SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                   FORM 10-KSB
(Mark One):

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 [FEE  REQUIRED] For the fiscal year ended June 30,
         1997, OR

|_|      TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE  ACT  OF  1934  [NO  FEE REQUIRED] For the  transition  period
         from               to                 .
              -------------    ----------------

Commission File Number:  0-22812

                      PEOPLES SAVINGS FINANCIAL CORPORATION
                      -------------------------------------
             (Exact name of registrant as specified in its charter)

Pennsylvania                                                     25-1720517
---------------------------------------------                    ----------
(State or other jurisdiction of incorporation                  I.R.S. Employer
or organization)                                              Identification No.

173 Main Street, Ridgway, Pennsylvania                              15853
--------------------------------------                              -----
(Address of principal executive offices                           (Zip Code)

Registrant's telephone number, including area code:              (814) 773-3195
                                                                 --------------

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

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

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

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained,  to the best of  registrant's  knowledge,  in definitive  proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         State issuer's revenues for its most recent fiscal year. $3.47 million.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  based upon the last sale  price of such  stock  in  August,
1997 (as  reported  by  the  OTC  Bulletin Board), which was $8,087,496 (336,979
shares at $24.00 per share).

         As of June 30, 1997,  there were issued and outstanding  442,516 shares
of the registrant's Common Stock.

         Transitional Small Business Disclosure Format (check one) YES    NO X .
                                                                      --     --

                       DOCUMENTS INCORPORATED BY REFERENCE

     1. Portions of Annual Report to Stockholders for the Fiscal Year ended June
30, 1997. (Parts I, II and IV)

     2. Portions of Proxy Statement for the 1997 Annual Meeting of stockholders.
(Part III)
<PAGE>
                                     PART I

Item 1.  Description of Business
--------------------------------

The Corporation

         Peoples Savings Financial  Corporation ("PSFC" or the "Corporation") is
a bank holding company  incorporated under the laws of the State of Pennsylvania
in September 1993. Since the primary  activities of the Corporation are those of
Peoples  Savings  Bank  ("Peoples  Savings"  or the  "Bank"),  its wholly  owned
subsidiary,  much  of the  discussion  herein  pertains  to the  Bank,  however,
comparisons to total assets,  liabilities,  etc. are based on the  Corporation's
consolidated numbers.

The Bank

         Peoples  Savings,  a wholly owned  subsidiary of the  Corporation,  was
chartered  by the State of  Pennsylvania  in 1891.  Peoples  Savings  has been a
member of the Federal Home Loan Bank  ("FHLB")  System  since 1953.  Its savings
deposits are insured by the Savings Association Insurance Fund ("SAIF") which is
administered by the Federal Deposit Insurance Corporation ("FDIC").

         Peoples Savings  conducts its main business  through its office located
at 173 Main  Street,  Ridgway,  Pennsylvania  and 2 branch  offices  located  in
Jefferson and Clearfield Counties, Pennsylvania.
The Bank's main office telephone number is (814) 773-3195.

Market Area/Competition

         Peoples  Savings  focuses  on  serving  its  customers  located in Elk,
Jefferson  and  Clearfield  Counties,  Pennsylvania.  Peoples  Savings  conducts
operations  through  its  main  office  located  at 173  Main  Street,  Ridgway,
Pennsylvania, and two additional offices located at 263 Main Street, Brookville,
Pennsylvania and 17 W. Long Avenue, DuBois, Pennsylvania. The population of this
primary market area is approximately  160,000.  The economy in Jefferson and Elk
Counties  consist  primarily of  manufacturing  (primarily  consisting  of glass
containers,  powdered metal and paper products), while the economy in Clearfield
consists  primarily  of retail  businesses.  Because  nearly  all the assets and
liabilities  of the Bank are monetary in nature,  interest  rates have a greater
effect on the earnings of the Bank than local economic conditions.

         The  Bank  encounters  strong  competition  both in the  attraction  of
deposits and in the origination of real estate and other loans.  Its most direct
competition  for deposits has  historically  come from commercial  banks,  other
savings  associations,  and  finance  companies  in its  market  area.  Based on
published  figures,   the  Bank  believes  it  was  the  second  largest  thrift
institution (out of three) and seventh  financial  institution (out of 8) on the
basis of  total  assets  headquartered  in Elk  County  and the  communities  of
Brookville  and DuBois at June 30, 1997,  its primary  market  area.  The Bank's
primary  market area  includes  branches of several  commercial  banks which are
substantially  larger than the Bank in terms of  state-wide  deposits.  The Bank
competes for savings by offering depositors a high level of personal service and
convenient  office  locations.  The  competition for real estate and other loans
comes  principally  from  commercial  banks,  credit  unions,  mortgage  banking
companies and other savings associations.

                                       -1-
<PAGE>



         The Bank competes for loans  primarily  through the interest  rates and
loan fees it charges  and the  efficiency  and  quality of  services it provides
borrowers,  real estate brokers and builders.  Factors which affect  competition
include the general and local economic conditions,  current interest rate levels
and volatility in the mortgage markets.

Lending Activities

         General.  Currently,  the principal lending activity of Peoples Savings
is the origination of mortgage loans for the purpose of financing or refinancing
one- to four-family residential properties.

         Analysis  of  Loan  Portfolio.  The  following  table  sets  forth  the
composition of the Bank's net loans receivable  portfolio by type of loan at the
dates indicated.
<TABLE>
<CAPTION>
                                                                                  At June 30,
                                                 ------------------------------------------------------------------------
                                                                 1997                                  1996
                                                  ------------------------------------   --------------------------------
                                                       Amount              Percent           Amount            Percent
                                                       ------              -------           ------            -------
                                                                          (Dollars in Thousands)
<S>                                                  <C>                  <C>             <C>               <C>    
Type of Loan
Real Estate Loans:
  Construction................................       $     1,124              3.39%        $   1,848             5.54%

  1-4 family..................................            28,400             85.76            27,155            81.45
  Commercial..................................             1,195              3.61             1,750             5.25

Consumer Loans:
  Savings account.............................               489              1.48               481             1.44
  Home equity.................................             1,359              4.10             1,523             4.57
  Automobiles ................................               324              0.98               391             1.17
  Other.......................................               224              0.68               193             0.58
                                                      ----------          --------           -------          -------
Total loans...................................            33,115            100.00%           33,341           100.00%
                                                      ==========          ========           =======          =======

Less:
  Loans in process............................              (828)                               (897)
  Deferred loan origination fees and costs....               (88)                                (90)
  Allowance for possible loan losses..........              (251)                               (227)
                                                      ----------                            -------
  Total loans, net............................       $    31,948                            $ 32,127
                                                      ==========                             =======
</TABLE>

                                       -2-

<PAGE>



         Loan Maturity  Tables.  The following  table sets forth the maturity of
the  Bank's  loan  portfolio  at June 30,  1997.  The  table  does  not  include
prepayments  or  scheduled  principal  repayments.   Prepayments  and  scheduled
principal  repayments on loans totaled $7.3 million and $7.4 million for the two
years ended June 30, 1997 and 1996, respectively. Adjustable-rate mortgage loans
are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>

                                  1-4 Family
                                  Residential        Commercial
                                  Real Estate        Real Estate        Construction          Consumer        Total
                                  -----------        -----------        ------------          --------        -----
                                                                        (In Thousands)

<S>                                <C>               <C>                 <C>                    <C>           <C>      
Non-performing.................    $      735        $        -          $       -              $   110       $     845

Amounts Due:
Within 3 months................             8                40                  -                   16              64
3 months to 1 year.............            20                 -                  -                   31              51
  1 to 3 years.................           370                44                  -                  443             857
  3 to 5 years.................           877                32                  -                  985           1,894
  5 to 15 years................        17,010               751                 625                 811          19,197
  Over 15 years................         9,380               328                 499                   -          10,207
                                    ---------          --------           ---------              ------        --------
Total amount due...............        28,400             1,195               1,124               2,396          33,115
                                    ---------          --------           ---------              ------        --------

Less:
Allowance for loan losses......           170                 -                   -                  81             251
Loans in process...............           (13)                -                 828                  13             828
Deferred loan fees.............            88                 -                   -                   -              88
                                    ---------          --------           ---------              ------         -------
  Loans receivable, net........    $   28,155         $   1,195          $      296             $ 2,302        $ 31,948
                                    =========          ========           =========              ======         =======
</TABLE>




         The following table sets forth the dollar amount of all loans due after
June 30, 1998, which have pre-determined  interest rates and which have floating
or adjustable interest rates.

