<PAGE>

                                   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, 2001

                           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,
2001, were $8.2 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 15, 2001, was $12.1 million.

                  1,234,085 of the issuer's common shares were issued and
outstanding on December 15, 2001.

Transitional Small Business Disclosure Format  [ ] Yes [X] No


<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. In July 2000, Peoples
Federal opened a full-service in-store branch inside a new Wal-Mart Supercenter,
also located in Massillon. 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 originates its mortgage loans in accordance with
traditional secondary market guidelines.




                                      -2-
<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,
                                                               -------------------------------------------------------
                                                                        2001                            2000
                                                                        ----                            ----
                                                                               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)                $80,933           81.21%         $73,042          80.74%
Home equity (secured by mortgages)                               2,791            2.80            1,759           1.94
Multifamily                                                        309             .31              313            .35
Nonresidential real estate loans                                 3,179            3.19            3,655           4.04
Construction loans                                              12,184           12.23           11,482          12.69
                                                               -------          ------          -------         ------

Total real estate loans                                         99,396           99.74           90,251          99.76

Consumer loans:
Loans on deposits                                                  133             .13              104            .12
Other consumer loans                                               131             .13              113            .12
                                                               -------            ----        ---------      ---------

Total consumer loans                                               264             .26              217            .24
                                                               -------            ----        ---------      ---------

Total loans                                                     99,660          100.00%          90,468         100.00%
                                                                                ======                          ======
Other items:
Deferred loan origination fees                                     (96)                             (61)
Loans in process                                                (5,633)                          (5,338)
Allowance for loan losses                                         (239)                            (235)
                                                               -------                        ---------

Net loans                                                      $93,692                          $84,834
                                                               =======                          =======
</TABLE>


         LOAN MATURITY SCHEDULE. The following table sets forth certain
information as of September 30, 2001, 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 more
                               Due during the year ending        Due 4-5     Due 6-10   Due 11-20    than 20
                                     September 30,               years        years       years      years
                             -------------------------------     after        after       after      after
                               2002        2003        2004      9/30/01     9/30/01     9/30/01     9/30/01      Total
                             -------     -------     -------     -------     -------     -------     -------     -------
                                                                     (In thousands)
<S>                          <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Mortgage loans:
  One- to four-family        $14,597     $ 2,707     $ 2,752     $ 5,827     $15,242     $26,393     $25,599     $93,117
    (first mortgage)
  Home equity (first and         124         136         141         267         524         298       1,301       2,791
    second mortgage)
  Multifamily                      -           -           -           -           -           -         309         309
  Nonresidential                  13           -          29         444         854       1,839           -       3,179
Consumer loans                    88          83          56          37           -           -           -         264
                             -------     -------     -------     -------     -------     -------     -------     -------

     Total loans             $14,822     $ 2,926     $ 2,978     $ 6,575     $16,620     $28,530     $27,209     $99,660
                             =======     =======     =======     =======     =======     =======     =======     =======
</TABLE>


         Of the loans due more than one year after September 30, 2001, loans
with aggregate balances of $68.5 million have fixed rates of interest, and loans
with aggregate balances of $16.3 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
residences, home equity loans and home equity lines of credit 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.


                                      -3-
<PAGE>
         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 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
5 years or 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 $83.7 million at September 30, 2001, and represented 84.0% of
loans at such date. The largest individual loan balance on a one- to four-family
loan at such date was $516,000. At such date, one loan secured by one- to
four-family residential real estate in the amount of $193,000 was more than 90
days delinquent or nonaccruing.

         Peoples Federal offers 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. 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, 2001, one- to four-family
mortgage loans included $972,000, or .98% of total loans, invested in bridge
loans secured by property located within the primary lending area. At such date,
no bridge loans were delinquent.

         Peoples Federal began offers 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 of the
prime rate as published in the WALL STREET JOURNAL for up to 80% loan-to-value
ratio and prime plus 1 1/2% for up tO 90% loan-to-value ratio, monthly payments
of interest only, a draw period of ten years and a repayment period of 15 years.
The maximum combined LTV of a home equity line of credit loan and any other
mortgage loan secured by the same property is 90%.

         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


                                      -4-
<PAGE>

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, 2001, loans secured by multifamily properties totaled
approximately $309,000, 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. These construction speculation loans
generally have a term of 24 months and are originated only with fixed rates of
interest. Other types of construction loans may be originated with adjustable
rates of interest based on the same indices, with the same margins over the
index and the same adjustment terms as Peoples Federal offers on one- to
four-family residential real estate loans. Construction loans to developers are
repaid when the property is sold. Construction loans to homeowners are converted
to residential real estate loans when construction is completed.

         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, 2001, a total of $12.2 million, or approximately 12.2%
of Peoples Federal's total loans, consisted of construction loans. Of such
total, $4.9 million consisted of loans to developers who did not have a
purchaser at the time the loan was originated. 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, 2001, 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 75% LTV
and a maximum term of five years, and on improved lots (streets with all city
utilities) in amounts up to 80% LTV for five years. Nonresidential real estate
loans may be originated with fixed rates of interest or adjustable rates based
on the same indices, with the same margins over the index and the same
adjustment terms as Peoples Federal offers on one- to four-family residential
real estate loans.

         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.

         At September 30, 2001, Peoples Federal had a total of $3.2 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-
<PAGE>

3.2% 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,
2001, Peoples Federal's nonresidential mortgage loans totaled 33.3% 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, 2001, Peoples Federal had approximately $264,000, or
less than one percent of its total loans, invested in consumer loans. At such
date, no such loans were more than 90 days delinquent.

         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 $500,000. If the loan amount exceeds $500,000, 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.

         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.


                                      -6-
<PAGE>

         LOAN ORIGINATIONS, PURCHASES AND SALES. Peoples Federal originated only
fixed-rate loans until July 1995. Peoples Federal began selling loans in May
2001 and originates its mortgage loans in accordance with Federal Home Loan
Mortgage Corporation ("FHLMC") secondary market guidelines.

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

                                                       Year ended September 30,
                                                      -------------------------
                                                        2001              2000
                                                      --------         --------
                                                            (In thousands)
Loans originated:
  One- to four-family residential (1)                 $ 31,198         $ 27,781
  Multifamily residential                                    -                -
  Nonresidential                                            70              560
  Consumer                                                 283              359
                                                      --------         --------
     Total loans originated                             31,551           28,700

Reductions:
  Principal repayments                                 (21,148)         (16,984)
  Loans sold                                            (1,588)               -
  Increase in other items, net (2)                          43               34
                                                      --------         --------

     Net increase                                     $  8,858         $ 11,750

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

(1)      Includes construction loans, net of undisbursed loans in process.

(2)      Consists of deferred fees and costs 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
$1.5 million to one borrower at September 30, 2001. The largest amount Peoples
Federal had outstanding to one borrower at September 30, 2001, was $1.3 million,
consisting of seven loans. Such loans were secured by three single-family
residences and four nonresidential properties. All of such loans were current at
September 30, 2001.

         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
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, 2001.


                                      -7-
<PAGE>

         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,
                                        ------------------------------------------------------------------------------------
                                                        2001                                          2000
                                        -----------------------------------------        -----------------------------------
                                                                         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                            9              $304                 .31%           3         $  62           .07%
  60 - 89 days                            2                12                 .01            -             -             -
  90 days and over                        2               203                 .20            7           223           .25
                                         --              ----                 ---           --          ----           ---
   Total delinquent loans                13              $519                 .52%          10          $285           .32%
                                         ==              ====                 ===           ==          ====           ===
-------------------------------------
</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:

                                                            At September 30,
                                                         ---------------------
                                                          2001        2000
                                                         (Dollars in thousands)
Loans accounted for on a nonaccrual basis:
  Real estate:
    Residential                                            $193       $192
    Nonresidential                                            -          -
  Consumer                                                    -          7
                                                           ----       ----
     Total nonaccruing loans                               $193        199

Accruing loans contractually past due 90 days or more:
    Real estate:
      Residential                                            10         24
      Nonresidential                                          -          -
    Consumer                                                  -          -
                                                           ----       ----
     Total accruing loans contractually past
       due 90 days or more                                   10         24
                                                           ----       ----

     Total nonperforming loans                             $203       $223
                                                           ====       ====

     Total loan loss allowance                             $239       $235
                                                           ====       ====

Total nonperforming assets as
a percentage of total assets                                .19%       .22%
                                                           ====       ====
Loan loss allowance as a percent
of nonperforming loans                                      118%       105%
                                                           ====       ====


         For the year ended September 30, 2001, gross interest income which
would have been recorded had non-accruing loans been current in accordance with
their original terms was $13,000. During the year ended September 30, 2001,
interest which would have been recorded on nonaccruing loans increased by
$6,000. 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.


                                      -8-
<PAGE>

"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.

         One mortgage loan in Peoples Federal's portfolio was classified as
substandard at September 30, 2001.

         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 15% 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 15% 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.

         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,
                                                                                       --------------------------------
                                                                                              2001        2000
                                                                                             -----       -----
                                                                                           (Dollars in thousands)

<S>                                                                                          <C>         <C>
Balance at beginning of period                                                               $ 235       $ 213

Charge-offs                                                                                     (8)          -
Recoveries                                                                                       -          10
Provision for loan losses (charged to operations)                                               12          12
                                                                                                         -----
Balance at end of period                                                                     $ 239       $ 235
                                                                                             =====       =====
Ratio of net charge-offs (recoveries) to average net loans outstanding during the period       .00%       (.01)%
Ratio of allowance for loan losses to total loans                                              .24%        .26%
</TABLE>


                                      -9-
<PAGE>

         At September 30, 2001, $20,000 of the allowance for loan losses was
allocated to nonresidential loans and $219,000 was allocated to residential
loans. At September 30, 2000, $30,000 of the allowance for loan losses was
allocated to nonresidential loans and $205,000 was allocated to residential
loans.

MORTGAGE-BACKED AND RELATED SECURITIES

         Peoples Federal maintains a significant portfolio of mortgage-backed
securities in the form of 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 another issuer. The security represents a $369,000 interest, at market value,
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.

         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, except one, are issued by and guaranteed by FNMA and
FHLMC. None of Peoples Federal's CMOs are considered "high risk" under OTS
pronouncements.

         Peoples Federal has purchased a privately issued CMO issued by General
Motors Acceptance Corporation ("GMAC"). The GMAC security carries an investment
grade rating and is backed by a diversified pool of fixed-rate mortgage loans
with first liens on primarily multifamily residential, retail, commercial and
industrial real estate properties. The GMAC security is carried at a market
value of $1.0 million as of September 30, 2001. Peoples Federal is receiving, on
a timely basis, the anticipated monthly interest payments related to the
investments from the issuer's trustee. Principal payments are expected to be
received in full by December 2007, the legal final maturity date.

         The risks of privately issued mortgage-backed and related 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. Peoples Federal is receiving timely payments on both
privately issued securities. Neither of the privately issued securities are
guaranteed.

         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, 2001, $2.9 million
of Peoples Federal's mortgage-backed and related securities had adjustable
rates.


                                      -10-
<PAGE>

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

                                                           At September 30
                                                         -------------------
                                                          2001         2000
                                                         ------       ------
                                                            (In thousands)

FNMA certificates                                        $1,412       $1,479
GNMA certificates                                         2,223        2,976
FHLMC certificates                                        1,694        3,191
Guardian Savings and Loan certificate                       369          566

Collateralized mortgage obligations -
  GMAC                                                    1,040        1,060
  FHLMC REMIC                                                71           96
                                                         ------       ------

Total mortgage-backed  and related securities            $6,809       $9,368
                                                         ======       ======


                                      -11-
<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, 2001. 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, 2001
                        -----------------------------------------------------------------------------------------------------------
                           One year or      After one to five    After five to ten       After ten      Total mortgage-backed and
                               less              years                  years              years        related securities portfolio
                       -------------------  -----------------   ------------------   ------------------ ----------------------------
                       Carrying    Average  Carrying  Average   Carrying   Average   Carrying   Average Carrying   Market    Average
                         value      yield    value     yield     value      yield     value      yield    value     value     yield
                                                                   (Dollars in thousands)

<S>                      <C>         <C>       <C>      <C>      <C>        <C>      <C>         <C>     <C>        <C>       <C>
FNMA certificates        $ -           -%      $ -         -%      $219     8.58%    $1,193      6.46%   $1,412     $1,434    6.99%
GNMA certificates          -           -         -         -          -        -      2,223      7.06     2,223      2,245    7.06
FHLMC certificates         -           -        50      8.50        297     8.08      1,347      5.77     1,694      1,715    6.30
Guardian Savings and       -           -         -         -          -        -        369      7.96       369        369    7.96
  Loan certificate
GMAC CMO                   -           -         -         -      1,040     8.20          -      -        1,040      1,040    8.20
FHLMC REMICs               -           -         -         -          -        -         71      4.50        71         71    4.50
                         ---          --       ---      ----     ------     ----     ------      ----    ------     ------    ----
   Total                 $ -           -%      $50      8.50%    $1,556     8.23%    $5,203      6.30%   $6,809     $6,874    7.09%
                         ===          ==       ===      ====     ======     ====     ======      ====    ======     ======    ====
</TABLE>


         For additional information, see Note 3 of the Notes to Consolidated
Financial Statements.





                                      -12-
<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.

         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,

                                                     2001                                           2000
                                 ---------------------------------------------   ------------------------------------------

                                  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>
Securities:
FHLB and FHLMC stock               $1,385       61.69%     $1,385     60.14%       1,511       61.50      1,511       60.56

Municipal securities                  860       38.31         918     39.86          946       38.50        984       39.44
                                   ------      ------      ------    ------        ------      ------     ------      ------

Total interest-bearing
   deposits and securities         $2,245      100.00%     $2,303    100.00%       $2,457      100.00%    $2,495      100.00%
                                   ======      ======      ======    ======        ======      ======     ======      ======
</TABLE>






                                      -13-

<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,
2001.

<TABLE>
<CAPTION>
                                                                   At September 30, 2001
                                     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>
Securities:
FHLB and FHLMC stock                $1,385           6.17%            $  -             - %            $  -             -%
Municipal securities                    12           6.35              191           5.85              657          6.11
                                    ------           ----             ----           ----             ----          ----
Total                               $1,397           6.18%            $191           5.85%            $657          6.11%
                                    ======           ====             ====           ====             ====          ====
</TABLE>


<TABLE>
<CAPTION>
                                                                     At September 30, 2001
                                         ------------------------------------------------------------------------------
                                          Average                                                              Weighted
                                           life                 Carrying                 Market                 average
                                         In years                 value                  value                   yield
                                         --------                 -----                  -----                   -----
                                                                     (Dollars in thousands)
<S>                                         <C>                      <C>                     <C>                  <C>
Securities:
FHLB and FHLMC stock                           -                  $1,385                  $1,385                  6.17
Municipal securities                        4.24                     860                     918                  6.05
                                                                  ------                  ------                  ----

Total                                                             $2,245                  $2,303                  6.13%
                                                                  ======                  ======                  ====
</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. FHLB
advances have become a substantial source of funds on which Peoples Federal
relies.

         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.
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, 2001, Peoples Federal's certificates of deposit
totaled $58.2 million, or 76.8% of total deposits. Of such amount, approximately
$37.8 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.


