SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the fiscal year ended September 30, 2002
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- and Exchange Act of 1934
Commission File No.: 000-29949
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PEOPLES COMMUNITY BANCORP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Maryland 31-1686242
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
6100 West Chester Road, West Chester, Ohio 45069
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(Address of Principal Executive Offices) (Zip Code)
(513) 870-3530
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(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Not Applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock (par value $.01 per share)
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(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to
this Form 10-K. [X]
As of December 27, 2002, the aggregate value of the 2,011,522 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
501,093 shares held by all directors and executives officers of the Registrant
and the Registrant's Employee Stock Ownership Plan ("ESOP") as a group, was
approximately $45.9 million. This figure is based on the closing sales price
of $22.81 per share of the Registrant's Common Stock on December 27, 2002.
Although directors and executive officers and the ESOP were assumed to be
"affiliates" of the Registrant for purposes of this calculation, the
classification is not to be interpreted as an admission of such status.
Number of shares of Common Stock outstanding as of December 16, 2002: 2,512,615
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and
the Part of the Form 10-K into which the document is incorporated.
(1) Portions of the Annual Report to Stockholders for the year ended September
30, 2002 are incorporated into Part II, Items 5 through 8 of this Form
10-K.
(2) Portions of the definitive proxy statement for the 2002 Annual Meeting of
Stockholders to be filed within 120 days of the Registrant's fiscal year
end are incorporated into Part III, Items 10 through 13 of this Form 10-K.
PART I
Item 1. Business
General
Peoples Community Bancorp, Inc. ("Peoples" or the "Company") was
organized in December 1999 at the direction of the Board of Directors of The
People's Building, Loan and Savings Company, presently Peoples Community Bank,
(the "Bank") for the purpose of holding all of the capital stock of the Bank and
in order to facilitate the conversion of the Bank from an Ohio-chartered mutual
savings and loan association to a federally-chartered stock savings bank (the
"Conversion"). (Unless the context otherwise requires, reference to Peoples
includes the Bank). Peoples is a unitary savings and loan holding company whose
assets consist primarily of the outstanding shares of common stock of the Bank,
investments made with the portion of the net proceeds from the issuance of
Peoples shares to the public (the "Offering") retained by Peoples and Peoples'
loan to the employee stock ownership plan (the "ESOP"). Peoples has no
significant liabilities other than the issuance of junior subordinated
debentures in fiscal 2002. The management of Peoples and the Bank are
substantially identical and Peoples neither owns nor leases any property but
instead uses the premises, equipment and furniture of the Bank. The Bank is a
federally-chartered stock savings bank that was originally organized in 1889.
The Bank conducts its business from eleven offices in Hamilton, Warren, and
Butler Counties in Ohio. The Bank is primarily engaged in attracting deposits
from the general public and using those funds to originate loans and invest in
securities. The Bank's primary lending emphasis has been, and continues to be,
loans secured by first liens on single-family (one- to-four units) residential
properties located in Hamilton, Warren and Butler Counties in Ohio. However,
over the past two fiscal years, the Bank has placed an increasing emphasis on
multi-family residential loans, commercial real estate and land loans,
construction loans and commercial loans. As a result, as a percentage of the
total loan portfolio, single-family residential loans have decreased from 72.7%
at September 30, 2000 to 53.2% at September 30, 2002, while multi-family
residential loans, commercial real estate and land loans, construction loans and
commercial loans have increased during the same time period from 4.3% to 10.2%,
9.7% to 15.8%, 12.8% to 16.2% and 0.0% to 3.8%, respectively. At September 30,
2002, Peoples had $581.6 million in total assets, $369.1 million in deposits and
$43.0 million of stockholders' equity.
Immediately prior to the Conversion, The Oakley Improved Building and
Loan Company, an Ohio-chartered mutual savings and loan association ("Oakley"),
merged with and into the Bank (the "Oakley merger"). No consideration was
exchanged in the Oakley merger. The Oakley merger was accounted for on a pooling
of interests basis whereby prior year amounts are restated to include the assets
and liabilities of Oakley. Simultaneously with the Conversion, Harvest Home
Financial Corporation, an Ohio corporation with its principal place of business
in Ohio ("Harvest Home Financial"), merged with and into Peoples (the "Harvest
Home merger"). In connection with the Harvest Home merger, each outstanding
share of Harvest Home Financial common stock, no par value per share, was
converted into the right to receive 0.9 of a share of Peoples Community common
stock and $9.00 in cash. The Harvest Home merger was accounted for using the
purchase method of accounting and as such, prior period amounts are not
restated. The Conversion, the Oakley merger and the Harvest Home merger were
interdependent transactions.
On March 30, 2001, the Company acquired Market Financial Corporation
("Market") for consideration of $7.8 million in cash and 527,930 shares of
common stock. Under the terms of the agreement, each share of Market's common
stock was exchanged for a combination of cash and/or shares of the Company
totaling $13.00 per share. The acquisition was accounted for using the purchase
method of accounting, consequently prior period amounts were not restated.
On January 18, 2002, the Bank sold $11.0 million in total loans and
$9.9 million in total deposits to another financial institution pursuant to a
Purchase and Assumption Agreement. These assets and liabilities had been
assigned to the Bank's branch office located in Blanchester, Ohio.
On April 26, 2002, the Company completed its acquisition of Kenwood
Bancorp, Inc. ("Kenwood") for consideration of $25.22 per outstanding share,
totaling $7.9 million in cash. Kenwood was merged with and into the Corporation
and Kenwood's wholly-owned banking subsidiary, Kenwood Savings Bank, became a
wholly-owned subsidiary of the Bank. The Company acquired $56.6 million in total
assets and recorded approximately $3.4 million in goodwill as part of the
transaction.
3
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision, which is the Bank's chartering authority and
primary federal regulator. The Bank is also regulated by the Federal Deposit
Insurance Corporation (the "FDIC"), administrator of the Savings Association
Insurance Fund. The Bank is also subject to certain reserve requirements
established by the Federal Reserve Board (the "FRB") and is a member of the
Federal Home Loan Bank (the "FHLB") of Cincinnati, which is one of the 12
regional banks comprising the FHLB System.
Peoples Lending Activities
General. At September 30, 2002, the net loan portfolio of Peoples
totaled $504.0 million, representing approximately 86.6% of total assets at that
date. The principal lending activity of Peoples is the origination of one- to
four-family residential and multi-family residential real estate loans. At
September 30, 2002, residential loans (including construction loans secured by
residential real estate) amounted to $382.4 million, or 75.9% of the net loan
portfolio. In addition, Peoples originates commercial real estate and land loans
and nonresidential construction loans. At September 30, 2002, commercial real
estate and land loans totaled $88.0 million, or 17.5% of the net loan portfolio
and nonresidential construction loans amounted to $17.8 million, or 3.5% of the
net loan portfolio. Further, commercial loans amounted to $21.2 million, or 4.2%
of the net loan portfolio at September 30, 2002. Peoples has placed an increased
emphasis on multi-family residential loans, commercial real estate and land
loans, construction loans and commercial loans over the last two fiscal years.
The aggregate amount of these loans has increased to $256.3 million, or 50.8% of
the net loan portfolio at September 30, 2002, compared to $56.5 million, or
28.8% of the net loan portfolio at September 30, 2000.
The types of loans that Peoples may originate are subject to federal
and state laws and regulations. Interest rates charged on loans are affected
principally by the demand for such loans and the supply of money available for
lending purposes and the rates offered by its competitors. These factors are
affected by general and economic conditions, the monetary policy of the federal
government, including the Federal Reserve Board, legislative and tax policies,
and governmental budgetary matters.
A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus. However, loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower if the loans are fully secured by
readily marketable securities. At September 30, 2002, Peoples' regulatory limit
on loans-to-one borrower was $8.8 million. All of Peoples' five largest loans or
groups of loans-to-one borrower were performing in accordance with their terms
at September 30, 2002. See "Asset Quality - Classified Assets."
4
Loan Portfolio Composition. The following table sets forth the composition
of Peoples' loans at the dates indicated.
