UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED June 30, 2000
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number 0-22223
PEOPLES-SIDNEY FINANCIAL CORPORATION
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(Name of small business issuer in its charter)
Delaware 31-1499862
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((State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 E. Court Street, Sidney, Ohio 45365
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (937) 492-6129
--------------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
------
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
State the issuer's revenues for its most recent fiscal year:
$9,239,247.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price of such stock on
the NASDAQ System on August 31, 2000, was $9.4 million. (The exclusion from such
amount of the market value of the shares owned by any person shall not be deemed
an admission by the registrant that such person is an affiliate of the
registrant.)
As of August 31, 2000, there were issued and outstanding 1,578,315
shares of the Registrant's Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-KSB - Portions of the Annual Report to
Stockholders for the fiscal year ended June 30, 2000.
Part III of Form 10-KSB - Portions of Proxy Statement for 2000 Annual
Meeting of Stockholders.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
YES [_] NO [X]
<PAGE>
PART I
Item 1. Description of Business
General
Peoples-Sidney Financial Corporation (the "Company") is a Delaware
corporation which was organized in 1997 by Peoples Federal Savings & Loan
Association of Sidney ("Peoples Federal" or the "Association") for the purpose
of becoming a savings and loan holding company. The Company owns all of the
capital stock of the Association issued in connection with the completion of the
Association's conversion from the mutual to stock form of organization on April
25, 1997. Unless the context otherwise requires, all references herein to the
Company include the Company and the Association on a consolidated basis, except
that information as of a date prior to April 25, 1997 relates only to the
Association. The Association, the Company's only subsidiary, was organized in
1886 as an Ohio-chartered mutual association and converted to a federally
chartered association in 1958.
The Association is primarily engaged in the business of attracting
savings deposits from the general public and investing such funds in permanent
mortgage loans secured by one- to four-family residential real estate located
primarily in Shelby County, Ohio, and the contiguous counties of Logan,
Auglaize, Miami, Darke and Champaign. The Association conducts business from its
main office in Sidney, Ohio and its full-service branches in Anna and Jackson
Center, Ohio. The Association also originates loans for the construction of one-
to four-family real estate, loans secured by multi-family real estate (over four
units) and nonresidential real estate, consumer and commercial loans and invests
in U.S. government obligations, mortgage-backed and related securities, interest
bearing deposits in other financial institutions and other investments permitted
by applicable law.
The Association's operations are regulated by the Office of Thrift
Supervision (the "OTS"). The Association is a member of the Federal Home Loan
Bank System ("FHLB System") and a stockholder of the Federal Home Loan Bank
("FHLB") of Cincinnati. The Association is also a member of the Savings
Association Insurance Fund ("SAIF") and its deposit accounts are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
Accordingly, the Association is also subject to regulation and oversight by the
FDIC.
The executive offices of the Company are located at 101 E. Court
Street, Sidney, Ohio 45365 and its telephone number is (937) 492-6129.
Forward-Looking Statements
When used in this Form 10-KSB and in future filings by the Company
with the Securities and Exchange Commission (the "SEC"), in the Company's press
releases or other public or shareholder communications, and in oral statements
made with the approval of an authorized executive officer, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including, among other things, changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake--and specifically declines any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
-2-
<PAGE>
Lending Activities
General. The principal lending activity of the Association is
originating for its portfolio first mortgage loans secured by owner-occupied
one- to four-family residential properties located in its primary market area.
In addition, in order to increase the yield and/or the interest rate sensitivity
of its portfolio and in order to provide more comprehensive financial services
to families and businesses in the Association's primary market area, Peoples
Federal also originates construction or development, commercial real estate,
consumer, land, multi-family and commercial business loans. The Association may
adjust or discontinue any product offering to respond to competitive or economic
factors.
-3-
<PAGE>
Loan Portfolio Composition. The following information sets forth the
composition of the Association's loan portfolio in dollar amounts and in
percentages (before deductions for loans in process, deferred loan fees and
allowance for loan losses) as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
-----------------
One- to four-family............... $ 92,117 77.72% $ 84,166 79.51% $79,691 82.37%
Construction and development...... 8,088 6.82 5,930 5.60 6,776 7.00
Commercial........................ 10,048 8.48 9,408 8.89 6,608 6.83
Multi-family...................... 1,300 1.10 1,359 1.28 655 0.68
Land.............................. 992 0.84 867 0.82 868 0.90
-------- ------ --------- ------ ------- ------
Total real estate loans....... 112,545 94.96 101,730 96.10 94,598 97.78
-------- ------ --------- ------ ------- ------
Other Loans:
-----------
Consumer Loans:
Automobile....................... 2,474 2.09 1,744 1.65 1,124 1.16
Deposit account.................. 215 0.18 223 0.21 257 0.27
Other............................ 882 0.74 771 0.73 672 0.69
-------- ------ --------- ------ ------- ------
Total consumer loans.......... 3,571 3.01 2,738 2.59 2,053 2.12
-------- ------ --------- ------ ------- ------
Commercial business loans......... 2,406 2.03 1,393 1.31 101 0.10
-------- ------ --------- ------ ------- ------
Total loans................... 118,522 100.00% 105,861 100.00% 96,752 100.00%
-------- ====== --------- ====== ------- ======
Less:
----
Loans in process.................. (3,036) (2,311) (2,079)
Deferred loan fees................ (245) (218) (195)
Allowance for loan losses......... (591) (529) (426)
-------- -------- -------
Total loans receivable, net....... $114,650 $102,803 $94,052
======== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------
1997 1996
--------------------------------------------------------------
Amount Percent Amount Percent
--------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
-----------------
One- to four-family............... $75,808 82.24% $65,448 79.60%
Construction and development...... 6,551 7.10 7,091 8.63
Commercial........................ 5,843 6.34 5,302 6.45
Multi-family...................... 219 0.24 485 0.59
Land.............................. 1,447 1.57 1,342 1.63
------- ------ ------- ------
Total real estate loans....... 89,868 97.49 79,668 96.90
------- ------ ------- ------
Other Loans:
-----------
Consumer Loans:
Automobile....................... 1,215 1.32 1,274 1.55
Deposit account.................. 351 0.38 167 0.20
Other............................ 719 0.78 1,027 1.25
------- ------ ------- ------
Total consumer loans.......... 2,285 2.48 2,468 3.00
------- ------ ------- ------
Commercial business loans......... 29 0.03 81 0.10
-------- ------ - ------- ------
Total loans................... 92,182 100.00% 82,217 100.00%
------- ====== ------ ======
Less:
----
Loans in process.................. (2,703) (3,508)
Deferred loan fees................ (158) (169)
Allowance for loan losses......... (397) (307)
------- -------
Total loans receivable, net....... $88,924 $78,233
======= =======
</TABLE>
-4-
<PAGE>
The following table shows the composition of the Association's loan
portfolios by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
-----------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
----------------
Real estate:
One- to four-family...................... $ 33,148 27.97% $ 31,611 29.86% $24,628 25.46%
Construction and development............. 3,336 2.81 2,512 2.37 1,643 1.70
Commercial............................... 1,577 1.33 600 0.57 386 0.40
Multi-family............................. --- --- --- --- --- ---
Land..................................... 177 0.15 20 0.02 80 0.08
--------- ------ --------- ------- ------- -------
Total real estate loans............... 38,238 32.26 34,743 32.82 26,737 27.64
Consumer loans............................ 3,571 3.01 2,738 2.59 2,053 2.12
Commercial business loans................. 1,296 1.09 641 0.60 101 0.10
--------- ------ --------- ------- ------- -------
Total fixed-rate loans................ 43,105 36.36 38,122 36.01 28,891 29.86
Adjustable-Rate Loans:
---------------------
Real estate:
One- to four-family...................... 58,969 49.75 52,555 49.65 55,063 56.91
Construction and development............. 4,752 4.01 3,418 3.23 5,133 5.30
Commercial............................... 8,471 7.15 8,808 8.32 6,222 6.43
Multi-family............................. 1,300 1.10 1,359 1.28 655 0.68
Land..................................... 815 0.69 847 0.80 788 0.82
--------- ------ --------- ------- ------- -------
Total real estate loans............... 74,307 62.70 66,987 63.28 67,861 70.14
Consumer Loans............................. --- --- --- --- --- ---
Commercial Business Loans.................. 1,110 0.94 752 0.71 --- ---
--------- ------ --------- ------- ------- -------
Total adjustable-rate loans........... 75,417 63.64 67,739 63.99 67,861 70.14
-------- ------ --------- ------- ------- -------
Total loans........................... 118,522 100.00% 105,861 100.00% 96,752 100.00%
====== ====== ======
Less:
----
Loans in process.......................... (3,036) (2,311) (2,079)
Deferred loan fees........................ (245) (218) (195)
Allowance for loan losses................. (591) (529) (426)
--------- -------- -------
Total loans receivable, net............ $114,650 $102,803 $94,052
======== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1997 1996
----------------------------------------------
Amount Percent Amount Percent
----------------------------------------------
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
----------------
Real estate:
One- to four-family...................... $21,836 23.69% $17,166 20.88%
Construction and development............. 949 1.03 775 0.94
Commercial............................... 259 0.28 179 0.22
Multi-family............................. --- --- --- ---
Land..................................... 184 0.20 20 0.02
------- ------- -------- ------
Total real estate loans............... 23,228 25.20 18,140 22.06
Consumer loans............................ 2,285 2.48 2,468 3.00
Commercial business loans................. 29 0.03 81 0.10
------- ------- -------- ------
Total fixed-rate loans................ 25,542 27.71 20,689 25.16
Adjustable-Rate Loans:
---------------------
Real estate:
One- to four-family...................... 53,972 58.55 48,282 58.73
Construction and development............. 5,602 6.07 6,316 7.68
Commercial............................... 5,584 6.06 5,123 6.23
Multi-family............................. 219 0.24 485 0.59
Land..................................... 1,263 1.37 1,322 1.61
------- ------- -------- ------
Total real estate loans............... 66,640 72.29 61,528 74.84
Consumer Loans............................. --- --- --- ---
Commercial Business Loans.................. --- --- --- ---
------- ------- -------- ------
Total adjustable-rate loans........... 66,640 72.29 61,528 74.84
------- ------- ------- ------
Total loans........................... 92,182 100.00% 82,217 100.00%
====== ======
Less:
----
Loans in process.......................... (2,703) (3,508)
Deferred loan fees........................ (158) (169)
Allowance for loan losses................. (397) (307)
------- -------
Total loans receivable, net............ $88,924 $78,233
======= =======
</TABLE>
-5-
<PAGE>
The following schedule presents the contractual maturities of the
Association's loan portfolio at June 30, 2000. The schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses. The
amortizing loans, such as one-to four-family and installment loans, the entire
current principal balance as shown as being due at maturity.
