EXHIBIT 13

                          Peoples Financial Corporation

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


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.

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, 2000 and 1999" and
          "Comparison of Results of Operations for the Years Ended September 30,
          1999 and 1998;"

     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;

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

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


Discussion  of  Changes  in  Financial  Condition  from  September  30,  1999 to
September 30, 2000

PFC's  consolidated  assets  totaled  $100.4  million at September  30, 2000, an
increase of $8.0 million, or 8.7%, over the $92.4 million total at September 30,
1999. The principal  changes in the  composition of assets during the year ended
September  30,  2000,  consisted of an increase in loans  receivable,  offset by
decreases  in  interest-bearing  deposits in other  financial  institutions  and
investment and  mortgage-backed  securities.  This increase in assets was funded
primarily  from  increases  of $7.7  million in  borrowings  and $4.5 million in
deposits,   which  were  partially   offset  by  a  $3.9  million   decrease  in
shareholders' equity, resulting from dividend distributions.


                                       1
<PAGE>


                          Peoples Financial Corporation

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

Discussion  of  Changes  in  Financial  Condition  from  September  30,  1999 to
September 30, 2000 (continued)

Interest-bearing  deposits in other financial  institutions totaled $1.2 million
at  September  30, 2000,  a decrease of $1.3  million  from  September  30, 1999
levels.  Investment  securities  and  mortgage-backed  securities  totaled $10.8
million at September  30, 2000,  as compared to $13.7  million at September  30,
1999, a decrease of $2.9 million, or 21.0%.  Investment securities decreased due
to maturities of a FHLB certificate of deposit and municipal bonds totaling $1.0
million.  Mortgage-backed  securities  decreased  due  to  principal  repayments
totaling  $2.2  million,  partially  offset by purchases of $1.0  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  $84.8  million at September 30, 2000, an increase of
$11.7  million,  or 16.1%,  over the $73.1  million total at September 30, 1999.
Loan   disbursements  of  $28.7  million  were  partially  offset  by  principal
repayments  of $17.0  million  during the year ended  September  30,  2000.  The
increase in loans was comprised  primarily of an $11.7 million  increase in one-
to four-family and construction  loans,  including a net decrease in undisbursed
loans in process of $1.2 million.  Loans secured by  nonresidential  real estate
and consumer and other loans increased by $243,000 and multi-family  real estate
loans decreased by $79,000.

Peoples  Federal's  allowance for loan losses totaled  $235,000 at September 30,
2000,  compared to $213,000 at September 30, 1999.  Nonperforming loans amounted
to $223,000 at September  30, 2000,  compared to $114,000 at September 30, 1999.
The  allowance  for loan  losses  represented  .26%  and .27% of total  loans at
September 30, 2000 and 1999, respectively and 105.4% and 186.8% of nonperforming
loans on the same dates.

Management  believes that the allowance for loan losses at September 30, 2000 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.

Deposits totaled $70.8 million at September 30, 2000,  compared to $66.3 million
at September  30, 1999, an increase of $4.5  million,  or 6.8%.  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
$3.9 million as Peoples  Federal  generally  offered rates  designed to increase
certificates and maintain the cost of funds at an acceptable level. NOW accounts
increased by $801,000, while passbook and money market demand deposits decreased
by $211,000 during fiscal 2000.




                                       2
<PAGE>


                          Peoples Financial Corporation

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

Discussion  of  Changes  in  Financial  Condition  from  September  30,  1999 to
September 30, 2000 (continued)

Borrowings consisted of advances from the FHLB of $18.7 million at September 30,
2000,  compared to $11.0  million at  September  30,  1999,  an increase of $7.7
million. These borrowings were used primarily to fund the increase in loans.

Shareholders'  equity totaled $10.3 million at September 30, 2000, a decrease of
$3.9 million, or 27.4%, from the September 30, 1999 level. The decrease resulted
primarily from payment of regular and special  dividends of $4.4 million,  and a
reduction in net unrealized gains on securities designated as available for sale
of  $416,000,  which were  partially  offset by net earnings of $585,000 and the
effects of terminating stock benefit plans in the amount of $384,000.

Comparison of Results of Operations  for the Years Ended  September 30, 2000 and
1999

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 $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 (100 basis points equals one percent) 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.


                                       3
<PAGE>


                          Peoples Financial Corporation

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

Comparison of Results of Operations  for the Years Ended  September 30, 2000 and
1999 (continued)

Net Interest Income (continued)

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 6 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.



                                       4
<PAGE>


                          Peoples Financial Corporation

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

Comparison of Results of Operations  for the Years Ended  September 30, 2000 and
1999 (continued)

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 ESOP and the RRP 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.



                                       5
<PAGE>



                          Peoples Financial Corporation

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

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

General

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

Net Interest Income

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

Interest expense on deposits for the year ended September 30, 1999, totaled $3.2
million, a decrease of $56,000, or 1.7%, from fiscal 1998. This decrease was due
primarily  to a decrease  in the  weighted-average  cost of deposits of 20 basis
points, to 4.74% in 1999 from 4.94% in 1998,  partially offset by a $1.6 million
increase  in the  weighted-average  outstanding  balance of  deposits.  Interest
expense on  borrowings  increased  to $342,000  in fiscal  1999 from  $96,000 in
fiscal 1998.  This increase was due primarily to a $5.1 million  increase in the
weighted-average  outstanding  balance  of  advances  from the  FHLB,  from $1.8
million to $6.9 million,  and a decrease in the  weighted-average  interest rate
paid of 35 basis points.  Peoples Federal had advances from the FHLB outstanding
throughout  fiscal 1999,  compared to only  approximately  five months in fiscal
1998, while a note payable was outstanding for part of the first month of fiscal
1998 only.

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




                                       6
<PAGE>


                          Peoples Financial Corporation

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

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

Provision for Losses on Loans

The provision for losses on loans totaled  $12,000 for the year ended  September
30, 1999, a decrease of $30,000,  or 71.4%, from the $42,000 provision  recorded
in fiscal 1998.  Management believes that the continuation of periodic increases
in the allowance for loan losses is prudent based upon the inherent risk of loss
related to loans, the increase in the outstanding portfolio balance, current and
anticipated  economic  conditions as measured by leading economic indicators and
local  employment  data,  the  level  of  nonperforming   loans  and  past  loss
experience.

Other Income

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

General, Administrative and Other Expense

General,  administrative  and other  expense  totaled  $2.2 million for the year
ended September 30, 1999,  compared to $2.1 million for fiscal 1998, an increase
of $108,000,  or 5.2%. Employee  compensation and benefits increased by $45,000,
or 3.9% in fiscal 1999, compared to fiscal 1998.  Salaries,  wages and directors
fees increased by $22,000 due to normal merit increases and hiring of additional
personnel.  Contributions  to Peoples  Federal's 401(k) benefit plan were frozen
during fiscal 1999 and 1998,  and in fiscal 1998 an excess  provision of $12,000
for Peoples Federal's 401(k) benefit plans was reversed.  Other employee benefit
plans  increased  by $3,000 in fiscal 1999 over fiscal  1998.  Other  employment
benefits  increased by $8,000  primarily  due to  increases in health  insurance
premium rates and payroll taxes.

