good  standing  of the  FHLB of  Cincinnati,  Peoples  Federal  is
authorized to apply for advances from the FHLB of Cincinnati,  provided  certain
standards of  creditworthiness  have been met.  Under  current  regulations,  an
association must meet certain  qualifications  to be eligible for FHLB advances.
The extent to which an  association  is eligible for such  advances  will depend



                                       17
<PAGE>
upon whether it meets the Qualified  Thrift Lender Test (the "QTL Test").  If an
association  meets the QTL Test, it will be eligible for 100% of the advances it
would otherwise be eligible to receive.  If an association does not meet the QTL
Test,  it will be  eligible  for  such  advances  only to the  extent  it  holds
specified  QTL Test  assets.  At  September  30,  1998,  Peoples  Federal was in
compliance with the QTL Test.

     The following table sets forth certain  information as to PFC's  borrowings
at the dates indicated:
<TABLE>
<CAPTION>

                                                          At September 30,  
                                                    1998                 1997
                                                      (Dollars in thousands)
<S>                                                   <C>                 <C>
FHLB advances                                       $4,000               $    -
Weighted average interest rate of FHLB
   advances                                           5.68%                   -
Other borrowings                                         -                3,000
Weighted average interest rate of other
   borrowings                                            -                 8.50%

</TABLE>

     The following table sets forth the maximum balance, the average balance and
the weighted average interest rate of PFC's borrowings:
<TABLE>
<CAPTION>

                                                     Year ended September 30,  
                                                    1998                 1997
                                                      (Dollars in thousands)
<S>                                                  <C>                 <C>
Maximum balance                                   $4,000               $3,000
Average balance                                    1,583                  231
Weighted average interest rate                      4.85%                 .69%
</TABLE>


     PFC  obtained  an  unsecured  90-day loan from a bank in the amount of $3.0
million,  with an interest rate of 8.5%, in September 1997 in  conjunction  with
its special distribution to shareholders. This loan was repaid in October 1997.

Yields Earned and Rates Paid

     The spread between the average interest rate on interest-earning assets and
the average interest rate on interest-bearing liabilities increased to 2.53% for
the year ended  September 30, 1998,  from 2.52% for the year ended September 30,
1997. The spread for the year ended September 30, 1997, increased from 2.25% for
the year ended September 30, 1996.

     The yield on interest-earning  assets increased to 7.48% for the year ended
September  30, 1998,  from 7.32% for the year ended  September  30,  1997,  as a
result of an  increase  in loans  receivable,  partly  offset by a  decrease  in
investments and mortgage-backed securities. The cost of funds to Peoples Federal
increased to 4.95% for the year ended  September  30,  1998,  from 4.80% for the
year ended  September 30, 1997, due to an increased  average  balance and higher
rates on certificates of deposit and increased borrowings.

     The yield on interest-earning  assets increased to 7.32% for the year ended
September  30, 1997,  from 7.23% for the year ended  September  30,  1996,  as a
result of an  increase  in loans  receivable,  partly  offset by a  decrease  in
investments and mortgage-backed securities. The cost of funds to Peoples Federal
decreased to 4.80% for the year ended  September  30,  1997,  from 4.98% for the
year ended  September  30,  1996,  due to  maturity  of  longer-term,  high-rate
certificates of deposit.





                                       18
<PAGE>


     The following table presents certain information  relating to PFC'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 daily balances, which include nonaccruing loans in the
loan portfolio, net of the allowance for loan losses.

<TABLE>
<CAPTION>

                                                                         Year ended September 30,  

                                                               1998                                      1997
                                               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                     $ 3,443      $  199          5.78%        $ 5,806      $  322          5.55%
   Investment securities                           4,850         221          4.56           8,255         448          5.42
   Mortgage-backed and related securities
                                                  12,413         870          7.01          21,674       1,483          6.84
   Loans receivable (1)                           60,876       4,815          7.91          49,717       4,000          8.05
                                                 -------      ------                       -------      ------
     Total interest-earning assets                81,582       6,105          7.48          85,452       6,253          7.32

Non-interest-earning assets:
   Cash and amounts due from depository
     institutions                                    273                                       269
   Premises and equipment, net                     1,403                                     1,463
   Other nonearning assets                           401                                       640
                                                 -------                                   -------
          Total assets                           $83,659                                   $87,824
                                                 =======                                   =======

Interest-bearing liabilities:
   NOW accounts                                  $ 1,698          22          1.30         $ 1,536          18          1.17
   Money market accounts                           2,590          62          2.39           2,708          57          2.10
   Passbook savings accounts                      10,799         217          2.01          12,026         241          2.00
   Certificates of deposit                        50,013       2,918          5.83          46,941       2,727          5.81
                                                 -------      ------                       -------      ------
     Total deposits                               65,100       3,219          4.95          63,211       3,043          4.81

     Borrowings                                    1,814          96          5.29             250           4          1.60
                                                 -------      ------                       -------      ------

Total interest-bearing liabilities                66,914       3,315          4.95          63,461       3,047          4.80
                                                 -------      ------        ------         -------      ------        ------

Non-interest-bearing liabilities                   1,432                                     1,435
                                                 -------                                   -------

     Total liabilities                            68,346                                    64,896

Shareholder's equity                              15,313                                    22,928
                                                 -------                                   -------

Total liabilities and shareholders' equity       $83,659                                   $87,824
                                                 =======                                   =======
Net interest income; interest rate
spread                                                        $2,790          2.53%                     $3,206          2.52%
                                                              ======        ======                      ======        ======
Net interest margin (net interest income as
   a percent of average interest-earning
   assets)                                                                    3.42%                                     3.75%
                                                                            ======                                    ======
Average interest-earning assets to
   interest-bearing liabilities                                             121.92%                                   134.65%
                                                                            ======                                    ======
</TABLE>

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

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


                                       19
<PAGE>


     The  following  table sets  forth,  at the dates  indicated,  the  weighted
average yields earned on PFC's  interest-earning  assets,  the weighted  average
interest  yield  paid on  interest-bearing  liabilities  and the  interest  rate
spread.
<TABLE>
<CAPTION>

                                                                            At September 30, 
                                                                          1998            1997
<S>                                                                       <C>              <C>
Weighted average yield on loan portfolio                                  7.73%           7.97%
Weighted average yield on mortgage-backed and related securities          6.79            6.99
Weighted average yield on investment securities                           4.46            4.77
Weighted average yield on interest-bearing deposits                       4.44            5.07
Weighted average yield on all interest-earning assets                     7.34            7.55
Weighted average yield on deposits                                        5.07            4.97
Weighted average yield on borrowings                                      5.69            8.50
Weighted average yield paid on all interest-bearing liabilities           5.11            5.13
                                                                          ----            ----
Interest rate spread (spread between weighted average interest
   rate on all interest-bearing assets and all interest-bearing
   liabilities)                                                          2.23%           2.42%
                                                                          ====            ====

</TABLE>
 

     The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning  assets and  interest-bearing  liabilities
have affected  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,  
                                                     1998 vs. 1997                                1997 vs 1996
                                            Increase (decrease)                     Increase (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                 $(136)       $  13        $(123)       $ (73)        $  76        $   3
   Investment securities                      (156)         (70)        (226)          52           (39)          13
   Mortgage-backed and related securities     (648)          35         (613)        (136)           50          (86)
   Loans receivable                            882          (68)         814          794          (103)         691
                                             -----        -----        -----         ----          ----         ----

     Total interest income                     (58)         (90)        (148)         637           (16)         621
                                             -----        -----        -----         ----          ----         ----

Interest expense attributable to:
   NOW accounts                                  2            3            5            1            (2)          (1)
   Money market accounts                        (3)           7            4          (14)          (15)         (29)
   Passbook savings accounts                   (25)           1          (24)         (39)          (46)         (85)
   Certificates of deposit                     179           12          191         (134)          (99)        (233)
   Borrowings                                   83            9           92            4             -            4
                                             -----        -----        -----         ----          ----         ----

     Total interest expense                    236           32          268         (182)         (162)        (344)
                                             -----        -----        -----         ----          ----         ----

   Increase (decrease) in net interest
     income                                  $(294)       $(122)       $(416)        $819          $146         $965
                                             =====        =====        =====         ====          ====         ====

</TABLE>



                                       20
<PAGE>
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  recently  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 may illustrate Peoples Federal's interest rate risk.