<TABLE>
<CAPTION>
Real Estate
------------------------------------------------------------
One- to Four-Family and Multi-family,
Construction and Development Commercial and Land Consumer
----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1 year or less(1).............. $ 148 8.36% $ 13 7.34% $ 489 9.14%
Over 1 year - 3 years.......... 1,030 8.12 297 8.39 1,048 9.48
Over 3 years - 5 years......... 507 8.33 191 7.86 1,743 8.78
Over 5 years -
10 years...................... 5,338 7.99 1,692 7.61 195 7.27
Over 10 years -
20 years...................... 39,853 7.63 7,100 7.75 96 8.73
Over 20 years.................. 53,329 7.67 3,047 7.80 --- ---
-------- ---- ------- ---- -------- ----
Total...................... $100,205 7.68% $12,340 7.76% $ 3,571 8.95%
======== ==== ======= ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Commercial Business Total
-------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year or less(1).............. $ 172 9.85% $ 822 9.12%
Over 1 year - 3 years.......... 933 9.50 3,308 8.96
Over 3 years - 5 years......... 1,139 9.34 3,580 8.85
Over 5 years -
10 years...................... 162 9.78 7,387 7.92
Over 10 years -
20 years...................... --- --- 47,049 7.65
Over 20 years.................. --- --- 56,376 7.68
------ ---- -------- -----
Total...................... $2,406 9.47% $118,522 7.76%
====== ==== ======== =====
</TABLE>
-----------------------
(1) Includes demand loans, loans having no stated maturity and overdraft
loans.
The total amount of loans due after June 30, 2001 which have predetermined
interest rates is $42,417, while the total amount of loans due after such dates
which have floating or adjustable interest rates is $75,283.
-6-
<PAGE>
Under federal law, the aggregate amount of loans that the Association
is permitted to make to any one borrower is generally limited to 15% of
unimpaired capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At June
30, 2000, based on the above limitation, the Association's regulatory
loan-to-one borrower limit was approximately $2.1 million. On the same date, the
Association had no borrowers with outstanding balances in excess of this amount.
As of June 30, 2000, the largest dollar amount of indebtedness to one borrower
or group of related borrowers was $1,748,000, secured by multiple one- to
four-family real estate properties. The next largest loan to one borrower or
group of related borrowers had an outstanding balance of $1,537,000 at June 30,
2000 and is secured by multiple one-to four-family real estate properties,
commercial real estate and land. As of June 30, 2000, such loans were performing
in accordance with their terms.
Loan applications are accepted by salaried loan officers at the
Association's offices. Loan applications are presented for approval to the
Executive Committee of the Board of Directors or to the full Board of Directors,
depending on loan amount. All loans of $100,000 or more are approved by the full
Board of Directors. Decisions on loan applications are made on the basis of
detailed applications and property valuations (consistent with the Association's
written appraisal policy), by qualified independent appraisers (unless the
Association's exposure will be $25,000 or less). The loan applications are
designed primarily to determine the borrower's ability to repay and include
length of employment, past credit history and the amount of current
indebtedness. Significant items on the application are verified through use of
credit reports, financial statements, tax returns and/or confirmations. The
Association is an equal opportunity lender.
Generally, the Association requires an attorney's title opinion on
its mortgage loans as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Association
also requires flood insurance to protect the property securing its interest when
the property is located in a flood plain.
One- to Four-Family Residential Real Estate Lending
The cornerstone of the Association's lending program has long been
the origination of long-term permanent loans secured by mortgages on
owner-occupied one- to four-family residences. At June 30, 2000, $92.1 million,
or 77.72% of the Association's loan portfolio, consisted of permanent loans on
one- to four-family residences. At that date, the average outstanding
residential loan balance was $59,700 and the largest outstanding residential
loan had a principal balance of $332,000. Virtually all of the residential loans
originated by Peoples Federal are secured by properties located in the
Association's market area.
Peoples Federal originates fixed-rate residential loans in amounts
and at rates which are monitored for compliance with the Association's
asset/liability management policy. Currently, the Association originates
fixed-rate loans with maturities of up to 20 years for retention in its own
portfolio. Limiting the contractual term to 20 years, as opposed to the more
traditional 30 year period, allows for accelerated principal repayment and
equity build up for the borrower. Currently, all such loans are made on
owner-occupied properties. All fixed-rate loans originated by the Association
are retained and serviced by it. At June 30, 2000, the Association had $33.1
million of fixed-rate permanent one-to four-family residential loans,
constituting 27.97% of the Association's loan portfolio at such date.
The Association has offered ARM loans at rates, terms and points
determined in accordance with market and competitive factors. The Association's
current one- to four-family residential ARMs are fully amortizing loans with
contractual maturities of up to 30 years. Applicants are qualified using a fully
indexed rate, and no ARMs allow for negative amortization. The interest rates on
the ARMs originated by Peoples Federal are generally subject to adjustment at
one, three, and five-year intervals based on a margin over the analogous
Treasury Securities Constant Maturity Index. Decreases or increases in the
interest rate of the Association's ARMs are generally limited to 6% above or
below the initial interest rate over the life of the loan, and up to 2% per
adjustment period. The Association's ARMs are not convertible into fixed-rate
loans, and do not contain prepayment penalties. ARM loans may be assumed on a
case by case basis with the Association's consent. At June 30, 2000, the total
balance of one- to four-family ARMs was $59.0 million, or 49.75% of the
Association's loan portfolio. All ARMs originated by the Association are
retained and serviced by it.
-7-
<PAGE>
The Association also offers the "7/1" ARM loan. This product
maintains a constant interest rate and payment for the first seven years of the
loan. Amortizable for up to 30 years, the loan will adjust beginning in the
eighth year, subject to the rate caps discussed above. At June 30, 2000, the
Association had $65,000 in "7/1" loans. In 1992, the Association initiated a
program specifically tailored to first time home buyers. These loans are made on
a five year adjustable basis with a term up to 30 years. The margin, which is
lower than other products currently offered, is 200 basis points. Additionally,
somewhat higher debt-to-income ratios are permitted, although mandatory escrows
for taxes and insurance, an acceptable credit rating and an employment history
of at least one year are required. The maximum loan amount under this program,
which requires that the property be owner-occupied, is currently $75,000 unless
Board of Director approval is obtained, which can be the lesser of the purchase
price or 90% of appraised value. At June 30, 2000, the Association had
approximately $4.2 million of first-time home buyer loans in its portfolio.