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



                                       7
<PAGE>


                          Peoples Financial Corporation

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

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

General, Administrative and Other Expense (continued)

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

Federal Income Taxes

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



                                       8
<PAGE>


                  AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA

The following  table presents  certain  information  relating to PFC and Peoples
Federal's  average  balance sheet  information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods  indicated.  Such  yields and costs are  derived by dividing  annual
income or expense by the average monthly balance of  interest-earning  assets or
interest-bearing  liabilities,  respectively,  for the years presented.  Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses.
<TABLE>
<CAPTION>
                                                                             Year ended September 30,
                                                                       2000                                 1999
                                                           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                                $ 1,812     $  111     6.13%          $ 2,246     $  108     4.81%
  Investment securities                                      2,753        145     5.27             3,841        164     4.27
  Mortgage-backed and related securities                    10,103        697     6.90            11,916        748     6.28
  Loans receivable (1)                                      79,369      6,002     7.56            69,039      5,239     7.59
                                                            ------      -----     ----            ------      -----     ----
         Total interest-earning assets                      94,037      6,955     7.40            87,042      6,259     7.19

Non-interest-earning assets
  Cash and amounts due from depository institutions            527                                   264
  Premises and equipment, net                                1,373                                 1,442
  Other non-earning assets                                     645                                   522
                                                            ------                                ------

         Total assets                                      $96,582                               $89,270
                                                            ======                                ======

Interest-bearing liabilities:
  NOW accounts                                             $ 2,418         26     1.08           $ 1,942         24     1.24
  Money market accounts                                      2,550         64     2.51             2,624         58     2.21
  Passbook savings accounts                                 11,001        222     2.02            10,778        216     2.00
  Certificates of deposit                                   53,017      3,011     5.68            51,311      2,865     5.58
  Borrowings                                                15,950        997     6.26             6,917        342     4.94
                                                            ------      -----     ----            ------      -----     ----

         Total interest-bearing liabilities                 84,936      4,320     5.09            73,572      3,505     4.76
                                                                        -----     ----                        -----     ----
Non-interest-bearing liabilities                             1,039                                 1,325
                                                            ------                                ------
         Total liabilities                                  85,975                                74,897

Shareholders' equity                                        10,607                                14,373
                                                            ------                                ------

         Total liabilities and shareholders' equity        $96,582                               $89,270
                                                            ======                                ======

Net interest income; interest rate spread                              $2,635     2.31%                      $2,754    2.43%
                                                                        =====     ====                        =====    ====


Net interest margin (net interest income as a percent
  of average interest-earning assets)                                             2.80%                                3.16%
                                                                                  ====                                 ====

Average interest-earning assets to average interest-
  bearing liabilities                                                           110.72%                              118.31%
                                                                                ======                               ======
</TABLE>


<TABLE>
<CAPTION>
                                                                  Year ended September 30,
                                                                          1998
                                                              Average   Interest
                                                          outstanding    earned/     Yield/
                                                              balance       paid     rate
                                                                 (Dollars in thousands)
<S>                                                             <C>         <C>          <C>
Interest-earning assets:
  Interest-bearing deposits                                   $ 3,443    $   199         5.78%
  Investment securities                                         4,850        222         4.58
  Mortgage-backed and related securities                       12,413        870         7.01
  Loans receivable (1)                                         60,876      4,814         7.91
                                                               ------      -----         ----
         Total interest-earning assets                         81,582      6,105         7.48

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

         Total assets                                         $83,659
                                                               ======

Interest-bearing liabilities:
  NOW accounts                                                $ 1,698         22         1.30
  Money market accounts                                         2,590         62         2.39
  Passbook savings accounts                                    10,799        217         2.01
  Certificates of deposit                                      50,013      2,918         5.83
  Borrowings                                                    1,814         96         5.29
                                                               ------      -----         ----

         Total interest-bearing liabilities                    66,914      3,315         4.95
                                                                           -----         ----
Non-interest-bearing liabilities                                1,432
                                                               ------
         Total liabilities                                     68,346

Shareholders' equity                                           15,313
                                                               ------

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

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


Net interest margin (net interest income as a percent
  of average interest-earning assets)                                                    3.42%
                                                                                         ====

Average interest-earning assets to average interest-
  bearing liabilities                                                                  121.92%
                                                                                       ======
</TABLE>


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





                                       9
<PAGE>


                          Peoples Financial Corporation

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


Rate/Volume Table

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

                                                                           Year ended September 30,
                                                             2000 vs. 1999                          1999 vs. 1998
                                                          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                            $(26)      $ 29      $   3            $(58)     $ (33)     $ (91)
  Investment securities                                 (57)        38        (19)            (43)       (15)       (58)
  Mortgage-backed and related securities               (125)        74        (51)            (32)       (90)      (122)
  Loans receivable                                      781        (18)       763             619       (194)       425
                                                        ---        ---       ----             ---       ----        ---
     Total interest income                              573        123        696             486       (332)       154

Interest expense attributable to:
  NOW accounts                                            5         (3)         2               3         (1)         2
  Money market accounts                                  (1)         8          7               1         (5)        (4)
  Passbook savings accounts                               4          2          6              -          (1)        (1)
  Certificates of deposit                                97         48        145              73       (126)       (53)
  Borrowings                                            565         90        655             252         (6)       246
                                                        ---        ---       ----             ---       ----        ---
     Total interest expense                             670        145        815             329       (139)       190
                                                        ---        ---       ----             ---       ----        ---

Increase (decrease) in net interest income             $(97)      $(22)     $(119)           $157      $(193)      $(36)
                                                        ===        ===       ====             ===       ====        ===
</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%, the application of the NPV methodology
can illustrate Peoples Federal's degree of interest rate risk.



                                       10
<PAGE>


                          Peoples Financial Corporation

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


Asset and Liability Management (continued)

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

At September 30, 2000, 2% of the present value of Peoples  Federal's  assets was
approximately $2.0 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 $4.8 million at September 30, 2000,  Peoples
Federal  would have been required to deduct  approximately  $1.4 million (50% of
the approximate $2.8 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, 2000,
would still have exceeded the regulatory requirement by $3.5 million.

Presented  below,  as of September  30, 2000 and 1999, 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
special dividend in September 30, 1999,  caused Peoples Federal to fall short of
the Board's  preexisting  NPV limit.  Management  has developed a strategic plan
which includes  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, 2000,  fixed-rate
loans constituted  approximately  83.8% 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.



                                       11
<PAGE>


                          Peoples Financial Corporation

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


Asset and Liability Management (continued)


<TABLE>
<CAPTION>

                                                          September 30, 2000              September 30, 1999
                               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>
          +300                     6.0%               $(7,300)           2.9%          $(7,743)         1.8%
          +200                     7.0                 (4,832)           5.4            (5,098)         4.9
          +100                     8.0                 (2,341)           7.7            (2,440)         7.7
            -                      9.0                    -              9.8                -          10.1
          -100                    10.0                  1,822           11.4             1,913         11.8
          -200                    11.0                  2,766           12.1             3,489         13.2
          -300                    12.0                  3,384           12.6             5,095         14.6
</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.

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.