     Generally,  NPV is the discounted  present value of the difference  between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on  interest-bearing  and other liabilities.  The application of the methodology
attempts  to  quantify  interest  rate risk as the change in the NPV which would
result from a theoretical  200 basis point (1 basis point equals .01%) change in
market interest rates.  Both a 200 basis point increase in market interest rates
and a 200 basis point decrease in market interest rates are  considered.  If the
NPV would decrease 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.

     At September 30, 1998, 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 $3.5 million at September 30, 1998,
Peoples Federal would have been required to deduct  approximately  $865,000 (50%
of the  approximate  $1.7 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,
1998, would still have exceeded the regulatory requirement by $6.8 million.

     Presented  below,  as of  September  30,  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.

     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.  The loan  portfolio of
Peoples  Federal  consists  almost  entirely of fixed-rate  loans.  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 to repricing. Assumptions used
in calculating the amounts in this table are OTS assumptions.
<TABLE>
<CAPTION>

                                                      September 30, 1998  
 Change in Interest Rate      Board Limit         $ Change           % Change
     (Basis Points)            % Change            in NPV             in NPV
<S>                               <C>              <C>                  <C>
          +300                   (75)%           $(5,668)               (40)%
          +200                   (45)             (3,494)               (25)
          +100                   (25)             (1,578)               (11)
             -                     -                   -                  -
          -100                   (25)              1,177                  8
          -200                   (45)              2,500                 18
          -300                   (75)              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

                                       21
<PAGE>
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 continue to rise from the recent historically low levels,
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.

     As part of  management's  overall  strategy to manage  interest  rate risk,
Peoples Federal commenced the origination of  adjustable-rate  mortgage loans in
June 1995.  At  September  30,  1998,  the  portfolio  included  $2.2 million of
three-year ARMs, $722,000 of one-year ARMs and $7.7 million of loans that adjust
for the first time after 10 years and then each year thereafter. In addition, at
September  30,  1998,  $8.2  million of Peoples  Federal's  mortgage-backed  and
related  securities were backed by mortgages with adjustable  rates.  Management
has also increased  consumer lending and expects such lending to become a larger
part  of  overall   lending   activities.   Consumer  loans   typically  have  a
significantly  shorter  weighted  average  maturity  and offer less  exposure to
interest  rate  risk.  In  the  event  interest  rates  decline,   however,  the
origination of  adjustable-rate  loans could be expected to decline as consumers
demand more fixed-rate  loans. On the deposit side,  management has attempted to
reduce the impact of interest  rate changes by  emphasizing  low  interest  rate
deposit  products  and  by  maintaining   competitive  pricing  on  longer  term
certificates of deposit.

Competition

     Peoples  Federal  competes for deposits  with other  savings  associations,
commercial  banks and credit unions and with the issuers of commercial paper and
other  securities,  such as shares in money  market  mutual  funds.  The primary
factors in competing for deposits are interest  rates and  convenience of office
location.   In  making  loans,  Peoples  Federal  competes  with  other  savings
associations,  commercial  banks,  consumer  finance  companies,  credit unions,
leasing  companies,  mortgage  companies  and  other  lenders.  Peoples  Federal
competes for loan  originations  primarily  through the interest  rates and loan
fees  offered  and  through the  efficiency  and  quality of services  provided.
Competition  is affected by, among other  things,  the general  availability  of
lendable funds,  general and local economic  conditions,  current  interest rate
levels and other factors which are not readily predictable.

     The size of financial institutions competing with Peoples Federal is likely
to  increase  as a result of changes in  statutes  and  regulations  eliminating
various   restrictions   on   interstate   and   inter-industry   branching  and
acquisitions. Such increased competition may have an adverse effect upon Peoples
Federal.

Subsidiaries

     Peoples Federal owns all of the outstanding  shares of Massillon  Community
Service   Corporation,   the  only  asset  of  which  was  stock  of   Intrieve,
Incorporated,  a data processing  company.  Such shares were redeemed on October
20, 1995.

Personnel

     As of September 30, 1998, Peoples Federal had 21 full-time  employees and 2
part-time employees.


                                   REGULATION

General

     PFC is a savings and loan  holding  company  within the meaning of the Home
Owners  Loan Act,  as  amended  (the  "HOLA").  Consequently,  PFC is subject to
regulation,  examination  and  oversight  by the OTS and  must  submit  periodic
reports  to the OTS  concerning  its  activities  and  financial  condition.  In
addition,  as a  corporation  organized  under  Ohio  law,  PFC  is  subject  to
provisions of the Ohio Revised Code applicable to corporations generally.

     As a savings  association  organized  under the laws of the United  States,
Peoples Federal is subject to regulatory  oversight by the OTS.  Because Peoples
Federal's  deposits are insured by the FDIC,  Peoples Federal is also subject to
examination  and  regulation  by the FDIC.  Peoples  Federal must file  periodic


                                       22
<PAGE>
reports  with  the  OTS  concerning  its  activities  and  financial  condition.
Examinations are conducted  periodically by the OTS to determine whether Peoples
Federal is in compliance with various  regulatory  requirements and is operating
in a safe  and  sound  manner.  Peoples  Federal  is a  member  of the  FHLB  of
Cincinnati.

     Congress is considering  legislation  to eliminate the federal  savings and
loan  charter  and  the  separate   federal   regulation  of  savings  and  loan
associations.  Pursuant to such legislation,  Congress may eliminate the OTS and
Peoples  Federal may be regulated  under federal law as a bank or be required to
change its charter. Such change in regulation or charter would likely change the
range of  activities  in which  Peoples  Federal  may engage and would  probably
subject Peoples  Federal to more regulation by the FDIC. In addition,  PFC might
become subject to a different set of holding  company  regulations  limiting the
activities in which PFC may engage and subjecting  PFC to additional  regulatory
requirements,  including separate capital requirements. At this time, PFC cannot
predict when or whether Congress may actually pass  legislation  regarding PFC's
and  Peoples  Federal's  regulatory  requirements  or  charter.   Although  such
legislation,  if  enacted,  may  change the  activities  in which PFC or Peoples
Federal  are  authorized  to  engage,  it is not  anticipated  that the  current
activities of either PFC or Peoples Federal will be materially affected by those
activity limits.