                                      -14-
<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,
                                             -------------------------------------------------------------------------
                                                         2001                                     2000
                                             -----------------------------               -----------------------------
                                                                  Percent                                      Percent
                                                                  of total                                    of total
                                             Amount               deposits               Amount               deposits
                                             ------               --------               ------               --------
                                                                      (Dollars in thousands)
<S>                                         <C>                    <C>                   <C>                   <C>
Transaction accounts:
--------------------
 NOW accounts(1)                             $3,400                  4.49%              $  2,865                 4.05%
 Premium savings accounts(2)                  4,990                  6.60                  3,072                 4.34
 Passbook savings accounts(3)                 9,099                 12.03                 10,189                14.40
                                            -------                ------                -------              -------

  Total transaction accounts                 17,489                 23.12                 16,126                22.79

Certificates of deposit:
-----------------------
   2.01 -  4.00%                              3,023                  3.99                    661                  .93
   4.01 -  6.00%                             20,452                 27.04                 23,564                33.30
   6.01 -  8.00%                             34,683                 45.85                 30,407                42.97
                                            -------                ------                -------              -------

  Total certificates of deposit              58,158                 76.88                 54,632                77.21
                                            -------                ------                -------              -------

  Total deposits                            $75,647                100.00%               $70,758               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 .51% and .48% at September 30, 2001
         and 2000, respectively.

(2)      Peoples Federal's weighted average interest rate paid on premium
         savings accounts fluctuates with the general movement of interest
         rates. The weighted average rate on premium savings accounts was 3.22%
         and 3.98% at September 30, 2001 and 2000, 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 1.77% and 2.00% at September 30,
         2001 and 2000.


         The following table shows rate and maturity information for Peoples
Federal's certificates of deposit as of September 30, 2001:


<TABLE>
<CAPTION>
                                                                       Amount Due
                                                      Over               Over
                                 Up to             1 year to           2 years to           Over
                                one year             2 years            3 years            3 years              Total
                                --------             -------            -------            -------              -----
                                                                    (In thousands)

<S>                            <C>                <C>               <C>                 <C>                   <C>
2.01 -   4.00%                 $  2,810           $     213         $        -          $        -            $  3,023
4.01 -   6.00                    11,323               5,679              2,155               1,295              20,452
Over  6.01                       23,682               5,811              3,969               1,221              34,683
                                -------            --------             ------              ------             -------

Total certificates
  of deposit                    $37,815             $11,703             $6,124              $2,516             $58,158
                                =======             =======             ======              ======             =======
</TABLE>



                                      -15-
<PAGE>

       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, 2001:

<TABLE>
<CAPTION>
                 Maturity                                                                 Amount
                 --------                                                                 ------
                                                                                      (In thousands)
<S>                                                                                      <C>
                 Three months or less                                                      2,515
                 Over 3 months to 6 months                                                   751
                 Over 6 months to 12 months                                                1,863
                 Over 12 months                                                            3,742
                                                                                          ------

                          Total                                                           $8,871
                                                                                          ======
</TABLE>


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

<TABLE>
<CAPTION>
                                                                   Year ended September 30,
                                                                ----------------------------
                                                                  2001               2000
                                                                --------           ---------
                                                                    (Dollars in thousands)

<S>                                                              <C>                 <C>
Beginning balance                                                $70,758             $66,276

Deposits                                                          72,154              68,497
Withdrawals                                                      (70,511)            (66,747)
                                                                --------             -------

Net increase (decrease) before interest credited                   1,643               1,750
Interest credited                                                  3,246               2,732
                                                                --------           ---------

Ending balance                                                   $75,647             $70,758
                                                                ========            ========

  Net increase                                                   $ 4,889             $ 4,482
                                                                ========            ========

  Percent increase                                                  6.91%               6.76%
                                                                    ====                ====
</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 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 possible. 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, 2001, 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:

                                                       At September 30,
                                                    -----------------------
                                                    2001               2000
                                                    ----               ----
                                                     (Dollars in thousands)

FHLB advances                                       $22,000          $18,650
Weighted average interest rate of FHLB
  advances                                             5.02%            6.92%





                                      -16-

<PAGE>


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

                                                   Year ended September 30,
                                              --------------------------------
                                                2001                   2000
                                              -------                 --------
                                                  (Dollars in thousands)

Maximum balance                               $22,000                 $19,500
Average balance                                20,108                  15,950
Weighted average interest rate                   5.58%                   6.25%


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 decreased to 2.18%
for the year ended September 30, 2001, from 2.31% for the year ended September
30, 2000. The spread for the year ended September 30, 2000, decreased from 2.43%
for the year ended September 30, 1999.

         The yield on interest-earning assets increased to 7.46% for the year
ended September 30, 2001, from 7.40% for the year ended September 30, 2000, as
the loans receivable average balance increased, with a small decrease in average
rate and the average rates on investments and mortgage-backed securities
increased. The cost of funds to Peoples Federal increased to 5.31% for the year
ended September 30, 2001, from 5.09% for the year ended September 30, 2000, due
primarily to higher rates and higher average balances on certificates of deposit
and FHLB advances.

         The yield on interest-earning assets increased to 7.40% for the year
ended September 30, 2000, from 7.19% for the year ended September 30, 1999, as
the average rates on loans receivable, investments and mortgage-backed
securities declined. The cost of funds to Peoples Federal increased to 5.09% for
the year ended September 30, 2000, from 4.76% for the year ended September 30,
1999, due to lower rates on certificates of deposit, partially offset by
increased average balances on certificates of deposit and FHLB advances.

         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,
                                                                                        ------------------------------
                                                                                        2001                      2000
                                                                                        ----                      ----

<S>                                                                                     <C>                      <C>
Weighted average yield on loan portfolio                                                7.43%                    7.56%
Weighted average yield on mortgage-backed and related securities                        6.79                     7.12
Weighted average yield on investment securities                                         5.94                     5.63
Weighted average yield on interest-bearing deposits                                     3.14                     5.33
Weighted average yield on all interest-earning assets                                   7.21                     7.44
Weighted average yield on deposits                                                      5.13                     5.38
Weighted average yield on borrowings                                                    5.02                     6.92
Weighted average yield paid on all interest-bearing liabilities                         5.11                     5.71
                                                                                        ----                     ----
Interest rate spread (spread between weighted average interest rate
  on all interest-bearing assets and all interest-bearing liabilities)                  2.10%                    1.73%
                                                                                        ====                     ====
</TABLE>


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.


                                      -17-
<PAGE>

         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, an inactive corporation.

PERSONNEL

         As of September 30, 2001, Peoples Federal had 25 full-time employees
and one part-time employee.


                                   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
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.

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

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

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

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.


                                      -18-
<PAGE>

         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 4% of their total assets,
except for associations with the highest examination rating and acceptable
levels of risk.

         OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as adjusted core capital plus certain additional items of
capital, which in the case of Peoples Federal includes a general loan loss
allowance of $239,000 at September 30, 2001.

         The OTS has adopted an interest rate risk component to the risk-based
capital requirement. Pursuant to the interest rate risk component, a savings
association must 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% is not subject to the interest rate
risk component.

         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
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, 2000, 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 balance of liquid assets (such as cash, certain time deposits,
bankers' acceptances and specified United States government, state or federal
agency obligations) in an amount sufficient to meet the liquidity needs of the
association. Monetary penalties may be imposed upon associations failing to
maintain sufficient liquidity. Peoples Federal has continued to compute
liquidity using the formerly required formula. Calculated by that formula,
Peoples Federal's liquidity at September 30, 2001, was approximately $10.8
million, or 11.5% of Peoples Federal's net withdrawal savings deposits plus
borrowings payable in one year or less.


                                      -19-
<PAGE>

         QUALIFIED THRIFT LENDER TEST. Savings associations must meet one of two
tests in order to be a qualified thrift lender ("QTL"). The first test requires
a savings association to maintain a specified level of investments in assets
that are designated as qualifying thrift investments ("QTIs"). Generally, QTIs
are assets related to domestic residential real estate and manufactured housing,
although they also include credit card, student and small business loans and
stock issued by any FHLB, the FHLMC or the FNMA. Under the QTL 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. The
second test permits a savings association to 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 its 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 tests under certain circumstances. If a savings
association fails to meet one of the QTL tests, the association and its holding
company become subject to certain operating and regulatory restrictions and the
savings association will not be eligible for new FHLB advances. At September 30,
2001, Peoples Federal was a QTL.

         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, 2001.

         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, 2001.

         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.

         An application must be submitted and approval from the OTS must be
obtained by a subsidiary of a savings and loan holding company (1) if the
proposed distribution would cause total distributions for that calendar year to
exceed net income for that year to date plus the savings association's retained
net income for the preceding two years; (2) if the savings association will not
be at least adequately capitalized following the capital distribution; (3) if
the proposed distribution would violate a prohibition contained in any
applicable statute, regulation or agreement between the savings association and
the OTS (or the FDIC), or a condition imposed on the savings association in an
OTS-approved application or notice; or (4) if the savings association has not
received certain favorable examination ratings from the OTS. If a savings
association subsidiary of a holding company is not required to file an
application, it must file a notice with the OTS.

         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


                                      -20-
<PAGE>

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. 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, 2001, 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.

         FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF PFC AND PEOPLES
FEDERAL. 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.

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

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


                                      -21-
<PAGE>

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.

FEDERAL RESERVE REQUIREMENTS

         Effective November 27, 2001, FRB regulations require savings
associations to maintain reserves of 3% of net transaction accounts (primarily
NOW accounts) up to $41.3 million (subject to an exemption of up to $5.7
million), and of 10% of net transaction accounts in excess of $41.3 million. At
September 30, 2001, 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 $1.1
million at September 30, 2001.

         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, 2001, Peoples
Federal's maximum limit on advances was approximately $52.0 million and Peoples
Federal had advances totaling $22.0 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.

         Each 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
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, 2001, is $23,000,
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, 2001, is


                                      -22-
<PAGE>

$7.6 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 prior to 1996,
Peoples Federal generally 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 debts 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.

         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, 2001, the pre-1988 reserves of
Peoples Federal for tax purposes totaled approximately $1.8 million. Peoples
Federal believes it had approximately $6.2 million of accumulated earnings and
profits for tax purposes as of


                                      -23-
<PAGE>

September 30, 2001, 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 1997. 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
8.5% 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 1.3% for tax
year 2000 and after of the taxable book net worth of Peoples Federal determined
in accordance with generally accepted accounting principles. For tax years 1999
and 1998 and prior the franchise tax on financial institutions was computed as
1.4% and 1.5%, respectively, 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.


ITEM 2.       DESCRIPTION OF PROPERTY

         The following table sets forth certain information at September 30,
2001, regarding the properties on which the main office, the branch office and
the lending office of Peoples Federal are located:


<TABLE>
<CAPTION>
Location                                              Owned              Date             Square               Net
--------                                            Or leased          acquired           footage         book value(1)
                                                    ---------          --------           -------         -------------
                                                                             (In thousands)
<S>                                                 <C>                   <C>               <C>                 <C>
Main Office:

211 Lincoln Way East
Massillon, Ohio 44646                               Owned                 1958              7,200               $770

Branch Offices:

2312 Lincoln Way N.W.
Massillon, Ohio 44647                               Owned                 1978              1,400               $450

One Massillon Marketplace Drive S.W.
Massillon, Ohio 44646                               Leased(2)             2000                  -               $327

Lending Office:

4344 Metro Circle, N.W.
North Canton, Ohio 44720                            Leased(3)             1996                  -              $  17
-----------------------------
</TABLE>

(1)      At September 30, 2001, Peoples Federal's office premises and equipment
         had a total net book value of $1.6 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 five years, expiring in 2005, with two
         five-year option renewals.

(3)      The lease is for a term of three years, expiring in 2002, with a
         three-year renewal option.


                                      -24-
<PAGE>

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.


                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         There were 1,234,085 common shares of PFC outstanding on November 30,
2001, held of record by approximately 331 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, 2000, and September 30, 2001, are set forth below.
Such amounts do not include retail markups, markdowns or commissions.

<TABLE>
<CAPTION>
                                  09/01        06/01       03/01        12/00       09/00       06/00        03/00       12/99
                                  -----        -----       -----        -----       -----       -----        -----       -----
<S>                                <C>         <C>          <C>         <C>         <C>         <C>         <C>         <C>
Dividends Declared                 $0.06       $0.06        $0.06       $0.06       $0.120      $0.120      $0.115      $ 3.160
High Bid During Quarter             8.18        6.65         6.50        5.75        5.906       6.500       8.000       11.000
Low Bid During Quarter              6.45        5.70         5.031       5.00        5.125       5.000       5.125        6.250
</TABLE>


         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 deposits in FHLB, from the
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.

         An application must be submitted and approval from the OTS must be
obtained by a subsidiary of a savings and loan holding company (1) if the
proposed distribution would cause total distributions for that calendar year to
exceed net income for that year to date plus the savings association's retained
net income for the preceding two years; (2) if the savings association will not
be at least adequately capitalized following the capital distribution; (3) if
the proposed distribution would violate a prohibition contained in any
applicable statute, regulation or agreement between the savings association and
the OTS (or the FDIC), or a condition imposed on the savings association in an
OTS-approved application or notice; or (4) if the savings association has not
received certain favorable examination ratings from the OTS. If a savings
association subsidiary of a holding company is not required to file an
application, it must file a notice with the OTS.

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GENERAL

The following discussion and analysis of the financial condition and results of
operations of PFC and Peoples Federal should be read in conjunction with and
with reference to the consolidated financial statements and the notes thereto,
included in the Annual Report.


                                      -25-
<PAGE>

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

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

     1.  Management's determination of the amount of the allowance for loan
         losses set forth under "Financial Condition," "Comparison of Results of
         Operations for the Years Ended September 30, 2001 and 2000" and
         "Comparison of Results of Operations for the Years Ended September 30,
         2001 and 2000;"

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

     3.  The statement set forth under "Liquidity and Capital Resources" that
         Peoples Federal considers its liquidity and capital sufficient to meet
         its outstanding short-term and long-term needs; and

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


DISCUSSION OF CHANGES IN FINANCIAL CONDITION FROM SEPTEMBER 30, 2000 TO
SEPTEMBER 30, 2001

PFC's consolidated assets totaled $109.2 million at September 30, 2001, an
increase of $8.8 million, or 8.7%, over the $100.4 million total at September
30, 2000. The principal changes in the composition of assets during the year
ended September 30, 2001, consisted of an increase in loans receivable and
interest-bearing deposits in other financial institutions and decreases in
securities and mortgage-backed securities. This increase in assets was funded
primarily from increases of $4.9 million in deposits and $3.4 million in
borrowings.

Interest-bearing deposits in other financial institutions totaled $3.7 million
at September 30, 2001, an increase of $2.5 million from September 30, 2000
levels. Securities and mortgage-backed securities totaled $7.9 million at
September 30, 2001, as compared to $10.8 million at September 30, 2000, a
decrease of $2.9 million, or 26.7%. Securities decreased due to maturities of
municipal bonds totaling $87,000 and the sale of 5,500 shares of FHLMC common
stock. Mortgage-backed securities decreased due to principal repayments totaling
$2.7 million. Such proceeds, coupled with FHLB advances and increases in
deposits, were used principally to fund the growth in the loan portfolio.

Loans receivable totaled $93.7 million at September 30, 2001, an increase of
$8.9 million, or 10.4%, over the $84.8 million total at September 30, 2000. Loan
disbursements of $31.6 million were partially offset by principal repayments of
$21.1 million during the year ended September 30, 2001. The increase in loans
was comprised primarily of a $9.3 million increase in one- to four-family and
construction loans, including a net increase in undisbursed loans in process of
$295,000. Loans secured by nonresidential real estate and consumer and other
loans decreased by $429,000 and multi-family real estate loans decreased by
$4,000.

Peoples Federal's allowance for loan losses totaled $239,000 at September 30,
2001, compared to $235,000 at September 30, 2000. Nonperforming loans amounted
to $193,000 at September 30, 2001, compared to $223,000 at September 30, 2000.
The allowance for loan losses represented .24% and .26% of total loans at
September 30, 2001 and 2000, respectively, and 123.8% and 105.4% of
nonperforming loans on the same dates.