September 30,
2002 2001 2000
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
(Dollars in Thousands)
Mortgage loans:
Single-family residential $296,294 58.8% $242,540 64.2% $153,627 78.1%
Multi-family residential 56,980 11.3 36,487 9.7 8,999 4.6
Commercial real estate and land 88,029 17.5 65,842 17.4 20,440 10.4
Construction loans 90,002 17.9 62,982 16.7 27,056 13.8
------- ----- ------- ----- ------- -----
Total mortgage loans 531,305 105.5 407,851 108.0 210,122 106.9
Commercial loans 21,280 4.2 9,800 2.6 - -
Consumer loans 4,265 0.8 1,883 0.5 1,307 0.7
------- ----- ------- ----- ------- -----
Total loans receivable 556,850 110.5 419,534 111.1 211,429 107.6
Less:
Undisbursed portion of loans
in process (43,144) (8.6) (36,782) (9.7) (13,546) (6.9)
Allowance for loan losses (7,656) (1.5) (3,662) (1.0) (762) (0.4)
Deferred loan fees (2,038) (0.4) (1,363) (0.4) (636) (0.3)
------- ------ ------- ----- ------- -----
Loans receivable, net $504,012 100.0% $377,727 100.0% $196,485 100.0%
======= ===== ======= ===== ======= =====
September 30,
1999 1998
Percent of Percent of
Amount Total Amount Total
(Dollars in Thousands)
Mortgage loans:
Single-family residential $87,574 92.6% $80,191 88.6%
Multi-family residential 1,588 1.7 1,611 1.8
Commercial real estate and land 5,935 6.3 6,143 6.8
Construction loans 3,473 3.7 5,217 5.8
------ ----- ------ -----
Total mortgage loans 98,570 104.3 93,162 103.0
Commercial loans - - - -
Consumer loans 133 0.1 141 0.2
------ ----- ------ -----
Total loans receivable 98,703 104.4 93,303 103.2
Less:
Undisbursed portion of loans
in process (3,337) (3.6) (2,214) (2.5)
Allowance for loan losses (415) (0.4) (235) (0.3)
Deferred loan fees (400) (0.4) (406) (0.4)
------ ----- ------ -----
Loans receivable, net $94,551 100.0% $90,448 100.0%
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Origination of Loans. The lending activities of Peoples are subject to
the written underwriting standards and loan origination procedures established
by the Board of Directors and management. Loan originations are obtained through
a variety of sources, including referrals from real estate brokers, builders and
existing customers. Written loan applications are taken by loan officers. The
loan officers also supervise the procurement of credit reports, appraisals and
other documentation involved with a loan. Property valuations are performed by
independent outside appraisers approved by the Board of Directors of Peoples.
Under the real estate lending policy of Peoples, a title opinion must
be obtained for each real estate loan. Peoples also requires fire and extended
coverage casualty insurance, in order to protect the properties securing its
real estate loans. Borrowers must also obtain flood insurance policies when the
property is in a flood hazard area as designated by the Department of Housing
and Urban Development. Peoples does not require borrowers to advance funds to an
escrow account for the payment of real estate taxes or hazard insurance
premiums.
Peoples' loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. The Board of Directors has
granted authority to approve loans as follows: loans up to $500,000 must be
approved by two senior executive officers; loans between $500,000 and $1.0
million must be approved by the executive committee of the Board of Directors;
and loans greater than $1.0 million must be approved by the Board of Directors.
Activity in Loans. The following table shows the activity in Peoples'
loans during the periods indicated.
Year Ended September 30,
2002 2001 2000 1999 1998
(In Thousands)
Total loans held at beginning of period $419,534 $211,429 $ 98,703 $93,303 $91,846
Originations of loans:
Mortgage loans:
Single-family residential (1) 130,584 128,515 51,281 28,236 21,552
Multi-family residential 38,038 36,446 4,886 484 900
Commercial real estate and land 62,523 62,413 16,519 2,514 1,914
Commercial loans 26,656 12,394 - - -
Consumer loans 3,775 1,344 1,037 50 55
------- ------- ------- ------ ------
Total originations (2) 261,576 241,112 73,723 31,284 24,421
Increase due to Harvest Home acquisition - - 62,334 - -
Increase due to Market acquisition - 37,476 - - -
Increase due to Kenwood acquisition 40,326 - - - -
------- ------- ------- ------ ------
Total increases 301,902 278,588 136,057 31,284 24,421
Transfers to real estate owned (620) (197) (110) - -
Charge-offs (1,547) - (4) - (15)
Other increases (decreases) (3) (9,212) 22,285 10,772 121 (268)
Repayments (153,207) (92,571) (33,989) (26,005) (22,681)
------- ------- ------- ------ ------
Net activity in loans 137,316 208,105 112,726 5,400 1,457
------- ------- ------- ------ ------
Gross loans held at end of period $556,850 $419,534 $211,429 $98,703 $93,303
======= ======= ======= ====== ======
(1) Includes construction loan originations made during the fiscal year.
(2) Undisbursed portions of loans in process totaled $43.1 million, $36.8
million, and $13.5 million at September 30, 2002, 2001 and 2000,
respectively.
(3) Includes loan participations sold of $6.7 million and $2.7 million in
fiscal 2002 and 2001, respectively.
6
Although federal laws and regulations permit savings institutions to
originate and purchase loans secured by real estate located throughout the
United States, Peoples generally confines its lending activity to its primary
market area of Warren, Butler and Hamilton Counties, Ohio. Subject to its
loans-to-one borrower limitation, Peoples is permitted to invest without
limitation in residential mortgage loans and up to 400% of its capital in loans
secured by non-residential or commercial real estate. Peoples may also invest in
secured and unsecured consumer loans in an amount not exceeding 35% of total
assets. This 35% limitation may be exceeded for certain types of consumer loans,
such as home equity and property improvement loans secured by residential real
property. In addition, Peoples may invest up to 10% of its total assets in
secured and unsecured loans for commercial, corporate, business or agricultural
purposes. At September 30, 2002, Peoples was well within each of the above
lending limits.
One- to Four-Family Residential Real Estate Loans. The primary real
estate lending activity of Peoples is the origination of loans secured by first
mortgage liens on one- to four-family residences. At September 30, 2002, $296.3
million, or 58.8% of the net loan portfolio of Peoples consisted of conventional
first mortgage, one- to four-family residential loans, compared to $242.5
million, or 64.2% at September 30, 2001.
The loan-to-value ratio, maturity and other provisions of the loans
made by Peoples generally have reflected Peoples' policy of making less than the
maximum loan permissible under applicable regulations, in accordance with sound
lending practices, market conditions and underwriting standards established by
Peoples. Peoples' lending policies on one- to four-family residential mortgage
loans generally limit the maximum loan-to-value ratio to 80% of the lesser of
the appraised value or purchase price of the property. Residential mortgage
loans are amortized on a monthly basis with principal and interest due each
month. The loans generally include "due-on-sale" clauses.
The residential mortgage loans originated by Peoples consist of fixed
rate and adjustable rate loans. Presently, the single-family fixed rate
residential mortgage loans originated by Peoples have terms of up to 30 years.
In addition, Peoples originates adjustable rate mortgage loans on which the
interest rate adjusts every one or three years based upon the one-year or
three-year rate on T-bills plus a specified margin. At September 30, 2002,
$109.3 million, or 36.9% of our single-family residential loans were adjustable
rate and $187.0 million, or 63.1% were fixed-rate. The single-family residential
mortgage loans presently being originated by Peoples generally conform to Fannie
Mae and Freddie Mac requirements.
Multi-family Residential Loans. Peoples also originates multi-family
(over four units) residential loans. Peoples' multi-family loans are primarily
secured by apartment buildings. The multi-family residential mortgage loans of
Peoples are underwritten on substantially the same basis as its commercial real
estate loans, although loan-to-value ratios are limited to 80%. At September 30,
2002, Peoples had $57.0 million in multi-family residential mortgage loans,
which amounted to 11.3% of Peoples' net loan portfolio, compared to $36.5
million, or 9.7% of Peoples' net loan portfolio at September 30, 2001. Peoples
intends to continue its increased emphasis on this type of lending.
Commercial Real Estate and Land Loans. Peoples' commercial real estate
and land loan portfolio primarily consists of loans secured by professional
offices, small retail centers, warehouses and land for development purposes
located within Peoples' primary market area. Commercial real estate and land
loans amounted to $88.0 million, or 17.5% of the net loan portfolio at September
30, 2002, with an average loan balance of approximately $304,000. This compares
to $65.8 million, or 17.4% at September 30, 2001, with an average loan balance
of approximately $410,000.
The commercial real estate loans of Peoples typically have a
loan-to-value ratio of 75% or less and generally have higher interest rates than
single-family residential mortgage loans. The maximum term of Peoples'
commercial real estate loans is 25 years. Decisions to lend are based on the
economic viability of the property and the creditworthiness of the borrower.
Creditworthiness is determined by considering the character, experience,
management and financial strength of the borrower, and the ability of the
property to generate adequate funds to cover both operating expenses and debt
services. In evaluating whether to make a commercial real estate loan, Peoples
places primary emphasis on the ratio of net cash flow to debt service on the
property and generally requires a ratio of cash flow to debt service of at least
120%, computed after deduction for a vacancy factor and property expenses
Peoples deem appropriate. Otherwise, the commercial real estate loans of Peoples
have terms which are substantially similar to its single-family residential
mortgage loans.