Ohio Corporation Law

     Merger Moratorium Statute.  Chapter 1704 of the Ohio Revised Code regulates
certain  takeover  bids  affecting  certain  public   corporations   which  have
significant  ties to Ohio. This statute  prohibits,  with some  exceptions,  any
merger,  combination or  consolidation  and any of certain other sales,  leases,
distributions,  dividends,  exchanges,  mortgages or  transfers  between an Ohio
corporation and any person who has the right to exercise,  alone or with others,
10%  or  more  of  the  voting  power  of  such   corporation   (an  "Interested
Shareholder"),  for three years  following  the date on which such person  first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested  Shareholder,  the
Board of  Directors  of the issuing  corporation  has  approved  the purchase of
shares which resulted in such person first becoming an Interested Shareholder.

     After the initial three-year  moratorium,  such a business  combination may
not occur unless (1) one of the specified exceptions applies, (2) the holders of
at least  two-thirds  of the voting  shares,  and of at least a majority  of the
voting shares not beneficially owned by the Interested Shareholder,  approve the
business  combination at a meeting called for such purpose,  or (3) the business
combination meets certain statutory criteria designed to ensure that the issuing
public corporation's remaining shareholders receive fair consideration for their
shares.

     An Ohio  corporation  may,  under certain  circumstances,  "opt out" of the
statute by  specifically  providing  in its articles of  incorporation  that the
statute does not apply to any business combination of such corporation. However,
the statute  still  prohibits for twelve  months any business  combination  that
would have been  prohibited  but for the adoption of such an opt-out  amendment.
The  statute  also  provides  that it will  continue  to apply  to any  business
combination  between a person who became an Interested  Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted.  PFC has
not opted out of the protection afforded by Chapter 1704.

     Control Share  Acquisition.  Section 1701.831 of the Ohio Revised Code (the
"Control Share  Acquisition  Statute")  requires that, with certain  exceptions,
acquisitions  of  voting   securities   which  would  result  in  the  acquiring
shareholder  owning 20%, 33-1/3% or 50% of the outstanding  voting securities of
an Ohio corporation (a "Control Share  Acquisition") must be approved in advance
by the holders of at least a majority of the  outstanding  voting shares of such
corporation represented at a meeting at which a quorum is present and a majority
of the portion of the  outstanding  voting shares  represented at such a meeting
excluding the voting shares owned by the acquiring shareholder, by certain other
persons who acquire or transfer  voting shares after public  announcement of the
acquisition  or by certain  officers  of the  corporation  or  directors  of the
corporation who are employees of the corporation.  The Control Share Acquisition
Statute was intended, in part, to protect shareholders of Ohio corporations from
coercive tender offers.

     Takeover  Bid  Statute.  Ohio law  provides  that an offeror may not make a
tender  offer or request or  invitation  for  tenders  that would  result in the
offeror  beneficially  owning  more than ten  percent of any class of the target
company's equity securities  unless such offeror files certain  information with
the Ohio Division of Securities  (the  "Securities  Division") and provides such
information to the target  company and the offerees  within Ohio. The Securities
Division  may suspend  the  continuation  of the  control bid if the  Securities
Division  determines that the offeror's filed  information does not provide full


                                       23
<PAGE>
disclosure to the offerees of all material  information  concerning  the control
bid.  The  statute  also  provides  that an offeror  may not  acquire any equity
security  of a  target  company  within  two  years  of the  offeror's  previous
acquisition  of any equity  security  of the same target  company  pursuant to a
control bid unless the Ohio  offerees  may sell such  security to the offeror on
substantially  the same terms as  provided  by the  previous  control  bid.  The
statute  does not apply to a  transaction  if either  the  offeror or the target
company is a savings  and loan  holding  company  and the  proposed  transaction
requires federal regulatory approval.

Office of Thrift Supervision

     General.  The OTS is an office of the  Department  of the  Treasury  and is
responsible  for  the  regulation  and  supervision  of all  federally-chartered
savings  associations  and all other savings  associations the deposits of which
are insured by the FDIC in the Savings Association Insurance Fund ("SAIF").  The
OTS  issues  regulations   governing  the  operation  of  savings  associations,
regularly  examines  such  associations  and  imposes   assessments  on  savings
associations based on their asset size to cover the costs of general supervision
and examination.  The OTS also may initiate  enforcement actions against savings
associations and certain persons  affiliated with them for violations of laws or
regulations  or for  engaging  in unsafe or unsound  practices.  If the  grounds
provided by law exist,  the OTS may  appoint a  conservator  or  receiver  for a
savings association.

     Savings  associations  are subject to  regulatory  oversight  under various
consumer  protection  and fair  lending  laws.  These laws  govern,  among other
things,  truth-in-lending  disclosures,  equal credit  opportunity,  fair credit
reporting  and  community  reinvestment.  Failure to abide by  federal  laws and
regulations  governing  community  reinvestment  could  limit the  ability of an
association to open a new branch or engage in a merger.  Community  reinvestment
regulations  evaluate  how well and to what  extent  an  institution  lends  and
invests in its  designated  service area,  with  particular  emphasis on low- to
moderate-income communities and borrowers in that area.

     Regulatory  Capital  Requirements.  Peoples  Federal  is  required  by  OTS
regulations to meet certain minimum capital  requirements.  The tangible capital
requirement  requires savings associations to maintain "tangible capital" of not
less than 1.5% of their  adjusted total assets.  Tangible  capital is defined in
OTS regulations as core capital minus any intangible assets.

     "Core  capital" is  comprised  of common  stockholders'  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 3% of their total assets.  The
OTS  has  proposed  to  amend  the  core  capital   requirement  so  that  those
associations  that do not have the  highest  examination  rating  and  exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's  examination rating and overall risk. Peoples
Federal  does not  anticipate  that it will be  adversely  affected  if the core
capital requirement regulation is amended as proposed.

     OTS  regulations  require that savings  associations  maintain  "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core  capital plus  certain  additional  items of capital,
which in the case of Peoples  Federal  includes a general loan loss allowance of
$196,000 at September 30, 1998.

     The OTS has  adopted an  interest  rate risk  component  to the  risk-based
capital  requirement,  though  the  implementation  of that  component  has been
delayed.  Pursuant to the interest rate risk  component,  a savings  association
will have to  measure  the  effect of an  immediate  200 basis  point  change in
interest rates on the value of its portfolio as determined under the methodology
of the OTS. If the measured  interest rate risk is above the level deemed normal
under the  regulation,  the  association  will be required to deduct one-half of
such excess  exposure from its total  capital when  determining  its  risk-based
capital.  In general, an association with less than $300 million in assets and a
risk-based  capital  ratio in excess of 12% will not be subject to the  interest
rate risk component. Pending implementation of the interest rate risk component,
the OTS has the authority to impose a higher individualized  capital requirement
on any savings  association it deems to have excess  interest rate risk. The OTS
also may adjust the risk-based capital requirement on an individualized basis to
take into  account  risks due to  concentrations  of credit and  non-traditional
activities.

     The OTS has  adopted  regulations  governing  prompt  corrective  action to
resolve  the  problems  of capital  deficient  and  otherwise  troubled  savings
associations.   At  each  successively   lower  defined  capital  category,   an
association  is subject  to more  restrictive  and more  numerous  mandatory  or
discretionary  regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's  capital category,  notwithstanding its

                                       24
<PAGE>
capital level, if, after notice and opportunity for hearing,  the association is
deemed to be  engaging  in an  unsafe or  unsound  practice  because  it has not
corrected  deficiencies  that resulted in it receiving a less than  satisfactory
examination  rating on matters  other  than  capital or it is deemed to be in an
unsafe or unsound  condition.  All  undercapitalized  associations must submit a
capital   restoration   plan  to  the  OTS   within  45  days   after   becoming
undercapitalized.  Such associations will be subject to increased monitoring and
asset  growth  restrictions  and will be required to obtain  prior  approval for
acquisitions,  branching  and  engaging in new lines of  business.  Furthermore,
critically  undercapitalized  institutions must be placed in  conservatorship or
receivership within 90 days of reaching that capitalization  level, except under
limited circumstances.  Peoples Federal's capital at September 30, 1998, met the
standards for the highest category, a "well-capitalized" institution.