<TABLE>
<CAPTION>
                                                               Floating or
                                          Fixed Rates         Adjustable Rates           Total
                                          -----------         ----------------           -----
                                                              (In Thousands)
<S>                                      <C>                        <C>                <C>      
One-to-four family...............        $     23,008               $    5,364         $  28,372
Commercial.......................                 819                      336             1,155
Construction.....................                 960                      164             1,124
Consumer.........................               2,349                        -             2,349
                                          -----------               ----------         ---------
  Total..........................        $     27,136               $    5,862        $   33,000
                                          ===========               ==========         =========
</TABLE>


         Residential  Real Estate Loans.  The Bank's  primary  lending  activity
consists of the origination of one- to four-family, owner-occupied,  residential
mortgage  loans secured by property  located in the Bank's  primary market area.
The majority of the Bank's  residential  mortgage loans consist of loans secured
by owner-occupied, single-family residences.

                                       -3-

<PAGE>




         The Bank generally  originates 15- and 20-year fixed-rate  mortgage and
20-year  adjustable  rate  mortgage  loans  for  retention  in the  Bank's  loan
portfolio. The Bank's adjustable rate ("ARM") mortgage loans adjust yearly based
upon the National Average Mortgage  Contract Rate for the purchase of previously
occupied  homes.  Adjustable-rate  mortgage  loans have a limit on  increases in
rates to one  percent  per year and 5.0% to 6.0% over the life of the loan.  The
Bank's fixed-rate mortgage loans are amortized on a monthly basis with principal
and  interest  due each  month.  Residential  real  estate  loans  often  remain
outstanding  for  significantly  shorter  periods than their  contractual  terms
because borrowers may refinance or prepay loans at their option.

         Peoples Savings's  residential first mortgage loans customarily include
due-on-sale clauses, which are provisions giving the Bank the right to declare a
loan  immediately  due and payable in the event,  among other  things,  that the
borrower  sells or otherwise  disposes of the real property  serving as security
for the loan.  Due-on-sale clauses are an important means of adjusting the rates
on the  Bank's  fixed-rate  mortgage  portfolio,  and  the  Bank  has  generally
exercised its rights under these clauses.

         Regulations  limit  the  amount  which  a  savings  bank  may  lend  in
relationship  to the  appraised  value of the real estate  securing the loan, as
determined by an appraisal at the time of loan  origination.  The Bank's lending
policies generally limit the maximum loan-to-value ratio to 80% of the lesser of
the appraised  value or the purchase  price of the property to serve as security
for the residential loan. The Bank does not require private mortgage insurance.

         Flood hazard insurance (if required),  and fire and casualty  insurance
are required by the Bank on all properties securing real estate loans.

         Construction. The Bank only makes construction loans on homes for which
it also makes the permanent  loan at the completion of the  construction  phase.
The  construction  loans provide for payment of interest only for terms of up to
one  year at  adjustable  or fixed  rates.  The Bank  makes  construction  loans
primarily to private individuals.

         Commercial Real Estate Loans. In order to enhance yields on its assets,
the Bank originates  permanent  loans secured by commercial  real estate.  These
loans  are  originated  in  amounts  up to  75% of the  appraised  value  of the
property.  At June 30, 1997, the Bank's two largest commercial real estate loans
consisted of a $227,000  commercial/residential  property located in St. Mary's,
Pennsylvania  and a $328,000 loan secured by a health care  facility  located in
Johnsonburg,  Pennsylvania.  The  remaining  commercial  real  estate  loans are
secured   primarily   by  office   buildings,   small   retail  and   commercial
establishments  and vacant land for development  which are located in the Bank's
primary market area.

         Loans secured by  commercial  real estate  generally  involve a greater
degree of risk than  residential  mortgage loans and carry larger loan balances.
This  increased  credit  risk is a result  of  several  factors,  including  the
concentration  of  principal  in a limited  number of loans and  borrowers,  the
effects of general economic  conditions on income  producing  properties and the
increased  difficulty  of  evaluating  and  monitoring  these  types  of  loans.
Furthermore,  the  repayment  of loans  secured  by  commercial  real  estate is
typically  dependent  upon the  successful  operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired.

         Consumer  Loans.  The  Bank  views  consumer  lending  as an  important
component of its business  operations  because  consumer  loans  generally  have
shorter terms and higher yields,  thus reducing  exposure to changes in interest
rates.  In addition,  the Bank believes that  offering  consumer  loans helps to
expand

                                       -4-

<PAGE>



and create  stronger ties to its customer base.  Consumer loans consist of loans
secured  with  deposits  held at the Bank,  home  equity  loans,  auto loans and
personal installment loans.

         Consumer loans entail greater credit risk than do residential  mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by  assets  that  depreciate  rapidly,  such  as  automobiles.  In  such  cases,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan and the remaining  deficiency often
does not warrant further substantial collection efforts against the borrower. In
particular,  amounts  realizable on the sale of repossessed  automobiles  may be
significantly  reduced based upon the condition of the  automobiles and the lack
of demand for used automobiles. Further, consumer loan collections are dependent
on the borrower's continuing financial stability,  and therefore are more likely
to be adversely affected by job loss, divorce,  illness or personal  bankruptcy.
Finally,  the application of various Federal and state laws,  including  Federal
and state  bankruptcy  and  insolvency  laws,  may limit the amount which can be
recovered  in the  event of  default.  The Bank adds a  general  provision  on a
regular basis to its consumer  loan loss  allowance,  based on general  economic
conditions  and  prior  loss  experience.   See   "Non-Performing   Assets"  for
information regarding the Bank's loan loss experience and reserve policy.

         Loan Solicitation and Processing.  Loan originations are derived from a
number of sources such as realtors, depositors, borrowers and walk-in customers.

         Upon  receipt of a loan  application,  a credit  report is obtained and
employers may be contacted to verify specific  information  relating to the loan
applicant's  employment,  income,  and  credit  standing.  In the case of a real
estate loan,  an  appraisal  of the real estate  intended to secure the proposed
loan is undertaken by an appraiser  approved by the Bank.  Each real estate loan
application file is submitted to the Board of Trustees for review and approval.

         In the case of a consumer  loan,  loan  officers are required to follow
the Bank's  underwriting  standards  and  guidelines  and are  granted  approval
authority up to $10,000.  Consumer loan requests of $10,000 or more must also be
approved by the Managing Officer. Individual lending limits are established from
time to time by the Board of Trustees of the Bank.  Consumer  loans over $20,000
must be approved by the Board of Trustees.

         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing  obligations and payments on the proposed
loan. In addition,  the stability of the applicant's monthly income from primary
employment is considered during the underwriting  process.  Creditworthiness  of
the applicant is of primary  consideration,  however,  the underwriting  process
also  includes a  comparison  of the value of the  security  in  relation to the
proposed loan amount.

         Loan  applicants  are  promptly  notified  of the  credit  decision  by
telephone  or letter.  If the loan is approved in writing,  the loan  commitment
specifies the terms and  conditions of the proposed loan including the amount of
the loan, interest rate,  amortization term, a brief description of the required
collateral,  and required insurance coverage. The borrower must provide proof of
fire,  flood (if applicable) and casualty  insurance on the property  serving as
collateral, which must be maintained during the full term of the loan.

         Originations,  Purchases and Sales.  The Bank originates  loans for its
own  portfolio  and does  not sell  loans in the  secondary  market.  The  loans
originated by the Bank do not meet secondary market underwriting guidelines. The
Bank's deposits have historically exceeded loan demand in its primary

                                       -5-

<PAGE>



market   area.   Accordingly,   the  Bank  has  been  an  active   purchaser  of
mortgage-backed  securities.  See "-- Mortgage-Backed  Securities and Investment
Activities -- Mortgage-Backed  Securities Portfolio." The Bank has not purchased
individual loans during the past three years. The following tables set forth the
Bank's  gross  loan  originations  and  principal  repayments  for  the  periods
indicated.
<TABLE>
<CAPTION>

                                                                                           Year Ended June 30,
                                                                                 -------------------------------------
                                                                                     1997                      1996
                                                                                 -----------                ----------
                                                                                              (In Thousands)
<S>                                                                               <C>                       <C>      
Total loans receivable at beginning
  of period.........................................................              $  33,341                 $  30,073

Loans originated:
  1 to 4 family residential.........................................                  4,844                     7,007
  Construction loans................................................                  1,264                     2,123
  Commercial real estate loans......................................                    100                       538
  Consumer loans....................................................                    827                       979
                                                                                    -------                    ------
Total loans originated..............................................                  7,035                    10,647
Total loans sold....................................................                     --                        --
Loan principal repayments...........................................                  7,261                     7,379
                                                                                    -------                    ------
Net loan activity...................................................                   (226)                    3,268
                                                                                    -------                    ------
Total gross loans receivable at end of period.......................              $  33,115                   $33,341
                                                                                    =======                    ======
</TABLE>


         Loan Commitments.  The Bank issues standby loan origination commitments
to  qualified  borrowers  primarily  for  residential  real estate  loans.  Such
commitments  are made on specified terms and conditions and are made for periods
of up to 30 days, during which time the interest rate may be locked-in.  At June
30, 1997, the Bank had $2.3 million in commitments to originate loans.