                                       12
<PAGE>


                          Peoples Financial Corporation

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


Liquidity and Capital Resources (continued)

OTS regulations at September 30, 2000,  required  Peoples Federal to maintain an
average daily balance of cash,  investments in United States Treasury and agency
securities and other  investments  having maturities of five years or less in an
amount not less than 4% of the sum of Peoples Federal's average daily balance of
net  withdrawable  deposit  accounts and advances  from the FHLB.  The liquidity
requirement,  which  may be  changed  from  time to  time by the OTS to  reflect
changing  economic  conditions,  is intended  to provide a source of  relatively
liquid  funds upon which  Peoples  Federal may rely if necessary to fund deposit
withdrawals or other  short-term  funding needs. At September 30, 2000,  Peoples
Federal's  regulatory  liquidity ratio was 12.3%. At such date,  Peoples Federal
had commitments to originate  loans totaling $1.9 million and, in addition,  had
undisbursed  loans in process of $5.3 million.  At September  30, 2000,  Peoples
Federal had no  commitments  to purchase or sell loans.  At September  30, 2000,
Peoples  Federal also had  commitments  for capital  expenditures  for equipment
totaling  approximately  $50,000.  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, 2000, 1999 and 1998:
<TABLE>
<CAPTION>

                                                                   Year ended September 30,
                                                          2000              1999             1998
                                                                      (In thousands)
<S>                                                       <C>                <C>              <C>
Net earnings                                            $  585            $  754           $  918

Adjustments to reconcile net earnings to
  net cash from operating activities                       (85)             (718)             511
                                                         -----             -----            -----

Net cash from operating activities                         500                36            1,429

Net cash from investing activities                      (9,184)           (5,741)          (3,239)

Net cash from financing activities                       7,692             5,904             (552)
                                                         -----             -----           ------

Net change in cash and cash equivalents                   (992)              199           (2,362)

Cash and cash equivalents at
  beginning of year                                      2,620             2,421            4,783
                                                         -----             -----            -----

Cash and cash equivalents at end
  of year                                               $1,628            $2,620           $2,421
                                                         =====             =====            =====
</TABLE>







                                       13
<PAGE>


                          Peoples Financial Corporation

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


Liquidity and Capital Resources (continued)

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

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

"Core capital" is comprised of common  shareholders'  equity (including retained
earnings), noncumulative preferred stock and related surplus, minority interests
in  consolidated  subsidiaries,  certain  nonwithdrawable  accounts  and pledged
deposits of mutual associations. OTS regulations require savings associations to
maintain core capital of at least 4% 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
$235,000 at September 30, 2000.

Peoples Federal exceeded all of its regulatory capital requirements at September
30, 2000. The following table summarizes  Peoples Federal's  regulatory  capital
requirements and regulatory capital at September 30, 2000:

<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        $9,000         9.0%       $1,503         1.5%       $7,497         7.5%        $100,224

Core capital            $9,000         9.0%       $4,009         4.0%       $4,991         5.0%        $100,224

Risk-based capital      $9,464        16.7%       $4,529         8.0%       $4,935         8.7%        $ 56,612
</TABLE>










                                       14
<PAGE>


                          Peoples Financial Corporation

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


Effect of Recent Accounting Pronouncements

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

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

SFAS No.  133,  as amended  by SFAS No.  137,  is  effective  for  fiscal  years
beginning  after June 15, 2000. On adoption,  entities are permitted to transfer
held-to-maturity  debt securities to the  available-for-sale or trading category
without  calling into  question  their intent to hold other debt  securities  to
maturity in the future.  Management  adopted SFAS No. 133  effective  October 1,
2000,  as  required,  without  material  impact on the  Corporation's  financial
position or results of operations.

In September  2000, the FASB issued SFAS No. 140  "Accounting  for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which revises
the  standards  for  accounting  for  securitizations  and  other  transfers  of
financial  assets and collateral and requires certain  disclosures,  but carries
over most of the  provisions of SFAS No. 125 without  reconsideration.  SFAS No.
140  is  effective  for   transfers  and  servicing  of  financial   assets  and
extinguishments of liabilities  occurring after March 31, 2001, and is effective
for recognition and  reclassification of collateral and for disclosures relating
to  securitization  transactions  and  collateral  for fiscal years ending after
December 15, 2000. SFAS No. 140 is not expected to have a material effect on the
Corporation's financial position or results of operations.


Potential Impact of Current Legislation on Future Results of Operations

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


                                       15
<PAGE>


                          Peoples Financial Corporation

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


Potential  Impact  of  Current  Legislation  on  Future  Results  of  Operations
(continued)

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.


























                                       16
<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Peoples Financial Corporation

We have audited the accompanying  consolidated statements of financial condition
of Peoples  Financial  Corporation  as of September  30, 2000 and 1999,  and the
related consolidated statements of earnings, comprehensive income, shareholders'
equity  and cash  flows  for each of the years in the three  year  period  ended
September  30,  2000.   These   consolidated   financial   statements   are  the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of Peoples Financial
Corporation as of September 30, 2000 and 1999, and the  consolidated  results of
its operations and its cash flows for each of the years in the three year period
ended  September 30, 2000,  in conformity  with  generally  accepted  accounting
principles.



/s/GRANT THORNTON LLP


Cincinnati, Ohio
December 5, 2000







                                       17
<PAGE>



                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                  September 30,
                       (In thousands, except share data)


         ASSETS                                                                                2000                1999
<S>                                                                                            <C>                 <C>
Cash and due from banks                                                                    $    437             $   157
Interest-bearing deposits in other financial institutions                                     1,191               2,463
                                                                                            -------              ------
         Cash and cash equivalents                                                            1,628               2,620

Investment securities designated as available
  for sale - at market                                                                          518               1,150
Investment securities held to maturity - at cost, approximate market value
  of $984 and $2,000 as of September 30, 2000 and 1999                                          946               1,956
Mortgage-backed securities designated as available for
  sale - at market                                                                            6,847               7,394
Mortgage-backed securities held to maturity - at amortized cost,
  approximate market value of $2,559 and $3,288
  as of September 30, 2000 and 1999                                                           2,521               3,218
Loans receivable - net                                                                       84,834              73,084
Office premises and equipment - at depreciated cost                                           1,588               1,389
Stock in Federal Home Loan Bank - at cost                                                       993                 924
Accrued interest receivable                                                                     350                 311
Prepaid federal income taxes                                                                     -                  230
Prepaid expenses and other assets                                                               213                 161
                                                                                            -------              ------

         Total assets                                                                      $100,438             $92,437
                                                                                            =======              ======

         LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                                                   $ 70,758             $66,276
Advances from the Federal Home Loan Bank                                                     18,650              11,000
Other liabilities                                                                               290                 285
Accrued federal income taxes                                                                    116                  -
Deferred federal income taxes                                                                   309                 675
                                                                                            -------              ------
         Total liabilities                                                                   90,123              78,236

Commitments                                                                                      -                   -

Shareholders' equity
  Preferred stock - authorized 1,000,000 shares without par
    value; no shares issued                                                                      -                   -
  Common stock - authorized 6,000,000 shares without par or
    stated value; 1,491,012 shares issued                                                        -                   -
  Additional paid-in capital                                                                  7,360               7,360
  Retained earnings - restricted                                                              6,020               9,874
  Accumulated comprehensive income, unrealized gains on securities
    designated as available for sale, net of related tax effects                                313                 729
  Shares acquired by stock benefit plans                                                         -                 (625)
  Less 256,927 and 225,904 treasury shares, at cost                                          (3,378)             (3,137)
                                                                                            -------              ------
         Total shareholders' equity                                                          10,315              14,201
                                                                                            -------              ------

         Total liabilities and shareholders' equity                                        $100,438             $92,437
                                                                                            =======              ======
</TABLE>


The accompanying notes are an integral part of these statements.