     Federal  law  prohibits  a  savings   association  from  making  a  capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized.  In addition,  each company  controlling  an  undercapitalized
association  must  guarantee that the  association  will comply with its capital
plan until the association has been adequately  capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance.  The aggregate  liability  pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time  the  institution  became  undercapitalized  and  (b)  the  amount  that is
necessary to bring the association  into  compliance with all capital  standards
applicable to such association at the time the association  fails to comply with
its capital restoration plan.

     Liquidity.  OTS regulations require that a savings  association  maintain a
minimum daily balance of liquid assets (cash,  certain time  deposits,  bankers'
acceptances  and specified  United States  government,  state or federal  agency
obligations).  During fiscal 1998,  certain maturity  requirements were removed,
which,  in Peoples  Federal's  case,  resulted in a greater  eligible  liquidity
amount and  percentage  at  September  30,  1998,  than at prior  year ends.  At
September 30, 1998,  such minimum  requirement  was an amount equal to a monthly
average  of not  less  than 4% of its net  withdrawable  savings  deposits  plus
borrowings  payable in one year or less.  Monetary penalties may be imposed upon
associations failing to meet the liquidity  requirement.  The eligible liquidity
of Peoples Federal at September 30, 1998, was  approximately  $15.6 million,  or
23.8%.

     Qualified Thrift Lender Test. Savings associations are required to maintain
a specified  level of  investments  in assets that are  designated as qualifying
thrift investments ("QTIs"), which are generally related to domestic residential
real estate and manufactured  housing and include credit card, student and small
business loans and stock issued by any FHLB,  the FHLMC or the FNMA.  Under such
test, 65% of an institution's "portfolio assets" (total assets less goodwill and
other  intangibles,  property used to conduct business and 20% of liquid assets)
must consist of QTI on a monthly  average  basis in nine out of every 12 months.
Effective September 30, 1996, a savings association may also qualify as a QTL by
meeting the  definition of "domestic  building and loan  association"  under the
Internal  Revenue  Code of 1986,  as  amended  (the  "Code").  In  order  for an
institution to meet the definition of a "domestic building and loan association"
under the Code,  at least  60% of such  institution's  assets  must  consist  of
specified  types of property,  including cash loans secured by residential  real
estate or deposits,  educational loans and certain governmental obligations. The
OTS may grant  exceptions  to the QTL test  under  certain  circumstances.  If a
savings  association fails to meet the QTL test, the association and its holding
company  become  subject to certain  operating and  regulatory  restrictions.  A
savings association that fails to meet the QTL test will not be eligible for new
FHLB advances. At September 30, 1998, Peoples Federal met the QTL test.

     Lending Limit. OTS regulations  generally limit the aggregate amount that a
savings  association  can lend to one  borrower to an amount equal to 15% of the
association's  Lending  Limit  Capital.  A savings  association  may lend to one
borrower an  additional  amount not to exceed 10% of the  association's  Lending
Limit  Capital,  if the  additional  amount is fully secured by certain forms of
"readily  marketable   collateral."  Real  estate  is  not  considered  "readily
marketable  collateral."  Certain  types of loans are not subject to the lending
limit. A general  exception to the 15% limit  provides that an  association  may
lend to one borrower up to $500,000,  for any purpose.  In applying the limit on
loans to one borrower,  the  regulations  require that loans to certain  related
borrowers  be  aggregated.  At  September  30,  1998,  Peoples  Federal  was  in
compliance with this lending limit.

     Transactions  with Insiders and  Affiliates.  Loans to executive  officers,
directors and principal shareholders and their related interests must conform to
the  lending  limit on loans to one  borrower,  and the  total of such  loans to
executive  officers,   directors,   principal  shareholders  and  their  related
interests  cannot  exceed the  association's  Lending  Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits).   Most  loans  to   directors,   executive   officers  and  principal
shareholders  must be approved  in advance by a majority of the  "disinterested"
members of the board of  directors  of the  association,  with any  "interested"
director  not  participating.  All loans to  directors,  executive  officers and
principal  shareholders must be made on terms  substantially the same as offered
in  comparable  transactions  with  the  general  public  or as  offered  to all
employees in a company-wide benefit program, and loans to executive officers are
subject to additional  limitations.  Peoples Federal was in compliance with such
restrictions at September 30, 1998.


                                       25
<PAGE>
     All  transactions  between savings  associations  and their affiliates must
comply with  Sections  23A and 23B of the Federal  Reserve Act (the  "FRA").  An
affiliate of a savings  association is any company or entity that  controls,  is
controlled by or is under common control with the savings association. PFC is an
affiliate  of Peoples  Federal.  Generally,  Sections 23A and 23B of the FRA (i)
limit the extent to which a savings  association or its  subsidiaries may engage
in "covered  transactions"  with any one  affiliate to an amount equal to 10% of
such  institution's  capital stock and surplus,  (ii) limit the aggregate of all
such  transactions with all affiliates to an amount equal to 20% of such capital
stock and  surplus,  and (iii)  require that all such  transactions  be on terms
substantially  the same, or at least as favorable to the  association,  as those
provided in transactions  with a non-affiliate.  The term "covered  transaction"
includes the making of loans,  purchasing of assets, issuance of a guarantee and
other similar types of  transactions.  In addition to the limits in Sections 23A
and 23B,  a  savings  association  may not make any loan or other  extension  of
credit to an  affiliate  unless  the  affiliate  is engaged  only in  activities
permissible  for a bank  holding  company  and may not  purchase  or  invest  in
securities of any affiliate  except shares of a subsidiary.  Peoples Federal was
in compliance with these requirements and restrictions at September 30, 1998.

     Limitations on Capital Distributions.  The OTS imposes various restrictions
or requirements  on the ability of  associations to make capital  distributions,
including dividend  payments.  An association which has converted from mutual to
stock  form is  prohibited  from  declaring  or  paying  any  dividends  or from
repurchasing any of its stock if, as a result,  the net worth of the association
would be reduced below the amount  required to be maintained for the liquidation
account  established  in  connection  with its mutual to stock  conversion.  OTS
regulations also establish a three-tier  system limiting  capital  distributions
according  to  ratings  of  associations   based  on  their  capital  level  and
supervisory condition.

     Tier 1  consists  of  associations  that,  before  and after  the  proposed
distribution,  meet their fully phased-in capital requirements.  Associations in
this category may make capital  distributions during any calendar year up to the
greater of (i) 100% of net income, current year-to-date,  plus 50% of the amount
by which the lesser of the association's  tangible,  core or risk-based  capital
exceeds its fully phased-in capital  requirement for such capital component,  as
measured at the beginning of the calendar year,  and (ii) the amount  authorized
for a Tier 2 association. A Tier 1 association deemed to be in need of more than
normal  supervision  by  the  OTS  may  be  downgraded  to a  Tier  2 or  Tier 3
association. Peoples Federal meets the requirements for a Tier 1 association and
has not been notified of any need for more than normal supervision.