         Loan  origination and commitment  fees are volatile  sources of income.
Such fees  vary  with the  volume  and type of loans  and  commitments  made and
purchased and with competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.

         Loans-to-One  Borrower.  Under the HOLA, a savings  association may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of the association's unimpaired capital and surplus. An additional amount
may be lent,  equal to 10% of  unimpaired  capital and surplus,  if such loan is
secured by  readily-marketable  collateral,  which is defined to include certain
securities and bullion, but generally does not include real estate.

         At  June  30,  1997  the  Bank's   loans-to-one   borrower   limit  was
approximately $1.3 million and its five largest aggregate lending  relationships
had balances ranging from $449,000 to $259,000. At June 30, 1997, all but one of
these  lending   relationships  were  current.  See   "-Non-performing   Assets-
Delinquencies and Asset Classification."

Non-performing Assets

         Delinquencies   and  Asset   Classification.   The  Bank's   collection
procedures  provide that when a loan is 15 days past due, a late charge is added
and the borrower is contacted by mail or telephone and payment is requested.  If
the delinquency continues, subsequent efforts are made to contact the delinquent

                                       -6-

<PAGE>



borrower.  Loans delinquent 60 days or more are considered problem loans and are
placed on the Bank's loan watch list.  Additional late charges may be added and,
if the loan  continues  in a  delinquent  status  for 90 days or more,  the Bank
generally initiates foreclosure  proceedings unless other repayment arrangements
are made. Each delinquent loan is reviewed on a case by case basis.

         Loans are  reviewed on a regular  basis and are  generally  placed on a
non-accrual  status when the loan becomes 90 days delinquent and, in the opinion
of  management,  the  collection  of additional  interest is doubtful.  Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against  interest  income.   Subsequent  payments  are  either  applied  to  the
outstanding  principal balance or recorded as interest income,  depending on the
assessment of the ultimate collectibility of the loan.

         The following table sets forth information regarding loans which are 90
days or more delinquent. The Bank does not accrue interest on loans more than 90
days past due.
<TABLE>
<CAPTION>
                                                                             At June 30,
                                                                  -----------------------------------
                                                                    1997                      1996
                                                                  ---------                 ---------
                                                                        (Dollars in Thousands)
<S>                                                              <C>                       <C>     
Loans accounted for on a non-accrual basis:
Real estate loans:
  1-4 family........................................              $    735                  $    339
  Commercial........................................                    --                        92
Non-mortgage loans:
  Consumer..........................................                   110                         4
                                                                   -------                   -------
Total non-accrual loans.............................                   845(1)                    435
Real estate owned...................................                    29                        --
Other non-performing assets.........................                    --                        --
                                                                   -------                   -------
Total non-performing assets.........................              $    874                  $    435
                                                                   =======                   =======
Total non-accrual loans to net loans................                  2.64%                     1.35%
                                                                   =======                   =======
Total non-accrual loans to total assets.............                  1.88%                     0.97%
                                                                   =======                   =======
Total non-performing assets to total assets.........                  1.95%                     0.97%
                                                                   =======                   =======
</TABLE>

----------------
(1)      At June 30, 1997,  $449,000 of the $845,000 of non-accrual loans at the
         Company consisted of a single lending relationship  involving six loans
         secured by residential real estate, a constructed  single-family  home,
         and two automobiles. The borrowers filed for bankruptcy in fiscal 1997.
         Although  there can be no  assurances,  the Company does not expect any
         material losses regarding such loans.

         Contractual   interest   income  due  for  loans  accounted  for  on  a
non-accrual basis under the original terms of such loans was $77,000 and $43,000
for the years  ended  June 30,  1997 and  1996,  respectively.  Interest  income
recognized on these loans  amounted to $27,000 and $27,000 for these  respective
periods.  The Bank did not  include any  interest  income on  non-accrual  loans
during the periods indicated. It is the Bank's general policy to accrue interest
only on loans less than 90 days  delinquent.  Once loans are 90 days delinquent,
the Bank reverses previously accrued but unpaid interest.

         In  addition,  at June 30, 1997,  the Bank had $420,000 in  residential
mortgage loans and $6,000 in consumer loans which were 60 to 90 days delinquent.

                                       -7-

<PAGE>




         At June 30, 1997, there were no loans considered impaired.

         The Bank has a  classification  system for problem  assets which covers
all problem assets. Under this classification  system, problem assets of insured
institutions are classified as "substandard," "doubtful," or "loss." An asset is
considered  "substandard"  if it is  inadequately  protected  by the current net
worth and paying capacity of the obligor or of the collateral  pledged,  if any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that the insured  institution  will sustain "some loss" if the  deficiencies are
not  corrected.  Assets  classified  as  "doubtful"  have all of the  weaknesses
inherent in those classified  "substandard," with the added  characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently  existing  facts,  conditions  and values,  "highly  questionable  and
improbable."  Assets  classified as "loss" are those considered  "uncollectible"
and  of  such  little  value  that  their  continuance  as  assets  without  the
establishment  of a specific loss reserve is not  warranted.  Assets  designated
"special  mention" by  management  are assets  included  on the Bank's  internal
watchlist  because of  potential  weakness  but which do not  currently  warrant
classification in one of the aforementioned categories.

         When the Bank  classifies  problem  assets  as  either  substandard  or
doubtful,  it may  establish  general  allowances  for loan  losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been  established  to recognize the inherent risk  associated  with lending
activities,  but which, unlike specific  allowances,  have not been allocated to
particular problem assets. When the Bank classifies problem assets as "loss," it
is required either to establish a specific allowance for losses equal to 100% of
that  portion  of  the  asset  so  classified  or  to  charge-off  such  amount.
Management's  evaluation of the classification of assets and the adequacy of the
reserve  for loan losses is  reviewed  by  regulatory  agencies as part of their
periodic examinations. A portion of general loss allowances established to cover
possible  losses related to assets  classified as substandard or doubtful may be
included in  determining an  institution's  regulatory  capital,  while specific
valuation  allowances  for loan losses  generally  do not qualify as  regulatory
capital.

         As of June 30, 1997, the Bank had total  classified  assets of $637,000
of which $616,000 were classified  substandard,  none were classified  doubtful,
and $21,000 were classified  loss.  Furthermore,  June 30, 1997, the Bank had no
loans designated as special mention.

         Real  Estate  Owned.  Real  estate  acquired by the Bank as a result of
foreclosure  or by deed-in-  lieu of  foreclosure  is  classified as real estate
owned until it is sold. When property is acquired it is recorded at the lower of
the cost or fair value less estimated costs to sell.

         Real estate  acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure  is classified as foreclosed  real estate until such time
as it is sold. When  foreclosed  real estate is acquired,  it is recorded at the
lower of the unpaid principal balance of the related loan or its fair value. Any
additional  write-down of foreclosed real estate is charged to the allowance for
loan losses if permanent impairment exists.

         The  Bank  had  $29,000  of REO at June  30,  1997,  consisting  of two
residential real estate properties.

         Allowance  for Loan Losses and Real Estate  Owned.  It is  management's
policy to provide for losses on both  specifically  identified and  unidentified
loans in its  loan  portfolio.  A  provision  for  loan  losses  is  charged  to
operations based on management's  evaluation of the potential losses that may be
incurred in the Bank's loan portfolio after management has evaluated a number of
factors, including,

                                       -8-

<PAGE>



historical  experience,  the volume and type of lending  conducted  by the Bank,
industry  standards,  the  amount  of  non-performing  assets,  current  general
economic  conditions  as they  relate to the  Bank's  loan  portfolio  and other
factors  related  to the  collectibility  of the  Bank's  loan  portfolio.  Such
evaluation, which includes a review of all loans of which full collectibility of
interest and  principal may not be reasonably  assured,  considers,  among other
matters, the estimated net realizable value of the underlying collateral. During
the  years  ended  June 30,  1997 and  1996,  the Bank  charged  $24,000  to the
provision for losses on loans.

