UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
For Annual and Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________ to ________
Commission File Number 0-18991
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PEOPLES BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1811284
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
212 West 7th Street, Auburn, Indiana 46706
------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 925-2500
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 $1.00 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [X ]
Aggregate market value of voting stock held by non-affiliates of the registrant,
as of December 22, 2000: $49,943,875.
------------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of December 22, 2000:
3,638,898 shares of Common Stock, par value $1.00 per share
Documents Incorporated by Reference:
Portions of the definitive Proxy Statement/Prospectus (Part III) and the
Annual Report to Stockholders for the year ended September 30, 2000 (Parts II
and IV).
<PAGE>
PART I
Peoples Bancorp (the "Company") may from time to time make written or
oral "forward-looking statements", including statements contained in the
Company's filings with the Securities and Exchange Commission (including this
annual report on Form 10-K and the exhibits thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rates, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Company in managing the risks
resulting from these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time or on behalf of the Company.
Item 1. Business
General
The Company is an Indiana corporation organized in October 1990 to become
the thrift holding company for Peoples Federal Savings Bank of DeKalb County
("Peoples Federal"). The Company is the sole shareholder of Peoples Federal.
Peoples Federal conducts business from its main office in Auburn and its seven
full-service offices located in Avilla, Columbia City, Garrett, Kendallville,
LaGrange, and Waterloo, Indiana. Peoples Federal offers a full range of retail
deposit services and lending services to northeastern Indiana.
Peoples Federal was founded in 1925 and chartered by the Federal Home Loan
Bank Board ("FHLBB"), now the Office of Thrift Supervision ("OTS"), in 1937.
Since that time, they have been a member of the Federal Home Loan Bank System
("FHLB System") and the Federal Home Loan Bank of Indianapolis ("FHLB of
Indianapolis"), and its savings accounts are insured up to applicable limits by
the Savings Association Insurance Fund ("SAIF"), as administered by the Federal
Deposit Insurance Corporation (the "FDIC").
On February 29, 2000 a merger was completed with Three Rivers Financial
Corp. and its subsidiary First Savings Bank ("First Savings") of Three Rivers,
Michigan. The Company became the sole shareholder of First Savings. First
Savings conducts business from its main office in Three Rivers, Michigan, and
its five full service offices in Union, and Schoolcraft, Michigan, and Howe and
Middlebury, Indiana.
The Company has no other business activity other than being the holding
company for Peoples Federal and First Savings (collectively the "Banks") subject
to regulation by the OTS. The Company's securities are registered with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). As such, the Company is subject to
the information, proxy solicitation, insider trading, and other restrictions and
requirements of the Exchange Act.
<PAGE>
In June 1999, the Board authorized a stock repurchase program.
Purchases of up to 300,000 shares of the Company's common stock may be made in
open market or in privately negotiated transactions. As of September 30, 2000,
the Company had repurchased 290,694 shares.
On a yearly basis, the Company updates its long-term strategic plan.
This plan includes, among other things, the Company's commitment to maintaining
a strong capital base and continuing to improve the organization's return on
assets through asset growth and controlling operating expenses. Continued
careful monitoring of the Banks' interest rate risk is also cited as an
important goal. As a result, continued origination of short-term consumer and
installment loans, prime plus equity loans, adjustable rate mortgage loans, and
fixed-rate real estate loans with original terms of 15 years or less will be
emphasized.
The Banks offer a wide range of consumer and commercial financial
services. These services include: consumer demand deposit accounts; NOW
accounts; regular and term savings accounts and savings certificates;
residential and commercial real estate loans; and secured and unsecured consumer
loans. During 1999, Peoples Federal added agricultural and commercial lending
officers to its staff. Since these types of loans pose a higher credit risk than
traditional mortgage lending, they typically offer higher yields and are for
shorter terms. It is expected that these loans will assist Peoples Federal in
managing its interest rate risk, and increase its overall profitability. The
Banks provide these services through a branch network comprised of fourteen
full-service banking offices. They also provide credit card services, as well as
enhancements to its loan and deposit products designed to provide customers with
added conveniences. The Company has historically concentrated its business
activities in northeastern Indiana. The purchase of First Savings has extended
this area to southern Michigan. The Company's current strategy is to maintain
its branch office network as well as remain alert to new opportunities.