     Tier 2  consists  of  associations  that,  before  and after  the  proposed
distribution,  meet their  current  minimum,  but not fully  phased-in,  capital
requirements. Associations in this category may make capital distributions of up
to 75% of net income over the most recent four quarters.  Tier 3 associations do
not meet current  minimum capital  requirements  and must obtain OTS approval of
any capital  distribution.  Tier 2  associations  that propose to make a capital
distribution  in excess of the noted  safe  harbor  level  must also  obtain OTS
approval.  Tier 2 associations  proposing to make a capital  distribution within
the safe harbor provisions and Tier 1 associations proposing to make any capital
distribution  need only submit  written  notice to the OTS 30 days prior to such
distribution.

     As a  subsidiary  of PFC,  Peoples  Federal is  required to give the OTS 30
days' notice prior to declaring any dividend on its stock. The OTS may object to
the  distribution  during  such  30-day  period  based on safety  and  soundness
concerns.  Peoples  Federal paid  dividends to PFC totaling $4.0 million  during
fiscal 1998.

     Holding  Company  Regulation.  PFC is a savings  and loan  holding  company
within the meaning of the HOLA. As such, PFC has registered  with the OTS and is
subject to OTS regulations, examination, supervision and reporting requirements.

     The HOLA  generally  prohibits  a savings  and loan  holding  company  from
controlling any other savings  association or savings and loan holding  company,
without prior  approval of the OTS, or from  acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof,  which
is not a  subsidiary.  Under certain  circumstances,  a savings and loan holding
company is permitted to acquire,  with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without  such savings  association  being deemed to be  controlled  by PFC.
Except  with the prior  approval of the OTS, no director or officer of a savings
and loan holding  company or person owning or  controlling by proxy or otherwise
more than 25% of such holding  company's  stock may also acquire  control of any
savings institution,  other than a subsidiary institution,  or any other savings
and loan holding company.

     As a  unitary  savings  and loan  holding  company,  PFC  generally  has no
restrictions  on  its   activities.   Such  companies  are  the  only  financial
institution holding companies which may engage in any commercial, securities and


                                       26
<PAGE>
insurance  activities without restriction.  Congress is considering  legislation
which may limit  PFC's  ability  to  engage  in these  activities.  It cannot be
predicted  whether and in what form these proposals  might become law.  However,
such limits would not impact PFC's current  activities,  which consist solely of
holding  stock of Peoples  Federal.  The broad  latitude to engage in activities
under  current  law can be  restricted.  If the OTS  determines  that  there  is
reasonable  cause to believe that the continuation by a savings and loan holding
company of an  activity  constitutes  a serious  risk to the  financial  safety,
soundness or stability of its subsidiary savings association, the OTS may impose
such restrictions as deemed necessary to address such risk,  including  limiting
(i) payment of dividends by the savings  association,  (ii) transactions between
the savings  association  and its  affiliates,  and (iii) any  activities of the
savings association that might create a serious risk that the liabilities of PFC
and its  affiliates may be imposed on the savings  association.  Notwithstanding
the foregoing rules as to permissible  business  activities of a unitary savings
and loan holding  company,  if the savings  association  subsidiary of a holding
company  fails to meet the QTL test,  then such unitary  holding  company  would
become subject to the  activities  restrictions  applicable to multiple  holding
companies. At September 30, 1998, Peoples Federal met both those tests.

     If PFC acquired control of another savings institution,  other than through
a merger or other business  combination with Peoples Federal, PFC would become a
multiple  savings  and loan  holding  company.  Unless  the  acquisition  was an
emergency thrift acquisition and each subsidiary savings association met the QTL
test,  the  activities  of PFC and any of its  subsidiaries  (other than Peoples
Federal or other subsidiary savings associations) would thereafter be subject to
activity restrictions.

     The OTS may approve  acquisitions  resulting in the formation of a multiple
savings and loan holding company that controls savings associations in more than
one  state  only if the  multiple  savings  and loan  holding  company  involved
controls a savings  association  that  operated  a home or branch  office in the
state of the  association  to be acquired as of March 5, 1987, or if the laws of
the state in which the institution to be acquired is located specifically permit
institutions to be acquired by state-chartered  institutions or savings and loan
holding companies located in the state where the acquiring entity is located (or
by a holding company that controls such state-chartered  savings  institutions).
As under prior law, the OTS may approve an  acquisition  resulting in a multiple
savings and loan holding company controlling  savings  associations in more than
one state in the case of certain  emergency  thrift  acquisitions.  Bank holding
companies have had more expansive authority to make interstate acquisitions than
savings and loan holding companies since August 1995.

     Federal  Regulation of Acquisitions of Control of PFC and Peoples  Federal.
In addition to the Ohio law  limitations on the merger with, and acquisition of,
PFC, federal  limitations  generally require regulatory approval of acquisitions
at specified  levels.  Under pertinent  federal law and regulations,  no person,
directly or indirectly, or acting in concert with others, may acquire control of
Peoples  Federal or PFC without 60 days' prior  notice to the OTS.  "Control" is
generally  defined as having more than 25% ownership or voting  power;  however,
ownership  or voting  power of more than 10% may be deemed  "control" if certain
factors  are in place.  If the  acquisition  of  control  is by a  company,  the
acquiror must obtain approval,  rather than give notice, of the acquisition as a
savings and loan holding company.

     In addition,  any merger of Peoples  Federal must be approved by the OTS as
well as the Superintendent.  Further,  any merger of PFC in which PFC is not the
resulting company must also be approved by both the OTS and the Superintendent.

Federal Deposit Insurance Corporation

     Deposit  Insurance  and  Assessments.  The FDIC is an  independent  federal
agency  that  insures  the  deposits,  up to  prescribed  statutory  limits,  of
federally  insured banks and savings and loan  associations  and  safeguards the
safety and  soundness of the banking and savings and loan  industries.  The FDIC
administers two separate  insurance  funds,  the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings  associations.
Peoples Federal is a member of the SAIF and its deposit  accounts are insured by
the FDIC up to the prescribed  limits.  The FDIC has examination  authority over
all  insured  depository  institutions,   including  Peoples  Federal,  and  has
authority to initiate  enforcement  actions  against  federally-insured  savings
associations if the FDIC does not believe the OTS has taken  appropriate  action
to safeguard safety and soundness and the deposit insurance fund.

     The FDIC is required to maintain  designated levels of reserves in the SAIF
and in the BIF.  The FDIC may  increase  assessment  rates  for  either  fund if
necessary  to restore the fund's  ratio of  reserves to insured  deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based  assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the  institution  poses  to its  deposit  insurance  fund.  The  risk  level  is
determined  based on the  institution's  capital  level and the FDIC's  level of
supervisory concern about the institution.


                                       27
<PAGE>
     Prior to September  1996, the SAIF's ratio of reserves to insured  deposits
was  significantly  below the level  required by law,  while the BIF's ratio was
above the required level. As a result,  institutions with SAIF-insured  deposits
were  paying  higher  deposit  insurance   assessments  than  institutions  with
BIF-insured deposits.  Federal legislation providing for the recapitalization of
the SAIF became effective in September 1996 and included a special assessment of
$.657 per $100 of SAIF-insured  deposits held at March 31, 1995. Peoples Federal
had  approximately  $65.5  million in  deposits  at March 31,  1995,  and paid a
special assessment of $427,000.