As discussed above, the Association evaluates both the borrower's
ability to make principal, interest and escrow payments and the value of the
property that will secure the loan. Peoples Federal originates residential
mortgage loans with loan-to-value ratios up to 90%. On mortgage loans exceeding
an 90% loan-to-value ratio at the time of origination, Peoples Federal will
generally require private mortgage insurance in an amount intended to reduce the
Association's exposure to less than 90% of the appraised value of the underlying
property.
The Association's residential mortgage loans customarily include
due-on-sale clauses giving the Association the right to declare the loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the property subject to the mortgage and the loan
is not repaid.
The Association uses the same underwriting standards for home equity
lines of credit as it uses for one- to four-family residential mortgage loans.
The Association's home equity lines of credit are originated in amounts which,
together with the amount of the first mortgage, generally do not exceed 80% of
the appraised value of the property securing the loan. At June 30, 2000, the
Association had $473,000 of home equity lines of credit and an additional
$615,000 of funds committed, but undrawn, under such lines.
Construction and Development Lending
The Association makes construction loans to individuals for the
construction of their primary or secondary residences and loans to builders or
developers for the construction of single-family homes, multi-family units and
commercial real estate projects. Loans to individuals for the construction of
their residences typically run for 12 months. The borrower pays interest only
during the construction period. Residential construction loans are generally
underwritten pursuant to the same guidelines used for originating permanent
residential loans. At June 30, 2000, the Association had 55 construction loans
with outstanding aggregate balances of $7,248,000 secured by residential
property. Of this amount, $6,643,000 in loans were outstanding directly to
borrowers intending to live in the properties upon completion of construction.
At that same date, the Association had four construction loans with outstanding
aggregate balances of $605,000 secured by one- to four-family residential
properties constructed by builders who have pre-sold their houses to individual
purchasers.
The Association makes loans to builders and developers to finance the
construction of residential property. Such loans generally have adjustable
interest rates based upon prime or treasury indexes with terms ranging from six
months to one year. The proceeds of the loan are advanced during construction
based upon the percentage of completion as determined by an inspection. The loan
amount normally does not exceed 90% of projected completed value for homes that
have been pre-sold to the ultimate occupant. For loans to builders for the
construction of homes not yet presold, which may carry a higher risk, the
loan-to-value ratio is generally limited to 80%. Whether the Association is
willing to provide permanent takeout financing to the purchaser of the home is
determined independently of the construction loan by separate underwriting. In
the event that upon completion the house is not sold, the builder is required to
make principal and interest payments until the house is sold. The Association
also makes a limited number of commercial real estate construction loans on
substantially the same terms as loans to builders and developers to finance the
construction of residential property.
Development loans, which include loans to develop vacant or raw land,
are made to various builders and developers with whom the Association has had
long-standing relationships. All of such loans are secured by land zoned
-8-
<PAGE>
for residential developments and located within the Association's market area.
Proceeds are used for excavation, utility placements and street improvements.
Disbursements related to acquisition and development land loans are typically
based on the construction cost estimate of an independent architect or engineer
who inspects the project in connection with significant disbursement requests.
As lots are sold, a portion of the sale price is applied to the principal of the
outstanding loan. Interest payments are required at regular intervals (quarterly
or semi-annually) and loan terms typically are written for three years. At June
30, 2000, the Association had $840,000, or 0.71% of gross loans receivable, in
this category.
Construction and development lending generally affords the
Association an opportunity to receive interest at rates higher than those
obtainable from residential lending and to receive higher origination and other
loan fees. In addition, such loans are generally made for relatively short
terms. Nevertheless, construction lending to persons other than owner-occupants
is generally considered to involve a higher level of credit risk than one- to
four-family permanent residential lending due to the concentration of principal
in a limited number of loans and borrowers and the effects of general economic
conditions on construction projects, real estate developers and managers. In
addition, the nature of these loans is such that they are more difficult to
evaluate and monitor. The Association's risk of loss on a construction or
development loan is dependent largely upon the accuracy of the initial estimate
of the property's value upon completion of the project and the estimated cost
(including interest) of the project. If the estimate of value proves to be
inaccurate, the Association may be confronted, at or prior to the maturity of
the loan, with a project with a value which is insufficient to assure full
repayment and/or the possibility of having to make substantial investments to
complete and sell the project. Because defaults in repayment may not occur
during the construction period, it may be difficult to identify problem loans at
an early stage. When loan payments become due, the cash flow from the property
may not be adequate to service the debt. In such cases, the Association may be
required to modify the terms of the loan.
Commercial Real Estate Lending
The Association's commercial real estate loan portfolio consists of
loans secured by a variety of non-residential properties including retail
facilities, small office buildings, farm real estate and churches. At June 30,
2000, the Association's largest commercial real estate loan totaled $636,000. At
that date, the Association had 87 commercial real estate loans, totaling
$10,048,000 or 8.48% of gross loans receivable.
The Association has originated both adjustable- and fixed-rate
commercial real estate loans, although most current originations have adjustable
rates. Rates on the Association's adjustable-rate commercial real estate loans
generally adjust in a manner consistent with the Association's one- to
four-family residential ARMs, although five year adjustment periods are not
currently offered. Commercial real estate loans are generally underwritten in
amounts of up to 75% of the appraised value of the underlying property.
Appraisals on properties securing commercial real estate loans
originated by the Association are performed by a qualified independent appraiser
at the time the loan is made. In addition, the Association's underwriting
procedures generally require verification of the borrower's credit history,
income and financial statements, banking relationships, references and income
projections for the property. Personal guarantees are generally obtained for the
Association's commercial real estate loans. Substantially all of the commercial
real estate loans originated by the Association are secured by properties
located within the Association's market area.
-9-
<PAGE>
The table below sets forth by type of security property the estimated
number, loan amount and outstanding balance of Peoples Federal's commercial real
estate loans at June 30, 2000.
Outstanding
Number of Original Principal
Loans Loan Amount Balance
--------------------------------------------
(Dollars in Thousands)
Office......................... 20 $ 3,036 $ 2,465
Retail......................... 5 979 739
Farm real estate............... 54 7,056 5,856
Churches....................... 8 1,381 988
---- -------- ---------
Total....................... 87 $ 12,452 $ 10,048
=== ======== =========
Commercial real estate loans generally present a higher level of risk
than loans secured by one- to four-family residences. This greater risk is due
to several factors, including the concentration of principal in a limited number
of loans and borrowers, the effects of general economic conditions on income
producing properties and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by commercial
real estate is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced (for example,
if leases are not obtained or renewed), the borrower's ability to repay the loan
may be impaired.
Multi-Family Lending
The Association has historically made permanent multi-family loans in
its primary market area. However, the amount of such loans has been
insignificant. At June 30, 2000, multi-family loans totaled $1.3 million, or
1.10% of gross loans receivable.
The Association's multi-family loan portfolio includes loans secured
by five or more unit residential buildings located primarily in the
Association's market area.
Land Lending
Peoples Federal makes loans to individuals who purchase and hold land
for various reasons, such as the future construction of a residence. Such loans
are generally originated with terms of three years and have maximum loan- to-
value ratios of 75%. At June 30, 2000, the Association had $992,000, or 0.84% of
gross loans receivable, in land loans.
Land lending generally affords the Association an opportunity to
receive interest at rates higher than those obtainable from residential lending.
In addition, land loans are limited to a maximum 75% loan-to-value and are made
with fixed and adjustable rates of interest and for relatively short terms.
Nevertheless, land lending is generally considered to involve a higher level of
credit risk due to the fact that funds are advanced upon the security of the
land, which is of uncertain value prior to its development.
Consumer Lending
Management believes that offering consumer loan products helps to
expand the Association's customer base and to create stronger ties with its
existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable asset/liability management tools. The
Association currently originates substantially all of its consumer loans in its
market area. At June 30, 2000, the Association's consumer loans totaled $3.6
million, or 3.01% of the Association's gross loan portfolio.
-10-
<PAGE>
Peoples Federal offers a variety of secured consumer loans, including
automobile loans, loans secured by savings deposits and home improvement loans.
Although the Association primarily originates consumer loans secured by real
estate, deposits or other collateral, the Association also makes unsecured
personal loans.