         When foreclosed real estate is acquired, it is recorded at the lower of
(a)  cost or (b) fair  value  less  estimated  costs  to  sell.  Valuations  are
periodically  performed by management and subsequent charges to income are taken
when it is determined  that the carrying value of the property  exceeds the fair
value less estimated costs to sell.

         Management  will  continue  to review  the  entire  loan  portfolio  to
determine the extent,  if any, to which further  additional loan loss provisions
may be deemed  necessary.  There can be no assurance that the allowance for loan
losses  will be adequate  to cover  losses  which may in fact be realized in the
future and that  additional  provisions  for  possible  loan  losses will not be
required.

         Analysis of the  Allowance for Loan Losses.  The  following  table sets
forth  information  with respect to the Bank's  allowance for loan losses at the
dates indicated:
<TABLE>
<CAPTION>

                                                                                   At June 30,
                                                                      -----------------------------------
                                                                            1997                 1996
                                                                      ------------            -----------

<S>                                                                    <C>                    <C>     
Total loans outstanding.......................................          $   32,199             $ 33,341
                                                                            ======              =======
Average loans outstanding.....................................          $   32,294             $ 30,956
                                                                            ======              =======
Allowance balances (at beginning of period)...................          $      227             $    208
Provision:
  Real estate.................................................                  24                   24
  Consumer....................................................                  --                   --
Charge-offs:
  Real estate.................................................                  --                   --
  Consumer....................................................                  (1)                  (6)
Recoveries:
  Real estate.................................................                  --                   --
  Consumer....................................................                   1                    1
                                                                          --------              -------
Allowance balance (at end of period)..........................           $     251             $    227
                                                                          ========              =======
Allowance for loan losses as a percent of                                     0.78%                0.68%
  total loans outstanding.....................................
Net loans charged off as a percent of
  average loans outstanding...................................                  --                (0.02)%

</TABLE>



                                       -9-

<PAGE>



         The  distribution of the Bank's  allowance for loan losses at the dates
indicated are summarized as follows:
<TABLE>
<CAPTION>

                                                                         At June 30,
                                       ------------------------------------------------------------------------------
                                                        1997                                     1996
                                       --------------------------------------   -------------------------------------
                                                              Percent of                               Percent of
                                                             Loans in Each                            Loans in Each
                                                              Category to                              Category to
                                            Amount            Total Loans            Amount            Total Loans
                                            ------            -----------            ------            -----------
                                                                   (Dollars in Thousands)

<S>                                       <C>                  <C>                 <C>                    <C>   
Residential real estate ............      $   170                93.25               $ 131                  91.56%
Commercial real estate..............           --                 3.61                  15                   5.25
Consumer............................           81                 3.14                  81                   3.19
                                           ------               ------                ----                 ------
Total...............................      $   251               100.00%              $ 227                 100.00%
                                           ======               ======                ====                 ======
</TABLE>




Mortgage-Backed Securities and Investment Activities

         Mortgage-Backed  Securities  Portfolio.  At June 30, 1997, the carrying
value of  mortgage-backed  securities  totaled $6.1 million,  or 13.7%, of total
assets  which  consisted of Federal Home Loan  Mortgage  Corporation  ("FHLMC"),
Federal National  Mortgage  Association  ("FNMA") and Government Mutual Mortgage
Association  ("GNMA")  pass  through  securities  and  collateralized   mortgage
obligations.  The market value of such  securities  totaled  approximately  $6.1
million at June 30, 1997.

         Mortgage-backed securities represent a participation interest in a pool
of mortgages,  the principal and interest  payments on which are passed from the
mortgage  originators,   through  intermediaries  (generally  quasi-governmental
agencies)  that pool and  repackage the  participation  interests in the form of
securities,  to investors  such as the Bank.  Such  quasi-governmental  agencies
guarantee  the payment of principal and interest to  investors.  The  underlying
pool of mortgages  can be composed of either fixed rate  mortgages or ARM loans.
Mortgage-backed  securities are generally referred to as mortgage  participation
certificates or pass-through  certificates.  As a result, the interest rate risk
characteristics  of the  underlying  pool  of  mortgages,  i.e.,  fixed  rate or
adjustable  rate, as well as prepayment  risk, are passed on to the  certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages.

         At June 30, 1997, the Bank had two collateralized  mortgage obligations
("CMOs") totalling $215,000,  secured by GNMA certificates.  These variable rate
CMOs had an original  cost of $1.6  million but much of the  principal  has been
paid off due to the early prepayments of the underlying mortgages.


                                      -10-

<PAGE>



         The following  table sets forth the carrying  value of the Bank's fixed
rate and variable rate mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>

                                                                            At June 30,
                                                                 -------------------------------
                                                                     1997                1996
                                                                 -----------           ---------
                                                                       (In Thousands)
<S>                                                               <C>                   <C>     
Mortgage-backed securities:
  Fixed..............................................             $   2,970             $  3,743
  Variable...........................................                 3,153                3,723
                                                                   --------              -------
Total mortgage-backed securities.....................             $   6,123             $  7,466
                                                                   ========              =======
</TABLE>




         Investment Portfolio. The following table sets forth the carrying value
of the Bank's  investment  securities and FHLB stock at the dates indicated.  At
June 30, 1997, the market value of the Bank's  investment  securities  portfolio
was approximately $6.1 million.
<TABLE>
<CAPTION>

                                                                             At June 30,
                                                                 ----------------------------------
                                                                    1997                      1996
                                                                 ---------                  -------
                                                                            (In Thousands)
<S>                                                              <C>                        <C>    
  U.S. Government agency securities..................            $   2,299                  $ 2,797
  Municipal bonds....................................                  526                      897
  FHLB stock.........................................                  361                      359
  Certificate of deposit.............................                  100                       --
  Interest-bearing deposits in other financial
    institutions.....................................                2,804                      627
                                                                  --------                   ------
    Total investment securities......................            $   6,090                  $ 4,680
                                                                  ========                   ======

</TABLE>



                                      -11-

<PAGE>



Investment  Portfolio  Maturities.   The  following  table  sets  forth  certain
information   regarding  the  carrying  values,   weighted  average  yields  and
maturities of the Bank's investment portfolio at June 30, 1997.
<TABLE>
<CAPTION>
                                                                 As of June 30, 1997
                             ------------------------------------------------------------------------------------------------------
                             One Year or Less  One to Five Years Five to Ten Years  More Than Ten Years Total Investment Securities
                             ----------------- ----------------- ------------------ ------------------- -------------------------

                              Carrying Average Carrying  Average  Carrying  Average  Carrying  Average Carrying  Average   Market
                                Value   Yield    Value    Yield     Value    Yield     Value    Yield   Value     Yield     Value
                               ------- ------- -------   -------   -------  -------   -------  ------- -------   -------   ------
                                                                                                     (Dollars in Thousands)
<S>                           <C>      <C>      <C>        <C>     <C>        <C>      <C>      <C>    <C>         <C>    <C>
U.S. Government agency
  securities ................ $    --    --%    $2,049      6.64%  $   250    7.00%    $   --     --%  $ 2,299      6.68% $ 2,284
Obligations of states and
  political subdivisions ....      --    --        526      4.22        --      --         --     --       526      4.22      527
Mortgage-backed securities ..      --    --        604      6.11        --      --      5,519   7.20     6,123      7.09    6,105
Interest-bearing deposits in
  other financial
  institutions...............   2,804  5.41         --        --        --      --         --     --     2,804      5.41    2,804
Certificate of Deposit ......     100  5.61         --        --        --      --         --     --       100      5.61      100
FHLB Stock (1) ..............     361  6.76         --        --        --      --         --     --       361      6.76      361
                               ------  ----      -----      ----    ------    ----      -----   ----    ------      ----   ------
  Total ..................... $ 3,265  5.57     $3,179      6.14%$     250    7.00%    $5,519   7.20%  $12,213      6.48% $12,181
                               ======  ====      =====      ====    ======    ====      =====   ====    ======      ====   ======
</TABLE>

---------------
(1)      Recorded at cost.