Federal Reserve Requirements

     Effective December 1, 1998, FRB regulations require savings associations to
maintain reserves of 3% of net transaction  accounts (primarily NOW accounts) up
to $46.5 million (subject to an exemption of up to $4.9 million),  and of 10% of
net  transaction  accounts in excess of $46.5  million.  At September  30, 1998,
Peoples Federal was in compliance with the reserve  requirements  then in effect
and also with the new requirements.

Federal Home Loan Banks

     The Federal Home Loan Banks provide  credit to their members in the form of
advances.  Peoples  Federal  is a  member  of the  FHLB of  Cincinnati  and must
maintain an  investment  in the capital  stock of the FHLB of  Cincinnati  in an
amount  equal to the  greater  of 1.0% of the  aggregate  outstanding  principal
amount of Peoples Federal's  residential mortgage loans, home purchase contracts
and similar  obligations  at the  beginning of each year,  or 5% of its advances
from the  FHLB of  Cincinnati.  Peoples  Federal  was in  compliance  with  this
requirement with an investment in stock of the FHLB of Cincinnati of $861,000 at
September 30, 1998.

     FHLB  advances to member  institutions  who meet the QTL Test are generally
limited  to the  lower of (i) 25% of the  member's  assets  or (ii) 20 times the
member's  investment  in FHLB stock.  At September 30, 1998,  Peoples  Federal's
maximum  limit on advances  was  approximately  $17.2  million.  The granting of
advances  is also  subject to the  FHLB's  collateral  and  credit  underwriting
guidelines.

     Upon the origination or renewal of a loan or advance,  the FHLB is required
by law to obtain and maintain a security  interest in  collateral in one or more
of the following  categories:  fully-disbursed,  whole first  mortgage  loans on
improved  residential  property or securities  representing  a whole interest in
such  loans;  securities  issued,  insured or  guaranteed  by the United  States
Government  or an agency  thereof;  deposits  in any FHLB;  or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the FHLB, if such collateral has a readily  ascertainable value and the FHLB can
perfect its security interest in the collateral.

     The FHLB is required to  establish  standards of  community  investment  or
service  that its  members  must  maintain  for  continued  access to  long-term
advances.  The  standards  take into  account a member's  performance  under the
Community  Reinvestment Act and its record of lending to first-time home buyers.
All  long-term  advances  by the FHLB  must be made  only to  provide  funds for
residential housing finance.


                                    TAXATION

Federal Taxation

     PFC and  Peoples  Federal  are each  subject  to the  federal  tax laws and
regulations  which apply to corporations  generally.  In addition to the regular
income tax,  PFC and Peoples  Federal may be subject to an  alternative  minimum
tax.  An  alternative  minimum  tax is imposed  at a minimum  tax rate of 20% on
"alternative  minimum  taxable  income"  (which  is the  sum of a  corporation's
regular taxable income,  with certain  adjustments,  and tax preference  items),
less any available  exemption.  Such tax  preference  items include  interest on
certain  tax-exempt  bonds issued after August 7, 1986. In addition,  75% of the
amount  by  which  a  corporation's  "adjusted  current  earnings"  exceeds  its
alternative  minimum taxable income  computed  without regard to this preference
item and prior to reduction by net operating  losses, is included in alternative

                                       28
<PAGE>
minimum  taxable  income.  Net  operating  losses can offset no more than 90% of
alternative  minimum taxable income.  The alternative  minimum tax is imposed to
the  extent it  exceeds  the  corporation's  regular  income  tax.  Payments  of
alternative  minimum tax may be used as credits  against regular tax liabilities
in  future  years.  However,  the  Taxpayer  Relief  Act of  1997  repealed  the
alternative minimum tax for certain "small corporations" for tax years beginning
after  December  31,  1997.  A  corporation   initially  qualifies  as  a  small
corporation if it had average gross receipts of $5,000,000 or less for the three
tax years ending with its first tax year beginning after December 31, 1996. Once
a  corporation  is  recognized  as a small  corporation,  it will continue to be
exempt  from  the  alternative  minimum  tax for as long  as its  average  gross
receipts  for the  prior  three-year  period  does  not  exceed  $7,500,000.  In
determining  if a  corporation  meets this  requirement,  the first year that it
achieved small corporation status is not taken into consideration. PFC's average
gross receipts for the three tax years ending on September 30, 1998 is $174,000,
and,  as a result,  PFC does  qualify  as a small  corporation  exempt  from the
alternative  minimum tax. Peoples Federal's average gross receipts for the three
tax years  ending on  September  30, 1998,  is $6.1  million,  and, as a result,
Peoples  Federal  does  not  qualify  as a small  corporation  exempt  from  the
alternative minimum tax.

     Prior to the  enactment  of the Small  Business  Jobs  Protection  Act (the
"Act"),   which  was  signed  into  law  on  August  21,  1996,  certain  thrift
institutions,  such as Peoples  Federal,  were allowed  deductions for bad debts
under methods more  favorable than those granted to other  taxpayers.  Qualified
thrift  institutions  could  compute  deductions  for bad debts using either the
specific  charge-off  method of  Section  166 of the Code or one of two  reserve
methods of Section 593 of the Code. The reserve methods under Section 593 of the
Code permitted a thrift institution  annually to elect to deduct bad debts under
either (i) the "percentage of taxable  income" method  applicable only to thrift
institutions,  or (ii) the "experience"  method that also was available to small
banks.  Under the "percentage of taxable income"  method,  a thrift  institution
generally  was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable  income  (determined  without  regard to this deduction and
with  additional   adjustments).   Under  the  "experience"   method,  a  thrift
institution  was  generally  allowed a deduction for an addition to its bad debt
reserve  equal to the  greater  of (i) an  amount  based on its  actual  average
experience for losses in the current and five preceding  taxable years,  or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift  institution  could elect  annually to compute its allowable
addition to bad debt reserves for  qualifying  loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994, and
1993, Peoples Federal used the percentage of taxable income method.

     The Act  eliminated  the  percentage of taxable income method of accounting
for bad debts by thrift  institutions,  effective  for taxable  years  beginning
after 1995.  Thrift  institutions that are treated as small banks are allowed to
utilize the  experience  method  applicable to such  institutions,  while thrift
institutions  that are  treated  as large  banks  are  required  to use only the
specific charge off method.

     A thrift  institution  required to change its method of computing  reserves
for bad debt will  treat such  change as a change in the  method of  accounting,
initiated by the taxpayer and having been made with the consent of the Secretary
of the  Treasury.  Section  481(a) of the Code  requires  certain  amounts to be
recaptured with respect to such change.  Generally, the amounts to be recaptured
will be determined  solely with respect to the "applicable  excess  reserves" of
the taxpayer.  The amount of the applicable  excess  reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after 1995, subject to the residential loan requirement described
below. In the case of a thrift  institution that is treated as a large bank, the
amount of the institution's  applicable excess reserves  generally is the excess
of (i) the balances of its reserve for losses on qualifying  real property loans
(generally  loans secured by improved real estate) and its reserve for losses on
nonqualifying  loans  (all  other  types of  loans)  as of the close of its last
taxable year beginning  before  January 1, 1996,  over (ii) the balances of such
reserves as of the close of its last taxable year  beginning  before  January 1,
1988 (i.e., the "pre-1988  reserves").  In the case of a thrift institution that
is  treated  as  a  small  bank,  like  Peoples  Federal,   the  amount  of  the
institution's  applicable  excess  reserves  generally  is the excess of (i) the
balances of its reserve for losses on  qualifying  real  property  loans and its
reserve for losses on  nonqualifying  loans as of the close of its last  taxable
year beginning  before January 1, 1996,  over (ii) the greater of the balance of
(a) its pre-1988  reserves or (b) what the thrift's  reserves would have been at
the close of its last year  beginning  before  January 1,  1996,  had the thrift
always used the experience method.