Management believes that the allowance for loan losses at September 30, 2001 is
appropriate based on the available facts and circumstances. There can be no
assurance, however, that the allowance will be adequate to absorb actual loan
losses during future periods. The amount of loan losses experienced may increase
due to growth in the loan portfolio generally; increases in the amount of the
portfolio consisting of higher risk loan types, such as nonresidential real
estate loans, construction loans and consumer and other loans; economic changes
locally or nationally, including changes in interest rates, employment rates and
property values; and unexpected problems with specific loans. If additions to
the allowance are necessary in future periods, such additions would reduce PFC's
net earnings.


                                      -26-
<PAGE>

Deposits totaled $75.6 million at September 30, 2001, compared to $70.8 million
at September 30, 2000, an increase of $4.9 million, or 6.9%. The increase in
deposits resulted primarily from growth at a new branch location, coupled with
management's overall pricing strategies. Certificates of deposit increased by
$3.5 million as Peoples Federal generally offered rates designed to increase
certificates and maintain the cost of funds at an acceptable level. Premium
savings accounts and NOW accounts increased by $1.9 million and $535,000,
respectively, while passbook deposits decreased by $1.1 million during fiscal
2001.

Borrowings consisted of advances from the FHLB of $22.0 million at September 30,
2001, compared to $18.7 million at September 30, 2000, an increase of $3.4
million, or 18.0%. These borrowings were used primarily to fund the increase in
loans.

Shareholders' equity totaled $10.4 million at September 30, 2001, an increase of
$91,000, or .9%, from the September 30, 2000 level. The increase resulted
primarily from net earnings of $469,000 which were partially offset by payment
of dividends of $294,000, and a reduction in net unrealized gains on securities
designated as available for sale of $84,000.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND
2000

GENERAL

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

Net earnings totaled $469,000 for the year ended September 30, 2001, a decrease
of $116,000, or 19.8%, from net earnings of $585,000 recorded for fiscal 2000.
The decrease in net earnings was due primarily to a decrease in gains on sale of
securities of $257,000 and an increase in non-interest expense of $26,000, which
were partially offset by an increase in net interest income of $39,000, an
increase in other income of $91,000, gains on the sale of loans of $10,000 and a
decrease of $27,000 in the provision for federal income taxes.

NET INTEREST INCOME

Total interest income for the year ended September 30, 2001, totaled $7.6
million, an increase of $689,000, or 9.9%, over the $7.0 million recorded in
fiscal 2000. Interest income on loans increased by $868,000 or 14.5%. The
increase resulted primarily from a $10.9 million, or 13.8%, increase in the
weighted-average outstanding balance of loans receivable, and by a 5 basis point
(100 basis points equals one percent) increase in weighted-average yield to
7.61% in 2001, from 7.56% in 2000. Interest income on mortgage-backed
securities, securities and interest-bearing deposits decreased by $179,000, or
18.8%. The decrease resulted primarily from a $2.4 million, or 16.5%, decrease
in the average balance of such assets and by a 18 basis point decrease in
weighted-average yield.

Interest expense on deposits totaled $3.8 million for the year ended September
30, 2001, an increase of $525,000, or 15.8%, over the $3.3 million recorded in
fiscal 2000. This increase was due primarily to a $4.5 million, or 6.5%,
increase in the weighted-average outstanding balance of deposits and an increase
in the weighted-average cost of deposits of 42 basis points, to 5.24% in 2001
from 4.82% in 2000 as management offered rates designed to increase
certificates. Interest expense on borrowings totaled $1.1 million in fiscal
2001, an increase of $125,000, or 12.5%, over the $1.0 million recorded in
fiscal 2000. This increase was due primarily to a $4.2 million increase in the
weighted-average outstanding balance of advances from the FHLB partially offset
by a decrease in the weighted-average interest rate paid of 68 basis points, to
5.58% from 6.26%. Peoples Federal had advances from the FHLB outstanding
throughout fiscal 2001 and 2000.

As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $39,000, or 1.5%, to $2.7 million for the year
ended September 30, 2001. The interest rate spread decreased to 2.15% in fiscal
2001, from 2.31% in fiscal 2000, while the net interest margin decreased to
2.61% in fiscal 2001, from 2.80% in fiscal 2000.


                                      -27-
<PAGE>

PROVISION FOR LOSSES ON LOANS

The provision for losses on loans was $12,000 for both of the years ended
September 30, 2001 and 2000. Management believes that the continuation of
periodic increases in the allowance for loan losses is prudent based upon the
inherent risk of loss related to loans, the increase in the outstanding
portfolio balance, current and anticipated economic conditions as measured by
leading economic indicators and local employment data, the level of
nonperforming loans and past loss experience. There can be no assurance that the
loan loss allowance will be adequate to cover losses on nonperforming assets in
the future.

NON-INTEREST INCOME

Other income totaled $511,000 for the year ended September 30, 2001, compared to
$667,000 for fiscal 2000. FHLMC common stock was sold during the year ended
September 30, 2001 for $352,000, resulting in a gain of $346,000. During the
year ended September 30, 2000, FHLMC common stock was sold for $616,000,
resulting in a gain of $603,000. Other operating income increased by $91,000 or
142.2%, due primarily to increased NOW, automated teller machine ("ATM") and
other fee income. Also included in other operating income are late charges on
loans and safe deposit box rentals.

NON-INTEREST EXPENSE

Non-interest expense totaled $2.4 million for the year ended September 30, 2001,
compared to $2.4 million for fiscal 2000, an increase of $26,000, or 1.1%.
Employee compensation and benefits decreased by $166,000, or 12.2% in fiscal
2001, compared to fiscal 2000. Salaries and wages and directors fees increased
by $163,000 in fiscal 2001 over fiscal 2000. Normal merit increases and a full
year payroll cost of an executive officer and personnel staffing the branch
office located in Wal-Mart increased salaries and wages in fiscal 2001, compared
to fiscal 2000, when these costs were incurred for only a portion of the year,
while additional meetings due to the pending merger increased directors fees in
fiscal 2001 over fiscal 2000.

A deferred compensation plan was established in fiscal 2000 as the final step
needed to terminate PFC's employee stock benefit plans and eliminate the related
cost. Funds equal to the estimated liability for the deferred compensation plan
were placed in a trust, resulting in expense of $266,000 in fiscal 2000. The
cost of this plan was $3,000 in fiscal 2001. Contributions were made to Peoples
Federal's 401(k) benefit plan for the entire fiscal 2001 year, but frozen during
eight months of fiscal 2000. The cost of the 401(k) employee benefit plan was
$29,000 for fiscal 2001 and $12,000 for fiscal 2000. The termination of the
employee stock ownership plan and the recognition and retention plan reduced
benefit costs by $87,000 during fiscal 2001, compared to fiscal 2000. Health
care costs increased by $17,000 in fiscal 2001 over fiscal 2000 due to the cost
of coverage for new employees for a full year in fiscal 2001 and higher premium
rates. Payroll tax expense decreased by $9,000 in fiscal 2001 compared to fiscal
2000 due to the timing of FICA taxability of the deferred compensation plan,
partially offset by increased payroll in fiscal 2001.

Occupancy and equipment expense totaled $360,000 for the year ended September
30, 2001, an increase of $91,000, or 33.8%, over fiscal 2000. Depreciation
expense for fiscal 2001 was $165,000. Principally due to depreciation of
leasehold improvements and equipment at the branch located in Wal-Mart, this
expense increased by $48,000 for fiscal 2001 over 2000. Rent expense for fiscal
2001, totaling $49,000, includes the annual cost for the North Canton lending
office and the branch office located in Wal-Mart and the cost for a new ATM
location from the mid-June opening date to year end. Rent expense increased by
$30,000 for fiscal 2001 over fiscal 2000. Repairs and maintenance for fiscal
2001 increased by $10,000 compared to fiscal 2000, principally because more
maintenance was required on both buildings and equipment.

Ohio franchise taxes for the year ended September 30, 2001 were $140,000, a
decrease of $33,000, or 19.1%, from fiscal 2000, principally due to the effect
on taxability of shareholders' equity of the special dividend paid in fiscal
2000. Data processing totaled $151,000 for fiscal 2001, an increase of $29,000,
or 23.8%, over fiscal 2000, principally due to increased volume of accounts and
transactions of the branch located in Wal-Mart in fiscal 2001 over fiscal 2000.
Advertising totaled $77,000 for fiscal 2001, an increase of $11,000, or 16.7%,
over fiscal 2000, principally due to increased local newspaper advertising.
Other operating expense totaled $496,000 for fiscal 2001, an increase of
$87,000, or 21.3%, over fiscal 2000, principally due to increased professional
fees connected with the pending merger, offset by decreases in employee seminar
costs and marketing and supply costs connected with the branch office located in
Wal-Mart.


                                      -28-
<PAGE>

FEDERAL INCOME TAXES

The provision for federal income taxes totaled $257,000 for the year ended
September 30, 2001, a decrease of $27,000, or 9.5%, from the $284,000 provision
recorded in fiscal 2000. The decrease was primarily due to the decrease in net
earnings before taxes of $143,000, or 16.5%, offset by the tax effect of certain
costs incurred in connection with the pending merger. PFC's effective tax rates
were 35.4% for fiscal 2001 and 32.7% for fiscal 2000.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND
1999

GENERAL

Net earnings totaled $585,000 for the year ended September 30, 2000, a decrease
of $169,000, or 22.4%, from net earnings of $754,000 recorded for fiscal 1999.
The decrease in net earnings was due primarily to a decrease in net interest
income of $119,000 and an increase in general, administrative and other expense
of $224,000, which were partially offset by an increase in net gains on the sale
of investment and mortgage-backed securities of $85,000, an increase in other
income of $13,000 and a decrease of $76,000 in the provision for federal income
taxes.

NET INTEREST INCOME

Total interest income for the year ended September 30, 2000, totaled $7.0
million, an increase of $696,000, or 11.1%, over the $6.3 million recorded in
fiscal 1999. Interest income on loans increased by $763,000, or 14.6%. The
increase resulted primarily from a $10.3 million, or 15.0%, increase in the
weighted-average outstanding balance of loans receivable, partially offset by a
3 basis point decrease in weighted-average yield to 7.56% in 2000, from 7.59% in
1999. Interest income on mortgage-backed securities, investment securities and
interest-bearing deposits decreased by $67,000, or 6.6%. The decrease resulted
primarily from a $3.3 million, or 18.5%, decrease in the average balance of such
assets, partially offset by a 62 basis point increase in weighted-average yield
on mortgage-backed securities, a 100 basis point increase in weighted-average
yield on investment securities and a 132 basis point increase in
weighted-average yield on interest-bearing deposits.

Interest expense on deposits totaled $3.3 million for the year ended September
30, 2000, an increase of $160,000, or 5.1%, over the $3.2 million recorded in
fiscal 1999. This increase was due primarily to a $2.3 million, or 3.5%,
increase in the weighted-average outstanding balance of deposits and an increase
in the weighted-average cost of deposits of 8 basis points, to 4.82% in 2000
from 4.74% in 1999. Interest expense on borrowings totaled $997,000 in fiscal
2000, an increase of $655,000, or 191.5%, over fiscal 1999. This increase was
due primarily to a $9.0 million increase in the weighted-average outstanding
balance of advances from the FHLB and an increase in the weighted-average
interest rate paid of 132 basis points, to 6.26% from 4.94%. Peoples Federal had
advances from the FHLB outstanding throughout fiscal 2000 and 1999.

As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $119,000, or 4.3%, to $2.6 million for the year
ended September 30, 2000. The interest rate spread decreased to 2.31% in fiscal
2000, from 2.43% in fiscal 1999, while the net interest margin decreased to
2.80% in fiscal 2000, from 3.16% in fiscal 1999.

PROVISION FOR LOSSES ON LOANS

The provision for losses on loans was $12,000 for each of the years ended
September 30, 2000 and 1999. Management believes that the continuation of
periodic increases in the allowance for loan losses is prudent based upon the
inherent risk of loss related to loans, the increase in the outstanding
portfolio balance, current and anticipated economic conditions as measured by
leading economic indicators and local employment data, the level of
nonperforming loans and past loss experience. There can be no assurance that the
loan loss allowance will be adequate to cover losses on nonperforming assets in
the future.

OTHER INCOME

Other income totaled $667,000 for the year ended September 30, 2000, compared to
$569,000 for fiscal 1999. FHLMC common stock was sold during the year ended
September 30, 2000 for $616,000, resulting in a gain of $603,000. During the
year ended September 30, 1999, FHLMC common stock was sold for $527,000,
resulting in a gain of $518,000. Other operating income increased by $13,000, or
25.5%, due primarily to increased automated teller machine ("ATM") and NOW fee
income. Also included in other operating income are late charges on loans and
safe deposit box rentals.


                                      -29-
<PAGE>

GENERAL, ADMINISTRATIVE AND OTHER EXPENSE

General, administrative and other expense totaled $2.4 million for the year
ended September 30, 2000, compared to $2.2 million for fiscal 1999, an increase
of $224,000, or 10.2%. Employee compensation and benefits increased by $155,000,
or 12.9% in fiscal 2000, compared to fiscal 1999. Salaries and wages and
directors fees increased by $125,000 due to normal merit increases, the addition
of an executive officer and hiring of personnel to staff the new branch office.

A deferred compensation plan was established in fiscal 2000 as the final step
needed to terminate PFC's employee stock benefit plans and eliminate the related
cost. Funds equal to the estimated liability for the deferred compensation plan
were placed in a trust, resulting in expense of $266,000 in fiscal 2000.
Contributions to Peoples Federal's 401(k) benefit plan were frozen during eight
months of fiscal 2000 and all of fiscal 1999. The cost of the 401(k) employee
benefit plan was $12,000 for fiscal 2000. There was no cost in fiscal 1999 for
either of these plans. The termination of the employee stock ownership plan and
the recognition and retention plan reduced benefit costs by $279,000 during
fiscal 2000, compared to fiscal 1999. Health care costs increased by $12,000 in
fiscal 2000 over fiscal 1999 due to the cost of coverage for new employees and
higher premium rates. Payroll tax expense increased by $19,000 in fiscal 2000
over fiscal 1999 due to increased compensation and the timing of FICA taxability
of the deferred compensation plan.

Occupancy and equipment expense totaled $269,000 for the year ended September
30, 2000, an increase of $7,000, or 2.7%, over fiscal 1999. Rent expense for
fiscal 2000, totaling $19,000, includes the annual cost for the North Canton
lending office and the cost for a new branch office from the mid-July opening
date to year end. A refund of rental cost realized at the end of the first lease
term of the lending office had reduced fiscal 1999 rent expense to a negligible
amount. Repairs and maintenance for fiscal 2000 decreased by $13,000 compared to
fiscal 1999, principally because less building maintenance was required. Ohio
franchise taxes for the year ended September 30, 2000 were $173,000, a decrease
of $28,000, or 13.9%, from fiscal 1999, principally based on a decline in
shareholders' equity. Data processing totaled $122,000 for fiscal 2000, an
increase of $3,000, or 2.5%, over fiscal 1999, principally due to costs for the
new branch in fiscal 2000 offset by year 2000 compliance testing costs incurred
in fiscal 1999. Advertising totaled $66,000 for fiscal 2000, an increase of
$25,000, or 61.0%, over fiscal 1999, principally due to increased local
newspaper advertising and promotional costs. Other operating expense totaled
$409,000 for fiscal 2000, an increase of $81,000, or 24.7%, over fiscal 1999,
principally due to increased employee seminar attendance, professional fees
connected with the employee benefit plan termination, marketing and supply costs
connected with the new branch office.