                                       18
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                       CONSOLIDATED STATEMENTS OF EARNINGS

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

                                                                                      2000            1999         1998
<S>                                                                                   <C>             <C>           <C>
Interest income
  Loans                                                                             $6,002          $5,239       $4,814
  Mortgage-backed securities                                                           697             748          870
  Investment securities                                                                145             164          222
  Interest-bearing deposits and other                                                  111             108          199
                                                                                     -----           -----        -----

         Total interest income                                                       6,955           6,259        6,105

Interest expense
  Deposits                                                                           3,323           3,163        3,219
  Borrowings                                                                           997             342           96
                                                                                     -----           -----        -----
         Total interest expense                                                      4,320           3,505        3,315
                                                                                     -----           -----        -----

         Net interest income                                                         2,635           2,754        2,790

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

         Net interest income after
           provision for losses on loans                                             2,623           2,742        2,748

Other income
  Gain on sale of investment and mortgage-backed
    securities designated as available for sale                                        603             518          683
  Other operating                                                                       64              51           29
                                                                                     -----           -----        -----
         Total other income                                                            667             569          712

General, administrative and other expense
  Employee compensation and benefits                                                 1,361           1,206        1,161
  Occupancy and equipment                                                              269             262          222
  Franchise taxes                                                                      173             201          230
  Federal deposit insurance premiums                                                    21              40           40
  Data processing                                                                      122             119           81
  Advertising                                                                           66              41           33
  Other operating                                                                      409             328          322
                                                                                     -----           -----        -----
         Total general, administrative
           and other expense                                                         2,421           2,197        2,089
                                                                                     -----           -----        -----

         Earnings before income taxes                                                  869           1,114        1,371

Federal income taxes
  Current                                                                              435             381          455
  Deferred                                                                            (151)            (21)          (2)
                                                                                     -----           -----        -----
         Total federal income taxes                                                    284             360          453
                                                                                     -----           -----        -----

         NET EARNINGS                                                               $  585          $  754       $  918
                                                                                     =====           =====        =====

         EARNINGS PER SHARE
           Basic                                                                      $.47            $.60         $.68
                                                                                       ===             ===          ===

           Diluted                                                                    $.47            $.60         $.67
                                                                                       ===             ===          ===
</TABLE>

The accompanying notes are an integral part of these statements.

                                       19
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                            Year ended September 30,
                                 (In thousands)

                                                                                2000             1999              1998
<S>                                                                              <C>              <C>               <C>
Net earnings                                                                    $585             $754            $  918

Other comprehensive income (loss), net of tax:
  Unrealized holding gains (losses) on securities during
    the period, net of tax (credits) of $(9), $(12) and $239
    for the years ended September 30, 2000, 1999 and 1998                        (18)             (24)              463
  Reclassification adjustment for realized gains included
    in earnings, net of tax of $205, $176 and $232 for the
    years ended September 30, 2000, 1999 and 1998                               (398)            (342)             (451)
                                                                                 ---              ---             -----

Comprehensive income                                                            $169             $388            $  930
                                                                                 ===              ===             =====

Accumulated comprehensive income                                                $313             $729            $1,095
                                                                                 ===              ===             =====

</TABLE>




























The accompanying notes are an integral part of these statements.


                                       20
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the years ended September 30, 2000, 1999 and 1998
                        (In thousands, except share data)
                                                                                         Unrealized
                                                                                           gains on    Shares
                                                                                         securities  acquired
                                                                 Additional              designated  by stock  Treasury
                                                          Common    paid-in  Retained  as available   benefit   shares,
                                                           stock    capital  earnings      for sale     plans   at cost     Total
<S>                                                          <C>       <C>       <C>           <C>        <C>      <C>       <C>
Balance at October 1, 1997                                   $-      $7,165     $9,779       $1,083   $(1,416)  $(1,285)  $15,326

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

Balance at September 30, 1998                                 -       7,287      9,927        1,095    (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                   -          73         -            -        282        -        355
Dividends of $.62 per share                                   -          -        (807)          -         -         -       (807)
Net earnings for the year ended September 30, 1999            -          -         754           -         -         -        754
Decrease in unrealized gains on securities designated as
  available for sale, net of related tax effects              -          -          -          (366)       -         -       (366)
                                                              --      -----      -----        -----    ------    ------    ------


Balance at September 30, 1999                                 -       7,360      9,874          729      (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)          -         -         -     (4,439)
Net earnings for the year ended September 30, 2000            -          -         585           -         -         -        585
Decrease in unrealized gains on securities designated as
  available for sale, net of related tax effects              -          -          -          (416)       -         -       (416)
                                                              --      -----      -----        -----    ------    ------    ------


Balance at September 30, 2000                                $-      $7,360     $6,020       $  313   $    -    $(3,378)  $10,315
                                                              ==      =====      =====        =====    ======    ======    ======
</TABLE>



The accompanying notes are an integral part of these statements.

                                       21
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Year ended September 30,
                                 (In thousands)


                                                                                    2000            1999           1998
<S>                                                                                 <C>             <C>            <C>
Cash flows from operating activities:
  Net earnings for the year                                                      $   585         $   754        $   918
  Adjustments to reconcile net earnings to net cash
  provided by (used in) operating activities:
    Amortization of premiums and discounts on
      investments and mortgage-backed securities - net                                10              30             20
    Gain on sale of investment and mortgage-backed
      securities designated as available for sale                                   (603)           (518)          (683)
    Amortization of deferred loan origination fees                                   (55)            (27)           (32)
    Depreciation and amortization                                                    117             120             98
    Provision for losses on loans                                                     12              12             42
    Amortization expense of stock benefit plans                                      384             355            466
    Recovery of loss on investments                                                   10               5              9
    Federal Home Loan Bank stock dividends                                           (68)            (62)           (60)
    Increase (decrease) in cash due to changes in:
      Accrued interest receivable                                                    (40)            (13)            18
      Prepaid expenses and other assets                                              (52)            (74)           392
      Other liabilities                                                              (56)              3            (91)
      Accrued interest payable                                                        61              31             15
      Federal income taxes
        Current                                                                      346            (559)           319
        Deferred                                                                    (151)            (21)            (2)
                                                                                  ------          ------         ------
         Net cash provided by operating activities                                   500              36          1,429

Cash flows provided by (used in) investing activities:
  Purchase of investment securities designated as available
    for sale                                                                          -               -            (999)
  Proceeds from sale of investment securities designated
    as available for sale                                                            616             527          2,211
  Purchase of investment securities designated as
    held to maturity                                                                  -           (1,000)            -
  Principal repayments and  maturities of investment securities                    1,012           1,012          1,153
  Purchase of mortgage-backed securities designated
    as available for sale                                                         (1,026)         (2,258)        (4,085)
  Proceeds from sale of mortgage-backed securities
    designated as available for sale                                                  -               -           1,998
  Principal repayments on mortgage-backed securities                               2,246           4,749          4,348
  Loan principal repayments                                                       16,984          21,389         22,834
  Loan disbursements                                                             (28,700)        (30,123)       (30,552)
  Purchase of Federal Home Loan Bank stock                                            (1)             -              -
  Purchase of office premises and equipment                                         (315)            (37)          (147)
                                                                                  ------          ------         ------
         Net cash used in investing activities                                    (9,184)         (5,741)        (3,239)
                                                                                  ------          ------         ------