     For taxable years that begin after December 31, 1995, and before January 1,
1998, if a thrift meets the  residential  loan  requirement  for a tax year, the
recapture of the applicable excess reserves  otherwise required to be taken into
account as a Code Section 481(a)  adjustment  for the year will be suspended.  A
thrift  meets  the  residential  loan  requirement  if,  for the tax  year,  the
principal amount of residential  loans made by the thrift during the year is not
less than its base  amount.  The "base  amount"  generally is the average of the
principal  amounts of the  residential  loans made by the thrift  during the six
most recent tax years beginning  before January 1, 1996. A residential loan is a
loan as  described  in Section  7701(a)(19)(C)(v)  (generally  a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.

                                       29

<PAGE>
     The  balance of the  pre-1988  reserves  is subject  to the  provisions  of
Section 593(e),  as modified by the Act, which require  recapture in the case of
certain excessive  distributions to shareholders.  The pre-1988 reserves may not
be  utilized  for  payment  of  cash  dividends  or  other  distributions  to  a
shareholder  (including  distributions in dissolution or liquidation) or for any
other  purpose  (except  to  absorb  bad debt  losses).  Distribution  of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits;  second, out of
the pre-1988  reserves;  and third, out of such other accounts as may be proper.
To the extent a distribution by Peoples Federal to PFC is deemed paid out of its
pre-1988  reserves under these rules, the pre-1988 reserves would be reduced and
the gross income of Peoples  Federal for tax purposes  would be increased by the
amount  which,  when  reduced by the income  tax,  if any,  attributable  to the
inclusion of such amount in its gross income,  equals the amount deemed paid out
of the pre-1988  reserves.  As of September 30, 1998,  the pre-1988  reserves of
Peoples Federal for tax purposes  totaled  approximately  $1.8 million.  Peoples
Federal believes it had approximately  $6.6 million of accumulated  earnings and
profits for tax purposes as of September 30, 1998,  which would be available for
dividend  distributions,  provided  regulatory  restrictions  applicable  to the
payment  of  dividends  are met.  No  representation  can be made as to  whether
Peoples  Federal  will have  current  or  accumulated  earnings  and  profits in
subsequent years.

     The tax  returns of Peoples  Federal  have been  audited or closed  without
audit through fiscal year 1993. In the opinion of management, any examination of
open  returns  would not  result in a  deficiency  which  could  have a material
adverse effect on the financial condition of Peoples Federal.

Ohio Taxation

     PFC is subject to the Ohio corporation  franchise tax, which, as applied to
PFC, is a tax measured by both net  earnings  and net worth.  The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.9% of computed  Ohio taxable  income in excess of $50,000 or (ii) 0.582% times
taxable net worth.  For tax years beginning after December 31, 1998, the rate of
tax is the  greater of (i) 5.1% on the first  $50,000 of computed  Ohio  taxable
income and 8.5% of  computed  Ohio  taxable  income in excess of $50,000 or (ii)
 .400% times taxable net worth.

     A special litter tax is also applicable to all corporations, including PFC,
subject  to  the  Ohio   corporation   franchise   tax  other  than   "financial
institutions."  If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first  $50,000 of computed  Ohio taxable  income and
 .22% of computed Ohio taxable income in excess of $50,000.  If the franchise tax
is paid on the net worth basis,  the litter tax is equal to .014% times  taxable
net worth.

     Peoples  Federal  is a  "financial  institution"  for  State  of  Ohio  tax
purposes.  As  such,  it is  subject  to the  Ohio  corporate  franchise  tax on
"financial  institutions,"  which is imposed  annually  at a rate of 1.5% of the
taxable  book  net  worth of  Peoples  Federal  determined  in  accordance  with
generally  accepted  accounting  principles.  For tax year  1999,  however,  the
franchise  tax on  financial  institutions  will be 1.4% of the taxable book net
worth  and for tax year 2000 and  years  thereafter  the tax will be 1.3% of the
taxable book net worth.  As a "financial  institution,"  Peoples  Federal is not
subject to any tax based upon net income or net profits  imposed by the State of
Ohio.















                                       30
<PAGE>
Item 2.       Description of Property

     The following  table sets forth certain  information at September 30, 1998,
regarding  the  properties  on which the main office,  the branch office and the
lending office of Peoples Federal are located:
<TABLE>
<CAPTION>

                                   Owned            Date            Square            Net
Location                         or leased        acquired         footage       book value(1)       Deposits
<S>                                <C>               <C>            <C>              <C>               <C>
Main Office:

211 Lincoln Way East
Massillon, Ohio  44646             Owned            1958            7,200          $660,000       $51.6 million

Branch Office:

2312 Lincoln Way N.W.
Massillon, Ohio  44647             Owned            1978            1,400           430,000       $14.2 million

Lending Office:

4344 Metro Circle, N.W.
North Canton, Ohio 44720         Leased(2)           N/A              -               8,000 (3)         N/A
</TABLE>

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

(1)  At September 30, 1998,  Peoples Federal's office premises and equipment had
     a  total  net  book  value  of $1.5  million.  For  additional  information
     regarding Peoples Federal's office premises and equipment,  see Notes A and
     E of Notes to Consolidated Financial Statements.

(2)  The lease is for a term of three years, expiring in 1999, with a three-year
     renewal option.

(3)  Consists of leasehold improvements.


Item 3.       Legal Proceedings

     Neither  PFC  nor  Peoples  Federal  is  presently  involved  in any  legal
proceedings of a material nature.  From time to time, Peoples Federal is a party
to legal proceedings incidental to its business to enforce its security interest
in collateral pledged to secure loans made by Peoples Federal.

Item 4.       Submission of Matters to a Vote of Security Holders

     Not applicable.
















                                       31
<PAGE>
                                     PART II

Item 5.       Market for Common Equity and Related Stockholder Matters

     There were 1,335,785  common shares of PFC outstanding on December 4, 1998,
held of record by approximately 340 shareholders. Price information with respect
to PFC's common shares is quoted on The Nasdaq SmallCap Market  ("Nasdaq") under
the symbol "PFFC." The high and low bids for the common shares of PFC, as quoted
by Nasdaq,  and  dividends  declared  per common  share for fiscal  years ending
September 30, 1997 and September 30, 1998, are set forth below.  Such amounts do
not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>

                           09/98       06/98      03/98       12/97       09/97       06/97      03/97      12/96
<S>                         <C>          <C>        <C>        <C>        <C>           <C>        <C>       <C>           
Dividends Declared         $ 0.150    $ 0.150    $ 0.125     $ 0.125    $ 5.125(1)    $ 0.125   $ 0.075   $      -
High Bid During Quarter     13.063     16.375     20.000      15.250     18.500        15.250    15.500     13.00
Low Bid During Quarter      10.313     12.625     14.000      12.500     15.250        14.625    13.000     11.50
</TABLE>

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

(1)  Of such distribution, $5.00 constituted a return of capital.