The land loans of Peoples also have a loan-to-value ratio of 75% or
less and are amortized over a five-year period or over a 15-year period with a
balloon payment of the remaining principal amount due at five years from the
7
date of origination. Land loans generally are secured by single-family
residential lots or undeveloped land being held for residential development.
Commercial real estate lending is generally considered to involve a
higher degree of risk than one- to four-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers for rental or business properties. In addition, the
payment experience on loans secured by income-producing properties is typically
dependent on the success of the operation of the related project and thus is
typically affected by adverse conditions in the real estate market and in the
economy. Peoples generally attempts to mitigate the risks associated with its
commercial real estate lending by, among other things, lending primarily in its
market area and using low loan-to-value ratios in the underwriting process.
Land development and acquisition loans involve significant additional
risks when compared with loans on existing residential properties. These loans
may involve larger loan balances to single borrowers, and the payment experience
may be dependent on the successful development of the land and the sale of the
lots. These risks can be significantly impacted by supply and demand conditions
as well as local economic conditions.
Construction Loans. At September 30, 2002, Peoples had approximately
$90.0 million, or 17.9% of the net loan portfolio, in construction loans,
compared to $63.0 million, or 16.7% of the total loan portfolio at September 30,
2001. The increase in construction loans during fiscal 2002 was due primarily to
increased originations of construction loans to builders. The construction loans
of Peoples are comprised largely of loans made to builders on a pre-sold basis,
as well as, to a lesser extent, to builders for market homes. Peoples'
construction loans to builders are generally made with a term not to exceed
twelve months. Interest-only payments are required during the construction
period, which is typically six to twelve months. Peoples generally limits the
number of unsold homes under construction to its builders. This number is
dependent on the reputation of the builder, the present exposure of the builder,
the location of the property and the financial strength of the builder. In
addition, loans made to borrowers to construct their homes are originated at one
closing as a construction/permanent loan.
Peoples also originates loans for the construction of commercial real
estate such as small office buildings and warehouses. These loans are typically
originated as construction/permanent loans with interest only payments during
the construction period and converting to a permanent loan at the end of the
construction period. These loans are generally made with a construction term of
12 months. The loan to value ratio is generally limited to 75% on these loans on
an as completed basis. At September 30, 2002, nonresidential construction loans
amounted to $17.8 million, or 3.5% of the net loan portfolio.
Prior to making a commitment to fund a construction loan, Peoples
requires an appraisal of the property. Peoples' also reviews and inspects each
project at the commencement of construction and prior to every disbursement of
funds during the term of the construction loan. Loan proceeds are disbursed
after inspections of the project based on a percentage of completion.
Construction lending is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real estate
because of the uncertainties of construction, including the possibility of costs
exceeding the initial estimates and the need to obtain a tenant or purchaser if
the property will not be owner-occupied. Peoples generally attempts to mitigate
the risks associated with construction lending by, among other things, lending
in its market area, using conservative underwriting guidelines, and monitoring
the construction process.
Commercial Loans. Peoples' commercial loans consist primarily of
unsecured lines of credit. At September 30, 2002, commercial loans amounted to
$21.3 million, or 4.2% of Peoples' net loan portfolio, compared to $9.8 million,
or 2.6% of the net loan portfolio at September 30, 2001.
Consumer Loans. Peoples' consumer and other loans consist of loans
secured by deposit accounts, automobiles and stock. At September 30, 2002,
consumer and other loans amounted to $4.3 million, or 0.8% of Peoples' net loan
portfolio, compared to $1.9 million, or 0.5% of Peoples' net loan portfolio as
of September 30, 2001.
Loan Origination and Other Fees. In addition to interest earned on
loans, Peoples receives loan origination fees or "points" for originating loans.
Loan points are a percentage of the principal amount of the mortgage loan and
8
are charged to the borrower in connection with the origination of the loan. In
accordance with Statement of Financial Accounting Standards No. 91, loan
origination fees and certain related direct loan origination costs are offset,
and the resulting net amount is deferred and amortized as interest income over
the contractual life of the related loans as an adjustment to the yield of such
loans. At September 30, 2002, Peoples had $2.0 million of deferred loan fees
compared to $1.4 million of deferred loan fees at September 30, 2001.
Contractual Principal Repayments and Interest Rates. The following
table sets forth scheduled contractual amortization of Peoples' loans at
September 30, 2002 as well as the dollar amount of such loans which are
scheduled to mature after one year which have fixed or adjustable interest
rates. Demand loans, loans having no schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less.
Principal Repayments Contractually Due
in Year(s) Ended September 30,
Total at
2006- 2008- 2014- There- September 30,
2003 2004 2005 2007 2013 2018 after 2002
(In Thousands)
Mortgage loans:
Single-family residential $ 6,730 $ 7,225 $ 7,758 $17,272 $ 69,325 $70,504 $117,480 $296,294
Multi-family residential 1,082 1,166 1,258 2,819 11,523 14,505 24,627 56,980
Commercial real estate and land 6,831 7,387 7,989 17,980 47,842 - - 88,029
Construction loans 47,781 38,652 3,569 - - - - 90,002
Commercial loans 5,068 5,488 5,944 4,780 - - - 21,280
Consumer loans 2,504 1,761 - - - - - 4,265
------ ------ ------ ------ ------- ------ ------- -------
Total (1) $69,996 $61,679 $26,518 $42,851 $128,690 $85,009 $142,107 $556,850
====== ====== ====== ====== ======= ====== ======= =======
(1) Of the $486.9 million of loan principal payments contractually due after
September 30, 2003, $191.4 million have fixed rates of interest and $295.5
million have adjustable rates of interest.
Scheduled contractual maturities of loans do not necessarily reflect
the actual expected term of the loan portfolio. The average life of mortgage
loans is substantially less than their average contractual terms because of
prepayments. The average life of mortgage loans tends to increase when current
mortgage loan rates are higher than rates on existing mortgage loans and,
conversely, decrease when rates on current mortgage loans are lower than
existing mortgage loan rates (due to refinancing of adjustable-rate and
fixed-rate loans at lower rates). Under the latter circumstance, the
weighted-average yield on loans decreases as higher yielding loans are repaid or
refinanced at lower rates.
Asset Quality
General. Peoples mails delinquent notices to borrowers when a borrower
fails to make a required payment within 15 days of the date due. Additional
notices begin when a loan becomes 30 days past due. If a loan becomes 60 days
past due, Peoples refers it to an attorney to commence foreclosure. In most
cases, deficiencies are cured promptly. While Peoples generally prefers to work
with borrowers to resolve such problems, Peoples will institute foreclosure or
other collection proceedings when necessary to minimize any potential loss.
Loans are placed on non-accrual status when management believes the
probability of collection of interest is insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is deducted from interest income. As a matter of policy, Peoples
generally discontinues the accrual of interest income when the loan becomes 90
days past due as to principal or interest.
9
Real estate acquired by Peoples as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until sold.
Peoples had real estate owned of $97,000 and $110,000 at September 30, 2002 and
2000, respectively. There was no real estate owned at September 30, 2001.
Delinquent Loans. The following table sets forth information concerning
delinquent mortgage loans at the dates indicated, in dollar amounts and as a
percentage of each category of Peoples' loan portfolio. The amounts presented
represent the total outstanding principal balances of the related loans, rather
than the actual payment amounts which are past due.
At September 30,
2002 2001 2000
60-89 Days 60-89 Days 60-89 Days
Delinquent Delinquent Delinquent
Percent Percent Percent
of Loan of Loan of Loan
Amount Category Amount Category Amount Category
(Dollars in Thousands)
Mortgage loans:
Single-family $3,027 1.02% $1,904 .79% $1,486 .97%
Multi-family 112 .20% - - % 124 1.38%
Commercial real estate and land 198 .22% 232 .35% - - %
----- ----- -----
Total $3,337 .66% $2,136 .57% $1,610 .82%
===== ===== =====
10
Non-Performing Assets. The following table sets forth information with
respect to non-performing assets identified by Peoples, including non-accrual
loans, loans more than 90 days past due and still accruing interest and other
real estate owned.