FEDERAL INCOME TAXES

The provision for federal income taxes totaled $284,000 for the year ended
September 30, 2000, a decrease of $76,000, or 21.1%, from the $360,000 provision
recorded in fiscal 1999. The decrease was primarily due to the decrease in net
earnings before taxes of $245,000, or 22.0%. PFC's effective tax rates were
32.7% for fiscal 2000 and 32.3% for fiscal 1999.

                  AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA

The following table presents certain information relating to PFC and Peoples
Federal's average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods indicated. Such yields and costs are derived by dividing annual
income or expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses.



                                      -30-
<PAGE>


<TABLE>
<CAPTION>
                                                                                 Year ended September 30,
                                                                                 -----------------------
                                                                 2001                                       2000
                                                                 ----                                       ----
                                                          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                              $   1,615    $    55           3.41%    $ 1,812     $  111     6.13%
  Securities                                                 2,406        135           5.62       2,753        145     5.27
  Mortgage-backed and related securities                     8,233        584           7.10      10,103        697     6.90
  Loans receivable(1)                                       90,283      6,870           7.61      79,369      6,002     7.56
                                                         ---------      -----           ----      ------      -----     ----
         Total interest-earning assets                     102,537      7,644           7.46      94,037      6,955     7.40

Non-interest-earning assets
  Cash and amounts due from depository institutions            407                                   527
  Premises and equipment, net                                1,490                                 1,373
  Other non-earning assets                                     534                                   645
                                                          ---------                              -------

         Total assets                                    $ 104,968                               $96,582
                                                           =======                                ======

Interest-bearing liabilities:
  NOW accounts                                           $   2,850         18            .63      $2,418          26    1.08
  Premium savings accounts                                   3,893        141           3.64       2,550         64     2.51
  Passbook savings accounts                                  9,490        184           1.94      11,001        222     2.02
  Certificates of deposit                                   57,268      3,505           6.12      53,017      3,011     5.68
  Borrowings                                                20,108      1,122           5.58      15,950        997     6.26
                                                         ---------      -----           ----      ------      -----     ----
         Total interest-bearing liabilities                 93,609      4,970           5.31      84,936      4,320     5.09
                                                                       ------           ----                 ------     ----
Non-interest-bearing liabilities                               913                                 1,039
                                                           -------                                ------
         Total liabilities                                  94,522                                85,975


Shareholders' equity                                        10,446                                10,607
                                                            ------                               -------

         Total liabilities and shareholders' equity      $ 104,968                               $96,582
                                                         =========                               =======


Net interest income; interest rate spread                             $ 2,674           2.15%                $2,635     2.31%
                                                                      =======          =====                 ======    =====

Net interest margin (net interest income as a percent of
  average interest-earning assets)                                                      2.61%                           2.80%
                                                                                      ======                          ======

Average interest-earning assets to average interest-bearing
  liabilities                                                                         109.54%                         110.72%
                                                                                      ======                          ======

<CAPTION>

                                                           Year ended September 30,
                                                           -----------------------
                                                                    1999
                                                                    ----
                                                           Average Interest
                                                       outstanding  earned/  Yield/
                                                           balance    paid     rate
                                                           -------  ------     ----

<S>                                                      <C>        <C>        <C>
Interest-earning assets:
  Interest-bearing deposits                              $ 2,246    $  108     4.81%
  Securities                                               3,841       164     4.27
  Mortgage-backed and related securities                  11,916       748     6.28
  Loans receivable(1)                                     69,039     5,239     7.59
                                                         -------     -----     ----
         Total interest-earning assets                    87,042     6,259     7.19

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

         Total assets                                    $89,270
                                                         =======

Interest-bearing liabilities:
  NOW accounts                                           $ 1,942        24     1.24
  Premium savings accounts                                 2,624        58     2.21
  Passbook savings accounts                               10,778       216     2.00
  Certificates of deposit                                 51,311     2,865     5.58
  Borrowings                                               6,917       342     4.94
                                                         -------     -----     ----
         Total interest-bearing liabilities               73,572     3,505     4.76
                                                                     -----     ----
Non-interest-bearing liabilities                           1,325
                                                         ------
         Total liabilities                                74,897


Shareholders' equity                                      14,373
                                                          ------

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


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

Net interest margin (net interest income as a percent
  of average interest-earning assets)                                          3.16%
                                                                             ======

Average interest-earning assets to average
  interest-bearing liabilities                                               118.31%
                                                                             ======
</TABLE>

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




                                      -31-
<PAGE>



RATE/VOLUME TABLE

The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected PFC and Peoples Federal's interest income and expense during the
years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume), and (iii)
total changes in rate and volume. The combined effects of changes in both volume
and rate, which cannot be separately identified, have been allocated
proportionately to the change due to volume and the change due to rate:

<TABLE>
<CAPTION>
                                                                   Year ended September 30,
                                                        2001 vs. 2000                     2000 vs. 1999
                                                          Increase                          Increase
                                                         (decrease)                         (decrease)
                                                           due to                             due to
                                              Volume       Rate      Total      Volume     Rate       Total
                                                                      (In thousands)
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>
Interest income attributable to:
  Interest-bearing deposits                    $  (6)     $ (50)     $ (56)     $ (26)     $  29      $   3

  Securities                                     (19)         9        (10)       (57)        38        (19)

  Mortgage-backed and related securities        (133)        20       (113)      (125)        74        (51)

  Loans receivable                               830         38        868        781        (18)       763
                                               -----      -----      -----      -----      -----      -----

     Total interest income                       672         17        689        573        123        696


Interest expense attributable to:
  NOW accounts                                     3        (11)        (8)         5         (3)         2

  Premium savings accounts                        49         28         77         (1)         8          7

  Passbook savings accounts                      (29)        (9)       (38)         4          2          6

  Certificates of deposit                        260        235        495         97         48        145

  Borrowings                                     232       (108)       124        565         90        655
                                               -----      -----      -----      -----      -----      -----
     Total interest expense                      515        135        650        670        145        815
                                               -----      -----      -----      -----      -----      -----

Increase (decrease) in net interest income     $ 157      $(118)     $  39      $ (97)     $ (22)     $(119)
                                               =====      =====      =====      =====      =====      =====
</TABLE>



ASSET AND LIABILITY MANAGEMENT

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

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


                                      -32-
<PAGE>

At September 30, 2001, 2% of the present value of Peoples Federal's assets was
approximately $2.2 million. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $5.4 million at September 30, 2001, Peoples
Federal would have been required to deduct approximately $1.6 million (50% of
the approximate $3.2 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, 2001,
would still have exceeded the regulatory requirement by $5.0 million.

Presented below, as of September 30, 2001 and 2000, 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 minimum NPV ratio 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 and reflect the institution's
objective of moderate interest rate risk exposure. The declaration of the $3.00
per share special dividend in September 30, 2000, caused Peoples Federal to fall
short of the Board's preexisting NPV limit. Management has developed a strategic
plan, including strategies to originate adjustable-rate mortgage ("ARM") loans
and to originate fixed-rate loans for sale in the secondary market. The plan's
goal is to increase the NPV ratio to the Board of Directors' limit by June 2003.

As illustrated in the table, Peoples Federal's NPV is more sensitive to rising
rates than declining rates. Such difference in sensitivity occurs principally
because, as rates rise, borrowers do not prepay fixed-rate loans as quickly as
they do when interest rates are declining. At September 30, 2001, fixed-rate
loans constituted approximately 82.8% of Peoples Federal's loan portfolio. In
addition, because Peoples Federal has not originated loans in accordance with
traditional secondary market guidelines, the sale of fixed-rate loans may be
difficult. As a result, in a rising interest rate environment, the amount of
interest Peoples Federal would receive on its loans would increase relatively
slowly as loans are slowly prepaid and new loans at higher rates are made.
Moreover, the interest Peoples Federal would pay on its deposits would increase
rapidly because Peoples Federal's deposits generally have shorter periods of
repricing. Assumptions in calculating the amounts in this table are OTS
assumptions.

<TABLE>
<CAPTION>

                                                     SEPTEMBER 30, 2001                 SEPTEMBER 30, 2000
                                                     ------------------                 ------------------
                                Board limit
    Change in interest rate        minimum            $ Change            NPV          $ Change          NPV
         (Basis Points)        NPV ratio %              in NPV           ratio %         in NPV        ratio %
                                                                       (Dollars in thousands)

<S>          <C>                    <C>               <C>                 <C>           <C>              <C>
            +300                    6.0%              $ (8,176)           2.6%          $(7,300)         2.9%
            +200                    7.0                 (5,351)           5.2            (4,832)         5.4
            +100                    8.0                 (2,481)           7.6            (2,341)         7.7
               -                    9.0                     -             9.6                 -          9.8
            -100                   10.0                  1,167           10.4             1,822         11.4
            -200                   11.0                  1,624           10.7             2,766         12.1
            -300                   12.0                      -              -             3,384         12.6
</TABLE>

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


                                      -33-
<PAGE>

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

LIQUIDITY AND CAPITAL RESOURCES

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

At September 30, 2001, Peoples Federal had commitments to originate loans
totaling $1.9 million and, in addition, had undisbursed loans in process of $5.6
million. At September 30, 2001, Peoples Federal had no commitments to purchase
or sell loans. Peoples Federal considers its liquidity and capital sufficient to
meet its outstanding short- and long-term needs.

PFC's liquidity, primarily represented by cash and cash equivalents, is a result
of the funds used in or provided by PFC's operating, investing and financing
activities. These activities are summarized below for the years ended September
30, 2001, 2000 and 1999:

                                                Year ended September 30,
                                              2001         2000          1999
                                             -------      -------      -------
                                                       (In thousands)

Net earnings                                 $   469      $   585      $   754

Adjustments to reconcile net earnings to
  net cash from operating activities             (49)         (85)        (718)
                                             -------      -------      -------

Net cash from operating activities               420          500           36

Net cash from investing activities            (5,877)      (9,184)      (5,741)

Net cash from financing activities             7,945        7,692        5,904
                                             -------      -------      -------

Net change in cash and cash equivalents        2,488         (992)         199

Cash and cash equivalents at
  beginning of year                            1,628        2,620        2,421
                                             -------      -------      -------

Cash and cash equivalents at end
  of year                                    $ 4,116      $ 1,628      $ 2,620
                                             =======      =======      =======


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

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


                                      -34-
<PAGE>

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

OTS regulations require that savings associations maintain "risk-based capital"
in an amount not less than 8% of "risk-weighted assets." Risk-based capital is
defined as adjusted core capital plus certain additional items of capital, which
in the case of Peoples Federal includes a general loan loss allowance of
$239,000 at September 30, 2001.

Peoples Federal exceeded all of its regulatory capital requirements at September
30, 2001. The following table summarizes Peoples Federal's regulatory capital
requirements and regulatory capital at September 30, 2001:

<TABLE>
<CAPTION>
                                                                                       EXCESS OF
                                                                                   REGULATORY CAPITAL
                                                                                      OVER CURRENT           APPLICABLE
                                REGULATORY CAPITAL        CURRENT REQUIREMENT          REQUIREMENT                ASSET
                                AMOUNT      PERCENT       AMOUNT      PERCENT       AMOUNT       PERCENT          TOTAL
                                                                (Dollars in thousands)

<S>                             <C>              <C>      <C>            <C>        <C>             <C>        <C>
Tangible capital                $9,536           8.8%     $1,628         1.5%       $7,908          7.3%       $108,552
Core capital                    $9,536           8.8%     $4,342         4.0%       $5,194          4.8%       $108,552
Risk-based capital              $9,893          15.8%     $5,018         8.0%       $4,875          7.8%        $62,726
</TABLE>

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141. "Business Combinations." SFAS
No. 141 requires all business combinations within its scope to be accounted for
using the purchase method, rather than the pooling-of-interests method. The
provisions of this Statement apply to all business combinations initiated after
June 30, 2001. The adoption of this statement will only impact the Company's
financial statements if it enters into a business combination.

Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which addresses the accounting for such assets arising from prior and
future business combinations. Upon the adoption of this Statement, goodwill
arising from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment recognized as a
reduction to earnings in the period identified. Other identified intangible
assets, such as core deposit intangible assets, will continue to be amortized
over their estimated useful lives. The Company is required to adopt this
Statement on October 1, 2002, and early adoption is permitted on October 1,
2001.



                                      -35-
<PAGE>



ITEM 7.       FINANCIAL STATEMENTS

                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Peoples Financial Corporation
Massillon, Ohio


We have audited the accompanying Consolidated Statement of Financial Condition
of Peoples Financial Corporation as of September 30, 2001 and the related
consolidated statements of earnings, comprehensive income, shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Peoples Financial Corporation as of September 30, 2000, were
audited by other auditors whose report dated December 5, 2000, expressed an
unqualified opinion on those statements.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Peoples
Financial Corporation as of September 30, 2001, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

                                         /s/ Crowe Chizek and Company LLP

                                         Crowe, Chizek and Company LLP


Cleveland, Ohio
November 14, 2001



                                      -36-
<PAGE>



                          Peoples Financial Corporation

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                           September 30, 2001 and 2000
                        (In thousands, except share data)

<TABLE>
<CAPTION>

ASSETS                                                                2001            2000

<S>                                                                <C>            <C>
Cash and due from banks                                            $     389      $     437
Interest-bearing deposits in other financial institutions              3,727          1,191
                                                                   ---------      ---------
         Cash and cash equivalents                                     4,116          1,628

Securities available for sale                                            266            518
Securities held to maturity (fair value 2001 -
  $918; 2000 - $984)                                                     860            946
Mortgage-backed securities available for  sale                         4,969          6,847
Mortgage-backed securities held to maturity (fair value 2001 -
    $1,904; 2000 - $2,559)                                             1,840          2,521
Loans, net                                                            93,692         84,834
Federal Home Loan Bank Stock                                           1,119            993
Accrued interest receivable                                              374            350
Premises and equipment, net                                            1,564          1,588
Other assets                                                             403            213
                                                                   ---------      ---------

         Total assets                                              $ 109,203      $ 100,438
                                                                   =========      =========


LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                           $  75,647      $  70,758
Federal Home Loan Bank advances                                       22,000         18,650
Accrued expenses and other liabilities                                 1,150            715
                                                                   ---------      ---------
         Total liabilities                                            98,797         90,123

Shareholders' equity
  Preferred stock, no par value; 1,000,000 shares authorized;
    no shares issued                                                       -              -
  Common stock, no par value; 6,000,000 shares authorized;
    1,491,012 shares issued                                                -              -
  Additional paid-in capital                                           7,360          7,360
  Retained earnings                                                    6,195          6,020
  Accumulated comprehensive income                                       229            313
  Treasury stock, at cost (2001 and 2000 - 256,927 shares)            (3,378)        (3,378)
                                                                   ---------      ---------
             Total shareholders' equity                               10,406         10,315
                                                                   ---------      ---------

         Total liabilities and shareholders' equity                $ 109,203      $ 100,438
                                                                   =========      =========
</TABLE>





                             See accompanying notes.