     The income of PFC consists of dividends which may  periodically be declared
and paid by the Board of  Directors of Peoples  Federal on the common  shares of
Peoples  Federal  held by PFC and  earnings on the $7.1  million in net proceeds
retained  by PFC from the sale of PFC's  common  shares in  connection  with the
Conversion.  In  addition  to certain  federal  income tax  considerations,  OTS
regulations  impose  limitations  on the payment of dividends  and other capital
distributions by savings associations.

     Under OTS regulations applicable to converted savings associations, Peoples
Federal is not  permitted  to pay a cash  dividend  on its common  shares if the
regulatory  capital of Peoples Federal would, as a result of the payment of such
dividend,  be reduced  below the amount  required  for the  liquidation  account
(which was established  for the purpose of granting a limited  priority claim on
the assets of Peoples Federal, in the event of a complete liquidation,  to those
members of Peoples  Federal before the Conversion who maintain a savings account
at Peoples  Federal  after the  Conversion)  or  applicable  regulatory  capital
requirements prescribed by the OTS.

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

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

     The  information  required  herein is  incorporated by reference from PFC's
1998 Annual Report to Shareholders ("Annual Report"), the Managements Discussion
and Analysis of which is included in Exhibit 13 as attached hereto.

Item 7.       Financial Statements

     The financial statements required herein are incorporated by reference from
the Annual Report, the financial  statements of which are included in Exhibit 13
attached hereto.



                                       32
<PAGE>
Item 8.       Changes in and Disagreements with Accountants on Accounting and 
              Financial Disclosure

     Not applicable.


                                    PART III

Item 9.       Directors, Executive Officers, Promoters and Control Persons; 
              Compliance with Section 16(a) of the Exchange Act

     The  information  contained in the definitive  Proxy Statement for the 1999
Annual Meeting of Shareholders of PFC (the "Proxy Statement"), which is included
as Exhibit 99.1 hereto, under the caption "PROPOSAL ONE - ELECTION OF DIRECTORS"
is incorporated herein by reference.

Item 10.      Executive Compensation

     The  information  contained  in  the  Proxy  Statement  under  the  caption
"COMPENSATION  OF EXECUTIVE  OFFICERS AND DIRECTORS" is  incorporated  herein by
reference.

Item 11.      Security Ownership of Certain Beneficial Owners and Management

     The information  contained in the Proxy Statement under the caption "VOTING
SECURITIES  AND  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT"  is
incorporated herein by reference.

Item 12.      Certain Relationships and Related Transactions

     The  information  contained  in  the  Proxy  Statement  under  the  caption
"COMPENSATION  OF EXECUTIVE  OFFICERS AND DIRECTORS - Certain  Transactions"  is
incorporated herein by reference.





















                                       33
<PAGE>
Item 13.  Exhibits and Reports on Form 8-K

          (a)  Exhibits

               3.1         Articles of Incorporation (incorporated by reference)

               3.2         Code of Regulations (incorporated by reference)

               10.1        Employment Agreement with Mr. Paul von Gunten  
                           (incorporated by reference)

               10.2        Employment Agreement with Ms. Linda Fowler 
                           (incorporated by reference)

               10.3        Employment Agreement with Mr. James Rinehart 
                           (incorporated by reference)

               10.4        Employment Agreement with Ms. Cynthia Wagner 
                           (incorporated by reference)

               10.5        Peoples  Financial   Corporation  1997  Stock  Option
                           and Incentive Plan(incorporated by reference)

               10.6        Peoples  Financial  Corporation  Recognition  and 
                           Retention  Plan and Trust Agreement (incorporated by
                           reference)

               13          Portions of 1998 Annual Report to Shareholders

               21          Subsidiaries of Peoples Financial Corporation 
                           (incorporated by reference)

               23          Consent of Grant Thornton LLP

               27          Financial Data Schedule

               99.1        Proxy  Statement for 1999 Annual Meeting of 
                           Shareholders (incorporated  by reference)

               99.2        Safe Harbor Under the Private Securities Litigation 
                           Reform Act of 1995

          (b)  No reports on Form 8-K were filed during the last  quarter of the
               fiscal year ended  September 30, 1998.





                                       34
<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                              PEOPLES FINANCIAL CORPORATION


                                               By/s/Paul von Gunten 
                                                  Paul von Gunten
                                                  President
                                                  (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following  persons on behalf of the registrant
and in the capacities and on the dates indicated.

By /s/ Paul von Gunten                         By /s/ James R. Rinehart   
    Paul von Gunten                               James R. Rinehart
    President and Director                        Treasurer
                                                  (Principal Financial Officer)


Date  December 16, 1998                        Date December 16, 1998



By /s/ Victor C. Baker                         By /s/ James P. Bordner 
    Victor C. Baker                               James P. Bordner
    Director                                      Director


Date  December 16, 1998                        Date December 16, 1998



By /s/ Vincent G. Matecheck                    By /s/ Thomas E. Shelt 
    Vincent G. Matecheck                          Thomas E. Shelt
    Secretary and Director                        Director



Date  December 16, 1998                        Date December 16, 1998



By /s/ Vincent E. Stephan                         
    Vincent E. Stephan
    Chairman of the Board and Director


Date  December 16, 1998





                                       35
<PAGE>


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT
NUMBER           DESCRIPTION
<S>                      <C>                                                               <C>
 3.1        Articles of Incorporation of Peoples Financial          Incorporated by reference to Pre-Effective Amendment
            Corporation                                             No. 1 to the Registration Statement on Form S-1 of
                                                                    the Registrant (No. 333-2690) filed with the
                                                                    Securities and Exchange Commission (the "SEC") on
                                                                    June 28, 1996 (the "S-1"), Exhibit 3.1.

 3.2        Code of Regulations of Peoples Financial Corporation    Incorporated by reference to Exhibit 3.2 to the S-1.

10.1        Employment Agreement with Mr. von Gunten                Incorporated by reference to Exhibit 10.1 to the
                                                                    Form 10-KSB filed by the Registrant with the SEC on
                                                                    December 26, 1996 (the "1996 10-KSB").

10.2        Employment Agreement with Ms. Fowler                    Incorporated by reference to Exhibit 10.2 to the
                                                                    1996 10-KSB.

10.3        Employment Agreement with Mr. Rinehart                  Incorporated by reference to Exhibit 10.3 to the
                                                                    1996 10-KSB.

10.4        Employment Agreement with Ms. Wagner                    Incorporated by reference to Exhibit 10.4 to the
                                                                    1996 10-KSB.

10.5        Peoples Financial Corporation 1997 Stock Option and     Incorporated by reference to Exhibit A to the
            Incentive Plan                                          definitive Proxy Statement filed with the SEC on
                                                                    February 6, 1997.

10.6        Peoples Financial Corporation Recognition and           Incorporated by reference to Exhibit B to the
            Retention Plan and Trust Agreement                      definitive Proxy Statement filed with the SEC on
                                                                    February 6, 1997.

 13         Portions of 1998 Annual Report to Shareholders

 21         Subsidiaries of Peoples Financial Corporation           Incorporated by reference to Exhibit 21 to the 1996
                                                                    10-KSB.
 23         Consent of Grant Thornton LLP

 27         Financial Data Schedule

99.1        Proxy  Statement for the 1999 Annual Meeting  of        Incorporated   by  reference  to   definitive   Proxy
            Shareholders.                                           Statement to be filed separately.

99.2        Safe Harbor  Under the Private  Securities  Litigation
            Reform Act of 1995

</TABLE>





                                       36