At September 30,
2002 2001 2000 1999 1998
(Dollars in Thousands)
Loans past due 90 days or more and still accruing:
Single-family residential $ - $ - $ - $ 223 $147
Commercial real estate and land - - - 166 -
----- --- ----- ----- ---
Total - - - 389 147
Non-accrual loans:
Single-family residential 1,274 783 1,062 690 557
Multi-family residential 3,217 - 194 - -
Commercial real estate and land 232 - - - -
Construction loans 2,769 - - - -
Commercial loans - - - - -
Consumer loans - - - - -
----- --- ----- ----- ---
Total non-accruing loans 7,492 783 1,256 690 557
----- --- ----- ----- ---
Total non-performing loans 7,492 783 1,256 1,079 704
Other real estate owned, net 97 - 110 - -
----- --- ----- ----- ---
Total non-performing assets $7,589 $783 $1,366 $1,079 $704
===== === ===== ===== ===
Non-performing assets to total assets 1.30% 0.19% 0.43% 1.01% 0.66%
Non-performing loans to total loans-net 1.49% 0.21% 0.64% 1.09% 0.75%
The $6.7 million increase in nonperforming loans resulted primarily
from a $3.5 million loan concentration consisting mostly of a series of
construction loans to a financially troubled builder. Additionally, the increase
in nonperforming loans resulted from a $3.2 million multi-family real estate
loan. Management has considered these loan concentrations as a part of its
overall evaluation of the adequacy of the Company's allowance for loan losses.
If the $7.5 million of non-accruing and nonperforming loans of Peoples
had been current in accordance with their terms during fiscal 2002, the gross
income on such loans would have been approximately $602,000. A total of
approximately $259,000 of interest income was actually recorded by Peoples on
such loans in the fiscal year ended September 30, 2002.
Classified Assets. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a higher
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss. Assets classified as substandard or doubtful may
require the institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, the insured institution must either
establish specific allowances for loan losses in the amount of 100% of the
portion of the asset classified loss, or charge-off such amount. General loss
allowances established to cover possible losses related to assets classified
11
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses do not
qualify as regulatory capital. Federal examiners may disagree with an insured
institution's classifications and amounts reserved.
Peoples' total classified assets at September 30, 2002 amounted to
$11.6 million, of which $9.7 million and $1.9 million were classified as
substandard and special mention, respectively. The largest classified asset at
September 30, 2002 consisted of a $3.2 million multi-family loan which was
classified as substandard due to its delinquent status. The remaining $8.4
million of classified assets at September 30, 2002 consisted of approximately
$7.7 million of residential real estate loans and $675,000 of commercial real
estate and land loans.
Allowance for Loan Losses. The allocation of the loan loss reserve
based on particular types of loans at September 30, 2002 and 2001 was as
follows:
2002 2001
Percent of Percent of
Balance total loans Balance total loans
(Dollars in thousands)
Single family residential $ 954 53.2% $ 690 63.7%
Multi-family residential 1,015 10.2 469 9.5
Commercial real estate and land 1,428 15.8 999 17.2
Construction loans 1,729 16.2 281 6.9
Commercial loans 2,452 3.8 1,189 2.3
Consumer loans 78 .8 34 .4
----- ----- ----- -----
$7,656 100.0% $3,662 100.0%
===== ===== ===== =====
Prior to fiscal 2001, the loan portfolio of Peoples Bancorp consisted primarily
of residential mortgage loans. Due to the predominance of residential mortgage
loans, Peoples Bancorp did not allocate its respective allowance for loan losses
to particular types of loans in years prior to fiscal 2001.
The loan loss allowance is maintained by management at a level considered
sufficient to cover estimated losses inherent in the existing portfolio based on
prior loan loss experience, known and probable risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, general economic conditions, and other factors and
estimates which are subject to change over time. Peoples increased its allowance
for loan losses in fiscal 2002 by recording a $5.3 million provision for losses
on loans due to an increase in the volume of loans, as well as changes in the
composition of the loan portfolio and an increase in the level of nonperforming
loans. The change in the composition of the loan portfolio included increases in
multi-family residential loans, commercial real estate and land loans,
construction loans and unsecured commercial lines of credit, which are generally
considered to involve a higher degree of risk than single-family residential
lending. The allowance for loan losses was further increased by $276,000 as a
result of the acquisition of Kenwood. Peoples intends to continue to increase
its allowance for loan losses as its loan portfolio increases and the
composition of the portfolio changes. While management believes that it
determines the size of the allowance based on the best information available at
the time, the allowance will need to be adjusted as circumstances change and
assumptions are updated. Future adjustments to the allowance could significantly
affect net earnings.
12
The following table sets forth the activity in Peoples' allowance for
loan losses during the periods indicated.
Year Ended September 30,
2002 2001 2000 1999 1998
(Dollars in Thousands)
Allowance at beginning of period $3,662 $ 762 $415 $240 $207
Increase due to Harvest Home Financial acquisition - - 195 - -
Increase due to Market acquisition - 451 - - -
Increase due to Kenwood acquisition 276 - - - -
Provision for losses on loans 5,265 2,449 156 175 48
Charge-offs:
Single-family residential - - (4) - (15)
Multi-family residential - - - - -
Commercial real estate and land - - - - -
Construction - - - - -
Commercial (1,547) - - - -
Consumer and other loans - - - - -
----- ----- --- --- ---
Total charge-offs (1,547) - (4) - (15)
Recoveries:
Single-family residential - - - - -
Multi-family residential - - - - -
Commercial real estate and land - - - - -
Construction - - - - -
Commercial - - - - -
Consumer and other loans - - - - -
----- ----- --- --- ---
Total recoveries - - - - -
Net loans charged-off to allowance for loan losses (1,547) - (4) - (15)
----- ----- --- --- ---
Allowance at end of period $7,656 $3,662 $762 $415 $240
===== ===== === === ===
Allowance for loan losses to total nonperforming loans
at end of period 102.19% 467.69% 60.67% 38.46% 34.09%
Allowance for loan losses to total loans at end of period 1.37% 0.87% 0.36% 0.42% 0.26%
Investment Securities
Peoples has authority to invest in various types of securities,
including mortgage-backed securities, United States Treasury obligations,
securities of various federal agencies and of state and municipal governments,
certificates of deposit at federally-insured banks and savings institutions,
certain bankers' acceptances and federal funds. Each significant purchase of an
investment security is approved by the Board of Directors.
13
The following table sets forth information regarding the carrying value
and fair value of Peoples' securities at the dates indicated.
September 30,
2002 2001 2000
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(In Thousands)
Available for sale:
Mortgage-backed securities $18,479 $18,763 $ - $ - $ 93,943 $ 94,050
U.S. Government and agency
obligations - - - - 6,169 6,166
FHLMC stock 1,391 1,199 1,391 1,364 48 2,045
Other equity securities 29 32 - - - -
------ ------ ----- ----- ------- -------
Total $19,899 $19,994 $1,391 $1,364 $100,160 $102,261
====== ====== ===== ===== ======= =======
Required investment:
Federal Home Loan Bank stock $ 9,907 $ 9,907 $7,880 $7,880 $ 6,852 $ 6,852
====== ====== ===== ===== ======= =======
The following table sets forth the activity in Peoples' aggregate
securities portfolio during the periods indicated.
Year Ended September 30,
2002 2001 2000
(In Thousands)
Securities at beginning of period $ 9,244 $109,113 $ 5,856
Purchases (1) 21,664 528 66,591
Sales of available for sale securities (3,523) (71,181) (2,103)
Amortization of premiums and discounts (264) 436 552
Repayments, prepayments and maturities (1,730) (37,112) (14,305)
Securities acquired through acquisition - net 4,386 9,589 52,316
Increase (decrease) in unrealized gains on
available-for-sale securities 124 (2,129) 206
------ ------- -------
Securities at end of period (2) $29,901 $ 9,244 $109,113
====== ======= =======
(1) Includes increases in Federal Home Loan Bank stock from purchases and
dividends.
(2) At September 30, 2002, $18.8 million or 62.8% of Peoples' securities
portfolio consisted of adjustable rate securities. At September 30, 2001,
Peoples had no adjustable rate securities. At September 30, 2000, $89.9
million, or 82.4% of Peoples' securities portfolio consisted of adjustable
rate securities.
14
The following table sets forth certain information regarding the maturities of
Peoples' investment and mortgage-backed securities at September 30, 2002.
Contractually Maturing
Weighted Weighted Weighted Weighted
Under 1 Average 1-5 Average 6-10 Average Over 10 Average
Year Yield Years Yield Years Yield Years Yield
(Dollars in Thousands)
Mortgage-backed securities $ - - % $ - - % $ - - % $18,763 5.00%
Equity securities 32 - - - - - - -
Federal Home Loan Mortgage
Corporation stock 1,199 1.45 - - - - - -
----- ---- --- --- --- --- ------ ----
$1,231 1.45% $ - - % $ - - % $18,763 5.00%
===== ==== === === === === ====== ====
Mortgage-backed securities represent a participation interest in a pool
of one- to four-family or multi-family mortgages. The mortgage originators use
intermediaries (generally U.S. Government agencies and government-sponsored
enterprises) to pool and repackage the participation interests in the form of
securities, with investors receiving the principal and interest payments on the
mortgages. Such U.S. Government agencies and government-sponsored enterprises
guarantee the payment of principal and interest to investors.