The largest component of the Association's consumer lending program
is automobile loans. At June 30, 2000, automobile loans totaled $2.5 million, or
2.09% of gross loans receivable. The Association makes loans directly to the
consumer to aid in the purchase of new and used vehicles, which serve as
collateral for the loan. The Association also employs other underwriting
criteria discussed below in deciding whether to extend credit.
The terms of other types of consumer loans vary according to the type
of collateral, length of contract and creditworthiness of the borrower. The
underwriting standards employed by the Association for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to meet payments on the proposed loan along
with his existing obligations. In addition to the creditworthiness of the
applicant, the underwriting process also includes a comparison of the value of
the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by rapidly depreciable assets such as automobiles. In such cases, any
repossessed collateral for defaulted consumer loans may not provide adequate
sources of repayment for the outstanding loan balances as a result of the
greater likelihood of damage, loss, or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans.
Commercial Business Lending
In order to increase the yield and interest rate sensitivity of its
loan portfolio and in order to satisfy the demand for financial services
available to individuals and businesses in its primary market area, the
Association has maintained a small portfolio of commercial business loans.
Although the portfolio remains a small percentage of gross loans outstanding,
the Association did experience substantial growth in 2000 primarily from the new
branch facilities. Unlike residential mortgage loans, which generally are made
on the basis of the borrower's ability to make repayment from his or her
employment and other income, and which are secured by real property whose value
tends to be more easily ascertainable, commercial business loans are generally
of higher risk and typically are made on the basis of the borrower's ability to
make repayment from the cash flow of the borrower's business. As a result, the
availability of funds for the repayment of commercial business loans may be
substantially dependent on the success of the business itself (which, in turn,
may be dependent upon the general economic environment). During the past five
years, the Association has made commercial business loans to businesses such as
small retail operations, small manufacturing concerns and professional firms.
The Association's commercial business loans almost always include personal
guarantees and are usually, but not always, secured by business assets, such as
accounts receivable, equipment, inventory and real estate. However, the
collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
Most of the Association's commercial business loans have terms
ranging from three months to one year and may carry fixed or adjustable interest
rates. The underwriting process for commercial business loans generally includes
consideration of the borrower's financial statements, tax returns, projections
of future business operations and inspection of the subject collateral, if any.
At June 30, 2000, commercial business loans totaled $2.4 million, or 2.03% of
the Association's gross loans receivable.
-11-
<PAGE>
Originations, Purchases and Sales of Loans
The Association originates real estate and other loans through
employees located at the Association's offices. Walk-in customers and referrals
from real estate brokers and builders are also important sources of loan
originations. The Association has historically not utilized the services of
mortgage or loan brokers, nor purchased or sold loans from or to other lenders.
While a portfolio lender, the Association may in the future evaluate loan sale
opportunities as they arise and make sales depending on market conditions.
The following table shows the loan origination and repayment
activities of the Association for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
2000 1999 1998
--------------------------------------
(In thousands)
<S> <C> <C> <C>
Originations by type:
---------------------
Adjustable rate:
Real estate - one- to four-family, construction and
development and land $ 18,079 $ 14,661 $ 16,076
- commercial 830 3,178 2,839
- multi-family -- 752 470
Non-real estate - consumer -- -- --
- commercial business 1,873 1,411 --
-------- -------- --------
Total adjustable-rate 20,782 20,002 19,385
Fixed rate:
Real estate - one- to four-family, construction and
development and land 9,126 15,781 8,247
- commercial 643 598 266
- multi-family -- -- --
Non-real estate - consumer 3,262 2,885 1,923
- commercial business 1,047 702 122
-------- -------- --------
Total fixed-rate 14,078 19,966 10,558
-------- -------- --------
Total loans originated 34,860 39,968 29,943
Principal repayments (22,834) (30,841) (24,670)
Increase in other items, net(1) (90) (188) (66)
-------- -------- --------
Net increase $ 11,936 $ 8,939 $ 5,207
======== ======== ========
</TABLE>
------------
(1) Includes provision for loan losses, net charge-offs, net deferred loan
origination fees and transfers to foreclosed assets.
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Association attempts to cure the delinquency by
contacting the borrower. A late notice is sent on all loans over 30 days
delinquent. Another late notice is sent 60 days after the due date followed by a
letter from the President of the Association.
If the delinquency is not cured by the 90th day, the customer may be
provided written notice that the account will be referred to counsel for
collection and foreclosure, if necessary. A good faith effort by the borrower at
this time will defer foreclosure for a reasonable length of time depending on
individual circumstances. The Association may agree to accept a deed in lieu of
foreclosure. If it becomes necessary to foreclose, the property is sold at
public sale and
-12-
<PAGE>
the Association may bid on the property to protect its interest. The decision to
foreclose is made by the Senior Loan Officer after discussion with the members
of the Executive Committee or Board of Directors.
Consumer loans are charged-off if they remain delinquent for 120 days
unless the borrower and lender agree on a payment plan. If terms of the plan are
not met, they are then subject to charge-off. The Association's procedures for
repossession and sale of consumer collateral are subject to various requirements
under Ohio consumer protection laws.
Real estate acquired by Peoples Federal as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired by foreclosure or deed in lieu of foreclosure,
it is initially recorded at fair value at the date of acquisition. Any
write-down resulting therefrom is charged to the allowance for loan losses.
Subsequent decreases in the value of the property are charged to operations
through the creation of a valuation allowance. After acquisition, all costs
incurred in maintaining the property are expensed. Costs relating to the
development and improvement of the property, however, are capitalized to the
extent of estimated fair value.
The following table sets forth the Association's loan delinquencies
by type, by amount and by percentage of type at June 30, 2000.
<TABLE>
<CAPTION>
Loans Delinquent For:
-----------------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
---------------------------------- ----------------------------- -----------------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
---------------------------------- ----------------------------- -----------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family...... 11 $557 0.60% 18 $951 1.03% 29 $1,508 1.64%
Construction and
development............. -- -- -- -- -- -- -- -- --
Commercial............... -- -- -- 1 10 0.10 1 10 0.10
Multi-family............. -- -- -- -- -- -- -- -- --
Land..................... -- -- -- -- -- -- -- -- --
Consumer................... 3 5 0.14 1 1 0.03 4 6 0.17
Commercial business........ -- -- -- -- -- -- -- -- --
-- ---- ---- -- ---- ---- -- ------ ----
Total................. 14 $562 0.47% 20 $962 0.81% 34 $1,524 1.29%
== ==== ==== == ==== ==== == ====== ====
</TABLE>
Classification of Assets. Federal regulations require that each
savings institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. 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 Association will sustain
some loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of Substandard assets, with the additional characteristics that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as Loss is considered uncollectible and
of such little value that continuance as an asset on the balance sheet of the
institution, without establishment of a specific valuation allowance or
charge-off, is not warranted. Assets classified as Substandard or Doubtful
require the institution to establish prudent general allowances for loan losses.
If an asset or portion thereof is classified as Loss, the institution may
charge-off such amount against the loan loss allowance. If an institution does
not agree with an examiner's classification of an asset, it may appeal this
determination to the District Director of the OTS.
-13-
<PAGE>
On the basis of management's review of its assets, at June 30, 2000,
the Association had classified a total of $757,000 of its loans, as follows:
<TABLE>
<CAPTION>
One- to Four- Commercial
Family Real Estate Land Consumer Total
-----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Substandard.............. $756 $--- $ --- $ --- $756
Doubtful................. --- --- --- --- ---
Loss..................... --- --- --- 1 1
---- ---- ----- ---- ----
$756 $--- $ --- $ 1 $757
==== ==== ===== ===== ====
</TABLE>
Peoples Federal's classified assets consist of the (i) nonperforming
loans and (ii) loans and other assets of concern discussed herein. As of the
date hereof, these asset classifications are consistent with those of the OTS
and FDIC.