                                      -37-
<PAGE>


                          Peoples Financial Corporation

                       CONSOLIDATED STATEMENTS OF EARNINGS

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

<TABLE>
<CAPTION>
                                                              2001       2000       1999
<S>                                                            <C>        <C>        <C>
Interest income
  Loans                                                     $6,870     $6,002     $5,239
  Mortgage-backed securities                                   584        697        748
  Securities
    Taxable                                                     82         87
    Tax exempt                                                  53         58
  Interest-bearing deposits and other                           55        111        108
                                                            ------     ------     ------
         Total interest income                               7,644      6,955      6,259

Interest expense
  Deposits                                                   3,848      3,323      3,163
  Federal Home Loan Bank advances                            1,122        997        342
                                                            ------     ------     ------
         Total interest expense                              4,970      4,320      3,505
                                                            ------     ------     ------

         Net interest income                                 2,674      2,635      2,754

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

Net interest income after provision for losses on loans      2,662      2,623      2,742

Non-interest income
  Gain on sale of securities                                   346        603        518
  Gain on sale of loans                                         10          -          -
  Other                                                        155         64         51
                                                            ------     ------     ------
         Total non-interest income                             511        667        569

Non-interest expense
  Salaries and employee benefits                             1,195      1,361      1,206
  Occupancy and equipment                                      360        269        262
  Franchise taxes                                              140        173        201
  Federal deposit insurance premiums                            28         21         40
  Data processing                                              151        122        119
  Advertising                                                   77         66         41
  Other                                                        496        409        328
                                                            ------     ------     ------
         Total non-interest expense                          2,447      2,421      2,197
                                                            ------     ------     ------

Income before income taxes                                     726        869      1,114

Income tax expense                                             257        284        360
                                                            ------     ------     ------
Net income                                                  $  469     $  585     $  754
                                                            ======     ======     ======


Earnings per share

           Basic                                            $  .38     $  .47     $  .60
                                                            ======     ======     ======

           Diluted                                          $  .38     $  .47     $  .60
                                                            ======     ======     ======
</TABLE>



See accompanying notes.



                                      -38-
<PAGE>


                          Peoples Financial Corporation

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                            Year ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               2001       2000       1999

<S>                                                            <C>        <C>        <C>
Net income                                                     $ 469      $ 585      $ 754


Other comprehensive income (loss), net of tax:
  Unrealized holding gains (losses) on securities during
    the period, net of tax (credits) of $74, $(9) and $12
    for the years ended September 30, 2001, 2000 and 1999        144        (18)       (24)
  Reclassification adjustment for realized gains included
    in earnings, net of tax of $118, $205 and $176 for the
    years ended September 30, 2001, 2000 and 1999               (228)      (398)      (342)
                                                               -----      -----      -----


Comprehensive income                                           $ 385      $ 169      $ 388
                                                               =====      =====      =====


Accumulated comprehensive income                               $ 229      $ 313      $ 729
                                                               =====      =====      =====
</TABLE>




                             See accompanying notes.


                                      -39-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the years ended September 30, 2001, 2000 and 1999
                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                                   ADDITIONAL                ACCUMULATED
                                                                          COMMON      PAID-IN     RETAINED COMPREHENSIVE
                                                                           STOCK      CAPITAL     EARNINGS        INCOME

<S>                                                                    <C>           <C>          <C>           <C>
Balance at October 1, 1998                                             $       -     $  7,287     $  9,927      $  1,095

Purchase of treasury shares                                                    -            -            -             -
Transfer of shares to treasury upon stock benefit plan termination             -            -            -             -
Amortization expense of stock benefit plans                                    -           73            -             -
Dividends of $.62 per share                                                    -            -         (807)            -
Comprehensive income:
     Net income                                                                -            -          754             -
     Change in unrealized gains on securities
       available for sale, net of reclassification and tax effects             -            -            -          (366)
                                                                       ---------     --------     --------      --------

         Total comprehensive income                                            -            -          754          (366)
                                                                       ---------     --------     --------      --------

Balance at September 30, 1999                                                  -        7,360        9,874           729

Transfer of shares to treasury upon stock benefit plan termination             -            -            -             -
Amortization expense of stock benefit plans                                    -            -            -             -
Dividends of $3.515 per share                                                  -            -       (4,439)            -
Comprehensive income:
     Net income                                                                -            -          585             -
     Change in unrealized gains on securities
       available for sale, net of reclassification and tax effects             -            -            -          (416)
                                                                       ---------     --------     --------      --------

         Total comprehensive income                                            -            -          585          (416)
                                                                       ---------     --------     --------      --------

Balance at September 30, 2000                                                  -        7,360        6,020           313

Dividends of $.24 per share                                                                 -            -          (294)
Comprehensive income:
     Net income                                                                -            -          469             -
     Change in unrealized gains on securities
       available for sale, net of reclassification and tax effects             -            -            -           (84)
                                                                       ---------     --------     --------      --------

         Total comprehensive income                                            -            -          469           (84)
                                                                       ---------     --------     --------      --------

Balance at September 30, 2001                                            $     -     $  7,360     $  6,195      $    229
                                                                       =========     ========     ========      ========

<CAPTION>

                                                                                       SHARES
                                                                                     ACQUIRED
                                                                       BY STOCK      TREASURY
                                                                        BENEFIT       SHARES,
                                                                          PLANS       AT COST         TOTAL

<S>                                                                    <C>           <C>           <C>
Balance at October 1, 1998                                             $ (1,097)     $ (2,179)     $ 15,033

Purchase of treasury shares                                                   -          (768)         (768)
Transfer of shares to treasury upon stock benefit plan termination          190          (190)            -
Amortization expense of stock benefit plans                                 282             -           355
Dividends of $.62 per share                                                   -             -          (807)
Comprehensive income:
     Net income                                                               -             -           754
     Change in unrealized gains on securities
       available for sale, net of reclassification and tax effects            -             -          (366)
                                                                       --------      --------      --------

         Total comprehensive income                                           -             -           388
                                                                       --------      --------      --------

Balance at September 30, 1999                                              (625)       (3,137)       14,201

Transfer of shares to treasury upon stock benefit plan termination          478          (241)          237
Amortization expense of stock benefit plans                                 147             -           147
Dividends of $3.515 per share                                                 -             -        (4,439)
Comprehensive income:
     Net income                                                               -             -           585
     Change in unrealized gains on securities
       available for sale, net of reclassification and tax effects            -             -          (416)
                                                                       --------      --------      --------

         Total comprehensive income                                           -             -           169
                                                                       --------      --------      --------

Balance at September 30, 2000                                                 -        (3,378)       10,315

Dividends of $.24 per share                                                   -             -          (294)
Comprehensive income:
     Net income                                                               -             -           469
     Change in unrealized gains on securities
       available for sale, net of reclassification and tax effects            -             -           (84)
                                                                       --------      --------      --------

         Total comprehensive income                                           -             -           385
                                                                       --------      --------      --------

Balance at September 30, 2001                                          $      -      $ (3,378)     $ 10,406
                                                                       ========      ========      ========
</TABLE>



                             See accompanying notes.


                                      -40-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Year ended September 30,
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                              2001          2000          1999
<S>                                                                         <C>           <C>           <C>
Cash flows from operating activities:
  Net income                                                                $    469      $    585      $    754
  Adjustments to reconcile net income to net cash provided by (used in)
  operating activities:
    Depreciation and amortization                                                108            72           123
    Gain on sale of securities                                                  (346)         (603)         (518)
    Loans originated for sale                                                 (1,588)            -             -
    Proceeds from sale of loans held for sale                                  1,598             -             -
    Gain on sale of loans held for sale                                          (10)            -             -
    Provision for losses on loans                                                 12            12            12
    Amortization expense of stock benefit plans                                    -           384           355
    Recovery of loss on investments                                                -            10             5
    Federal Home Loan Bank stock dividends                                       (77)          (68)          (62)
    Net changes in other assets, accrued expenses
    and other liabilities                                                        238           259          (612)
    Deferred taxes                                                                26          (151)          (21)
                                                                            --------      --------      --------
         Net cash from operating activities                                      430           500            36


Cash flows from investing activities:
 Activity in available-for-sale securities:
     Sales                                                                       352           616           527
 Activity in held-to-maturity securities:
     Maturities, prepayments and calls                                            87         1,012         1,012
     Purchases                                                                     -             -        (1,000)
  Purchase of mortgage-backed securities
    available for sale                                                             -        (1,026)       (2,258)
  Principal repayments on mortgage-backed securities                           2,679         2,246         4,749
  Loan principal repayments                                                   21,148        16,984        21,389

  Loan disbursements                                                         (29,963)      (28,700)      (30,123)
  Purchase of Federal Home Loan Bank stock                                       (49)           (1)            -
  Purchase of office premises and equipment                                     (141)         (315)          (37)
                                                                            --------      --------      --------
         Net cash used in investing activities                                (5,887)       (9,184)       (5,741)
                                                                            --------      --------      --------
</TABLE>



See accompanying notes.






                                      -41-
<PAGE>



                          PEOPLES FINANCIAL CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                            Year ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                    2001            2000           1999


<S>                                                                                <C>             <C>              <C>
Cash flows from financing activities:
  Net increase in deposits                                                         4,889           4,481            479
  Proceeds from Federal Home Loan Bank advances                                   34,300          52,900         18,000
  Repayment of Federal Home Loan Bank advances                                   (30,950)        (45,250)       (11,000)
  Purchase of treasury shares                                                        -                -            (768)
  Dividends paid on common stock                                                    (294)         (4,439)          (807)
                                                                                --------         -------       --------
         Net cash from financing activities                                        7,945             692          5,904
                                                                                 -------         -------        -------

Net change in cash and cash equivalents                                            2,488            (992)           199


Cash and cash equivalents at beginning of year                                     1,628           2,620          2,421
                                                                                 --------        -------        -------

Cash and cash equivalents at end of year                                        $  4,116        $  1,628       $  2,620
                                                                                 ========        =======        =======


Supplemental disclosure of cash flow information:
    Income taxes paid                                                          $     229      $       95      $     929
                                                                                ========       =========       ========


    Interest paid                                                               $  4,988        $  4,259       $  3,474
                                                                                 =======         =======        =======
</TABLE>
















See accompanying notes.



                                      -42-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            YEAR ENDED SEPTEMBER 30,
                                 (IN THOUSANDS)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNLESS OTHERWISE INDICATED, AMOUNTS ARE IN THOUSANDS, EXCEPT SHARE DATA.

NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION:

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

    The consolidated financial statements include the accounts of the
    Corporation and the Association, and its wholly-owned subsidiary, Massillon
    Community Service Corporation ("Massillon") . At September 30, 2001 and
    2000, Massillon had no assets and was inactive. All intercompany balances
    and transactions have been eliminated in the accompanying consolidated
    financial statements.

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

    CASH FLOWS: Cash and cash equivalents includes cash, deposits with other
    financial institutions under 90 days, and federal funds sold. Net cash flows
    are reported for deposit transactions.

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

    Interest income includes amortization of purchase premium or discount. Gains
    and losses on sales are based on the amortized cost of the security sold.
    Securities are written down to fair value when a decline in fair value is
    not temporary.



                                      -43-
<PAGE>



                          PEOPLES FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 2001, 2000 and 1999



    NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    LOANS: Loans that management has the intent and ability to hold for the
    foreseeable future or until maturity or payoff are reported at the principal
    balance outstanding, net of unearned interest, deferred loan fees and costs,
    and an allowance for loan losses. Loans held for sale are reported at the
    lower of cost or market, on an aggregate basis.

    Interest income is reported on the interest method and includes amortization
    of deferred loan fees and costs over the loan term. Interest income is not
    reported when full loan repayment is in doubt, typically when the loan is
    impaired or payments are past due over 90 days. Payments received on such
    loans are reported as principal reductions.

    ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
    allowance for probable incurred credit losses, increased by the provision
    for loan losses and decreased by charge-offs less recoveries. Management
    estimates the allowance balance required using past loan loss situations and
    estimated collateral values, economic conditions, and other factors.
    Allocations of the allowance may be made for specific loans, but the entire
    allowance is available for any loan that, in management's judgment, should
    be charged-off. Loan losses are charged against the allowance when
    management believes the uncollectibility of a loan balance is confirmed.

    A loan is impaired when full payment under the loan terms is not expected.
    Impairment is evaluated in total for smaller-balance loans of similar nature
    such as residential mortgage and consumer loans, and on an individual loan
    basis for other loans. If a loan is impaired, a portion of the allowance is
    allocated so that the loan is reported, net, at the present value of
    estimated future cash flows using the loan's existing rate or at the fair
    value of collateral if repayment is expected solely from the collateral.

    FORECLOSED ASSETS: Assets acquired through or instead of loan foreclosure
    are initially recorded at fair value when acquired, establishing a new cost
    basis. If fair value declines, a valuation allowance is recorded through
    expense. Costs after acquisition are expensed.

    PREMISES AND EQUIPMENT: Land is carried at cost. Premises and equipment are
    stated at cost less accumulated depreciation. Depreciation is computed over
    the asset useful lives on an accelerated basis, except for buildings for
    which the straight line basis is used.

    LONG-TERM ASSETS: Premises and equipment and other long-term assets are
    reviewed for impairment when events indicate their carrying amount may not
    be recoverable from future undiscounted cash flows. If impaired, the assets
    are recorded at discounted amounts.

    STOCK COMPENSATION: Pro forma disclosures of net income and earnings per
    share are shown using the fair value method of SFAS No. 123 to measure
    expense for options granted after 1994, using an option pricing model to
    estimate fair value.



                                      -44-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 2001, 2000 and 1999


    NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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

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

    EARNINGS PER COMMON SHARE: Basic earnings per share is computed based upon
    the weighted-average shares outstanding during the period less shares in the
    employee stock ownership plan ("ESOP") that were unallocated and not
    committed to be released. Weighted-average common shares deemed outstanding,
    which gives effect to a reduction for 31,812 weighted-average unallocated
    shares held by the ESOP for fiscal 1999, totaled 1,234,085, 1,248,579 and
    1,265,566 for the fiscal years ended September 30, 2001, 2000 and 1999,
    respectively.

    Diluted earnings per share is computed taking into consideration common
    shares outstanding and dilutive potential common shares to be issued under
    the Corporation's stock option plan. Weighted-average common shares deemed
    outstanding for purposes of computing diluted earnings per share totaled
    1,234,852, 1,248,579 and 1,265,566 for the fiscal years ended September 30,
    2001, 2000 and 1999, respectively. Options to purchase 117,617, 116,617 and
    131,422 shares of common stock with a respective weighted average exercise
    price of $12.34, $12.39 and $12.38, were outstanding at September 30, 2001,
    2000 and 1999, respectively, but were excluded from the computation of
    diluted earnings per share because their exercise prices were greater than
    the average market price of the common shares.

    COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
    comprehensive income. Other comprehensive income includes unrealized gains
    and losses on securities available for sale which are also recognized as
    separate components of equity.

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

    RESTRICTIONS ON CASH: Cash on hand or on deposit with the Federal Home Loan
    Bank of $506,000 and $307,000 was required to meet regulatory reserve and
    clearing requirements at year end 2001 and 2000. These balances do not earn
    interest.



                                      -45-
<PAGE>



                          PEOPLES FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 2001, 2000 and 1999


    NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    BENEFIT PLANS: The Corporation had an ESOP, which provided retirement
    benefits for substantially all employees who had completed one year of
    service and had attained the age of 21. The Corporation accounted for the
    ESOP in accordance with Statement of Position ("SOP") 93-6, "Employers'
    Accounting for Employee Stock Ownership Plans". SOP 93-6 requires the
    measure of compensation expense recorded by employers to equal the fair
    value of ESOP shares allocated to participants during a fiscal year. During
    fiscal 1999, the Association's Board of Directors adopted a resolution
    terminating the ESOP. Accordingly, the remaining 18,390 unallocated ESOP
    shares have been reflected as treasury shares following retirement of the
    outstanding ESOP loan. Expense recognized related to the ESOP totaled
    approximately $6,000 and $218,000 for the fiscal years ended September 30,
    2000 and 1999, respectively. There was no expense for the year ended
    September 30, 2001.