Mortgage-backed securities are typically issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. 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 approximates the life of the underlying
mortgages.
The mortgage-backed securities of Peoples may consist of Government
National Mortgage Association ("Ginnie Mae"), Federal Home Loan Mortgage
Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA")
securities. Ginnie Mae is a government agency within the Department of Housing
and Urban Development which is intended to help finance government-assisted
housing programs. Ginnie Mae securities are backed by loans insured by the
Federal Housing Administration, or guaranteed by the Veterans Administration,
and the timely payment of principal and interest on Ginnie Mae securities are
guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S.
Government.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of Peoples. At September 30, 2002,
Peoples had mortgage-backed securities with a fair value totaling $18.8 million.
Sources of Funds
General. Deposits are the primary source of Peoples' funds for lending
and other investment purposes. In addition to deposits, principal and interest
payments on loans and mortgage-backed securities are a source of funds. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by general interest rates and money market
conditions. Borrowings may also be used on a short-term basis to compensate for
reductions in the availability of funds from other sources and on a longer-term
basis for general business purposes.
Deposits. Deposits are attracted by Peoples principally from within its
primary market area. Deposit account terms vary, with the principal differences
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. Peoples offers traditional passbook savings
accounts, money market accounts, checking accounts and certificates of deposit.
Peoples obtains deposits primarily from residents of southwestern Ohio.
Peoples has not solicited deposits from outside Ohio or paid fees to brokers to
solicit funds for deposit.
15
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Management determines the rates
and terms based on rates paid by competitors, the need for funds or liquidity,
growth goals and federal and state regulations.
The following table sets forth the activity in Peoples deposits during
the periods indicated.
Year Ended September 30,
2002 2001 2000
(In Thousands)
Beginning balance $233,063 $151,353 $ 91,018
Net increase before interest credited 125,999 72,117 54,384
Interest credited 10,018 9,593 5,951
------- ------- -------
Net increase in deposits (including acquisitions) 136,017 81,710 60,335
------- ------- -------
Ending balance $369,080 $233,063 $151,353
======= ======= =======
The following table sets forth by various interest rate categories the
certificates of deposit with Peoples at the dates indicated.
September 30,
2002 2001 2000
(In Thousands)
0.00% to 2.99% $ 69,445 $ - $ -
3.00% to 3.99% 62,981 2,232 -
4.00% to 4.99% 53,175 58,763 4,300
5.00% to 6.99% 43,266 95,008 93,195
7.00% to 8.99% 460 9,835 9,561
------- ------- -------
Total $229,327 $165,838 $107,056
======= ======= =======
The following table sets forth the amount and remaining maturities of
Peoples certificates of deposit at September 30, 2002.
Over Six Over One Over Two
Months Year Years
Six Through Through Through Over
Months One Two Three Three
And Less Year Years Years Years
(In Thousands)
0.00% to 2.99% $45,094 $22,567 $ 1,784 $ - $ -
3.00% to 3.99% 22,028 7,309 29,235 4,321 88
4.00% to 4.99% 8,611 2,377 5,306 12,689 24,194
5.00% to 6.99% 9,261 6,260 7,209 5,923 14,611
7.00% to 8.99% - 43 417 - -
------ ------ ------ ------ ------
Total $84,994 $38,556 $43,951 $22,933 $38,893
====== ====== ====== ====== ======
16
As of September 30, 2002, the aggregate amount of outstanding
certificates of deposit at Peoples, in amounts greater than $100,000, was
approximately $55.2 million. The following table presents the maturity of these
certificates of deposit at such date.
September 30, 2002
(In Thousands)
3 months or less $11,686
Over 3 months through 6 months 8,042
Over 6 months through 12 months 11,760
Over 12 months 23,702
------
$55,190
======
The following table sets forth the dollar amount of deposits in various
types of deposits offered by Peoples at the dates indicated.
At September 30,
2002 2001 2000
Amount Percentage Amount Percentage Amount Percentage
(Dollars in Thousands)
Non-interest checking accounts $ 6,075 1.65% $ 7,552 3.24% $ - - %
Savings and checking accounts 104,413 28.29 32,082 13.77 19,787 13.07
Certificates of deposit 229,327 62.13 165,838 71.15 107,056 70.73
Money market accounts 29,265 7.93 27,591 11.84 24,510 16.20
------- ------ ------- ------ ------- ------
Total $369,080 100.00% $233,063 100.00% $151,353 100.00%
======= ====== ======= ====== ======= ======
Peoples attempts to control the flow of deposits by pricing its
accounts to remain generally competitive with other financial institutions in
its market area.
Borrowings. Peoples may obtain advances from the Federal Home Loan Bank
of Cincinnati upon the security of the common stock Peoples owns in that bank
and certain of its residential mortgage loans and mortgage-backed securities,
provided certain standards related to creditworthiness have been met. These
advances are made pursuant to several credit programs, each of which has its own
interest rate and range of maturities. Federal Home Loan Bank advances are
generally available to meet seasonal and other withdrawals of deposit accounts
and to permit increased lending. As of September 30, 2002, Peoples was permitted
to borrow up to $198.2 million from the Federal Home Loan Bank of Cincinnati.
Also, Peoples has a 2 year line of credit with another financial
institution for $10 million. As of September 30, 2002, Peoples had drawn
$450,000 on this line of credit.
17
The following table shows certain information regarding the borrowings
of Peoples at or for the dates indicated:
At or for the Year
Ended September 30,
2002 2001
(Dollars in Thousands)
Federal Home Loan Bank advances:
Average balance outstanding $152,995 $129,923
Maximum amount outstanding at any month-end during the period $180,489 $140,000
Balance outstanding at end of period $152,500 $140,000
Average interest rate during the period 2.86% 5.05%
Weighted-average interest rate at end of period 3.93% 3.31%
Line of Credit:
Average balance outstanding $ 113 $ -
Maximum amount outstanding at any month-end during the period $ 450 -
Balance outstanding at end of period $ 450 -
Average interest rate during the period 3.55% -
Weighted-average interest rate at end of period 3.31% -
Subsidiaries
At September 30, 2002, other than the Bank and Peoples Bancorp Capital
Trust I, Peoples did not have any direct unconsolidated subsidiaries.
Total Employees
Peoples had 88 full-time employees and 8 part-time employees at September
30, 2002. None of these employees are represented by a collective bargaining
agent, and Peoples believes that it enjoys good relations with its personnel.
Competition
Peoples faces significant competition both in attracting deposits and in
making loans. Its most direct competition for deposits has come historically
from commercial banks, credit unions and other savings institutions located in
its primary market area, including many large financial institutions which have
greater financial and marketing resources available to them. In addition, it
faces significant competition for investors' funds from short-term money market
securities, mutual funds and other corporate and government securities. Peoples
does not rely upon any individual group or entity for a material portion of its
deposits. The ability of Peoples to attract and retain deposits depends on its
ability to generally provide a rate of return, liquidity and risk comparable to
that offered by competing investment opportunities.
Peoples' competition for real estate loans comes principally from
mortgage banking companies, commercial banks, other savings institutions and
credit unions. It competes for loan originations primarily through the interest
rates and loan fees it charges, and the efficiency and quality of services it
provides borrowers. Factors which affect competition include general and local
economic conditions, current interest rate levels and volatility in the mortgage
markets. Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions and the
anticipated slowing of refinancing activity.
18
REGULATION
The following is a summary of certain statutes and regulations
affecting Peoples and the Bank. This summary is qualified in its entirety by
such statutes and regulations. A change in applicable laws or regulations may
have a material effect on Peoples, the Bank and the business of Peoples and the
Bank.
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of Peoples and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes administered
by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Office of
Thrift Supervision, the Federal Reserve Board, the FDIC, the Internal Revenue
Service, and state taxing authorities. The effect of such statutes, regulations
and policies can be significant, and cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, lending activities and practices, the nature and amount
of collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to Peoples
and the Bank establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds, the depositors of the Bank and the public, rather than
shareholders of the Bank or Peoples.
Federal law and regulations establish supervisory standards applicable
to the lending activities of the Bank, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
Peoples Community Bancorp
Holding Company Acquisitions. Peoples is a registered savings and loan
holding company within the meaning of Section 10 of the Home Owners' Loan Act,
and is subject to Office of Thrift Supervision examination and supervision as
well as certain reporting requirements. Federal law generally prohibits a
savings and loan holding company, without prior Office of Thrift Supervision
approval, from acquiring the ownership or control of any other savings
institution or savings and loan holding company, or all, or substantially all,
of the assets or more than 5% of the voting shares thereof. These provisions
also prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
institution not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the Office of Thrift Supervision.