         Net cash used in operating and investing
           activities (balance carried forward)                                   (8,684)         (5,705)        (1,810)
                                                                                  ------          ------         ------
</TABLE>


                                       22
<PAGE>


                          Peoples Financial Corporation
<TABLE>
<CAPTION>

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                            Year ended September 30,
                                 (In thousands)


                                                                                    2000            1999           1998
<S>                                                                               <C>               <C>            <C>
         Net cash used in operating and investing
           activities (balance brought forward)                                  $(8,684)        $(5,705)       $(1,810)

Cash flows provided by (used in) financing activities:
  Net increase in deposit accounts                                                 4,481             479            137
  Repayment of note payable                                                           -               -          (3,000)
  Proceeds from Federal Home Loan Bank advances                                   52,900          18,000          4,000
  Repayment of Federal Home Loan Bank advances                                   (45,250)        (11,000)            -
  Purchase of treasury shares                                                         -             (768)          (995)
  Dividends paid on common stock                                                  (4,439)           (807)          (770)
  Proceeds from exercise of stock options                                             -               -              76
                                                                                  ------          ------         ------
         Net cash provided by (used in) financing activities                       7,692           5,904           (552)
                                                                                  ------          ------         ------

Net increase (decrease) in cash and cash equivalents                                (992)            199         (2,362)

Cash and cash equivalents at beginning of year                                     2,620           2,421          4,783
                                                                                  ------          ------         ------

Cash and cash equivalents at end of year                                         $ 1,628         $ 2,620        $ 2,421
                                                                                  ======          ======         ======

Supplemental disclosure of cash flow information:
 Cash paid during the year for:
    Federal income taxes                                                         $    95         $   929        $   135
                                                                                  ======          ======         ======

    Interest on deposits and borrowings                                          $ 4,259         $ 3,474        $ 3,304
                                                                                  ======          ======         ======

  Unrealized gains (losses) on securities designated as
    available for sale, net of related tax effects                               $  (416)        $  (366)       $    12
                                                                                  ======          ======         ======

</TABLE>















The accompanying notes are an integral part of these statements.

                                       23
<PAGE>


                          Peoples Financial Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        September 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

    1.  Principles of Consolidation

    The  consolidated   financial   statements   include  the  accounts  of  the
    Corporation and the Association, and its wholly-owned subsidiary,  Massillon
    Community  Service  Corporation  ("Massillon")  . At September  30, 2000 and
    1999,  Massillon had no assets and was inactive.  All intercompany  balances
    and  transactions  have been  eliminated  in the  accompanying  consolidated
    financial statements.

    2.  Investment Securities and Mortgage-Backed Securities

    The Corporation  accounts for investments and mortgage-backed  securities in
    accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
    "Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
    115 requires that investments be categorized as  held-to-maturity,  trading,
    or available for sale. Securities classified as held-to-maturity are carried
    at cost only if the  Corporation has the positive intent and ability to hold
    these securities to maturity.  Trading securities and securities  designated
    as available  for sale are carried at fair value with  resulting  unrealized
    gains  or  losses   recorded  to   operations   or   shareholders'   equity,
    respectively.   The  Corporation's  shareholders'  equity  reflected  a  net
    unrealized  gain on  securities  designated  as available  for sale totaling
    approximately  $313,000  and  $729,000  at  September  30,  2000  and  1999,
    respectively.


                                       24
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

    3.  Loans Receivable

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

    4.  Loan Origination Fees

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

    5.  Allowance for Loan Losses

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


                                       25
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    5.  Allowance for Loan Losses (continued)

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

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

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

    At September 30, 2000 and 1999, the  Association  had no loans that would be
    defined as impaired under SFAS No. 114.

    6.  Real Estate Acquired through Foreclosure

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



                                       26
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    7.  Office Premises and Equipment

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

    8.  Income Taxes

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

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

    9.  Benefit Plans

    The  Corporation  had an  Employee  Stock  Ownership  Plan  ("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,  $218,000  and $215,000 for the fiscal
    years ended September 30, 2000, 1999 and 1998, respectively.


                                       27
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    9.  Benefit Plans (continued)

    The Association also provides retirement benefits through contributions to a
    discretionary  401(k)  plan.  Due to  contributions  made to the  ESOP,  the
    Association  did not make matching  contributions  to the 401(k) plan during
    fiscal 1999 and 1998. The Association's  expense for matching  contributions
    amounted to $12,000 for fiscal 2000.

    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  for the fiscal year ended
    September 30, 2000 and $147,000 for each of fiscal 1999 and 1998.

    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.

    10.  Earnings Per Share

    Basic earnings per share is computed based upon the weighted-average  shares
    outstanding  during the period less shares in the 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  and  45,676
    weighted-average  unallocated  shares  held by the ESOP for fiscal  1999 and
    1998, totaled 1,248,579,  1,265,566 and 1,354,032 for the fiscal years ended
    September 30, 2000, 1999 and 1998, 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
    1,248,579,  1,265,566 and 1,372,595 for the fiscal years ended September 30,
    2000, 1999 and 1998, respectively. Incremental shares related to the assumed
    exercise of stock options  included in the  calculation of diluted  earnings
    per share  totaled  18,563 for the fiscal  year ended  September  30,  1998.
    Options to purchase 116,617, 131,422 and 3,000 shares of common stock with a
    respective  weighted  average  exercise price of $12.39,  $12.38 and $16.44,
    were  outstanding at September 30, 2000,  1999 and 1998,  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.

                                       28
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    11.  Cash and Cash Equivalents

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

    12.  Fair Value of Financial Instruments

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

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

    The  following  methods  and  assumptions  were used by the  Corporation  in
    estimating its fair value disclosures for financial instruments at September
    30, 2000 and 1999:

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

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

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

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

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


                                       29
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    12.  Fair Value of Financial Instruments (continued)

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

                  Commitments   to   extend    credit:    For   fixed-rate   and
                  adjustable-rate  loan  commitments,  the fair  value  estimate
                  considers the  difference  between  current levels of interest
                  rates and committed  rates.  The  difference  between the fair
                  value and notional amount of outstanding  loan  commitments at
                  September 30, 2000 and 1999, was not material.

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

                                                                            2000                            1999
                                                                 Carrying         Fair            Carrying         Fair
                                                                    value        value               value        value
                                                                                      (In thousands)
<S>                                                                <C>           <C>                 <C>            <C>
    Financial assets
      Cash and cash equivalents                                   $ 1,628      $ 1,628             $ 2,620      $ 2,620
      Investment securities                                         1,464        1,502               3,106        3,150
      Mortgage-backed securities                                    9,368        9,406              10,612       10,682
      Loans receivable                                             84,834       82,232              73,084       71,731
      Federal Home Loan Bank stock                                    993          993                 924          924
                                                                   ------       ------              ------       ------

                                                                  $98,287      $95,761             $90,346      $89,107
                                                                   ======       ======              ======       ======

    Financial liabilities
      Deposits                                                    $70,758      $70,576             $66,276      $66,234
      Advances from the Federal Home Loan Bank                     18,650       18,655              11,000       10,999
                                                                   ------       ------              ------       ------

                                                                  $89,408      $89,231             $77,276      $77,233
                                                                   ======       ======              ======       ======
</TABLE>

    13.  Advertising

    Advertising costs are expensed when incurred.