    The Association also provides retirement benefits through contributions to a
    discretionary 401(k) plan. Due to contributions made to the ESOP, the
    Association did not make matching contributions to the 401(k) plan during
    fiscal 1999. The Association's expense for matching contributions amounted
    to $29,000 and $12,000 for fiscal 2001 and 2000 respectively.

    The Corporation also had a Recognition and Retention Plan ("RRP").
    Subsequent to the common stock offering, the RRP purchased 59,640 shares of
    the Corporation's common stock in the open market. In March 2000, the Board
    adopted a resolution terminating the RRP. At that date, a total of 28,617
    shares available under the RRP had been earned and distributed to officers
    and directors of the Corporation, leaving 20,884 shares unearned and 10,139
    shares available for allocation. Accordingly, the remaining unearned and
    unallocated shares have been reflected as treasury shares. Provisions
    charged to expense for the RRP totaled $80,000 and $147,000 for the fiscal
    years ended September 30, 2000 and 1999, respectively. There was no expense
    for the year ended September 30, 2001.


    In March 2000, a Deferred Compensation Plan was established to replace the
    RRP. Certain assets of the RRP Trust were returned to the Corporation, and
    expense provisions of $266,000 were recorded in fiscal 2000 to recognize
    total vested benefits to participants equal to the value of their unearned
    and forfeited RRP accounts. A provision of $4,000 was charged to expense in
    the year ended September 30, 2001 for the Deferred Compensation Plan.




                                      -46-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    DIVIDEND RESTRICTION: Banking regulations require maintaining certain
    capital levels and may limit the dividends paid by the Association to the
    Corporation or by the holding company to shareholders.

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

    BUSINESS SEGMENTS: While the Corporation's chief decision-makers monitor the
    revenue streams of the various Corporation products and services, operations
    are managed and financial performance is evaluated on a corporate-wide
    basis. Accordingly, all of the Corporation's banking operations are
    considered by management to be aggregated in one reportable operating
    segment.

    RECLASSIFICATIONS: Some items in the prior year financial statements were
    reclassified to conform to the current presentation.




                                      -47-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999

NOTE 2 - ACQUISITION

On October 2, 2001, a merger agreement was signed between National Bancshares
Corporation (and its wholly-owned subsidiary First National Bank of Orrville)
and Peoples Financial Corporation (and its wholly-owned subsidiary Peoples
Federal Savings and Loan Association of Massillon). At the effective time of the
merger, each share of Peoples Financial Corporation will be exchanged for $12.25
per share, all in cash. The agreement provides for Peoples Financial Corporation
to be merged into an acquiring subsidiary and then merged into National
Bancshares Corporation. The shareholders of Peoples Financial Corporation will
be asked to adopt the agreement at a shareholders' meeting to be held in the
first quarter of 2002. The acquisition is expected to be consummated in the
second quarter of fiscal 2002 and is subject to approvals by various regulatory
authorities and the shareholders of Peoples Financial Corporation.



                                      -48-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999



NOTE 3 - SECURITIES

    Year-end securities are as follows:

                                                  2001
                                            GROSS     GROSS
                              AMORTIZED  UNREALIZED UNREALIZED      FAIR
                                 COST       GAINS     LOSSES       VALUE
                                 ----       -----     ------       -----

    HELD TO MATURITY:
      Municipal obligations     $  860     $   59     $   (1)     $  918

    AVAILABLE FOR SALE:
      FHLMC stock                    4        262                    266
                                ------     ------     ------      ------

         Total                  $  864     $  321     $   (1)     $1,184
                                ======     ======     ======      ======


                                                 2000
                                            GROSS     GROSS
                              Amortized  unrealized unrealized    Fair
                                 cost       gains     losses      value
                                ------     ------     ------      ------

    HELD TO MATURITY:
      Municipal obligations     $  946     $   40     $   (2)     $  984


    AVAILABLE FOR SALE:
      FHLMC stock                    9        509          -         518
                                ------     ------     ------      ------

         Total                  $  955     $  549     $   (2)     $1,502
                                ======     ======     ======      ======





                                      -49-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 3 - SECURITIES (continued)

    Year-end mortgage-backed securities are as follows:

<TABLE>
<CAPTION>
                                                                    2001
                                                              GROSS       GROSS
                                                 AMORTIZED UNREALIZED  UNREALIZED    FAIR
                                                    COST      GAINS      LOSSES      VALUE
                                                   ------     ------     ------      ------
<S>                                                <C>        <C>      <C>           <C>
    HELD TO MATURITY:
      Mortgage-backed securities                   $1,840     $   64   $      -      $1,904

    AVAILABLE FOR SALE:
      Mortgage-backed securities                    3,403         95         (9)      3,489
       Collateralized mortgage obligations          1,110          2         (1)      1,111
       Guardian Savings and Loan participation
        certificates                                  373          -         (4)        369
                                                   ------     ------     ------      ------
         Total mortgage-backed securities
           available for sale                       4,886         97        (14)      4,969
                                                   ------     ------     ------      ------

         Total mortgage-backed securities          $6,726     $  161     $  (14)     $6,873
                                                   ======     ======     ======      ======
</TABLE>



<TABLE>
<CAPTION>
                                                                        2000
                                                                  GROSS     GROSS
                                                    AMORTIZED  UNREALIZED UNREALIZED    FAIR
                                                       COST       GAINS     LOSSES      VALUE
                                                      ------     ------     ------      ------

<S>                                                   <C>        <C>         <C>        <C>
    HELD TO MATURITY:
      Mortgage-backed securities                      $2,521     $   38      $   -      $2,559

    AVAILABLE FOR SALE:
      Mortgage-backed securities                       5,187         17        (79)      5,125
      Collateralized mortgage obligations                 94          2          -          96
      Guardian Savings and Loan participation
        certificates                                   1,032         28          -       1,060
      Discovery Resort Limited, partnership notes        571          -         (5)        566
                                                      ------     ------     ------      ------
         Total mortgage-backed securities
           available for sale                          6,884         47        (84)      6,847
                                                      ------     ------     ------      ------

         Total mortgage-backed securities             $9,405     $   85     $  (84)     $9,406
                                                      ======     ======     ======      ======
</TABLE>



                                      -50-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 3 - SECURITIES (continued)


    Sales of securities were as follows:

                              2001     2000     1999
                              ----     ----     ----

             Proceeds         $352     $616     $527
             Gross gains       346      603      518
             Gross losses        -        -        -

    Contractual maturities of debt securities at year-end 2001 were as follows.
    Securities not due at a single maturity date, primarily mortgage-backed
    securities, are shown separately.

<TABLE>
<CAPTION>
                                          Held to maturity      Available for sale
                                          Amortized     Fair    Amortized     Fair
                                             Cost       Value      Cost      Value
                                            ------     ------     ------     ------
<S>                                         <C>        <C>     <C>       <C>
             Due in one year or less        $   12     $   12  $       - $        -
             Due from one to five years        191        202          -          -
             Due from five to ten years        203        218          -          -
             Due after ten years               454        486          -
             Mortgage-backed
                                             1,840      1,904      4,886      4,969
                                            ------     ------     ------     ------

                    Total                   $2,700     $2,822     $4,886     $4,969
                                            ======     ======     ======     ======
</TABLE>

    At year-end 2001 and 2000, no securities were pledged to secure public
    deposits.





                                      -51-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 4 - LOANS RECEIVABLE

    Loans at year-end were as follows:

                                                       2001           2000
                                                          (In thousands)
    Residential real estate
      One- to four-family                           $83,724        $74,801
      Multi-family                                      309            313
      Construction                                   12,184         11,482
    Nonresidential real estate                        3,179          3,655
    Consumer and other loans                            264            217
                                                    -------        -------
                                                     99,660         90,468

    Less:
      Deferred loan origination fees                     96             61
      Undisbursed portion of loans in process         5,633          5,338
      Allowance for loan losses                         239            235
                                                    -------        -------

           Loans, net                               $93,692        $84,834
                                                    =======        =======

    The Association's one- to four-family residential real estate loans
    represented 84.0% of the total loan portfolio at September 30, 2001 and
    82.7% of the total loan portfolio at September 30, 2000. The Association is
    subject to the risk that real estate values could deteriorate in its primary
    lending area of northeast Ohio, thereby impairing collateral values.
    However, management is of the belief that real estate values in the
    Association's primary lending area are presently stable.

    In the ordinary course of business, the Association has made loans to some
    of its directors and officers and their related business interests. The
    balance of such loans totaled approximately $316 and $288 at September 30,
    2001 and 2000, respectively.





                                      -52-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 5 - ALLOWANCE FOR LOAN LOSSES

    Activity in the allowance for loan losses for the year was as follows:

                                            2001       2000     1999
                                           -----      -----     -----

             Beginning balance             $ 235      $ 213     $ 196
             Provision for loan losses        12         12        12
             Loans charge-off                 (8)         -         -
             Recoveries                        -         10         5
                                           -----      -----     -----

             Ending balance                $ 239      $ 235     $ 213
                                           =====      =====     =====


    Nonperforming and nonaccrual loans at September 30, 2001, 2000 and 1999,
    totaled $193, $223 and $114 respectively. There was no material loss of
    interest income on nonperforming loans for the years ended September 30,
    2001, 2000 and 1999. No loans were classified as impaired at September 30,
    2001 or 2000, or during the years ended September 30, 2001, 2000 and 1999.


NOTE 6 - PREMISES AND EQUIPMENT

    Year-end premises and equipment were as follows:

                                                    2001       2000

             Land                                 $  355     $  355
             Building and improvements             1,506      1,480
             Furniture and equipment               1,025      1,050
                                                  ------     ------
                                                   2,886      2,885
              Less accumulated  depreciation       1,322      1,297
                                                  ------     ------

                                                  $1,564     $1,588
                                                  ======     ======

Rent expense for 2001, 2000 and 1999 was $49, $19 and $12. Rent commitments
under noncancelable operating leases were as follows, before considering renewal
options that generally are present.


                  2002                                $   50
                  2003                                    44
                  2004                                    44
                  2005                                    37
                  2006                                    12
                  Thereafter                              57
                                                      ------

                       Total                          $  244
                                                      ======



                                      -53-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 7 - DEPOSITS

    Time deposits of $100,000 or more were $8.9 and $7.8 million at year-end
    2001 and 2000.

    Scheduled maturities of time deposits for the next five years were as
    follows.

                        2002                            $37,815
                        2003                             11,703
                        2004                              6,124
                        2005                              1,522
                        2006                                958
                        Thereafter                           36
                                                       --------

                              Total                     $58,158
                                                       ========



    Interest expense on deposits is summarized as follows for the years ended
    September 30:

                                             2001         2000         1999
                                            ------       ------       ------
                                                     (In thousands)

    NOW accounts                            $   18       $   26       $   24
    Passbook                                   184          222          216
    Premium savings accounts                   141           65           58
    Certificates of deposit                  3,505        3,010        2,865
                                            ------       ------       ------

                                            $3,848       $3,323       $3,163
                                            ======       ======       ======




                                      -54-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999



NOTE 8 -  FEDERAL HOME LOAN BANK ADVANCES

    At year-end, advances from the Federal Home Loan Bank (FHLB) were as
    follows.

<TABLE>
<CAPTION>
                                                                                     2001                   2000
                                                                                     ----                   ----

<S>                                                                               <C>                    <C>
         Fixed rate advances, convertible to variable rates at the option of
         FHLB one, two or three years from date of note, maturities November 15,
         2010 through February 2, 2011, at rates from 4.60% to 5.79%,
         averaging 5.16%                                                          $ 16,000

         Maturities May 10, 2001 through May 30, 2001, primarily fixed rate at
         rates from 4.44% to 6.43%, averaging 5.77%                                  3,000

         Maturities October 10, 2000 through February 5, 2001, primarily fixed
         rate at rates from 6.76% to 6.93%, averaging 6.92%                                              $ 16,650

         Variable rate at 3.52% at year end, maturities
         October 17, 2001 through December 6, 2001                                   3,000

         Variable rates at 6.90% to 7.00% at year end, maturities December 14,
         2000 through March 13, 2001, average rate 6.98%                                                    2,000
                                                                                   -------                -------

               Total                                                              $ 22,000               $ 18,650
                                                                                   =======                =======
</TABLE>


    Each advance is payable at its maturity date, without a prepayment penalty.
    The advances were collateralized by $27,500 and $23,313 of first mortgage
    loans under a blanket lien arrangement at year-end 2001 and 2000.




                                      -55-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 9 - FEDERAL INCOME TAXES

     Income tax expense was as follows:

<TABLE>
<CAPTION>
                                                                          2001           2000              1999

<S>                                                                    <C>              <C>              <C>
         Current                                                       $   231          $ 435            $  381
         Deferred                                                           26           (151)              (21)
                                                                       -------          -----            -----

                  Total                                                $   257          $ 284            $ 360
                                                                       =======          =====            =====
</TABLE>

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


<TABLE>
<CAPTION>
                                                                          2001            2000             1999
                                                                                     (In thousands)

<S>                                                                    <C>              <C>              <C>
    Federal income taxes at statutory rate                             $   247          $  295           $  379
    Increase (decrease) in taxes resulting from:
      Interest on municipal obligations                                    (15)            (17)             (17)
      Other                                                                 25               6               (2)
                                                                       ------           ------           ------
    Federal income taxes per consolidated
      financial statements                                             $  257           $  284           $  360
                                                                       ======           ======           ======

    Effective tax rate                                                   35.4%            32.7%            32.3%
                                                                       ======           ======           ======
</TABLE>


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

<TABLE>
<CAPTION>
    Taxes (payable) refundable on temporary                                2001       2000
    differences at statutory rate:                                          (In thousands)

<S>                                                                       <C>        <C>
    Deferred tax assets:
      Net deferred loan origination costs                                 $  92      $  85
      General loan loss allowance                                            76         80
      Employee benefit plan expense                                         115        135
      Other                                                                   -          9
                                                                          -----      -----
         Deferred tax assets                                                283        309

    Deferred tax liabilities:
      Federal Home Loan Bank stock dividends                               (264)      (238)
      Difference between book and tax depreciation                         (120)      (121)
      Percentage of earnings bad debt deduction                             (75)      (100)
      Unrealized gains on securities designated as available for sale      (116)      (159)
      Other                                                                   -          -
                                                                          -----      -----
         Deferred tax liabilities                                          (575)      (618)
                                                                          -----      -----

         Net deferred tax liability                                       $(292)     $(309)
                                                                          =====      =====
</TABLE>



                                      -56-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 9 - FEDERAL INCOME TAXES (continued)

    In prior years, the Association was allowed a special bad debt deduction
    generally limited to 8% of otherwise taxable income and subject to certain
    limitations based on aggregate loans and deposit account balances at the end
    of the year. If the amounts that previously qualified as deductions for
    federal income taxes are later used for purposes other than bad debt losses,
    including distributions in liquidation, such distributions will be subject
    to federal income taxes at the then current corporate income tax rate.
    Retained earnings at September 30, 2001, include approximately $2.3 million
    for which federal income taxes have not been provided. The amount of
    unrecognized deferred tax liability relating to the cumulative bad debt
    deduction was approximately $782 at September 30, 2001. The Association is
    required to recapture as taxable income approximately $560 of its bad debt
    reserve, which represents the post-1987 additions to the reserve, and is
    unable to utilize the percentage of earnings method to compute its reserve
    in the future. The Association has provided deferred taxes for this amount
    and began to amortize the recapture of its bad debt reserve into taxable
    income over a six year period in fiscal 1999.

NOTE 10 - LOAN COMMITMENTS

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

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

    At September 30, 2001, the Association had outstanding commitments of
    approximately $1.9 million to originate loans. Additionally, the Association
    had undisbursed loans in process of $5.6 million at September 30, 2001. In
    the opinion of management, all loan commitments equaled or exceeded
    prevalent market interest rates as of September 30, 2001, and will be funded
    from normal cash flow from operations.