Holding Company Activities. Peoples operates as a unitary savings and
loan holding company. The activities of Peoples and its non-savings institution
subsidiaries are restricted to activities traditionally permitted to multiple
savings and loan holding companies and to financial holding companies under
newly added provisions of the Bank Holding Company Act. Multiple savings and
loan holding companies may:
o furnish or perform management services for a savings association
subsidiary of a savings and loan holding company;
o hold, manage or liquidate assets owned or acquired from a savings
association subsidiary of a savings and loan holding company;
o hold or manage properties used or occupied by a savings association
subsidiary of a savings and loan holding company;
19
o engage in activities determined by the Federal Reserve to be closely
related to banking and a proper incident thereto; and
o engage in services and activities previously determined by the Federal
Home Loan Bank Board by regulation to be permissible for a multiple
savings and loan holding company as of March 5, 1987.
The activities financial holding companies may engage in include:
o lending, exchanging, transferring or investing for others, or
safeguarding money or securities;
o insuring, guaranteeing or indemnifying others, issuing annuities, and
acting as principal, agent or broker for purposes of the foregoing;
o providing financial, investment or economic advisory services,
including advising an investment company;
o issuing or selling interests in pooled assets that a bank could hold
directly;
o underwriting, dealing in or making a market in securities; and
o merchant banking activities.
If the Office of Thrift Supervision determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings institution, the Office of Thrift
Supervision may impose such restrictions as deemed necessary to address such
risk. These restrictions include limiting the following:
o the payment of dividends by the savings institution;
o transactions between the savings institution and its affiliates; and
o any activities of the savings institution that might create a serious
risk that the liabilities of the holding company and its affiliates
may be imposed on the savings institution.
Every savings institution subsidiary of a savings and loan holding
company is required to give the Office of Thrift Supervision at least 30 days'
advance notice of any proposed dividends to be made on its guarantee, permanent
or other non-withdrawable stock, or else such dividend will be invalid. See
"Peoples Community Bank - Capital Distributions."
Restrictions on Transactions With Affiliates. Transactions between a
savings institution and its "affiliates" are subject to quantitative and
qualitative restrictions under Sections 23A and 23B of the Federal Reserve Act
and Office of Thrift Supervision regulations. Affiliates of a savings
institution generally include, among other entities, the savings institution's
holding company and companies that are controlled by or under common control
with the savings institution.
In general, a savings institution or its subsidiaries may engage in
certain "covered transactions" with affiliates up to certain limits. In
addition, a savings institution and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings institution or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate. In addition, a savings institution may not:
o make a loan or extension of credit to an affiliate unless the
affiliate is engaged only in activities permissible for bank holding
companies;
o purchase or invest in securities of an affiliate other than shares of
a subsidiary;
20
o purchase a low-quality asset from an affiliate; or
o engage in covered transactions and certain other transactions between
a savings institution or its subsidiaries and an affiliate except on
terms and conditions that are consistent with safe and sound banking
practices.
With certain exceptions, each loan or extension of credit by a savings
institution to an affiliate must be secured by collateral with a market value
ranging from 100% to 130% (depending on the type of collateral) of the amount of
the loan or extension of credit.
Federal Securities Laws. Peoples registered its common stock with the
Securities and Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934. Peoples is subject to the proxy and tender offer rules,
insider trading reporting requirements and restrictions, and certain other
requirements under the Exchange Act. Pursuant to Office of Thrift Supervision
regulations and the Plan of Conversion, Peoples has agreed to maintain such
registration for a minimum of three years following the conversion in March
2000.
Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into
law the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to
address corporate and accounting fraud. In addition to the establishment of a
new accounting oversight board which will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, the bill restricts provision of both auditing and consulting services
by accounting firms. To ensure auditor independence, any non-audit services
being provided to an audit client will require preapproval by the company's
audit committee members. In addition, the audit partners must be rotated. The
bill requires chief executive officers and chief financial officers, or their
equivalent, to certify to the accuracy of periodic reports filed with the SEC,
subject to civil and criminal penalties if they knowingly or willfully violate
this certification requirement. In addition, under the Act, counsel will be
required to report evidence of a material violation of the securities laws or a
breach of fiduciary duty by a company to its chief executive officer or its
chief legal officer, and, if such officer does not appropriately respond, to
report such evidence to the audit committee or other similar committee of the
board of directors or the board itself.
Longer prison terms and increased penalties will also be applied to
corporate executives who violate federal securities laws, the period during
which certain types of suits can be brought against a company or its officers
has been extended, and bonuses issued to top executives prior to restatement of
a company's financial statements are now subject to disgorgement if such
restatement was due to corporate misconduct. Executives are also prohibited from
insider trading during retirement plan "blackout" periods, and loans to company
executives are restricted. In addition, a provision directs that civil penalties
levied by the SEC as a result of any judicial or administrative action under the
Act be deposited to a fund for the benefit of harmed investors. The Federal
Accounts for Investor Restitution ("FAIR") provision also requires the SEC to
develop methods of improving collection rates. The legislation accelerates the
time frame for disclosures by public companies, as they must immediately
disclose any material changes in their financial condition or operations.
Directors and executive officers must also provide information for most changes
in ownership in a company's securities within two business days of the change.
The Act also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm" ("RPAF"). Audit
committee members must be independent and are barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as such term will be defined by the SEC) and if not, why not. Under the Act, a
RPAF is prohibited from performing statutorily mandated audit services for a
company if such company's chief executive officer, chief financial officer,
comptroller, chief accounting officer or any person serving in equivalent
positions has been employed by such firm and participated in the audit of such
company during the one-year period preceding the audit initiation date. The Act
also prohibits any officer or director of a company or any other person acting
under their direction from taking any action to fraudulently influence, coerce,
manipulate or mislead any independent public or certified accountant engaged in
the audit of the company's financial statements for the purpose of rendering the
financial statement's materially misleading. The Act also requires the
21
SEC to prescribe rules requiring inclusion of an internal control report and
assessment by management in the annual report to stockholders. The Act requires
the RPAF that issues the audit report to attest to and report on management's
assessment of the company's internal controls. In addition, the Act requires
that each financial report required to be prepared in accordance with (or
reconciled to) accounting principles generally accepted in the United States of
America and filed with the SEC reflect all material correcting adjustments that
are identified by a RPAF in accordance with accounting principles generally
accepted in the United States of America and the rules and regulations of the
SEC.
Peoples Community Bank
General. The Bank is a federally chartered stock savings bank. The
Office of Thrift Supervision is the chartering authority and primary federal
regulator of the Bank. The Office of Thrift Supervision has extensive authority
over the operations of federally chartered savings institutions. As part of this
authority, federally chartered savings institutions are required to file
periodic reports with the Office of Thrift Supervision and are subject to
periodic examinations by the Office of Thrift Supervision and the FDIC. The Bank
also is subject to regulation and examination by the FDIC and to requirements
established by the Federal Reserve Board. The investment and lending authority
of savings institutions are prescribed by federal laws and regulations, and such
institutions are prohibited from engaging in any activities not permitted by
such laws and regulations. Such regulation and supervision is primarily intended
for the protection of depositors and the Savings Association Insurance Fund.
The Office of Thrift Supervision's enforcement authority over all
savings institutions and their holding companies includes, among other things,
the ability to assess civil money penalties, to issue cease and desist or
removal orders and to initiate injunctive actions. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the
Office of Thrift Supervision.
Insurance of Accounts. The deposits of the Bank are insured to the
maximum extent permitted by the Savings Association Insurance Fund, which is
administered by the FDIC, and are backed by the full faith and credit of the
U.S. Government. As insurer, the FDIC is authorized to conduct examinations of,
and to require reporting by, FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious threat to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings institutions, after
giving the Office of Thrift Supervision an opportunity to take such action.
Currently, FDIC deposit insurance rates generally range from zero basis points
to 27 basis points, depending on the assessment risk classification assigned to
the depository institution.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the deposit insurance of the Bank.
22
Regulatory Capital Requirements. Federally insured savings institutions
are required to maintain minimum levels of regulatory capital. The Office of
Thrift Supervision has established capital standards applicable to all savings
institutions. These standards generally must be as stringent as the comparable
capital requirements imposed on national banks. The Office of Thrift Supervision
also is authorized to impose capital requirements in excess of these standards
on individual institutions on a case-by-case basis.