    14.  Reclassifications

    Certain  prior year  amounts have been  reclassified  to conform to the 2000
    consolidated financial statement presentation.





                                       30
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES

    The amortized cost, gross unrealized  gains,  gross unrealized  losses,  and
    estimated  fair value of  investment  securities  at September  30, 2000 and
    1999, are as follows:
<TABLE>
<CAPTION>

                                                                           2000
                                                                 Gross            Gross         Estimated
                                              Amortized     unrealized       unrealized              fair
                                                   cost          gains           losses             value
                                                                       (In thousands)
<S>                                               <C>             <C>              <C>               <C>
    Held to maturity:
      Municipal obligations                        $946          $  40             $  2            $  984

    Available for sale:
      FHLMC stock                                     9            509               -                518
                                                    ---            ---              ---             -----

         Total investment securities               $955           $549             $  2            $1,502
                                                    ===            ===              ===             =====
</TABLE>

<TABLE>
<CAPTION>

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

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

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



                                       31
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


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

    The  amortized  cost and estimated  fair value of  investment  securities at
    September 30, 2000,  including  those  designated as available for sale, are
    shown below by term to maturity.
<TABLE>
<CAPTION>

                                                                            Estimated
                                                          Amortized              fair
                                                               cost             value
                                                                    (In thousands)
<S>                                                           <C>                  <C>
    Due in one year or less                                    $ 87            $   87
    Due after one year through five years                       191               196
    Due after five through ten years                             36                35
    Due after ten years                                         632               666
                                                                ---             -----
                                                                946               984
    FHLMC stock                                                   9               518
                                                                ---             -----

                                                               $955            $1,502
                                                                ===             =====
</TABLE>


    The amortized cost, gross  unrealized  gains,  gross  unrealized  losses and
    estimated fair value of mortgage-backed securities at September 30, 2000 and
    1999, are shown below:
<TABLE>
<CAPTION>

                                                                                          2000
                                                                                 Gross             Gross      Estimated
                                                            Amortized       unrealized        unrealized           fair
                                                                 cost            gains            losses          value
                                                                                      (In thousands)
<S>                                                            <C>              <C>                 <C>            <C>
    Held to maturity:
      Government National Mortgage
        Association participation certificates                 $1,371             $ 12              $ -          $1,383
      Federal Home Loan Mortgage
        Corporation participation certificates                    649               11                -             660
      Federal National Mortgage Association
        participation certificates                                501               15                -             516
                                                                -----              ---               ---          -----
         Total mortgage-backed securities
           held to maturity                                     2,521               38                -           2,559

    Available for sale:
      Government National Mortgage
        Association participation certificates                  1,596               14                 5          1,605
      Federal Home Loan Mortgage
        Corporation participation certificates                  2,585                3                46          2,542
      Federal National Mortgage Association
        participation certificates                              1,006               -                 28            978
      Collateralized mortgage obligation -
        FHLMC REMIC                                                94                2                -              96
      Collateralized mortgage obligation -
        General Motors Acceptance Corporation                   1,032               28                -           1,060
      Guardian Savings and Loan participation
        certificates                                              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>

                                       32
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998

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

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

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

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

    The amortized cost and estimated fair values of  mortgage-backed  securities
    at September 30, 2000,  including those designated as available for sale, by
    contractual  term to maturity,  are shown below.  Expected  maturities  will
    differ from contractual  maturities  because  borrowers may generally prepay
    obligations without prepayment penalties.
<TABLE>
<CAPTION>
                                                                        Estimated
                                                 Amortized                   fair
                                                      cost                  value
                                                            (In thousands)
<S>                                                  <C>                    <C>
    Due after one through five years                $   85                 $   86
    Due after five through ten years                 1,700                  1,742
    Due after ten years                              7,620                  7,578
                                                     -----                  -----

                                                    $9,405                 $9,406
                                                     =====                  =====
</TABLE>



                                       33
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE C - LOANS RECEIVABLE

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

                                                                                           2000           1999
                                                                                              (In thousands)
<S>                                                                                      <C>              <C>
    Residential real estate
      One- to four-family                                                               $74,801        $63,605
      Multi-family                                                                          313            392
      Construction                                                                       11,482         12,215
    Nonresidential real estate                                                            3,655          3,406
    Consumer and other loans                                                                217            223
                                                                                         ------         ------
                                                                                         90,468         79,841
    Less:
      Deferred loan origination fees                                                         61             16
      Undisbursed portion of loans in process                                             5,338          6,528
      Allowance for loan losses                                                             235            213
                                                                                         ------         ------

                                                                                        $84,834        $73,084
                                                                                         ======         ======
</TABLE>

    The  Association's  lending  efforts  have  historically  focused on one- to
    four-family  residential  real estate loans,  which  comprise  approximately
    $80.7  million,  or 95%, of the total loan  portfolio at September 30, 2000,
    and  approximately  $69.1 million,  or 95% of the total loan  portfolio,  at
    September  30, 1999.  Generally,  such loans have been  underwritten  on the
    basis of no more than an 80%  loan-to-value  ratio,  which has  historically
    provided the Association with adequate  collateral  coverage in the event of
    default.  Nevertheless, the Association, as with any lending institution, is
    subject to the risk that real estate values could deteriorate in its primary
    lending  area  of  northeast  Ohio,  thereby  impairing  collateral  values.
    However,  management  is of  the  belief  that  real  estate  values  in the
    Association's primary lending area are presently stable.

    In the ordinary  course of business,  the Association has made loans to some
    of its  directors,  officers and their related  business  interests.  In the
    opinion  of  management,  such  loans  are  consistent  with  sound  lending
    practices and are within  applicable  regulatory  lending  limitations.  The
    balance  of such  loans  totaled  approximately  $288,000  and  $290,000  at
    September 30, 2000 and 1999, respectively.

    From time to time, the  Corporation has retained a director to perform legal
    services.  Fees paid for such services totaled approximately $17,000 for the
    year ended  September  30, 2000 and $16,000 in each of the fiscal years 1999
    and 1998.


                                       34
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE D - ALLOWANCE FOR LOAN LOSSES

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

                                                 2000           1999           1998
                                                        (In thousands)
<S>                                               <C>            <C>            <C>
    Balance at beginning of year                 $213           $196           $145
    Provision for losses on loans                  12             12             42
    Charge-offs                                    -              -              -
    Recoveries                                     10              5              9
                                                 ----            ---            ---

    Balance at end of year                       $235           $213           $196
                                                  ===            ===            ===
</TABLE>

    As of September 30, 2000,  the  Association's  allowance for loan losses was
    comprised solely of a general loan loss allowance,  which is includible as a
    component of regulatory risk-based capital.

    Nonperforming  and  nonaccrual  loans at September 30, 2000,  1999 and 1998,
    totaled $223,000, $114,000 and $115,000, respectively. There was no material
    loss of interest income on nonperforming loans for the years ended September
    30, 2000, 1999 and 1998.