                                      -12-

<PAGE>



Sources of Funds

         General.  Deposits are the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits,  Peoples Savings derives
funds from  amortization  and  prepayment  of loans,  maturities  of  investment
securities and operations.  Scheduled loan principal repayments are a relatively
stable source of funds,  while deposit inflows and outflows and loan prepayments
are  significantly  influenced by general interest rates and market  conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability  of funds from other  sources or on a longer term basis for general
business purposes.

         Deposits.  Consumer and commercial  deposits are attracted  principally
from  within the Bank's  primary  market area  through  the  offering of a broad
selection of deposit instruments  including NOW, passbook savings,  money market
deposit, term certificate accounts and individual  retirement accounts.  Deposit
account terms vary according to the minimum balance  required,  the time periods
the funds must remain on deposit and the interest rate, among other factors. The
Bank  regularly  evaluates the internal cost of funds,  surveys rates offered by
competing  institutions,  reviews the Bank's cash flow  requirements for lending
and liquidity and executes rate changes when deemed  appropriate.  The Bank does
not obtain funds through brokers,  nor does it actively solicit funds outside of
the Commonwealth of Pennsylvania.

         Jumbo  certificates  of deposit with  principal  amounts of $100,000 or
more constituted $2.7 million,  or 7.6% of the Bank's total deposit portfolio at
June 30, 1997. The Bank's jumbo deposits  include deposits from various business
entities,  individuals  and local  governments  and  authorities.  See  "--Jumbo
Certificates of Deposit."



                                      -13-

<PAGE>



         Deposits  in the Bank as of June 30, 1997 were  represented  by various
types of savings programs described below. 
<TABLE>
<CAPTION>

                                                                                                      Balance as of  
                                                                                  Minimum               June 30,       Percentage of
Category                  Term                         Interest Rate(1)       Balance Amount              1997        Total Deposits
--------                  ----                         ----------------       --------------              ----        --------------
                                                                                                     (In Thousands)
<S>                       <C>                           <C>                      <C>                  <C>               <C>
Now Accounts              None                                2.25%                   $200             $ 3,354            9.57%
Regular Savings           None                                2.50                      50               5,232           14.93
Money Market Accounts     None                                  (2)                     (2)              1,631            4.66

Certificates of Deposit:

Fixed Term, Fixed Rate    6 months                           5.10%                     500               2,711            7.74
Fixed Term, Fixed Rate    12 months                      5.20% - 5.45%                 500               3,396            9.69
Fixed Term, Fixed Rate    18 months                      5.25% - 5.50%                 500               2,227            6.36
Fixed Term, Fixed Rate    30 months                      5.30% - 5.55%                 500               4,066           11.61
Fixed Term, Fixed Rate    36 months                      5.65% - 5.90%                 500               1,147            3.27
Fixed Term, Fixed Rate    48 months                      5.70% - 5.95%                 500                 767            2.19
Fixed Term, Fixed Rate    60 months                      6.10% - 6.35%                 500               7,475           21.34
Fixed Term, Fixed Rate    96 months                          8.00%                     500                 293            0.84
Jumbo Certificates                                                                 100,000               2,677            7.64
                                                                                                        ------         -------
                                                                                                        34,976           99.84
                          Accrued interest on deposits                                                      56            0.16
                                                                                                        ------         -------
                          Total                                                                        $35,032          100.00%
                                                                                                        ======          ======
</TABLE>

----------------------
(1)      Interest rates as of June 30, 1997.
(2)      Under $1,000: 2.75%; over $1,000: 3.00%


         The  following  table  sets forth the  amount  and  maturities  of time
deposits at June 30, 1997.
<TABLE>
<CAPTION>


                                                                                                      After     
                                  June 30,             June 30,              June 30,                June 30,
Interest Rate                       1998                 1999                  2000                    2001            Total
-------------                      ------               ------                ------                  ------          ------
                                                                       (Dollars in Thousands)

<S>                             <C>                    <C>                    <C>                   <C>             <C>      
2.00 - 4.00%................... $      86              $     --               $    --                $    --        $      86
4.01 - 6.00%...................    11,666                 3,135                 1,002                  1,524           17,327
6.01 - 8.00%...................     2,516                   320                 2,685                  1,825            7,346
                                  -------              --------                ------                 ------          -------
  Total                          $ 14,268              $  3,455               $ 3,687                $ 3,349        $  24,759
                                  =======               =======                ======                 ======          =======

Accrued Interest on
  certificate accounts.........                                                                                            27

  Total                                                                                                             $  24,786
                                                                                                                      =======
</TABLE>




                                      -14-

<PAGE>



         The following table indicates the amount of the Bank's  certificates of
deposit of  $100,000  or more by time  remaining  until  maturity as of June 30,
1997.


                                                              Certificates  
                                                              of Deposits 
                                                              ----------- 
     Maturity Period                                         (In Thousands) 
                                                                               
     Within three months............................            $    555       
     Three through six months.......................                 309       
     Six through twelve months......................                 747       
     Over twelve months.............................               1,066       
                                                                 -------       
                                                                $  2,677       
                                                                ========       
                                                                     


         Borrowings.  Deposits  are the  primary  source of funds of the  Bank's
lending and investment  activities and for its general  business  purposes.  The
Bank may obtain advances from the FHLB of Pittsburgh to supplement its supply of
lendable  funds,  although  the Bank has not  generally  utilized  this  funding
source.  Advances  from the FHLB of Pittsburgh  would  typically be secured by a
pledge of the Bank's stock in the FHLB of Pittsburgh and a portion of the Bank's
first mortgage loans and certain other assets. The Bank, if the need arises, may
also access the Federal Reserve Bank discount window to supplement its supply of
lendable funds and to meet deposit  withdrawal  requirements.  At June 30, 1997,
Peoples  Savings  had  $500,000  in  advances   outstanding  from  the  FHLB  of
Pittsburgh.

         The following table presents information  regarding FHLB advances as of
June 30:
<TABLE>
<CAPTION>

                                                                    1997                  1996
                                                             ------------------   -------------------
                                                                           (In Thousands)
<S>                                                                   <C>                   <C>   
FHLB Advances:
   Ending Balance.........................................              $500                  $   --
   Average balance during the year........................               931                     250
   Maximum month-end balance during the year..............             1,550                     500
   Average interest rate during the year..................             5.59%                   6.80%
   Weighted average rate at year end......................             5.75%                      --

</TABLE>

         Personnel.  As of  June  30,  1997  the  Bank  had 13  full-time  and 3
part-time  employees.  None  of  the  Bank's  employees  are  represented  by  a
collective  bargaining  group.  The  Bank  believes  its  relationship  with its
employees to be good.

Regulation

         Set forth below is a brief  description of certain laws which relate to
the regulation and supervision of the Bank and the Corporation.  The description
does not purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.


                                      - 15 -

<PAGE>



Regulation of the Corporation

         General.  The  Corporation,  as a bank holding  company,  is subject to
regulation  and  supervision  by the Board of Governors  of the Federal  Reserve
System  ("FRB") and by the  Pennsylvania  Department  (the  "Department").  This
regulation  is  generally  intended  to ensure that the  Corporation  limits its
activities  to those  allowed  by law and that it  operates  in a safe and sound
manner without  endangering the financial  health of its subsidiary  banks.  The
Corporation  will be required to file annually a report of its operations  with,
and is subject to examination by, the FRB and the Department.

         BHCA Activities and Other Limitations.  The Bank Holding Company Act of
1956,  as amended  ("BHCA"),  prohibits a bank holding  company  from  acquiring
direct or indirect  ownership or control of more than 5% of the voting shares of
any bank, or  increasing  such  ownership or control of any bank,  without prior
approval of the FRB. In determining  whether to authorize a bank holding company
(or a company that will become a bank holding  company) to acquire  control of a
bank, the FRB takes into consideration the financial and managerial resources of
the bank  holding  company,  as well as those  of the bank to be  acquired,  and
considers whether the acquisition is likely to have anti-competitive  effects or
other adverse effects.  The BHCA also generally prohibits a bank holding company
from acquiring any bank located  outside of the state in which the operations of
the  existing  bank  subsidiaries  of the bank holding  company are  principally
conducted  unless  specifically  authorized by applicable state law. No approval
under the BHCA is required,  however,  for a bank holding company already owning
or controlling 50% or more of the voting shares of a bank to acquire  additional
shares of such bank.