Current Office of Thrift Supervision capital standards require savings
institutions to satisfy three different capital requirements. Under these
standards, savings institutions must maintain "tangible" capital equal to at
least 1.5% of adjusted total assets, "core" capital equal to at least 4.0% of
adjusted total assets and "total" capital (a combination of core and
"supplementary" capital) equal to at least 8.0% of "risk-weighted" assets.
Tangible capital generally equals common stockholders' equity (including
retained earnings) minus intangible assets, with only a limited exception for
purchased mortgage servicing rights. Core capital generally consists of tangible
capital plus qualifying intangible assets.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital generally consists of general allowances for loan losses up to a maximum
of 1.25% of risk-weighted assets, together with certain other items. In
determining the required amount of risk-based capital, total assets, including
certain off-balance sheet items, are multiplied by a risk weight based on the
risks inherent in the type of assets. The risk weights range from 0% for cash
and securities issued by the U.S. Government or unconditionally backed by the
full faith and credit of the U.S. Government to 100% for loans (other than
qualifying residential loans weighted at 50%) and repossessed assets.
Savings institutions must value securities available for sale at
amortized cost for regulatory capital purposes. This means that in computing
regulatory capital, savings institutions should add back any unrealized losses
and deduct any unrealized gains, net of income taxes, on securities reported as
a separate component of generally accepted accounting principles capital.
At September 30, 2002, the Bank and its consolidated subsidiary
exceeded all of its regulatory capital requirements, with tangible, core and
risk-based capital ratios of 8.8%, 8.8% and 13.7%, respectively, for Peoples and
7.7%, 7.7% and 16.2%, respectively, for Kenwood.
Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the Office of Thrift Supervision or
the FDIC. Such actions could include a capital directive, a cease and desist
order, civil money penalties, the establishment of restrictions on the
institution's operations, termination of federal deposit insurance and the
appointment of a conservator or receiver. The Office of Thrift Supervision's
capital regulation provides that such actions, through enforcement proceedings
or otherwise, could require one or more of a variety of corrective actions.
Prompt Corrective Action. The following table shows the amount of
capital associated with the different capital categories set forth in the prompt
corrective action regulations.
Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage
Capital Category Capital Capital Capital
Well capitalized 10% or more 6% or more 5% or more
Adequately capitalized 8% or more 4% or more 4% or more
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
In addition, an institution is "critically undercapitalized" if it has
a ratio of tangible equity to total assets that is equal to or less than 2.0%.
Under specified circumstances, a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized).
23
An institution generally must file a written capital restoration plan
which meets specified requirements within 45 days of the date that the
institution receives notice or is deemed to have notice that it is
undercapitalized, significantly undercapitalized or critically undercapitalized.
A federal banking agency must provide the institution with written notice of
approval or disapproval within 60 days after receiving a capital restoration
plan, subject to extensions by the agency. An institution which is required to
submit a capital restoration plan must concurrently submit a performance
guaranty by each company that controls the institution. In addition,
undercapitalized institutions are subject to various regulatory restrictions,
and the appropriate federal banking agency also may take any number of
discretionary supervisory actions.
At September 30, 2002, the Bank was deemed a well capitalized
institution for purposes of the above regulations and as such is not subject to
the above mentioned restrictions.
Safety and Soundness Guidelines. The Office of Thrift Supervision and
the other federal banking agencies have established guidelines for safety and
soundness, addressing operational and managerial standards, as well as
compensation matters for insured financial institutions. Institutions failing to
meet these standards are required to submit compliance plans to their
appropriate federal regulators. The Office of Thrift Supervision and the other
agencies have also established guidelines regarding asset quality and earnings
standards for insured institutions. The Bank believes that it is in compliance
with these guidelines and standards.
Capital Distributions. Office of Thrift Supervision regulations govern
capital distributions by savings institutions, which include cash dividends,
stock repurchases and other transactions charged to the capital account of a
savings institution to make capital distributions. A savings institution must
file an application for Office of Thrift Supervision approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's retained net income for that
year to date plus the institution's retained net income for the preceding two
years, (2) the institution would not be at least adequately capitalized
following the distribution, (3) the distribution would violate any applicable
statute, regulation, agreement or OTS-imposed condition, or (4) the institution
is not eligible for expedited treatment of its filings. If an application is not
required to be filed, savings institutions which are a subsidiary of a holding
company (as well as certain other institutions) must still file a notice with
the Office of Thrift Supervision at least 30 days before the board of directors
declares a dividend or approves a capital distribution.
Community Reinvestment Act and the Fair Lending Laws. Savings
institutions have a responsibility under the Community Reinvestment Act of 1977
and related regulations of the Office of Thrift Supervision to help meet the
credit needs of their communities, including low- and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes. An institution's
failure to comply with the provisions of the Community Reinvestment Act could,
at a minimum, result in regulatory restrictions on its activities. Failure to
comply with fair lending laws could result in enforcement actions by the Office
of Thrift Supervision, as well as other federal regulatory agencies, and the
Department of Justice.
Qualified Thrift Lender Test. All savings institutions are required to
meet a qualified thrift lender test to avoid certain restrictions on their
operations. A savings institution can comply with the qualified thrift lender
test by either qualifying as a domestic building and loan association as defined
in the Internal Revenue Code or by maintaining at least 65% of its portfolio
assets in certain housing and consumer-related assets such as:
o loans made to purchase, refinance, construct, improve or repair
domestic residential housing;
o home equity loans;
o most mortgage-backed securities;
o stock issued by the Federal Home Loan Bank of Cincinnati; and
o direct or indirect obligations of the FDIC.
24
A savings institution that does not meet the qualified thrift lender
test must either convert to a bank charter or comply with certain restrictions
on its operations.
At September 30, 2002, the qualified thrift investments of the Bank
were approximately 65.8% of its portfolio assets.
Federal Home Loan Bank System. The Bank is a member of the Federal Home
Loan Bank of Cincinnati, which is one of 12 regional Federal Home Loan Banks
that administers the home financing credit function of savings institutions.
Each Federal Home Loan Bank 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 Federal Home Loan Bank System. It
makes loans to members (i.e., advances) in accordance with policies and
procedures established by the Board of Directors of the Federal Home Loan Bank.
As a member, the Bank is required to purchase and maintain stock in the
Federal Home Loan Bank of Cincinnati in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans or similar obligations at the
beginning of each year. At September 30, 2002, the Bank had $9.9 million in
Federal Home Loan Bank stock, which was in compliance with this requirement.
The Federal Home Loan Banks are required to provide funds for the
resolution of troubled savings institutions and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of Federal Home Loan Bank
dividends paid in the past and could do so in the future. These contributions
also could have an adverse effect on the value of Federal Home Loan Bank stock
in the future.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
Because required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.
25
TAXATION
Federal Taxation
General. Peoples and the Bank are subject to the corporate tax
provisions of the Internal Revenue Code, and the Bank is subject to certain
additional provisions which apply to thrifts and other types of financial
institutions. The following discussion of federal taxation is intended only to
summarize certain pertinent federal income tax matters relevant to the taxation
of Peoples and the Bank and is not a comprehensive discussion of the tax rules
applicable to Peoples and the Bank.
Fiscal Year. Peoples and the Bank file federal income tax returns on
the basis of a calendar year ending on December 31.
Bad Debt Reserves. In 1996, legislation was enacted that repealed the
reserve method of accounting (including the percentage of taxable income method)
previously used by many savings institutions to calculate their bad debt reserve
for federal income tax purposes. Savings institutions with $500 million or less
in assets may, however, continue to use the experience method. The Bank must
recapture that portion of its reserve which exceeds the amount that could have
been taken under the experience method for post-1987 tax years. The Bank's
post-1987 excess reserves amounted to approximately $1.6 million. The recapture
will occur over a six-year period, which commenced in fiscal 1999. The
legislation also requires savings institutions to account for bad debts for
federal income tax purposes on the same basis as commercial banks for tax years
beginning after December 31, 1995. This change in accounting method and
recapture of excess bad debt reserves is adequately provided for in the Bank's
deferred tax liability.
At September 30, 2002, the federal income tax reserves of the Bank
included $5.2 million for which no federal income tax has been provided. Because
of these federal income tax reserves and the liquidation account established for
the benefit of certain depositors of the Bank in connection with the recent
conversion, the retained earnings of the Bank are substantially restricted.
Distributions. If Peoples were to distribute cash or property to its
stockholders, and the distribution was treated as being from its accumulated bad
debt reserves, the distribution would cause Peoples to have additional taxable
income. A distribution is from accumulated bad debt reserves if (a) the reserves
exceed the amount that would have been accumulated on the basis of actual loss
experience, and (b) the distribution is a "non-qualified distribution." A
distribution with respect to its stock is a non-qualified distribution to the
extent that, for federal income tax purposes,
o it is in redemption of its shares,
o it is pursuant to a liquidation of the institution, or
o in the case of a current distribution, together with all other such
distributions during the taxable year, it exceeds the institution's
current and post-1951 accumulated earnings and profits.