-14-
<PAGE>
The table below sets forth the amounts and categories of
non-performing assets. Interest income on loans is accrued over the term of the
loans based upon the principal outstanding except where serious doubt exists as
to the collectibility of a loan, in which case the accrual of interest is
discontinued. For all years presented, the Association has had no troubled debt
restructurings (which involve forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------
2000 1999 1988 1997 1996
-------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non accruing loans:
One- to four-family $ 756 $ 302 $ 713 $ 705 $ 564
Construction and development -- -- -- -- --
Commercial real estate -- 13 -- 14 211
Multi-family -- -- -- -- --
Land -- -- -- -- 51
Consumer -- -- -- -- --
Commercial business -- -- -- -- --
------ ------ ------ ------ ------
Total 756 315 713 719 826
------ ------ ------ ------ ------
Accruing loans delinquent more than 90 days:
One- to four-family 278 389 235 143 326
Construction and development -- -- -- -- --
Commercial real estate 10 -- -- -- 58
Multi-family -- -- -- -- --
Land -- -- -- -- --
Consumer 1 51 11 5 11
Commercial business -- -- -- -- --
------ ------ ------ ------ ------
Total 289 440 246 148 395
------ ------ ------ ------ ------
Foreclosed assets:
One- to four-family -- -- -- -- --
Construction and development -- -- -- -- --
Commercial real estate -- -- -- -- --
Multi-family -- -- -- -- --
Land -- -- -- -- --
Consumer -- -- -- -- --
Commercial business -- -- -- -- --
------ ------ ------ ------ ------
Total -- -- -- -- --
------ ------ ------ ------ ------
Total non performing assets $1,045 $ 755 $ 959 $ 867 $1,221
====== ====== ====== ====== ======
Total as a percentage of total assets 0.81% 0.65% 0.91% 0.84% 1.41%
====== ====== ====== ====== ======
</TABLE>
For the year ended June 30, 2000 gross interest income which would
have been recorded had the non accruing loans been current in accordance with
their original terms amounted to $54,470. The amount that was included in
interest income on such loans was $39,698 for the year ended June 30, 2000.
Other Assets of Concern. As of June 30, 2000, the Association had no
assets that are not now disclosed because of known information about the
possible credit problems of the borrowers or the cash flows of the security
property which would cause management to have some doubts as to the ability of
the borrowers to comply with present loan repayment terms and which may result
in the future inclusion of such items in the non performing asset categories.
-15-
<PAGE>
Allowance for Loan Losses. Management estimates the allowance balance
required based on past loan loss experience, known and inherent risks in the
portfolio, information about specific borrower situations and estimated
collateral values, current economic conditions, and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged-off.
Loan impairment is reported when full payment under the terms of the
loan is not expected. Impairment is evaluated in total for smaller-balance loans
of similar nature such as first mortgage loans secured by one- to four-family
residences, residential construction loans, credit card, automobile, home equity
and second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. If a loan is impaired, a
portion of the allowance for loan losses is allocated so that the loan is
reported net, at the present value of estimated future cash flows using the
loan's existing rate or at the fair value of collateral if repayment is expected
solely from the collateral. Loans are evaluated for impairment when payments are
delayed, typically 90 days or more, or when it is probable that not all
principal and interest payments will be collected in accordance with the
original terms of the loan.
As of June 30, 2000, the Association's allowance for loan losses as a
percent of gross loans receivable and as a percent of nonperforming loans
amounted to 0.50 % and 56.59%, respectively. In light of the level of
nonperforming assets to total assets and the nature of these assets, management
believes that the allowance for loan losses is adequate. While management
believes that it uses the best information available to determine the allowance
for loan losses, unforeseen market conditions could result in adjustments to the
allowance for loan losses, and net earnings could be significantly affected, if
circumstances differ substantially from the assumptions used in making the final
determination.
-16-
<PAGE>
The following table sets forth an analysis of the Association's
allowance for loan losses.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.......................... $529 $426 $397 $307 $ 251
Charge-offs:
One- to four-family................................... --- --- 7 --- 9
Construction and development.......................... --- --- --- --- ---
Commercial real estate................................ --- --- --- --- ---
Multi-family.......................................... --- --- --- --- ---
Consumer.............................................. --- 23 8 22 6
Commercial business................................... --- --- --- --- ---
--------- ------- ----- ----- ------
--- 23 15 22 15
--------- ------- ----- ----- ------
Recoveries:
One- to four-family................................... --- 19 --- --- 1
Construction and development.......................... --- --- --- --- ---
Commercial real estate................................ --- --- --- --- ---
Multi-family.......................................... --- --- --- --- ---
Consumer.............................................. 1 3 3 9 2
Commercial business................................... --- --- --- --- ---
-------- ------- ----- ----- ------
1 22 3 9 3
--------- ------- ----- ----- ------
Net charge-offs (recoveries)............................ (1) 1 12 13 12
Additions charged to operations......................... 61 104 41 103 68
----- ----- ------ ---- ------
Balance at end of period................................ $591 $529 $426 $397 $307
==== ==== ==== ==== ====
Ratio of net charge-offs during the period to
average loans outstanding(1) during the period......... ---% ---% 0.01% 0.02% 0.02%
===== ==== ==== ==== ====
Ratio of net charge-offs during the period to
nonperforming assets at the end of the period.......... (0.10)% 0.08% 1.33% 1.49% 0.98%
====== ==== ==== ==== ====
</TABLE>
------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
allowance for loan losses.
-17-
<PAGE>
The distribution of the Association's allowance for losses on loans
at the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Amount Loan in Each Amount Loan in Each Amount Loan in Each
of Amounts Category of Amounts Category of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family....... $388 $ 92,117 77.72% $346 $ 84,166 79.51% $335 $79,691 82.37%
Construction and
development............... 20 8,088 6.82 13 5,930 5.60 16 6,776 7.00
Commercial real
estate.................. 25 10,048 8.48 32 9,408 8.89 15 6,608 6.83
Multi-family.............. 3 1,300 1.10 4 1,359 1.28 2 655 0.68
Land...................... 3 992 0.84 3 867 0.82 2 868 0.90
Consumer.................. 94 3,571 3.01 103 2,738 2.59 56 2,053 2.12
Commercial
business................ 58 2,406 2.03 28 1,393 1.31 --- 101 0.10
Unallocated............... --- --- --- --- --- --- --- --- ---
---- -------- ------ ---- -------- ------ ---- ------- ------
Total................ $591 $118,522 100.00% $529 $105,861 100.00% $426 $96,752 100.00%
==== ======== ====== ==== ======== ====== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Amounts Category of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
-----------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family....... $316 $75,808 82.24% $ 211 $65,448 79.60%
Construction and
development............... 14 6,551 7.10 4 7,091 8.63
Commercial real
estate.................. 15 5,843 6.34 36 5,302 6.45
Multi-family.............. --- 219 0.24 1 485 0.59
Land...................... 3 1,447 1.57 2 1,342 1.63
Consumer.................. 49 2,285 2.48 53 2,468 3.00
Commercial
business................ --- 29 0.03 --- 81 0.10
Unallocated............... --- --- --- --- --- ---
---- ------- ------ ----- ------- ------
Total................ $397 $92,182 100.00% $ 307 $82,217 100.00%
==== ======== ====== ===== ======= ======
</TABLE>
-18-
<PAGE>
Investment Activities
As part of its asset/liability management strategy, the Association
invests in U.S. government and agency obligations and mortgage-backed securities
to supplement its lending activities. The Association's investment policy also
allows for investments in overnight funds and certificates of deposit. The
Association may consider the expansion of investments into other securities if
deemed appropriate. At June 30, 2000, the Association did not own any securities
of a single issuer which exceeded 10% of the Association's equity, other than
U.S. government or federal agency obligations. See Note 2 of the Notes to the
Consolidated Financial Statements for additional information regarding the
Association's securities portfolio.
The Association is required by federal regulations to maintain a
minimum amount of liquid assets that may be invested in specified securities and
is also permitted to make certain other securities investments. Cash flow
projections are regularly reviewed and updated to assure that adequate liquidity
is provided. As of June 30, 2000, the Association's liquidity ratio (liquid
assets as a percentage of net withdrawable savings and current borrowings) was
10.6% as compared to the OTS requirement of 4.0%.
As of June 30, 2000 the Association had securities totaling $ 8.4
million classified as available for sale while there were no classified as held
to maturity. As future securities are acquired, the Association may elect to
classify them as either available for sale or held to maturity.