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or  controlling  banks.  Under the BHCA,  the FRB is  authorized  to approve the
ownership of shares by a bank holding company in any company,  the activities of
which the FRB has determined to be so closely  related to banking or to managing
or  controlling  banks  as to be a  proper  incident  thereto.  In  making  such
determinations,  the FRB is required to weigh  expected  benefits to the public,
such as  greater  convenience,  increased  competition  or gains in  efficiency,
against the possible adverse effects,  such as undue concentration of resources,
decreased  or unfair  competition,  conflicts  of  interest  or unsound  banking
practices.

         The  FRB has by  regulation  determined  that  certain  activities  are
closely  related to banking  within the  meaning of the BHCA.  These  activities
include those of operating a mortgage company,  a finance company, a credit card
company,  a  factoring  company,  a  trust  company  or a  savings  association;
performing  certain data processing  operations;  providing  limited  securities
brokerage  services;  acting as an  investment  or  financial  advisor;  leasing
personal  property  on a  full-payout  (and,  to a  limited  extent,  less  than
full-payout),  non-operating  basis;  providing  tax  planning  and  preparation
services; operating a collection agency; and providing certain courier services.
The FRB also has determined that certain other activities, including real estate
brokerage  and   syndication,   land   development,   property   management  and
underwriting  of life  insurance  not  related to credit  transactions,  are not
closely related to banking and a proper incident thereto.

         Regulatory Capital  Requirements.  The FRB has adopted capital adequacy
guidelines  pursuant to which it assesses  the  adequacy of capital in examining
and supervising a bank holding company and in analyzing applications to it under
the BHCA. The FRB capital  adequacy  guidelines  generally  require bank holding
companies to maintain total capital equal to 8% of total  risk-adjusted  assets,
with at least  one-half of that amount  consisting of Tier I or core capital and
up to one-half of that amount  consisting of Tier II or  supplementary  capital.
Tier I capital for bank holding companies generally consists of the

                                      -16-

<PAGE>



sum of common stockholders' equity and perpetual preferred stock (subject in the
case of the latter to limitations on the kind and amount of such preferred stock
which  may be  included  as Tier I  capital),  less  goodwill.  Tier II  capital
generally  consists of hybrid capital  instruments;  perpetual  preferred  stock
which is not eligible to be included as Tier I capital;  term  subordinated debt
and  intermediate-term  preferred stock;  and,  subject to limitations,  general
allowances for loan losses. Assets are adjusted under the risk- based guidelines
to take into account different risk characteristics, with the categories ranging
from 0% (requiring  no  additional  capital) for assets such as cash to 100% for
the bulk of assets which are typically held by a bank holding company, including
multi-family  residential and commercial real estate loans,  commercial business
loans and consumer loans.  Single-family  residential first mortgage loans which
are not 90 days or more past-due or  non-performing  and which have been made in
accordance with prudent  underwriting  standards are assigned a 50% level in the
risk-weighing   system,  as  are  certain   privately-  issued   mortgage-backed
securities  representing indirect ownership loans.  Off-balance sheet items also
are adjusted to take into  account  certain  risk  characteristics.  The FRB has
indicated that bank holding companies  anticipating  significant  growth will be
expected to maintain capital ratios in excess of the required minimums.

         In addition to the risk-based  capital  requirements,  the FRB requires
bank holding  companies to maintain a minimum  leverage  capital ratio of Tier I
capital to total assets of 3.0%.  Total assets for this purpose does not include
goodwill and any other intangible assets and investments that the FRB determines
should be deducted from Tier I capital. The FRB has announced that the 3.0% Tier
I leverage  capital  ratio  requirement  is the minimum for the  top-rated  bank
holding companies without any supervisory,  financial or operational  weaknesses
or deficiencies or those which are not experiencing or anticipating  significant
growth.  Other bank  holding  companies  will be  expected  to  maintain  Tier I
leverage  capital  ratios of at least 4.0% to 5.0% or more,  depending  on their
overall condition.

         At  June  30,  1997,  the   Corporation  was  in  compliance  with  the
above-described FRB regulatory capital requirements.

         Commitments to Affiliated  Depository  Institutions.  Under FRB policy,
the Corporation will be expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances  when it might
not do so absent such  policy.  The  enforceability  and  precise  scope of this
policy is unclear,  however,  in light of recent  judicial  precedent,  however,
should the Bank require the support of additional capital  resources,  it should
be  anticipated  that  Corporation  will be  required  to respond  with any such
resources available to it.

         Federal  Securities Law. The Corporation is subject to the information,
proxy  solicitation,  insider trading  restrictions and other requirements under
the Securities  Exchange Act of 1934, as amended ("Exchange Act").  Furthermore,
shares  owned by an  affiliate  of the  Corporation  are  subject  to the resale
restrictions of Rule 144 under the Securities Act of 1993, as amended.

Regulation of the Bank

         General.  As  a  Pennsylvania  chartered,  SAIF-insured  savings  bank,
Peoples  Savings is subject  to  extensive  regulation  and  examination  by the
Department, the FDIC, which insures its deposits to the maximum extent permitted
by law, and to a much less or extent, by the FRB. The federal and state laws and
regulations  which are  applicable to banks  regulate,  among other things,  the
scope of their business,  their  investments,  the reserves  required to be kept
against  deposits,  the timing of the  availability  of deposited  funds and the
nature and amount of and collateral for certain loans.  The laws and regulations
governing the Bank generally have been promulgated to protect depositors and not
for the purpose of

                                      -17-

<PAGE>



protecting  stockholders.  The  regulatory  structure  also gives the regulatory
authorities  extensive  discretion  in  connection  with their  supervisory  and
enforcement activities and examination policies, including policies with respect
to the  classification  of assets and the  establishment  of adequate  loan loss
reserves for regulatory purposes. Any change in such regulation,  whether by the
Department, the FDIC or the United States Congress could have a material adverse
impact on the Corporation, the Bank and their operations.

         Pennsylvania  Savings Bank Law. The Pennsylvania Banking Code ("Banking
Code") contains  detailed  provisions  governing the  organization,  location of
offices,  rights and  responsibilities  of  trustees,  officers,  employees  and
members,  as well as corporate  powers,  savings and  investment  operations and
other aspects of the Bank and its affairs.  The Banking Code delegates extensive
rule-making  power and  administrative  discretion to the Department so that the
supervision and regulation of state chartered  associations  may be flexible and
readily responsive to changes in economic  conditions and in savings and lending
practices.

         One of the  purposes of the Banking  Code is to provide  savings  banks
with the  opportunity  to be fully  competitive  with each  other and with other
financial  institutions existing under other state, federal and foreign laws. To
this end, the Banking Code  provides  state-chartered  savings banks with all of
the  powers  enjoyed  by  federal  savings  and loan  associations,  subject  to
regulation by the  Department.  The Federal  Deposit  Insurance  Corporation Act
("FDIA"),  however,  prohibits  state  chartered  institutions  from  making new
investments,  loans, or becoming  involved in activities as principal and equity
investments  which are not  permitted  for  national  banks  unless (1) the FDIC
determines the activity or investment  does not pose a significant  risk of loss
to the  SAIF  and (2)  the  savings  bank  meets  the  fully  phased-in  capital
requirements. Accordingly, the ability of the Banking Code to provide additional
operating authority to the Bank is limited by the FDIA.

         Interstate  Acquisitions.  The Commonwealth of Pennsylvania has enacted
legislation   regarding  the  acquisition  of  commercial  banks,  bank  holding
companies,   savings  banks  and  savings  and  loan  associations   located  in
Pennsylvania  by  institutions  located  outside of  Pennsylvania.  The  statute
dealing with savings  institutions  authorizes  (i) a savings bank,  savings and
loan association or holding company thereof located in another state (a "foreign
institution")  to acquire the voting stock of,  merge or  consolidate  with,  or
purchase assets and assume liabilities of, a Pennsylvania-chartered savings bank
and (ii) the establishment of branches in Pennsylvania by foreign  institutions,
in each case subject to certain conditions including (A) reciprocal  legislation
in the state in which the foreign institution seeking entry into Pennsylvania is
located permitting comparable entry by Pennsylvania savings institutions and (B)
approval  by the  Department.  Pennsylvania  law also  provides  for  nationwide
branching  by  Pennsylvania-  chartered  savings  banks  and  savings  and  loan
associations, subject to the Department's approval and certain other conditions.

         On  September  29,  1994,  the  United  States  Congress   enacted  the
Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994  (the
"Interstate Banking Law"), which amended various federal banking laws to provide
for  nationwide  interstate  banking,  interstate  bank  mergers and  interstate
branching.  The Interstate Banking Law will allow, effective September 29, 1995,
the acquisition by a bank holding company of a bank located in another state.