The amount of additional taxable income created by a non-qualified
distribution is an amount that when reduced by the tax attributable to it is
equal to the amount of the distribution.
26
Minimum Tax. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income") and
is payable to the extent such alternative minimum taxable income is in excess of
an exemption amount. Tax preference items include the following:
o depreciation, and
o 75% of the excess (if any) of:
(1) alternative minimum taxable income determined without regard to
this preference and prior to reduction by net operating losses,
over
(2) adjusted current earnings as defined in the Code.
Peoples has not been subject to the alternative minimum tax or had any
such amounts available as credits for carry-over.
Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital gains are taxed at a maximum rate of 35%. Corporations which own 20% or
more of the stock of a corporation distributing a dividend may deduct 80% of the
dividends received. Corporations which own less than 20% of the stock of a
corporation distributing a dividend may deduct 70% of the dividends received.
However, a corporation that receives dividends from a member of the same
affiliated group of corporations may deduct 100% of the dividends received.
Other Matters. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect Peoples.
Peoples' federal income tax returns for the tax years ended 2001, 2000
and 1999 are open under the statute of limitations and are subject to review by
the IRS. Peoples has not been audited by the IRS during the last five years.
State Taxation
Ohio Taxation. Peoples is subject to the Ohio corporation franchise
tax, which is a tax measured by both net earnings and net worth. The rate of tax
is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income
and 8.9% of computed Ohio taxable income in excess of $50,000 or (ii) 0.582%
times taxable net worth.
In computing Peoples' tax under the net worth method, 100% of the
investment in the capital stock of the Bank after the conversion may be
excluded, as reflected on the balance sheet, in computing taxable net worth as
long as Peoples owns at least 25% of the issued and outstanding capital stock of
the Bank. The calculation of the exclusion from net worth is based on the ratio
of the excludable investment (net of any appreciation or goodwill included in
such investment) to total assets multiplied by the net value of the stock. As a
holding company, Peoples may be entitled to various other deductions in
computing taxable net worth that are not generally available to operating
companies.
A special litter tax is also applicable to all corporations, including
Peoples, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to 0.11% of the first $50,000 of computed Ohio taxable income and
0.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to 0.014% times taxable
net worth.
The Bank is a "financial institution" for State of Ohio tax purposes.
As such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.3% of the Bank's book
net worth determined in accordance with generally accepted accounting
principles. As a "financial institution", the Bank is not subject to any tax
based upon net income or net profits imposed by the State of Ohio.
27
Maryland Taxation. As a Maryland holding company not earning income
in Maryland, Peoples is exempt from Maryland corporate income tax.
Item 2. Properties
At September 30, 2002, Peoples conducted its business from its main
office in West Chester, Ohio and branch offices in Lebanon, Cheviot, North Bend,
and Cincinnati. The following table sets forth the net book value (including
leasehold improvement, furnishings and equipment) and certain other information
with respect to the offices and other properties of Peoples at September 30,
2002.
Net Book Value
of Property and
Leasehold
Lease Improvements at Deposits at
Owned or Expiration September 30, September 30,
Leased Date 2002 2002
(In thousands)
Main Office:
6100 West Chester Road
West Chester, Ohio 45069 Owned N/A $3,203 $76,058
Branch Offices:
11 South Broadway
Lebanon, Ohio 45036 Owned N/A 755 66,284
3924 Isabella Avenue
Cincinnati, Ohio 45209 Leased 01/03 - 16,886
3621 Harrison Avenue
Cheviot, Ohio 45211 Owned N/A 353 47,346
3663 Ebenezer Road
Cincinnati, Ohio 45248 Owned N/A 258 22,213
7522 Hamilton Avenue
Cincinnati, Ohio 45231 Owned N/A 1,375 57,624
125 Miami Avenue
North Bend, Ohio 45052 Leased Month to Month - 5,387
1101 Columbus Avenue
Lebanon, Ohio 45036 Owned N/A 1,534 16,519
5797 South State Route 48
Maineville, Ohio 45039 Owned N/A 1,192 6,841
7711 Montgomery Road
Cincinnati, Ohio 45236 Owned N/A 372 40,392
3530 Springdale Road
Cincinnati, Ohio 45251 Owned N/A 776 13,530
Additionally, the Company had capitalized construction in progress costs
totaling approximately $686,000 at September 30, 2002.
Item 3. Legal Proceedings
The Bank and Peoples are not involved in any pending legal proceedings
other than nonmaterial legal proceedings occurring in the ordinary course of
business.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
28
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required herein is incorporated by reference from page
3 of Peoples' 2002 Annual Report to Stockholders filed as Exhibit 13 hereto
("2002 Annual Report").
Item 6. Selected Financial Data
The information required herein is incorporated from pages 4 and 5 of
the 2002 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required herein is incorporated by reference from pages
6 to 20 of the 2002 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required herein is incorporated from pages 17 and 18 of
the 2002 Annual Report.
Item 8. Financial Statements and Supplementary Data
The information required herein is incorporated by reference from pages
21 to 52 of the 2002 Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required herein is incorporated by reference from the
Registrant's Proxy Statement to be filed within 120 days after the end of the
fiscal year covered by this Form 10-K ("Proxy Statement").
Item 11. Executive Compensation
The information required herein is incorporated by reference from the
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required herein is incorporated by reference from the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by reference from the
Proxy Statement.
Item 14. Controls and Procedures
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and based on their evaluation, our chief executive officer and chief
financial officer have concluded that these controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
29
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report and are
incorporated herein by reference from the Registrant's 2002 Annual Report:
Report of Independent Certified Public Accountants.
Consolidated Statements of Financial Condition as of September
30, 2002 and 2001.
Consolidated Statements of Earnings for the Years Ended September
30, 2002, 2001 and 2000.
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 2002, 2001 and 2000.
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2002, 2001 and 2000.
Notes to Consolidated Financial Statements.
The following exhibits are filed as part of the Form 10-K, and this
list includes the Exhibit Index:
No. Exhibits
3.1 Articles of Incorporation of Peoples Community Bancorp, Inc.*
3.2 Bylaws of Peoples Community Bancorp, Inc.*
4 Stock Certificate of Peoples Community Bancorp, Inc.**
13 Annual Report to Stockholders for
the Year Ended September 30, 2002
21 List of Subsidiaries
(See "Item I. Business - Subsidiaries" in this Form 10-K)
99.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
- -----------------------------
* Incorporated herein by reference to Peoples' Proxy Statement dated
January 28, 2002.
** Incorporated herein by reference to Peoples' Registration Statement
on Form S-1 filed with the SEC on December 17, 1999.
(b) Reports filed on Form 8-K.
None.
30
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 COMMUNITY BANCORP, INC.
By:/s/Jerry D. Williams
-----------------------------------
Jerry D. Williams
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/Jerry D. Williams December 30, 2002
- ----------------------------------------------
Jerry D. Williams
President, Chief Executive
Officer and Director
(principal executive officer)
/s/Thomas J. Noe December 30, 2002
- ----------------------------------------------
Thomas J. Noe
Treasurer and Director
/s/Paul E. Hasselbring December 30, 2002
- ----------------------------------------------
Paul E. Hasselbring
Chairman of the Board and
Director
/s/John E. Rathkamp December 30, 2002
- ----------------------------------------------
John E. Rathkamp
Chief Lending Officer, Secretary and Director
/s/John L. Buchanan December 30, 2002
- ----------------------------------------------
John L. Buchanan
Director
/s/Donald L. Hawke December 30, 2002
- ----------------------------------------------
Donald L. Hawke
Director
/s/James R. Van DeGrift December 30, 2002
- ----------------------------------------------
James R. Van DeGrift
Director
/s/Nicholas N. Nelson December 30, 2002
- ----------------------------------------------
Nicholas N. Nelson
Director
/s/Teresa A. O'Quinn December 30, 2002
- ----------------------------------------------
Teresa A. O'Quinn
Chief Financial Officer
(principal financial and accounting officer)
CERTIFICATION
I, Jerry D. Williams, Chief Executive Officer of Peoples Community Bancorp,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Peoples Community
Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 30, 2002 /s/Jerry D. Williams
------------------------------------
Jerry D. Williams
Chief Executive Officer
CERTIFICATION
I, Teresa A. O'Quinn, Chief Financial Officer of Peoples Community Bancorp,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Peoples Community
Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 30, 2002 /s/Teresa A. O'Quinn
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Teresa A. O'Quinn
Chief Financial Officer