NOTE E - OFFICE PREMISES AND EQUIPMENT

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

                                                                 2000           1999
                                                                    (In thousands)
<S>                                                               <C>            <C>
    Land                                                       $  355         $  355
    Building and improvements                                   1,480          1,216
    Furniture and equipment                                     1,050          1,028
                                                                -----          -----
                                                                2,885          2,599
      Less accumulated depreciation and
        amortization                                            1,297          1,210
                                                                -----          -----

                                                               $1,588         $1,389
                                                                =====          =====
</TABLE>

                                       35
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE F - DEPOSITS

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

    Deposit type and weighted-
    average interest rate                                              2000                             1999
                                                               Amount          %                  Amount         %
                                                                              (Dollars in thousands)
<S>                                                              <C>          <C>                   <C>           <C>
    NOW accounts
      2000 - 0.48%                                            $ 2,865         4.1%
      1999 - 1.29%                                                                               $ 2,064         3.1%
    Passbook
      2000 - 2.00%                                             10,189        14.4
      1999 - 2.00%                                                                                10,869        16.4
    Money market demand accounts
      2000 - 3.98%                                              3,072         4.3
      1999 - 2.19%                                                                                 2,603         3.9
                                                               ------      ------                 ------       -----
    Total demand, transaction and
      passbook deposits                                        16,126        22.8                 15,536        23.4

    Certificates of deposit
      Original maturities of:
        Up to 12 months
          2000 - 5.94%                                         11,010        15.5
          1999 - 4.69%                                                                            11,085        16.8
        Over 12 months to 61 months
          2000 - 6.15%                                         43,569        61.6
          1999 - 5.67%                                                                            39,567        59.7
      Individual retirement accounts
        2000 - 1.50%                                               53          .1
        1999 - 1.50%                                                                                  88          .1
                                                               ------      ------                 ------       -----

    Total certificates of deposit                              54,632        77.2                 50,740        76.6
                                                               ------      ------                 ------       -----

    Total deposit accounts                                    $70,758       100.0%               $66,276       100.0%
                                                               ======       =====                 ======       =====
</TABLE>

    At September 30, 2000 and 1999, the  Association  had deposit  accounts with
    balances  of  $100,000  or more  totaling  $7.8  million  and $5.4  million,
    respectively.

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

                                                       2000            1999           1998
                                                                 (In thousands)
<S>                                                     <C>           <C>            <C>
    NOW accounts                                     $   26          $   24         $   22
    Passbook                                            222             216            217
    Money market demand accounts                         65              58             62
    Certificates of deposit                           3,010           2,865          2,918
                                                      -----           -----          -----

                                                     $3,323          $3,163         $3,219
                                                      =====           =====          =====
</TABLE>


                                       36
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE F - DEPOSITS (continued)

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

                                                    2000                1999
                                                         (In thousands)
<S>                                                 <C>                 <C>
    Up to one year                               $28,770             $28,674
    Over one year to two years                    15,192              12,562
    Over two years to three years                  6,383               5,144
    Over three years to four years                 3,861               3,750
    Over four years to five years                    423                 593
    Over five years                                    3                  17
                                                  ------              ------

                                                 $54,632             $50,740
                                                  ======              ======
</TABLE>


NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK

    Advances  from the Federal Home Loan Bank,  collateralized  at September 30,
    2000 and 1999, by pledges of certain  residential  mortgage  loans  totaling
    $23.3  million  and  $16.5  million,  respectively,  and  the  Association's
    investment in Federal Home Loan Bank stock, are summarized as follows:
<TABLE>
<CAPTION>

                                         Maturing fiscal
    Interest rate                         year ending in          2000                 1999
                                                                       (In thousands)
<S>                                           <C>                 <C>                 <C>
    5.39% - 5.57%                              2000            $    -               $11,000
    6.76% - 7.00%                              2001             18,650                   -
                                                                ------               ------

                                                               $18,650              $11,000
                                                                ======               ======

    Weighted-average interest rate
      at September 30                                             6.92%                5.45%
                                                                  ====                 ====
</TABLE>


                                       37
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE H - FEDERAL INCOME TAXES

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

                                                             2000           1999           1998
                                                                      (In thousands)
<S>                                                           <C>            <C>            <C>
    Federal income taxes at statutory rate                   $295           $379           $466
    Increase (decrease) in taxes resulting from:
      Interest on municipal obligations                       (17)           (17)           (12)
      Other                                                     6             (2)            (1)
                                                              ---            ---            ---
    Federal income taxes per consolidated
      financial statements                                   $284           $360           $453
                                                              ===            ===            ===

    Effective tax rate                                       32.7%          32.3%          33.0%
                                                             ====           ====           ====
</TABLE>

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

    Taxes (payable) refundable on temporary                                    2000         1999
    differences at statutory rate:                                              (In thousands)
<S>                                                                            <C>           <C>
    Deferred tax assets:
      Net deferred loan origination costs                                     $  85        $  81
      General loan loss allowance                                                80           72
      Employee benefit plan expense                                             135           73
      Other                                                                       9           -
                                                                               ----         ----
         Deferred tax assets                                                    309          226

    Deferred tax liabilities:
      Federal Home Loan Bank stock dividends                                   (238)        (215)
      Difference between book and tax depreciation                             (121)        (121)
      Percentage of earnings bad debt deduction                                (100)        (189)
      Unrealized gains on securities designated as available for sale          (159)        (374)
      Other                                                                      -            (2)
                                                                               ----         ----
         Deferred tax liabilities                                              (618)        (901)
                                                                               ----         ----

         Net deferred tax liability                                           $(309)       $(675)
                                                                               ====         ====
</TABLE>

    The Association was allowed a special bad debt deduction  generally  limited
    to 8% of otherwise  taxable income and subject to certain  limitations based
    on aggregate loans and deposit  account  balances at the end of the year. If
    the amounts that previously qualified as deductions for federal income taxes
    are  later  used  for  purposes  other  than  bad  debt  losses,   including
    distributions in liquidation,  such distributions will be subject to federal
    income  taxes  at the then  current  corporate  income  tax  rate.  Retained
    earnings at September 30, 2000, 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 $630,000 at September 30, 2000. The Association is required to
    recapture as taxable income approximately  $560,000 of its bad debt reserve,
    which  represents the post-1987  additions to the reserve,  and is unable to
    utilize  the  percentage  of  earnings  method to compute its reserve in the
    future.  The  Association  has provided  deferred  taxes for this amount and
    began to amortize the recapture of its bad debt reserve into taxable  income
    over a six year period in fiscal 1999.

                                       38
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE I - LOAN COMMITMENTS

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

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

    At September  30, 2000,  the  Association  had  outstanding  commitments  of
    approximately $1.9 million to originate loans. Additionally, the Association
    had  undisbursed  loans in process of $5.3 million at September 30, 2000. In
    the  opinion  of  management,  all  loan  commitments  equaled  or  exceeded
    prevalent market interest rates as of September 30, 2000, and will be funded
    from normal cash flow from operations.


NOTE J - LEASE COMMITMENTS

     The Association  conducts a portion of its operations in leased  facilities
     under  noncancelable  operating  leases  expiring at various  dates through
     2005.

     The minimum rental commitments,  excluding sublease income, under operating
     leases are as follows:
<TABLE>
<CAPTION>

    Year ended December 31,
<S>                                                                 <C>
             2001                                                 $  44,500
             2002                                                    37,100
             2003                                                    31,800
             2004                                                    31,800
             2005                                                    23,900
                                                                   --------

             Total minimum payments required                       $169,100
                                                                    =======
</TABLE>

    Rental  expense for all operating  leases for the years ending  December 31,
    2000 and 1998 totaled  approximately  $19,000,  and  $12,000,  respectively.
    There was no rental expense for the year ended December 31, 1999.