         Interstate bank mergers and branch purchase and assumption transactions
will be allowed  effective  June 1, 1997,  however,  states may "opt-out" of the
merger and purchase and assumption provisions by enacting laws that specifically
prohibit such interstate  transactions.  States may, in the  alternative,  enact
legislation to allow interstate merger and purchase and assumption  transactions
prior to June 1, 1997.

                                      -18-

<PAGE>



Pursuant to the  Interstate  Banking Law,  states may also enact legislation  to
allow for de novo interstate branching by out of state banks.

         Pennsylvania   has  enacted  "opt-in"   legislation   authorizing  full
interstate branching for state-chartered financial institutions prior to June 1,
1997. This legislation  allows  out-of-state  banks to branch into  Pennsylvania
either by buying an existing  bank or  converting it into a branch or by setting
up a de novo  branch.  The law requires  reciprocity  from the other state until
June 1, 1997. The legislation also allows  state-chartered banks the same rights
as federally  chartered banks to branch into other states that allow  interstate
branching.

         Insurance of Deposit Accounts.  The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured  member (as defined by law
and regulation).  The FDIC has the authority,  should it initiate proceedings to
terminate an institution's  deposit  insurance,  to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying  intangible assets, the FDIC cannot
suspend deposit  insurance unless capital declines  materially,  the institution
fails to enter into and remain in  compliance  with an approved  capital plan or
the institution is operating in an unsafe or unsound manner.

         Regardless of an institution's capital level, insurance of deposits may
be  terminated  by the FDIC upon a finding that the  institution  has engaged in
unsafe or unsound  practices,  is in an unsafe or unsound  condition to continue
operations,  or has violated any  applicable  law,  regulation,  rule,  order or
condition imposed by the FDIC or the institution's  primary regulator.  The FDIC
may also  prohibit  an  insured  depository  institution  from  engaging  in any
activity  the  FDIC  determines  to  pose a  serious  threat  to the  SAIF.  The
management of the Bank is unaware of any practice,  condition, or violation that
might lead to termination of its deposit insurance.

         Effective  September  30,  1996,  federal  law was revised to mandate a
one-time  special  assessment on SAIF members such as the Bank of  approximately
 .657% of deposits held on March 31, 1995.  The Bank recorded a $235,000  pre-tax
expense for this  assessment at September 30, 1996, and such assessment was paid
on November 12, 1996.  Beginning January 1, 1997, deposit insurance  assessments
for a  significant  portion  of SAIF  members  are  expected  to be  reduced  to
approximately  .064% of  deposits  on an annual  basis  through the end of 1999.
During this same period,  BIF members are expected to be assessed  approximately
0.013% of deposits.  Thereafter,  assessments for BIF and SAIF members should be
the  same  and the  SAIF  and BIF  may be  merged.  It is  expected  that  these
continuing  assessments  for  both  SAIF and BIF  members  will be used to repay
outstanding Financing Corporation bond obligations.

         Regulatory Capital Requirements.  The FDIC has promulgated  regulations
and adopted a statement of policy prescribing the capital adequacy  requirements
for state-chartered  banks, some of which, like the Bank, are not members of the
Federal  Reserve  System.  At June 30, 1997,  the Bank  exceeded all  regulatory
capital requirements and is classified as "well capitalized."

         The FDIC's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an  additional  cushion  of at least 100 to 200 basis  points for all other
state-chartered,  non-member banks,  which effectively will increase the minimum
Tier I leverage  ratio for such other  banks to 4.0% to 5.0% or more.  Under the
FDIC's  regulation,  the highest-rated  banks are those that the FDIC determines
are  not  anticipating  or  experiencing   significant   growth  and  have  well
diversified  risk,  including no undue  interest rate risk  exposure,  excellent
asset  quality,  high  liquidity,  good  earnings  and,  in  general,  which are
considered a strong banking organization,  rated composite 1 under  the  Uniform
Financial Institutions Rating System.  Leverage or

                                      -19-

<PAGE>



core  capital is defined as the sum of common  stockholders'  equity  (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
and minority interests in consolidated subsidiaries, minus all intangible assets
other than  certain  qualifying  supervisory  goodwill,  and  certain  purchased
mortgage servicing rights and purchased credit and relationships.

         The FDIC also  requires  that savings  banks meet a risk-based  capital
standard.  The  risk-based  capital  standard  for savings  banks  requires  the
maintenance   of  total  capital  (which  is  defined  as  Tier  I  capital  and
supplementary  (Tier 2) capital) to risk weighted  assets of 8%. In  determining
the amount of risk-weighted  assets, all assets,  plus certain off balance sheet
assets,  are multiplied by a risk-weight  of 0% to 100%,  based on the risks the
FDIC believes are inherent in the type of asset or item.

         The  components  of Tier I capital are  equivalent  to those  discussed
above under the 3% leverage standard.  The components of supplementary  (Tier 2)
capital include certain perpetual preferred stock, certain mandatory convertible
securities,  certain  subordinated  debt and  intermediate  preferred  stock and
general  allowances  for loan and  lease  losses.  Allowance  for loan and lease
losses  includable in supplementary  capital is limited to a maximum of 1.25% of
risk-weighted   assets.   Overall,   the  amount  of  capital   counted   toward
supplementary capital cannot exceed 100% of core capital.

         A bank which has less than the minimum leverage capital  requirement is
subject to various  capital plan and activities  restriction  requirements.  The
FDIC's regulation also provides that any insured  depository  institution with a
ratio of Tier I capital to total  assets  that is less than 2.0% is deemed to be
operating in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA
and could be subject to potential termination of deposit insurance.

         The  Bank is also  subject  to more  stringent  Department  guidelines.
Although  not  adopted in  regulation  form,  the  Department  utilizes  capital
standards  requiring  a minimum  of 6.5%  leverage  capital  and 10%  risk-based
capital. The components of leverage and risk-based capital are substantially the
same as those defined by the FDIC.

         The Bank was in  compliance in both the FDIC and  Pennsylvania  capital
requirements at June 30, 1997.

         Community  Reinvestment.  Under the Community Reinvestment Act ("CRA"),
as implemented by FDIC regulations,  a savings  association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the FDIC,  in  connection  with its  examination  of a savings bank, to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its  evaluation of certain  applications  by
such  institution,  and to provide a written  evaluation of an institution's CRA
performance  utilizing a four tiered descriptive rating system in lieu. The Bank
received a "satisfactory" rating in its last CRA examination in May 31, 1994.

         Transactions With Affiliates.  Generally,  restrictions on transactions
with affiliates require that transactions  between a savings  association or its
subsidiaries  and  its  affiliates  be on  terms  as  favorable  to the  Bank as
transactions with non-affiliates. In addition, certain of these transactions are
restricted to a percentage of the Bank's capital. Affiliates of the Bank include
the Holding Company and any company which would be under common control with the
Bank.


                                      -20-

<PAGE>





         The Bank's authority to extend credit to executive officers,  directors
and 10%  shareholders,  as well as entities  such persons  control are currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things,  these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals,  place limits on the amount of loans the Bank may make
to such persons  based,  in part, on the Bank's  capital  position,  and require
certain approval procedures to be followed.

         Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of
Pittsburgh,  which  is  one of 12  regional  FHLBs  that  administers  the  home
financing credit function of savings associations. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Pittsburgh  in an amount equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the  beginning  of each year.  At June 30,  1997,  the Bank had $361,000 in FHLB
stock, which was in compliance with this requirement.

         As  a  result  of  the  Financial  Institutions  Reform,  Recovery  and
Enforcement Act of 1989 ("FIRREA"),  the FHLBs are required to provide funds for
the resolution of troubled savings  associations and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community  investment in low and moderate  income  housing  projects.  These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the  future.  For the year ended June 30,  1997,  dividends
paid by the FHLB of Pittsburgh to the Bank totalled approximately $23,000.

         Federal Reserve System. The FRB requires all depository institutions to
maintain  non-interest  bearing  reserves  at  specified  levels  against  their
transaction accounts (primarily  checking,  NOW and Super NOW checking accounts)
and  non-personal  time  deposits.  The balances  maintained to meet the reserve
requirements   imposed  by  the  FRB  may  be  used  to  satisfy  the  liquidity
requirements that are imposed by the Department.  At June 30, 1997, the Bank met
its reserve requirements.

         Savings  associations have authority to borrow from the Federal Reserve
Bank "discount  window," but Federal Reserve policy  generally  requires savings
associations  to exhaust all sources before  borrowing from the Federal  Reserve
System. The Bank had no discount window borrowings at June 30, 1997.