-19-
<PAGE>
The following table sets forth the composition of the Association's
investments in securities and time deposits at the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Securities and time deposits:
U.S. government securities.......................... $ --- ---% $ --- ---% $ --- ---%
Federal agency obligations held to maturity......... --- --- --- --- --- ---
Federal agency obligations available for sale....... 3,896 41.15 2,957 32.26 4,016 80.92
Time deposits....................................... --- --- 400 4.36 100 2.01
------ ------ -------- ------ ------ ------
Subtotal......................................... 3,896 41.15 3,357 36.62 4,116 82.93
Mortgage-Backed Securities............................ 4,550 48.05 4,901 53.47 --- ---
FHLB stock............................................ 1,023 10.80 908 9.91 847 17.07
------ ------ -------- ------ ------ ------
Total securities, time deposits, mortgaged-
backed securities and FHLB stock............. $9,469 100.00% $9,166 100.00% $4,963 100.00%
====== ====== ====== ====== ====== ======
Average remaining life of securities
and time deposits................................... 4.86 years 2.77 years 3.01 years
Other interest-earning assets:
Interest-bearing deposits with banks................ $ 885 63.91% $ 635 100.00% $2,292 53.40%
Overnight deposits.................................. 500 36.09 --- --- 2,000 46.60
------ ------ -------- ------ ------ ------
Total............................................ $1,385 100.00% $ 635 100.00% $4,292 100.00%
====== ====== ======== ====== ====== ======
</TABLE>
-20-
<PAGE>
The composition and maturities of the time deposit and securities
portfolios, excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
June 30, 2000
-------------------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Total Securities
1 Year Years Years and Time Deposits
-----------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
-------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposit .................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Federal agency obligations
available for sale .............. -- -- 2,999 2,918 998 978 3,997 3,896
Mortgage-Backed Securities ...... -- -- -- -- -- -- 4,645 4,550
------ ------ ------ ------ ------ ------ ------ ------
Total securities and time deposit $ -- $ -- $2,999 $2,918 $ 998 $ 978 $8,642 $8,446
====== ====== ====== ====== ====== ====== ====== ======
Weighted average yield .......... ---% ---% 6.24% 6.24% 8.00% 8.00% 6.85% 6.85%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Mortgage-Backed Securities. The Association had one GNMA
mortgage-backed security at June 30, 2000. From time to time, the Association
may purchase such securities to supplement loan production, leverage its capital
position or manage its assets/liability structure.
Sources of Funds
General. The Association's primary sources of funds are deposits,
amortization and prepayment of loan principal, maturities of securities,
short-term investments and funds provided from operations as well as FHLB
advances.
Deposits. Peoples Federal offers a variety of deposit accounts having
a wide range of interest rates and terms. The Association's deposits consist of
passbook accounts, statement savings, NOW accounts, Christmas club, money market
and certificate accounts. The Association relies primarily on advertising,
including newspaper and radio, competitive pricing policies and customer service
to attract and retain these deposits. Neither premiums nor brokered deposits are
utilized.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition.
The variety of deposit accounts offered by the Association has
allowed it to be competitive in obtaining funds and to respond with flexibility
to changes in consumer demand. The Association has become more susceptible to
short- term fluctuations in deposit flows, as customers have become more
interest rate conscious. The Association manages the pricing of its deposits in
keeping with its asset/liability management, profitability and growth
objectives. Based on its experience, the Association believes that its passbook,
demand and NOW accounts are relatively stable sources of deposits. However, the
ability of the Association to attract and maintain certificate deposits, and the
rates paid on these deposits, has been and will continue to be significantly
affected by market conditions.
-21-
<PAGE>
The following table sets forth the savings flows at the Association
during the periods indicated.
Year Ended June 30,
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
(Dollars in Thousands)
Opening balance............ $ 84,310 $79,054 $77,045
Deposits................... 123,137 90,648 87,133
Withdrawals................ 118,056 88,585 88,401
Interest credited.......... 3,666 3,193 3,277
-------- ------- --------
Ending balance............. $ 93,057 $84,310 $79,054
======== ======= =======
Net increase .............. $ 8,747 $ 5,256 $ 2,009
======== ======= =======
Percent increase 10.37% 6.65% 2.61%
===== ==== ====
-22-
<PAGE>
The following table sets forth the dollar amount of savings deposits
in the various types of deposit programs offered by the Association at the dates
indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
Weighted
Average
Rate at Percent Percent Percent
June 30, 2000 Amount of Total Amount of Total Amount of Total
---------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
---------------------------------
Noninterest Bearing Demand -- $ 871 0.93% $ 650 0.77% $ 169 0.22%
Savings Accounts ......... 3.05% 18,889 20.29 19,544 23.17 18,456 23.34
NOW Accounts ............. 1.55 4,940 5.31 4,874 5.78 3,362 4.25
Money Market Accounts .... 3.75 1,563 1.68 1,846 2.19 982 1.24
------- -------- ------- ------- ------- --------
Total Non-Certificates ... 2.80 26,263 28.21 26,914 31.91 22,969 29.05
------- -------- ------- ------- ------- --------
Certificates:
------------
0.00 - 1.99%............ -- -- -- -- -- -- --
2.00 - 3.99%............ -- -- -- 19 0.02 -- --
4.00 - 5.99%............ 5.23 23,528 25.27 41,767 49.51 36,060 45.59
6.00 - 7.99%............ 6.28 43,266 46.48 15,610 18.51 20,025 25.32
8.00 - 9.99%............ -- -- -- -- -- -- --
10.00% and over .......... -- -- -- -- -- -- --
-------- ------- ------- ------ -------- -------
Total Certificates ....... 5.91 66,794 71.75 57,396 68.04 56,085 70.91
-------- -------- ------- ------- ------- --------
Accrued Interest ......... -- 35 0.04 44 0.05 35 0 .04
-------- -------- ------- ------- ------- --------
Total Deposits ........... 5.06% $ 93,092 100.00% $84,354 100.00% $79,089 100.00%
======== ======== ======= ======= ======= ========
</TABLE>
-23-
<PAGE>
The following table shows rate and maturity information for the
Association's certificates of deposit as of June 30, 2000.
<TABLE>
<CAPTION>
2.00- 4.00- 6.00- Percent
3.99% 5.99% 7.99% Total of Total
-------------------------------------------------------------------------------------
(Dollars in Thousands)
Certificate accounts
maturing
in quarter ending:
-----------------
<S> <C> <C> <C> <C> <C>
September 30, 2000.................. $ --- $ 6,010 $ 3,335 $ 9,345 13.99%
December 31, 2000................... --- 4,353 10,703 15,056 22.54
March 31, 2001...................... --- 4,030 8,099 12,129 18.16
June 30, 2001....................... --- 2,918 5,252 8,170 12.23
September 30, 2001.................. --- 1,661 2,491 4,152 6.22
December 31, 2001................... --- 1,338 2,081 3,419 5.12
March 31, 2002...................... --- 958 314 1,272 1.90
June 30, 2002....................... --- 821 868 1,689 2.53
September 30, 2002.................. --- 97 2,557 2,654 3.97
December 31, 2002................... --- 449 2,647 3,090 4.63
March 31, 2003...................... --- 104 1,220 1,324 1.98
June 30, 2003....................... --- 51 1,315 1,366 2.04
September 30, 2003.................. --- 241 947 1,188 1.98
December 31, 2003................... --- 194 239 433 0.65
March 31, 2004...................... --- 219 37 256 0.38
June 30, 2004....................... --- 71 357 428 0.65
September 30, 2004.................. --- 13 --- 13 0.02
December 31, 2004................... --- --- 6 6 0.01
March 31, 2005...................... --- --- 153 153 0.23
June 30, 2005....................... --- --- 651 651 0.97
----- ------- ------- ------- -----
Total............................ $ --- $23,528 $43,266 $66,794 100%
===== ======= ======= ======= =====
Percent of total................ ---% 35.2% 64.8%
===== ======= =======
</TABLE>
At June 30, 2000 the Association had approximately $6.3 million in
certificate accounts in amounts of $100,000 or more maturing as follows:
Weighted
Maturity Period Amount Average Rate
-----------------------------------------------------------------------------
(Dollars in
Thousands)
Three months or less...................... $1,312 5.97%
Over three through six months............. 1,959 5.93
Over six through 12 months................ 1,170 6.24
Over 12 months............................ 1,871 6.52
------ ----
Total..................................... $6,312 6.17%
====== ====
For additional information regarding the composition of the
Association's deposits, see Note 7 of Notes to Consolidated Financial
Statements.
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<PAGE>
Borrowings. Peoples Federal's other available sources of funds
include advances from the FHLB of Cincinnati and other borrowings. As a member
of the FHLB of Cincinnati, the Association is required to own capital stock in
the FHLB of Cincinnati and is authorized to apply for advances from the FHLB of
Cincinnati. Each FHLB credit program has its own interest rate, which may be
fixed or variable, and range of maturities. The FHLB of Cincinnati may prescribe
the acceptable uses for these advances, as well as limitations on the size of
the advances and repayment provisions.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
2000 1999 1998
----------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at period end:
---------------------
FHLB advances...................................... $19,000 $14,800 $7,000
Weighted average rate.............................. 6.35% 5.87% 6.13%
Maximum balance at any month end during the period:
FHLB advances...................................... $19,800 $14,800 $7,000
Average balance for the period:
------------------------------
FHLB advances...................................... $17,603 $7,764 $ 96
Weighted average rate.............................. 6.11% 6.05% 6.25%
</TABLE>
Service Corporations
As a federally chartered savings association, Peoples Federal is
permitted by OTS regulations to invest up to 2% of its assets, or $2.6 million
at June 30, 2000 in the stock of, or loans to, service corporation subsidiaries.