                                       39
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


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

    As of September 30, 2000 and 1999,  management believes that the Association
    met all capital adequacy requirements to which it was subject.
<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>
    Tangible capital                     $9,000      9.0%        =>$1,503    =>1.5%          =>$5,011     => 5.0%

    Core capital                         $9,000      9.0%        =>$4,009    =>4.0%          =>$6,013     => 6.0%

    Risk-based capital                   $9,464     16.7%        =>$4,529    =>8.0%          =>$5,661     =>10.0%

</TABLE>
                                       40
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE K - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>

                                                                As of September 30, 1999
                                                                                                   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>
    Tangible capital                     $8,160      8.9%        =>$1,370    =>1.5%          =>$4,568     => 5.0%

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

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

    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.



<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE L - CONDENSED FINANCIAL STATEMENTS OF PEOPLES FINANCIAL CORPORATION

    The  following  condensed  financial   statements  summarize  the  financial
    position of Peoples Financial Corporation as of September 30, 2000 and 1999,
    and the  results of its  operations  and its cash flows for the years  ended
    September 30, 2000, 1999 and 1998.

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

         ASSETS                                                                                  2000              1999
<S>                                                                                             <C>                <C>
    Cash and due from banks                                                                   $   467           $ 1,145
    Interest-bearing deposits in other financial institutions                                       4                13
    Investment in Peoples Federal Savings and Loan Association
      of Massillon                                                                              9,124             8,889
    Prepaid expenses and other assets                                                             119                66
    Accounts receivable from Peoples Federal Savings and Loan
      Association of Massillon                                                                    614             4,097
                                                                                               ------            ------

         Total assets                                                                         $10,328           $14,210
                                                                                               ======            ======

         LIABILITIES AND SHAREHOLDERS' EQUITY

    Accrued expenses and other liabilities                                                    $    13           $     9

    Shareholders' equity
      Additional paid-in capital                                                                7,360             7,360
      Retained earnings                                                                         6,020             9,874
      Unrealized gains on securities designated as available
        for sale, net of related tax effects                                                      313               729
      Shares acquired by stock benefit plans                                                       -               (625)
      Treasury shares                                                                          (3,378)           (3,137)
                                                                                               ------            ------
         Total shareholders' equity                                                            10,315            14,201
                                                                                               ------            ------

         Total liabilities and shareholders' equity                                           $10,328           $14,210
                                                                                               ======            ======
</TABLE>


                                       41
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


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

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

                                                              2000               1999              1998
<S>                                                            <C>                <C>              <C>
    Revenue
      Interest income                                         $ 17               $ 46            $   54
      Equity in earnings of subsidiary                         650                805               997
                                                               ---                ---             -----
         Total revenue                                         667                851             1,051

    Interest expense                                            -                  -                 19

    General and administrative expenses                        115                123               154
                                                               ---                ---             -----

         Earnings before income tax credits                    552                728               878

    Federal income tax credits                                 (33)               (26)              (40)
                                                               ---                ---             -----

         NET EARNINGS                                         $585               $754            $  918
                                                               ===                ===             =====
</TABLE>























                                       42
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


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

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

                                                                                    2000            1999           1998
<S>                                                                                  <C>            <C>            <C>
    Cash flows provided by (used in) operating activities:
      Net earnings for the year                                                   $  585          $  754         $  918
      Adjustments to reconcile net earnings to net cash
      provided by (used in) operating activities:
        Undistributed earnings of consolidated subsidiary                           (650)           (805)          (997)
        Amortization of expense related to stock benefit plans                       384             147            147
        Increases (decreases) in cash due to changes in:
          Other assets                                                               (53)              4            330
          Other liabilities                                                            4             (16)           (65)
                                                                                   -----           -----          -----
         Net cash provided by operating activities                                   270              84            333

    Cash flows provided by (used in) investing activities:
      Dividends received from subsidiary                                           3,482           2,108          4,090
      Repayments on ESOP loan                                                         -              336            161
                                                                                   -----           -----          -----
         Net cash provided by investing activities                                 3,482           2,444          4,251

    Cash flows provided by (used in) financing activities:
      Repayment of note payable                                                       -               -          (3,000)
      Dividends on common stock                                                   (4,439)           (807)          (770)
      Purchase of treasury stock                                                      -             (768)          (995)
      Proceeds from exercise of stock options                                         -               -              76
                                                                                   -----           -----          -----
         Net cash used in financing activities                                    (4,439)         (1,575)        (4,689)
                                                                                   -----           -----          -----

    Net increase (decrease) in cash and cash equivalents                            (687)            953           (105)

    Cash and cash equivalents at beginning of year                                 1,158             205            310
                                                                                   -----           -----          -----

    Cash and cash equivalents at end of year                                      $  471          $1,158         $  205
                                                                                   =====           =====          =====
</TABLE>


                                       43
<PAGE>


                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE M - STOCK OPTION PLAN

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

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

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

                                                                            2000           1999           1998
<S>                                           <C>                           <C>             <C>             <C>
    Net earnings (In thousands)             As reported                     $585           $754           $918
                                                                             ===            ===            ===

                                              Pro-forma                     $585           $752           $917
                                                                             ===            ===            ===

    Earnings per share
      Basic                                 As reported                     $.47           $.60           $.68
                                                                             ===            ===            ===

                                              Pro-forma                     $.47           $.59           $.68
                                                                             ===            ===            ===

      Diluted                               As reported                     $.47           $.60           $.67
                                                                             ===            ===            ===

                                              Pro-forma                     $.47           $.59           $.67
                                                                             ===            ===            ===
</TABLE>

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

                                       44
<PAGE>



                          Peoples Financial Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        September 30, 2000, 1999 and 1998


NOTE M - STOCK OPTION PLAN (continued)

    A  summary  of the  status  of the  Corporation's  stock  option  plan as of
    September 30, 2000,  1999 and 1998, and changes during the years then ended,
    is presented below:
<TABLE>
<CAPTION>

                                               2000                            1999                       1998
                                                   Weighted-                     Weighted-                  Weighted-
                                                     average                       average                    average
                                                    exercise                      exercise                   exercise
                                         Shares        price         Shares          price         Shares       price
<S>                                         <C>         <C>            <C>           <C>             <C>         <C>
    Outstanding at beginning of year    131,422      $12.38         131,262        $12.50         104,371      $16.00
    Adjustment for return of capital
      distribution                           -          -               -             -            30,056       (3.59)
    Granted                                  -          -             5,761          9.69           3,000       16.44
    Exercised                                -          -               -             -            (6,165)      12.41
    Forfeited                           (14,805)      12.41          (5,601)        12.41             -           -
                                        -------       -----         -------         -----         -------       -----

    Outstanding at end of year          116,617      $12.39         131,422        $12.38         131,262      $12.50
                                        =======       =====         =======         =====         =======       =====

    Options exercisable at year-end      70,252      $12.44          46,053        $12.46          20,716      $12.41
                                        =======       =====         =======         =====         =======       =====
    Weighted-average fair value of
      options granted during the year                   N/A                        $ 3.41                      $ 1.96
                                                        ===                         =====                       =====
</TABLE>


    The following  information  applies to options  outstanding at September 30,
    2000:

    Number outstanding                                                  116,617
    Range of exercise prices                                     $9.94 - $16.44
    Weighted-average exercise price                                      $12.39
    Weighted-average remaining contractual life                       6.6 years



















                                       45