Subsidiary and Joint Venture Activity

         In January 1994, the  Corporation  acquired all of the capital stock of
the Bank, a Pennsylvania- chartered stock savings bank. As of June 30, 1997, the
net book value of the  Corporation's  investment  in the Bank  amounted  to $8.3
million.

                                      -21-

<PAGE>




Item 2.  Description of Property.
---------------------------------

         (a) Properties.

         The Company  owns no real  property but utilizes the main office of the
Bank.  The Bank operates from its office located in Ridgway,  Pennsylvania,  and
two additional offices located in Brookville and DuBois, Pennsylvania.  The Bank
owns its  offices  in  Ridgway  and  Brookville.  The Bank holds a lease for the
DuBois branch office through  December 31, 1997,  with an option to renew for an
additional one-year period.

         At June  30,  1997,  the  Bank  had a  total  investment  in its  land,
buildings and improvements,  and fixtures,  furniture and equipment of $515,000,
less accumulated depreciation of $455,000, or a net carrying value of $60,000.

         The Bank owns  various  bookkeeping  and  accounting  equipment  and is
on-line with an outside data processing company,  Fiserv, Inc. See Note 7 of the
Notes to Consolidated Financial Statements.

         (b) Investment Policies.

         See "Item 1.  Business"  above for a general  description of the Bank's
investment  policies and any  regulatory  or Board of  Directors'  percentage of
assets limitations  regarding certain investments.  All of the Bank's investment
policies are  reviewed  and approved by the Board of Directors of the Bank,  and
such  policies,  subject to  regulatory  restrictions  (if any),  can be changed
without a vote of stockholders. The Bank's investments are primarily acquired to
produce income, and to a lesser extent, possible capital gain.

         (1)  Investments in Real Estate or Interests in Real Estate.  See "Item
1.  Business -- Lending  Activities,"  "Item 1.  Business --  Regulation  of the
Bank," and "Item 2. Description of Property. (a) Properties" above.

         (2)  Investments  in Real Estate  Mortgages.  See "Item 1.  Business --
Lending Activities" and "Item 1. Business -- Regulation of the Bank."

         (3)  Investments  in  Securities  of or Interests in Persons  Primarily
Engaged in Real Estate Activities. See "Item 1. Business -- Lending Activities,"
"Item  1.  Business  --  Regulation  of the  Bank,"  and  "Item 1.  Business  --
Subsidiary Activity."

         (c)  Description of Real Estate and Operating Data.

         Not Applicable.

Item 3.  Legal Proceedings
--------------------------

         Neither  the  Corporation  nor  the  Bank  are  engaged  in  any  legal
proceedings of a material nature at the present time.

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

         Not applicable.

                                      -22-

<PAGE>



                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

         The  information  contained under the section  captioned  "Stock Market
Information" on page 2 of the Corporation's Annual Report is incorporated herein
by reference.

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

         The  information  is contained in the section  captioned  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  on
page 4 of the Annual Report and is incorporated herein by reference.

Item 7.  Financial Statements
-----------------------------

         The Corporation's  consolidated  financial statements as listed in Item
14 herein are incorporated herein by reference.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure
--------------------------------------------------------------------------------

         Not applicable.


                                    PART III

Item 9.  Directors and Executive Officers of the Registrant
-----------------------------------------------------------

         The  information  regarding  executive  officers  and  directors of the
Corporation  contained under the section(s)  captioned "Section 16(a) Beneficial
Ownership  Reporting  Compliance" and "Information  With Respect to Nominees for
Director; Directors Whose Terms Continue and Executive Officers" on pages 4-7 of
the  Corporation's  definitive  proxy  statement for  Corporation's  1997 Annual
Meeting  of  Stockholders  filed with the  Securities  and  Exchange  Commission
("SEC") on September 25, 1997 (the "Proxy Statement") is incorporated  herein by
reference.

Item 10.  Executive Compensation
--------------------------------

         The  information  contained  under the  section  captioned  "Management
Remuneration and Other Information - Executive Compensation" on pages 9 to 11 in
the Proxy Statement is incorporated herein by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         (a)      Security Ownership of Certain Beneficial Owners

                  Information  required by this item is  incorporated  herein by
                  reference  to the Section  captioned  "Voting  Securities  and
                  Principal  Holders  Thereof"  on  pages  2 and 3 of the  Proxy
                  Statement.

                                      -23-

<PAGE>
         (b)      Security Ownership of Management

                  Information  required by this item is  incorporated  herein by
                  reference to the section  captioned  "Information with Respect
                  to Nominees for Director;  Directors  Whose Terms Continue and
                  Executive Officers" on pages 4 to 5 of the Proxy Statement.

         (c)      Management  of  the  Corporation  knows  of  no  arrangements,
                  including  any  pledge  by any  person  of  securities  of the
                  Corporation,  the operation of which may at a subsequent  date
                  result in a change in control of the registrant.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  information  required  by this  item  is  incorporated  herein  by
reference  to  the  section   captioned   "Management   Remuneration  and  Other
Information -- Certain Transactions With Management and
Others" on page 12 of the Proxy Statement.

Item 13.  Exhibits, List and Reports on Form 8-K
------------------------------------------------

          1.      Independent Auditors' Report*

          2.      Peoples Savings Financial Corporation*

                  (a)      Consolidated Statements of Financial Condition at
                           June 30, 1997 and 1996

                  (b)      Consolidated  Statements  of  Income  for each of the
                           years in the two-year period ended June 30, 1997

                  (c)      Consolidated  Statements of Stockholders'  Equity for
                           each of the years in the  two-year  period ended June
                           30, 1997

                  (d)      Consolidated Statements of Cash Flows for each of the
                           years in the two-year period ended June 30, 1997

                  (e)      Notes to Consolidated Financial Statements

          3.      Exhibits

                  3.1      Articles of Incorporation of Peoples Savings 
                           Financial Corporation**

                  3.2      Bylaws of Peoples Savings Financial Corporation**

                  4        Specimen Stock Certificate**

                  10.1     1993 Stock Option Plan**

                  10.2     Management Stock Bonus Plan and Trust Agreement**

                  10.3     Employment Agreement with Glenn R. Pentz, Jr.***

                                      -24-
<PAGE>

                  13       Annual Report to Stockholders for Fiscal Year Ended
                           June 30, 1997

                  21       Subsidiaries of the Corporation (See "Item 1.
                           Description of Business - Subsidiary and Joint 
                           Venture Activity.")

                  27       Financial Data Schedule (included in electronic 
                           filing only)

          4. Not applicable.

----------------
*    Incorporated herein by reference to the Corporation's Annual Report.
**   Incorporated  herein by  reference  from the  Exhibits to the  Registration
     Statement  on Form S-1 of the  Corporation  (File No.  33-69266)  initially
     filed with the SEC on September 22, 1993.
***  Incorporated  herein by reference  from the  Exhibits to the  Corporation's
     Annual Report on Form 10-KSB for the year ended June 30, 1995.

                                      -25-

<PAGE>



                                   SIGNATURES

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

                                 PEOPLES SAVINGS FINANCIAL CORPORATION


Date:  September 18, 1997        By:  /s/Norbert J. Pontzer
                                      ---------------------
                                      Norbert J. Pontzer
                                      President, Chief Executive Officer
                                      and Chairman of the Board
                                      (Duly Authorized Representative)

          Pursuant to the  requirement of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>


<S>                                               <C>
By:/s/Norbert J. Pontzer                          By: /s/Glenn R. Pentz, Jr.
    Norbert J. Pontzer                                Glenn R. Pentz, Jr.
    President, Chief Executive Officer and            Chief Financial Officer, Treasurer
    Chairman of the Board                             and Secretary
    (Principal Executive Officer)                     Principal Accounting Officer)

Date:  September 18, 1997                         Date: September 18, 1997


By:/s/William L. Murnaghan                        By: /s/Roger M. Hasselman
    William L. Murnaghan                              Roger M. Hasselman
    Director                                          Director

Date:  September 18, 1997                         Date: September 18, 1997


By:/s/Carl W. Gamarino                            By: /s/Paul A. Brazinski
   Carl W. Gamarino                                   Paul A. Brazinski
   Director                                           Director

Date:  September 18, 1997                         Date:  September 18, 1997


By:/s/Jane P. Weilacher
   Jane P. Weilacher
   Director

Date:  September 18, 1997

</TABLE>