NOTE 11 - STOCK OPTION PLAN

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



                                      -57-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


    NOTE 11 - STOCK OPTION PLAN (continued)

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

<TABLE>
<CAPTION>
                                                2001                    2000
                                                ----                    ----
                                                    Weighted                   Weighted
                                                     Average                   Average
                                                    Exercise                  Exercise
                                          Shares      Price      Shares         Price
                                         --------     ------     --------      ------
<S>                                       <C>         <C>         <C>          <C>
    Outstanding at beginning of year      116,617     $12.39      131,422      $12.38
    Granted                                 1,000       6.25            -           -
    Exercised                                   -          -            -           -
    Forfeited                                   -          -      (14,805)     $12.41
                                         --------     ------     --------      ------
    Outstanding at end of year            117,617     $12.34      116,617      $12.39
                                         ========     ======     ========      ======
</TABLE>

<TABLE>
<CAPTION>
                                                   2001                 2000
                                                   ----                 ----
                                                         Weighted              Weighted
                                                          Average               Average
                                                         Exercise              Exercise
                                               Shares     Price      Shares     Price
                                               ------     ------     ------     ------

<S>                                            <C>        <C>        <C>        <C>
    Options exerciseable at year-end           91,972     $12.43     70,252     $12.44
    Weighted-average fair value of options
      granted during year                       1,000       1.56                   N/A
</TABLE>


    Options outstanding at year-end 2001 were as follows:

<TABLE>
<CAPTION>
                                                   Outstanding                Exerciseable
                                                   -----------                ------------
                                                           Weighted Average                Weighted
    Range of                                                  Remaining                    Average
    Exercise                                                 Contractual                  Exercise
    Prices                                  Number              Life        Number          Price
    ------                                  ------              ----        ------          -----

<S>                                           <C>                <C>        <C>        <C>
    $  6.25                                   1,000              9.5              -          -
    $  9.94 - $16.44                        116,617              5.6         91,972     $12.43
                                            -------              ---         ------     ------

    Outstanding at year end                 117,617              5.6         91,972     $12.43
                                            =======              ===         ======     ======
</TABLE>




                                      -58-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999



    NOTE 11 - STOCK OPTION PLAN (continued)

    Had compensation cost for stock options been measured using FASB Statement
    No. 123, net income and earnings per share would have been the pro forma
    amounts indicated below.

                                                2001        2000        1999
                                                ----        ----        ----

    Net income as reported                     $   469     $   585     $   754
    Pro forma net income                           467         585         752

    Basic earnings per share as reported       $   .38     $   .47     $   .60
    Pro forma basic earnings per share             .38         .47         .59

    Diluted earnings per share as reported     $   .38     $   .47     $   .60
    Pro forma diluted earnings per share           .38         .47         .59

    The pro forma effects are commuted using option pricing models, using the
    following weighted-average assumptions as of grant date.

<TABLE>
<CAPTION>
                                                         2001           2000             1999
                                                         ----           ----             ----

<S>                                                       <C>            <C>              <C>
         Risk-free interest rate                          5.1%           6.5%             6.5%
         Expected option life                             7 years        10 years         10 years
         Expected stock price volatility                  18.0           12.0             12.0
         Dividend yield                                    2.0%          1.7%             1.7%
</TABLE>





                                      -59-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 12 - REGULATORY CAPITAL

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

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

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

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

    As of September 30, 2001 and 2000, management believes that the Association
    met all capital adequacy requirements to which it was subject.

<TABLE>
<CAPTION>
                                                               As of September 30, 2001
                                                                                                          Required
                                                                                                        to be "well-
                                                                    Required                          capitalized" under
                                                                   for capital                        prompt corrective
                                             Actual              adequacy purposes                    action provisions
                                    --------------------      -------------------------           -------------------------
                                    Amount       Ratio        Amount              Ratio           Amount             Ratio
                                    --------------------      -------------------------           -------------------------
                                                                  (Dollars in thousands)

<S>                                  <C>         <C>        <C>                <C>               <C>              <C>
                                                            Greater            Greater           Greater          Greater
                                                            than or            than or           than or          than or
    Tangible capital                 $9,536      8.78%      equal to $1,628    Equal to 1.5%     Equal to $5,428  Equal to 5.0 %

                                                            Greater            Greater           Greater          Greater
                                                            than or            than or           than or          than or
    Core capital                     $9,536      8.78%      equal to $4,342    equal to 4.0%     equal to $6,513  equal to 6.0 %

                                                            Greater            Greater           Greater          Greater
                                                            than or            than or           than or          than or
    Risk-based capital               $9,893     15.77%      equal to $5,018    equal to 8.0%     equal to $6,273  equal to 10.0 %
</TABLE>



                                      -60-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 12 - REGULATORY CAPITAL (continued)

<TABLE>
<CAPTION>
                                                                As of September 30, 2000
                                                                ------------------------
                                                                                                       Required
                                                                                                      to be "well-
                                                                     Required                      capitalized" under
                                                                    for capital                    prompt corrective
                                             Actual               adequacy purposes                action provisions
                                    ------------------       --------------------------         ------------------------
                                      Amount    Ratio        Amount             Ratio             Amount           Ratio
                                                               (Dollars in thousands)

<S>                                  <C>         <C>        <C>                <C>               <C>              <C>
                                                            Greater            Greater           Greater          Greater
                                                            than or            than or           than or          than or
    Tangible capital                 $9,000       9.0%      equal to $1,503    equal to 1.5%     equal to $5,011  equal to 5.0%

                                                            Greater            Greater           Greater          Greater
                                                            than or            than or           than or          than or
    Core capital                     $9,000       9.0%      equal to $4,009    equal to 4.0%     equal to $6,013  equal to 6.0%

                                                            Greater            Greater           Greater          Greater
                                                            than or            than or           than or          than or
    Risk-based capital               $9,464      16.7%      equal to $4,529    equal to 8.0%     equal to $5,661  equal to 10.0%
</TABLE>

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



                                      -61-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


    NOTE 13 - FAIR VALUES OF FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                       2001                        2000
                                             Carrying         Fair      Carrying          Fair
                                               Amount        Value        Amount         Value
                                               ------        -----        ------         -----
<S>                                          <C>           <C>           <C>           <C>
         Financial assets
            Cash and cash equivalents        $  4,116      $  4,116      $  1,628      $  1,628
            Securities                          1,126         1,184         1,464         1,502
            Mortgage-backed securities          6,809         6,873         9,368         9,406
            Loans, net                         93,692        94,856        84,834        82,232
            Federal Home Loan Bank stock        1,119         1,119           993           993
            Accrued interest receivable           374           374
         Financial liabilities
            Deposits                          (75,647)      (76,598)      (70,758)      (70,576)
            Federal Home Loan Bank
               advances                       (22,000)      (23,730)      (18,650)      (18,655)
            Accrued interest payable             (100)         (100)         (118)         (118)
</TABLE>

    The methods and assumptions used to estimate fair value are described as
    follows.

    Carrying amount is the estimated fair value for cash and cash equivalents,
    Federal Home Loan Bank stock, accrued interest receivable and payable and
    demand deposits. Security fair values are based on market prices or dealer
    quotes, and if no such information is available, on the rate and term of the
    security and information about the issuer. For fixed rate loans, deposits
    and Federal Home Loan Bank advances, for variable rate loans with infrequent
    repricing or repricing limits, fair value is based on discounted cash flows
    using current market rates applied to the estimated life and credit risk.
    Fair values for impaired loans are estimated using discounted cash flow
    analysis or underlying collateral values.




                                      -62-
<PAGE>



                          PEOPLES FINANCIAL CORPORATION
                        STATEMENTS OF FINANCIAL CONDITION

                        September 30, 2001, 2000 and 1999


NOTE 14 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

    The following condensed financial statements summarize the financial
    position of Peoples Financial Corporation as of September 30, 2001 and 2000,
    and the results of its operations and its cash flows for the years ended
    September 30, 2001, 2000 and 1999.

<TABLE>
<CAPTION>
         ASSETS                                                                                  2001              2000

<S>                                                                                         <C>               <C>
    Cash and due from banks                                                                 $     127         $     467
    Interest-bearing deposits in other financial institutions                                      26                 4
    Investment in Peoples Federal Savings and Loan Association
      of Massillon                                                                              9,766             9,314
    Prepaid expenses and other assets                                                             132               119
    Accounts receivable from Peoples Federal Savings and Loan
      Association of Massillon                                                                    367               424
                                                                                              -------           -------

         Total assets                                                                         $10,418           $10,328
                                                                                              =======           =======


         LIABILITIES AND SHAREHOLDERS' EQUITY

    Accrued expenses and other liabilities                                                 $       12        $       13

    Shareholders' equity                                                                       10,406            10,315
                                                                                              -------           -------

         Total liabilities and shareholders' equity                                           $10,418           $10,328
                                                                                              =======           =======
</TABLE>





                                      -63-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 14 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)

                          PEOPLES FINANCIAL CORPORATION
                             STATEMENTS OF EARNINGS
                            Year ended September 30,
                                 (In thousands)

                                                    2001       2000       1999
         Income
           Interest income                         $   6      $  17      $  46
           Equity in earnings of subsidiary          536        650        805
                                                   -----      -----      -----
              Total revenue                          542        667        851

         General and administrative expenses         106        115        123
                                                   -----      -----      -----
              Income before income tax credits       436        552        728

         Federal income tax credits                  (33)       (33)       (26)
                                                   -----      -----      -----

              Net Income                           $ 469      $ 585      $ 754
                                                   =====      =====      =====





                                      -64-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 14 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)

                          PEOPLES FINANCIAL CORPORATION
                            STATEMENTS OF CASH FLOWS
                            Year ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                          2001         2000         1999
<S>                                                                                    <C>          <C>          <C>
         Cash flows provided by (used in) operating activities:
           Net income                                                                  $   469      $   585      $   754
           Adjustments to reconcile net earnings to net cash provided by (used in)
           operating activities:
             Undistributed earnings of consolidated subsidiary                            (536)        (650)        (805)
             Amortization of expense related to stock benefit plans                          -          384          147
             Net changes in other assets and other liabilities                              43          (49)         (12)
                                                                                       -------      -------      -------
              Net cash provided by operating activities                                    (24)         270           84

         Cash flows from investing activities:
           Dividends received from subsidiary                                                -        3,482        2,108
           Repayments on ESOP loan                                                           -            -          336
                                                                                       -------      -------      -------
              Net cash provided by investing activities                                      -        3,482        2,444

         Cash flows from financing activities:
           Dividends on common stock                                                      (294)      (4,439)        (807)
           Purchase of treasury stock                                                        -            -         (768)
                                                                                       -------      -------      -------
              Net cash used in financing activities                                       (294)      (4,439)      (1,575)
                                                                                       -------      -------      -------

         Net increase (decrease) in cash and cash equivalents                             (318)        (687)         953

         Cash and cash equivalents at beginning of year                                    471        1,158          205
                                                                                       -------      -------      -------

         Cash and cash equivalents at end of year                                      $   153      $   471      $ 1,158
                                                                                       =======      =======      =======
</TABLE>




                                      -65-
<PAGE>


                          PEOPLES FINANCIAL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2001, 2000 and 1999


NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        Earnings per Share
                                   Interest          Net Interest   Net                 -------------------
                                   Income            Income         Income(1)       Basic           Fully Diluted
                                   ------            ------         -------         -----           -------------

<S>                              <C>                 <C>            <C>          <C>                     <C>
2001
----
  First quarter                  $ 1,880             $ 610          $ 117        $ .09                   $ .09
  Second quarter                   1,923               693            142          .11                     .11
  Third quarter                    1,911               679            154          .12                     .12
  Fourth quarter                   1,930               692             56          .05                     .05


2000
----
  First quarter                    1,653               676            167          .13                     .13
  Second quarter                   1,701               677            140          .11                     .11
  Third quarter                    1,780               676            113          .09                     .09
  Fourth quarter                   1,821               606            165          .13                     .13
</TABLE>



(1) Fourth quarter income for 2001 reflects the impact of additional expenses
related to the Company's pending acquisition by National Bancshares Corporation
as indicated in Note 2.





                                      -66-
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         On April 18, 2001, Peoples Financial, with the approval of the Board of
Directors, decided to change Peoples Financial's independent certified public
accountants from Grant Thornton LLP to Crowe Chizek. Grant Thornton LLP served
as Peoples Financial's independent certified public accountants from 1996
through the fiscal year ended September 30, 2000. The Board of Directors'
decision to engage Crowe Chizek is based on that firm's service and commitment
toward serving community-based financial institutions of Peoples Financial's
size. Grant Thornton LLP's reports on the consolidated financial statements of
Peoples Financial for the past two years did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principals. During the last two fiscal years and the
interim period through April 18, 2001, there were no disagreements between
Peoples Financial and Grant Thornton LLP on any matter of accounting principles
or practices, consolidated financial statement disclosure or audit scope or
procedure.

         Crowe Chizek has been engaged as Peoples Financial's independent
certified public accountants effective April 18, 2001. Peoples Financial has not
requested or obtained any advice from Crowe Chizek concerning any material
accounting, auditing or financial reporting issue regarding the application of
accounting principles to a specified transaction or the type of audit opinion
that might be rendered on Peoples Financial's consolidated financial statements.


                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

<TABLE>
<CAPTION>
                                                                                                                Director of
                                                                               Director of                    Peoples Federal
   Name                           Age        Positions Held                    Pfc Since     Term Expires         Since
   ----                           ---        --------------                    ----------    ------------         -----

<S>                                <C>       <C>                                 <C>             <C>               <C>
Victor C. Baker                    78        Director                            1995            2003              1984
James P. Bordner                   59        Director                            1995            2002              1992
Alan C. Edie                       51        Director                            1999            2002              1999
Vincent G. Matecheck               56        Director, Secretary and             1995            2003              1987
                                             Attorney
Thomas E. Shelt                    68        Director                            1995            2002              1978
Vince E. Stephan                   85        Director and Chairman of the        1995            2002              1970
                                             Board
Paul von Gunten                    75        Director, President and Chief       1995            2003              1968
                                             Executive Officer
</TABLE>

         MR. BAKER retired in 1982 after owning and operating Sunny Slope
Orchard, a family operated, wholesale and retail fruit market, bakery and sweet
shop located in Massillon, Ohio, for 40 years.

         MR. BORDNER has been the President of P. J. Bordner and Company, Inc.,
a grocery store chain in Massillon, Ohio, since 1980.

         MR. EDIE was, until 1999, employed by Fleming Companies, a food
distribution company, in Massillon for 24 years, most recently serving as
Director of Operations. In March 2000, Mr. Edie was appointed by the Board of
Directors of Peoples Federal to serve as Senior Vice President of Peoples
Federal. He serves as President and Board Member of the William McKinley Mental
Health Society.

         MR. MATECHECK has served as legal counsel to Peoples Federal since
1992. A lawyer in private practice, Mr. Matecheck is also the Secretary and a
director of P. J. Bordner and Company, Inc., and Polymer Packaging, Inc., of
Canton, Ohio; a partner of Federal Avenue Office Building Company; a director of
Gordy Graybill, Inc.; and a former President of the Board of Trustees of the
United Way of Western Stark County.



                                      -67-
<PAGE>

         MR. SHELT was employed by Peoples Federal from 1961 until his
retirement in December 1994. For the last fifteen years of his employment, he
served as Vice President. He is currently engaged in farming and real estate
investment.

         MR. STEPHAN has been Chairman of the Board of Peoples Federal since
1989. He is Vice President of Manchester Hardware, Inc., a hardware store
located in Manchester, Ohio, and retired in 1980 after serving for 25 years as
an insurance agent for Nationwide Company in Canal Fulton, Ohio. Mr. Stephan
currently operates a family farm.