As of such date, Peoples Federal had no investments in service corporations.
REGULATION
General
Peoples Federal is a federally chartered savings association, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, Peoples Federal is subject to
broad federal regulation and oversight extending to all its operations. Peoples
Federal is a member of the FHLB of Cincinnati and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"). As the savings and loan holding company of Peoples Federal, the
Company also is subject to federal regulation and oversight. The purpose of the
regulation of the Company and other savings and loan holding companies is to
protect subsidiary savings associations. Peoples Federal is a member of the
SAIF, which together with the Bank Insurance Fund (the "BIF") are the two
deposit insurance funds administered by the FDIC, and the deposits of Peoples
Federal are insured by the FDIC. As a result, the FDIC has certain regulatory
and examination authority over Peoples Federal.
Certain of these regulatory requirements and restrictions are
discussed below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Peoples Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS examination of Peoples Federal was as of
December 31, 1999. When these examinations are conducted by the OTS and the
FDIC, the examiners may require the Association to provide for higher general or
specific loan loss reserves. All savings associations are subject to a
semi-annual assessment, based upon the savings association's
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<PAGE>
total assets, to fund the operations of the OTS. The Association's OTS
assessment for the fiscal year ended June 30, 2000 was $35,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Peoples Federal and the
Company. This enforcement authority 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 OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Association is prescribed by federal laws and it is prohibited from engaging in
any activities not permitted by such laws. For instance, no savings institution
may invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Peoples Federal is in compliance with the noted
restrictions.
Peoples Federal's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At June 30, 2000, the Association's lending
limit under this restriction was $2.1 million. Peoples Federal is in compliance
with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan.
Insurance of Accounts and Regulation by the FDIC
Peoples Federal is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and 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 risk
to the SAIF or the BIF. The FDIC also has the authority to initiate enforcement
actions against savings associations, after giving the OTS an opportunity to
take such action, and may terminate the deposit insurance if it determines that
the institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a
risk-based system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
level of capital and supervisory evaluation. Under the system, institutions
classified as well capitalized (i.e., a core capital ratio of at least 5%, a
ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based
capital") of at least 6% and a risk-based capital ratio of at least 10%) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less
than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern pay the highest premium. Risk classification of
all insured institutions is made by the FDIC for each semi-annual assessment
period.
Regulatory Capital Requirements
Federally insured savings associations, such as Peoples Federal, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
-26-
<PAGE>
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At June 30, 2000, the Association did not have any intangible
assets.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. Peoples Federal does not have any subsidiaries.
At June 30, 2000, Peoples Federal had tangible capital of $14.2
million, or 10.9% of adjusted total assets, which is approximately $12.2 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital equal to at least 3%
of adjusted total assets. Core capital generally consists of tangible capital
plus certain intangible assets, including a limited amount of purchased credit
card receivables. As a result of the prompt corrective action provisions
discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3% ratio. At June 30,
2000, Peoples Federal had no intangible assets which were subject to these
tests.
At June 30, 2000, Peoples Federal had core capital equal to $14.2
million, or 10.9% of adjusted total assets, which is $9.0 million above the
minimum leverage ratio requirement of 4% as in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk- weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At June 30, 2000, Peoples Federal
had $590,000 of general loss reserves, which was less than 1.25% of
risk-weighted assets.
Certain exclusions from capital and assets are required to be made
for the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Peoples Federal had no
such exclusions from capital and assets at June 30, 2000.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
On June 30, 2000, Peoples Federal had total capital of $14.8 million
(including $14.2 million in core capital and $590,000 in qualifying
supplementary capital) and risk-weighted assets of $85.7 million, or total
capital of 17.2% of risk- weighted assets. This amount was $7.9 million above
the 8% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
-27-
<PAGE>
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association
into a lower capital category and impose the restrictions applicable to such
category if the institution is engaged in unsafe or unsound practices or is in
an unsafe or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Association may have a substantial adverse effect on its operations and
profitability.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations generally permit a
federal savings association to pay dividends in any calendar year equal to net
income for that year plus retained earnings for the preceding two years. Based
upon dividends the Association has paid to the Company, no additional dividends
may be paid by the Association to the Company without OTS approval.
Liquidity
All savings associations, including Peoples Federal, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what Peoples Federal
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
in the 2000 Annual Report to Stockholders attached hereto as Exhibit 13 and
incorporated by reference herein. This liquid asset ratio requirement may vary
from time to time depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 4%.
Qualified Thrift Lender Test
All savings associations, including Peoples Federal, are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings association may maintain 60% of its assets
in those assets specified in Section 7701(a)(19) of the Internal Revenue Code of
1986, as amended (the "Code"). Under either test, such assets primarily consist
of residential housing related loans and investments. At June 30, 2000, the
Association met the test and has always met the test since its effectiveness.
-28-
<PAGE>
Any savings association that fails to meet the QTL test must convert
to a national bank charter, unless it requalifies as a QTL and thereafter
remains a QTL. If an association does not requalify and converts to a national
bank charter, it must remain SAIF-insured until the FDIC permits it to transfer
to the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See -"Regulation of the Company."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of Peoples
Federal, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by Peoples
Federal. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
Due to the heightened attention being given to the CRA in recent
years, the Association may be required to devote additional funds for investment
and lending in its local community. The Association was examined for CRA
compliance in 1998 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of Peoples Federal include the Company and
any company which is under common control with the Association. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates. The OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Regulation of the Company
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Company generally
is not subject to activity restrictions. If the Company acquires control of
another savings association as a separate subsidiary, it would become a multiple
savings and loan holding company, and the activities of the Company and any of
its subsidiaries (other than Peoples
-29-
<PAGE>
Federal or any other SAIF-insured savings association) would become subject to
such restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Peoples Federal fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Holding Company must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The common stock of the Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration unless sold in accordance with certain resale restrictions. If the
Company meets specified current public information requirements, each affiliate
of the Company is able to sell in the public market, without registration, a
limited number of shares in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain noninterest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At June 30, 2000, Peoples Federal was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "--Liquidity."
Savings associations are authorized to borrow from the Federal
Reserve Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
Peoples Federal is a member of the FHLB of Cincinnati, which is one
of 12 regional FHLBs that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, Peoples Federal is required to purchase and maintain
stock in the FHLB of Cincinnati. At June 30, 2000, Peoples Federal had
$1,023,000 in FHLB stock, which was in compliance with this requirement. In past
years, Peoples Federal has received substantial dividends on its FHLB stock.
Over the past five fiscal years such dividends have averaged 7.11% and were
7.16% for fiscal 2000.
-30-
<PAGE>
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Peoples Federal's FHLB stock may result in a corresponding
reduction in Peoples Federal's capital.
For the year ended June 30, 2000, dividends paid by the FHLB of
Cincinnati to Peoples Federal totaled $67,000, which constitutes a $6,000
increase over the amount of dividends received in fiscal year 1999. The $18,000
dividend for the quarter ended June 30, 2000 reflects an annualized rate of
7.35%, or 0.37% above the rate for fiscal 1999.
Federal and State Taxation
In addition to the regular income tax, corporations, including
savings associations such as Peoples Federal, generally are subject to a minimum
tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income.
A portion of the Association's reserves for losses on loans may not,
without adverse tax consequences, be utilized for the payment of cash dividends
or other distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of June 30, 2000, the portion of Peoples Federal's reserves subject
to this treatment for tax purposes totaled approximately $2.2 million.
The Company and Peoples Federal file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting.
Peoples Federal has been audited by the IRS, or the statute of
limitations for assessment has closed, with respect to federal income tax
returns through June 30, 1996. With respect to years examined by the IRS, either
all deficiencies have been satisfied or sufficient reserves have been
established to satisfy asserted deficiencies. In the opinion of management, any
examination of still open returns (including returns of subsidiaries and
predecessors of, or entities merged into, Peoples Federal) would not result in a
deficiency which could have a material adverse effect on the financial condition
of Peoples Federal.
Ohio Taxation. The Association conducts its business in Ohio and
consequently is subject to the Ohio corporate franchise tax. A financial
institution subject to the Ohio corporate franchise tax levied by the Ohio
Revised Code pays a tax equal to 1.3% of its apportioned net worth. The
apportionment factor consists of a gross receipts factor, determined by
reference to the total receipts of the financial institution from all sources, a
property factor, determined by reference to the net book value of all loans and
fixed assets owned by the financial institution and a payroll factor.
Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware. The Company
also files an Ohio franchise tax return and pays tax on its Ohio taxable income.
Impact of New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" - SFAS 133
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. SFAS 133 does not
allow hedging of a security which is classified as held to maturity.
Accordingly, upon
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<PAGE>
adoption of SFAS 133, companies may reclassify any security from held to
maturity to available for sale if they wish to be able to hedge the security in
the future. SFAS 133, as amended by SFAS 137, is effective for fiscal years
beginning after June 15, 2000 with early adoption encouraged for any fiscal
quarter beginning July 1, 1998 or later, with no retroactive application.
Management does not expect the adoption of SFAS 133 to have a significant impact
on the Company's financial statements.
Competition
Peoples Federal experiences strong competition both in originating
real estate loans and in attracting deposits. This competition arises from a
highly competitive market area with numerous savings institutions and commercial
banks, as well as credit unions, mortgage bankers and national and local
securities firms. The Association competes for loans principally on the basis of
the interest rates and loan fees it charges, the types of loans it originates
and the quality of services it provides to borrowers.
The Association attracts all of its deposits through the community in
which its office is located; therefore, competition for those deposits is
principally from other savings institutions, commercial banks, securities firms,
money market and mutual funds and credit unions located in the same community.
The ability of the Association to attract and retain deposits depends on its
ability to provide an investment opportunity that satisfies the requirements of
investors as to rate of return, liquidity, risk, convenient locations and other
factors. The Association competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours and a
customer-oriented staff.
Employees
At June 30, 2000, the Association had a total of 27 full-time
employees, 12 of which have been employed by Peoples Federal for at least 10
years, and 4 part-time employees. None of the Association's employees are
represented by any collective bargaining group. Management considers its
employee relations to be good.
Executive Officers of the Registrant Who Are Not Directors
The following information as to the business experience during the
past five years is supplied with respect to the executive officers of the
Company and the Association who do not serve on the Company's Board of
Directors. Executive officers of the Company are elected annually to serve until
their successors are elected or until they resign or are removed by the Board of
Directors. There are no arrangements or understandings between the persons named
and any other person pursuant to which such officers were elected.
David R. Fogt. Mr. Fogt, age 49, is Vice President of Operations and
Financial Services of the Association. He is responsible for the overall
administration of the Association with direct responsibilities in consumer
lending and asset and liability management. He has been employed by Peoples
Federal since 1983.
Gary N. Fullenkamp. Mr. Fullenkamp, age 44, is Vice President of
Mortgage Loans and Corporate Secretary of the Association. He is responsible for
mortgage lending operations of the Association, including underwriting and
processing of mortgage loan activity. He has been employed by Peoples Federal
since 1979.
Debra A. Geuy. Mrs. Geuy, age 42, is Chief Financial Officer and
Treasurer of the Association. She is responsible for overseeing the financial
functions of the Association. She has been employed by Peoples Federal since
1978.
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<PAGE>
Item 2. Properties
The following table sets forth information concerning the main and
branch offices and a drive-in facility of the Association at June 30, 2000. The
Association believes that its current facilities are adequate. The Association
also maintains a 24-hour ATM at its main and both branch office locations.
Net Book
Owned Value at
Year or June 30,
Location Opened Leased 2000
--------
---------------------------------------------
Main Office:
101 East Court Street 1917 Owned $245,096
Sidney, Ohio 45365
Drive-In:
232 S. Ohio Avenue 1971 Owned $165,377
Sidney, Ohio 45365
Anna Branch:
403 South Pike Street 1998 Owned $609,351
Anna, Ohio 45302
Jackson Center Branch:
115 East Pike Street 1998 Leased $ 97,444
Jackson Center, Ohio 45334
The Association's depositor and borrower customer files are
maintained by an independent data processing company. The net book value of the
data processing and computer equipment utilized by the Association at June 30,
2000 was approximately $200,000.
Item 3. Legal Proceedings
From time to time, the Association is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of its
business. While the ultimate outcome of these various legal proceedings cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal actions should not have a material effect on the Association's
financial position or results of operations.
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Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitations of proxies or otherwise, during the quarter ended June 30, 2000.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Page 4 of the Company's 2000 Annual Report to Stockholders is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
Pages 8 through 19 of the Company's 2000 Annual Report to
Stockholders are incorporated herein by reference.
Item 7. Financial Statements
Pages 20 through 45 of the Company's 2000 Annual Report to
Stockholders are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors
Information concerning directors of the Company is incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 2000, which has been filed with the SEC.
Executive Officers
Information concerning the executive officers of the Company who are
not directors is incorporated by reference from Part I of this Form 10-KSB under
the caption "Executive Officers of the Registrant Who Are Not Directors."
Section 16(a) Beneficial Ownership Reporting Compliance
Information concerning compliance with Section 16(a) reporting
requirements by the Company's directors and executive officers is incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 2000, which has been filed with the SEC.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 2000, which has been filed with the SEC.
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<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial
owners and management is incorporated herein by reference from the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held in
2000, which has been filed with the SEC.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 2000, which has
been filed with the SEC.
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<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Reference to
Prior Filing
or Exhibit
Regulation Number
S-B Exhibit Attached
Number Document Hereto
----------------- ---------------------------------------------------------- ------
<S> <C> <C> <C>
2 Plan of acquisition, reorganization, arrangement, None
liquidation or succession
3(i) Certificate of Incorporation *
3(ii) By-Laws *
4 Instruments defining the rights of holders, including *
indentures
9 Voting trust agreement None
10.1 Employee Stock Ownership Plan *
10.2 Form of Employment Agreement with Douglas Stewart *
10.3 Forms of Employment Agreements with David R. Fogt, *
Gary N. Fullenkamp, Debra A. Geuy and Steven Goins
10.4 401k Plan *
10.5 Incentive Bonus Plan *
10.6 Peoples-Sidney Financial Corporation Amended and **
Restated 1998 Stock Option and Incentive Plan
10.7 Peoples-Sidney Financial Corporation Amended and **
Restated 1998 Management Recognition Plan
11 Statement re: computation of per share earnings None
13 Annual report to security holders 13
16 Letter on change in certifying accountant None
18 Letter on change in accounting principles None
21 Subsidiaries of Registrant 21
22 Published report regarding matters submitted to vote None
23 Consents of experts and counsel 23
24 Power of attorney Not required
27 Financial data schedule 27
99 Additional exhibits Not required
</TABLE>
------------------
* Filed as an exhibit to the Registrant's Form S-1 registration statement
(File No. 333-20461) and incorporated herein by reference.
** Filed as an exhibit to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1999 (File No. 0-22223) and incorporated herein
by reference.
(b) Reports on Form 8-K
During the quarter ended June 30, 2000, the Company filed two Current
Reports on Form 8-K. On April 19, 2000, under Item 5, the Company reported the
issuance of a press release announcing the Company's earnings for the quarter
ended March 31, 2000 and the declaration of a cash dividend. On April 28, 2000,
under Item 5, the Company reported the issuance of a press release announcing
the completion of a stock repurchase program.
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<PAGE>
SIGNATURES
Pursuant to the requirements 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-SIDNEY FINANCIAL CORPORATION
By:
----------------------------------------------------
Douglas Stewart
President, Chief Executive Officer and Director
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
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---------------------------------------
Douglas Stewart James W. Kerber
President, Chief Executive Officer and Director
Director
(Principal Executive Officer)
Date: , 2000 Date: , 2000
----------------------- -----------------------------
Richard T. Martin John W. Sargeant
Chairman of the Board Director
Date: , 2000 Date: , 2000
----------------------- -----------------------------
Robert W. Bertsch Debra A. Geuy
Director Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
Date: , 2000 Date: , 2000
----------------------- -----------------------------
Harry N. Faulkner
Director
Date: , 2000
-----------------------
INDEX TO EXHIBITS
Number
------
13 Portions of Annual Report to Security Holders
23 Consent of Crowe, Chizek and Company LLP
21 Subsidiaries of the Registrant
27 Financial Data Schedule