         MR. VON GUNTEN has been employed by Peoples Federal since 1948 and has
served as President and Chief Executive Officer since 1979. Mr. von Gunten has
served as President of PFC since 1995.


EXECUTIVE OFFICERS

         In addition to Mr. von Gunten, the President of both PFC and Peoples
Federal, and Mr. Edie, the Senior Vice President of Peoples Federal, the
following persons hold the positions set forth below with PFC and Peoples
Federal:

<TABLE>
<CAPTION>
Name                                          Age                     Position(s) Held
----                                          ---                     ----------------
<S>                                           <C>                     <C>
James R. Rinehart                             58                      Treasurer of PFC and Peoples Federal
William P. Hart                               63                      Vice President of Peoples Federal
Linda L. Fowler                               57                      Secretary of PFC and Peoples Federal
Cindy A. Wagner                               49                      Assistant Treasurer of Peoples Federal
</TABLE>

         MR. RINEHART has served as the Treasurer of PFC since 1995. Mr.
Rinehart has also been employed by Peoples Federal since May 1994 and has served
as the Treasurer of Peoples Federal since March 1996. Prior to joining Peoples
Federal, Mr. Rinehart was an accountant with Hall, Kistler & Company P.L.L. for
29 years.

         MR. HART joined Peoples Federal in January 1996. Prior to joining
Peoples Federal, Mr. Hart was employed by Citizens Savings Bank in Canton, Ohio,
serving as Vice President of Loan Originations since 1978. For 20 years, Mr.
Hart served on the Board of Trustees of the Building Industry Association of
Stark County.

         MS. FOWLER has been employed by Peoples Federal since 1962. She served
as Treasurer from 1986 to 1991 and has served as Secretary since 1991. Ms.
Fowler is the Vice President and a member of the Board of Trustees of the
Massillon Downtown Merchants' Association, Treasurer of Quota International of
Massillon, Treasurer of Tuslaw Lions Club and former President and a member of
the Board of Directors of the Massillon Club.

         MS. WAGNER has been employed by Peoples Federal in various capacities
since 1986, as an officer since 1991, and as Assistant Treasurer since March
1996. Ms. Wagner is the Secretary and a member of the Board of Trustees of the
Massillon Downtown Merchants' Association.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS

         Under the federal securities laws, PFC's directors, executive officers
and persons holding more than ten percent of the common shares of PFC are
required to report their ownership of common shares and any changes in such
ownership to the Securities and Exchange Commission (the "SEC") and to PFC.
Based upon a review of such reports, PFC must disclose any failure to file such
reports timely in Proxy Statements used in connection with annual meetings of
shareholders. PFC has determined that no failure to timely file such reports
occurred during fiscal year 2001.




                                      -68-
<PAGE>

ITEM 10.      EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         The following table presents certain information regarding the cash
compensation received by the President and Chief Executive Officer of PFC and
Peoples Federal. No other executive officer of PFC received compensation in
excess of $100,000 during the fiscal years ended September 30, 2001, 2000 and
1999:


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                              ---------------------------
                                                  Annual Compensation
-------------------------------------------------------------------------------------------------



Name and Principal Position                                                     All Other
                                   Year       Salary ($)(1)     Bonus($)       Compensation
------------------------------------------------------------------------------------------------

<S>                                <C>            <C>           <C>           <C>     <C>
Paul von Gunten                    2001           $127,000      $   500       $  4,732(2)
   President and Chief             2000            126,100        7,500         16,634(3)
   Executive Officer               1999            123,089        8,000         26,510(4)
------------------------------------------------------------------------------------------------
</TABLE>

(1)      Includes salary of $117,900, $116,150, and $112,189 and directors' fees
         of $9,600, $9,600, and $10,900 in fiscal years 2001, 2000 and 1999,
         respectively, and committee fees of $350 for fiscal year 2000. Does not
         include amounts attributable to other miscellaneous benefits received
         by executive officers. The cost to PFC or Peoples Federal of providing
         such benefits to Mr. von Gunten was less than 10% of his cash
         compensation. Does not include the $82,865 value transferred from Mr.
         von Gunten's account in the Peoples Financial Corporation Recognition
         and Retention Plan Trust (the "RRP"), which was terminated, into Mr.
         von Gunten's account in the Peoples Federal Savings and Loan
         Association of Massillon Deferred Compensation Plan.

(2)      Consists of Peoples Federal's contribution to Mr. von Gunten's 401(k)
         plan account in the amount of $3,663 and premiums totaling $1,069 paid
         by Peoples Federal for insurance against the death or long-term
         disability of Mr. von Gunten payable to a beneficiary designated by Mr.
         von Gunten.

(3)      Consists of Peoples Federal's contribution to Mr. von Gunten's 401(k)
         defined contribution plan account in the amount of $1,482 and premiums
         totaling $1,109 paid by Peoples Federal for insurance against the death
         or long-term disability of Mr. von Gunten payable to a beneficiary
         designated by Mr. von Gunten, as well as the $14,043 aggregate value at
         the date of allocation of shares allocated to the Peoples Financial
         Corporation Employee Stock Ownership Plan ("ESOP") account of Mr. von
         Gunten. The ESOP was terminated during fiscal year 2000.

(4)      Consists of premiums totaling $923 paid by Peoples Federal for
         insurance against the death or long-term disability of Mr. von Gunten
         payable to a beneficiary designated by Mr. von Gunten, as well as the
         $25,587 aggregate value at the date of allocation of shares allocated
         to the ESOP account of Mr. von Gunten.


         On August 20, 2001, Peoples Federal entered into a severance agreement
with Paul von Gunten for a term ending December 31, 2002. The agreement may be
terminated by Peoples Federal at any time prior to the end of the term. If the
agreement is terminated for "just cause," as defined in the agreement, or
without just cause and more than six months before or after one year after a
"change in control," Mr. von Gunten will have no right to receive any
compensation or benefits after the termination. In the event Mr. von Gunten's
employment is terminated within six months prior to, or within one year after, a
change in control, Mr. von Gunten would receive payment in the amount of
$85,000.

A change in control is generally deemed to have occurred if any person or entity
acquires the ownership of or power to vote more than ten percent (10%) of the
shares of PFC or Peoples Federal, the power to elect of a majority of the board
of directors of either PFC or Peoples Federal, or the exercise of a controlling
influence over the management or policies of PFC or Peoples Federal.


                                      -69-
<PAGE>

STOCK OPTION PLAN

         At the 1997 Annual Meeting of the Shareholders of PFC, the shareholders
approved the Stock Option Plan. The Board of Directors of PFC reserved 149,101
common shares for issuance by PFC upon the exercise of options to be granted to
certain directors, officers and employees of Peoples Federal and PFC from time
to time under the Stock Option Plan. Options to purchase 104,371 common shares
of PFC were awarded pursuant to the Stock Option Plan. Due to a return of
capital distribution in September 1997 and in accordance with the Stock Option
Plan, the number of shares reserved for the Stock Option Plan was increased to
192,042, and the number of awarded shares was adjusted to 134,427. Options to
purchase an additional 3,000 shares have since been awarded.

         The following table sets forth information regarding the number and
value of unexercised options held by Mr. von Gunten at September 30, 2001.

<TABLE>
                  AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND 9/30/01 OPTION/SAR VALUES
                  ---------------------------------------------------------------------------------

<CAPTION>
                                                                         Number of Securities
                                                                              Underlying            Value of Unexercised
                                                                              Unexercised               In-the-Money
                                                                            Options/SARs at            Options/SARs at
                                                                              9/30/01 (#)                9/30/01 ($)

                            Shares Acquired                                  Exercisable/               Exercisable/
Name                        on Exercise(#)       Value Realized($)           Unexercisable              Unexercisable
----                        ---------------      ------------------          -------------              -------------

<S>                                   <C>               <C>                     <C>                         <C>
Paul von Gunten                       -                 -                       8,240/  -                   N/A (1)
-----------------------------
</TABLE>

(1)      Such options are not deemed to have any value as of September 30, 2001,
         because their exercise price of $12.41 (as adjusted in fiscal year 1998
         to reflect a return of capital paid in September 1997) exceeded the
         $5.625 closing sale price.



RECOGNITION AND RETENTION PLAN AND TRUST AND DEFERRED COMPENSATION PLAN

         At the 1997 Annual Meeting of the Shareholders of PFC, the shareholders
of PFC approved the RRP. With funds contributed by PFC, the RRP purchased 59,640
common shares of PFC, 47,712 of which were awarded to directors and executive
officers of PFC and Peoples Federal in March 1997 and 1,789 of which were
awarded to Mr. Edie effective in June 1999 on his appointment as a director.

         The Board of Directors of PFC terminated the RRP effective March 20,
2000. All shares held in the RRP Trust that had not been awarded or were awarded
but not yet earned by participants became treasury shares of PFC. In exchange
for the forfeiture of their RRP awards, the participants received an account in
a new Peoples Federal Savings and Loan Association of Massillon Deferred
Compensation Plan (the "Deferred Compensation Plan") equal to 97% of the value
of their RRP accounts. The accounts in the Deferred Compensation Plan will be
credited with interest at the rate of 7% each year until the balance is
withdrawn by the participant.

DIRECTORS' COMPENSATION

        PFC currently pays no directors' fees. Each director of Peoples Federal
receives an annual retainer fee of $2,400 for service as a director, plus $600
for each monthly meeting attended. The Chairman of the Board and the Vice
Chairman of the Board also receive additional monthly fees of $600 and $350,
respectively.


ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information with respect to the
  number of common shares of PFC beneficially owned by each director of PFC and
  by all directors and executive officers of PFC as a group as of December 15,
  2001. Paul


                                      -70-
<PAGE>

  von Gunten is the only person known by management to own beneficially more
  than 5% of the outstanding common shares of PFC.

<TABLE>
<CAPTION>
                                                                 Amount and Nature of
                                                                 Beneficial Ownership
                                                  --------------------------------------------
                                                   Sole Voting and           Shared Voting and              Percent of
Name and Address(1)                               Investment Power            Investment Power          Shares Outstanding
--------------------                              ----------------            ----------------          ------------------

<S>                                                     <C>                        <C>                       <C>
Victor C. Baker                                         15,680(2)                      -                       1.26%
James P. Bordner                                        12,268(2)                  4,100                       1.32
Alan C. Edie                                             2,470(3)                  2,000                        .36
Vincent G. Matecheck                                    20,668(2)                    100                       1.67
Thomas E. Shelt                                         28,968(2)                  5,775                       2.80
Vince E. Stephan                                        20,468(2)                      -                       1.49
Paul von Gunten                                        123,433(4)                  3,000                      10.18
All directors and executive officers of PFC
  as a group (9 people)                                284,780(5)                 16,175                      22.92%
</TABLE>

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

(1)      Each of the persons listed in this table may be contacted at the
         address of PFC.

(2)      Includes 7,680 shares that may be acquired currently upon the exercise
         of options.

(3)      Includes 2,304 shares that may be acquired currently upon the exercise
         of an option.

(4)      Includes 8,240 shares that may be acquired currently upon the exercise
         of options

(5)      Includes 13,724 shares that may be acquired currently upon the exercise
         of options by executive officers of PFC who are not named in the table.


ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During the fiscal year ended September 30, 2001, Peoples Federal
retained the services of Vincent G. Matecheck, an attorney engaged in private
practice in the Massillon area. Mr. Matecheck is a director of Peoples Federal
and PFC, serves as the Secretary of PFC and serves as general counsel to Peoples
Federal. During fiscal years 2001, 2000 and 1999, Mr. Matecheck was paid
$15,500, $16,764, and $16,025, respectively, for services rendered as general
counsel to Peoples Federal.

         Although Peoples Federal makes loans to its employees and directors on
the same terms as those of comparable loans to other persons, People Federal
requires employees and directors to pay interest at a rate of one percent less
than the rate required of other customers while such employees and directors
serve Peoples Federal in their respective capacities. Should the service of an
employee or director cease for any reason, Peoples Federal will discontinue the
one percent reduction and enforce the stated terms of the loan.

         The following table sets forth certain information regarding loans made
by Peoples Federal to executive officers and directors of Peoples Financial with
such reduced interest rates:

<TABLE>
<CAPTION>
                                                                                         Highest balance
                                                             Date       Interest rate        in last       Balance at
           Name                    Type of loan           originated  after reduction    two fiscal years   11/30/01
           ----                    ------------           ----------  ---------------    ----------------   --------

<S>                         <C>                            <C>                <C>       <C>                <C>
Linda L. Fowler             Mortgage, residence            01/31/92           5.50 %    $     8,033        $    4,960
                            Home equity line of credit     01/08/01           4.00           30,000           29,677
                            Home equity line of credit     06/25/01           6.25           46,875           46,812
Vincent G. Matecheck        Mortgage, residence            11/09/98           6.625         228,000          207,000
</TABLE>


         No other loans which, in the aggregate to one person, exceeded $60,000
at any time during the two years ended September 30, 2001, were made to
directors or executive officers of PFC on preferential terms. None of the
outstanding


                                      -71-
<PAGE>

         loans to directors or executive officers involve more than the normal
         risk of collectibility or present other unfavorable features, and all
         are current in accordance with their terms.

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K

              (a)   Exhibits

                    2                Agreement and Plan of Merger (incorporated
                                     by reference)

                    3.1              Articles of Incorporation (incorporated by
                                     reference)

                    3.2              Code of Regulations (incorporated by
                                     reference)

                    10.1             Severance Agreement with Mr. Paul von
                                     Gunten

                    10.2             Employment Agreement with Mr. Alan Edie

                    10.3             Employment Agreement with Mr. James
                                     Rinehart

                    10.4             Employment Agreement with Ms. Linda L.
                                     Fowler

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

                    21               Subsidiaries of Peoples Financial
                                     Corporation (incorporated by reference)

                    23.1             Consent of Crowe, Chizek and Company LLP

                    23.2             Consent of Grant Thornton LLP

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

                    99.2             Reissued Accountants' Report

              (b) No reports on Form 8-K were filed during the last quarter of
the fiscal year ended September 30, 2001.





                                      -72-
<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 19, 2001              Date   December 19, 2001



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


Date   December 19, 2001              Date   December 19, 2001



By /s/ Alan C. Edie                   by /s/ Vincent G. Matecheck
   ----------------                      ------------------------
    Alan C. Edie                         Vincent G. Matecheck
    Director                             Secretary and Director



Date   December 19, 2001              Date   December 19, 2001



By /s/ Thomas E. Shelt                by /s/ Vince E. Stephan
   -------------------                   --------------------
    Thomas E. Shelt                      Vince E. Stephan
    Director                             Chairman of the Board of Directors


Date   December 19, 2001              Date   December 19, 2001



                                      -73-
<PAGE>


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                                                 DESCRIPTION
------                                                                 -----------

<S>             <C>                                                      <C>
2               Agreement and Plan of Merger                             Incorporated by reference to Current Report on Form
                                                                         8-K/A of the Registrant filed with the Securities
                                                                         and Exchange Commission (the "SEC") on October 3,
                                                                         2001.

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 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            Severance Agreement with Mr. von Gunten

10.2            Employment Agreement with Mr. Edie

10.3            Employment Agreement with Mr. Rinehart

10.4            Employment Agreement with Ms. Fowler

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.

21              Subsidiaries of Peoples Financial Corporation            Incorporated by reference to Exhibit 21 to the 1996
                                                                         10-KSB.
23.1            Consent of Crowe, Chizek and Company LLP

23.2            Consent of Grant Thornton LLP

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

99.2            Reissued Accountants' Report
</TABLE>





                                      -74-