Over the years, the Company has broadened its product line and enhanced
its operations in order to accommodate its growth and to meet the vigorous
competition from various financial institutions and other companies or firms
that engage in similar activities.
The Thrift Industry
Thrift institutions are financial intermediaries which historically have
accepted savings deposits from the general public and, to a lesser extent,
borrowed funds from outside sources and invested those deposits and funds
primarily in loans secured by first mortgage liens on residential and other
types of real estate. Such institutions may also invest their funds in various
types of short- and long-term securities. The deposits of thrift institutions
are insured by the SAIF as administered by the FDIC, and these institutions are
subject to extensive regulations. These regulations govern, among other things,
the lending and other investment powers of thrift institutions, including the
terms of mortgage instruments these institutions are permitted to utilize, the
types of deposits they are permitted to accept, and reserve requirements.
The operations of thrift institutions, including those of the Banks, are
significantly affected by general economic conditions and by related monetary
and fiscal policies of the federal government and regulations and policies of
financial institution regulatory authorities, including the Board of Governors
of the Federal Reserve System and the OTS. Lending activities are influenced by
a number of factors including the demand for housing, conditions in the
construction industry, and availability of funds. Sources of funds for lending
activities include savings deposits, loan principal payments, proceeds from
sales of loans, and borrowings from the Federal Home Loan Banks and other
sources. Savings flows at thrift institutions such as the Banks are influenced
by a number of factors including interest rates on competing investments and
levels of personal income.
<PAGE>
Earnings
The Banks' earnings depend primarily on the difference between income from
interest-earning assets such as loans and investments, and interest paid on
interest-bearing liabilities such as deposits and borrowings. The Banks
typically engage in long-term mortgage lending at fixed rates of interest,
generally for periods of up to 30 years, while accepting deposits for
considerably shorter periods.
Generally, rapidly rising interest rates cause the cost of
interest-bearing liabilities to increase more rapidly than yields on
interest-earning assets, thereby adversely affecting the earnings of many thrift
institutions. While the industry has received expanded lending and borrowing
powers in recent years permitting different types of investments and mortgage
loans, including those with floating or adjustable rates and those with shorter
terms, earnings and operations are still highly influenced by levels of interest
rates and financial market conditions and by substantial investments in
long-term mortgage loans.
Competition
The Banks experience strong competition both in making real estate loans
and in attracting savings deposits. The Banks compete for real estate loans with
commercial banks, mortgage banking companies, insurance companies, and other
institutional lenders. The most direct competition for savings comes from other
thrift institutions, mutual savings banks, commercial banks and credit unions.
During periods of generally high interest rates, additional significant
competition for savings accounts comes from corporate and government securities
as well as money market mutual funds. The principal methods generally used by
the Banks to attract deposit accounts include: competitive interest rates,
advertising, providing a variety of financial services, convenient office
locations, flexible hours for the public, and promotions for opening or adding
to deposit accounts.
Net Interest Income
Net interest income increases during periods when the spread is widened
between the Banks' weighted average rate at which new loans are originated and
the weighted average cost of interest-bearing liabilities. The Banks' ability to
originate loans is affected by market factors such as interest rates,
competition, consumer preferences, the supply of and demand for housing, and the
availability of funds.
The Banks have supplemented their interest income through purchases of
investments when appropriate. This activity generates positive interest rate
spreads on large principal balances with minimal administrative expense.
Interest Rate and Volume of Interest-Related Assets and Liabilities
Both changes in rate and changes in the composition of the Banks'
interest-earning assets and interest-bearing liabilities can have a significant
effect on net interest income.
For information regarding the total dollar amount of interest income from
interest-earning assets, the average yields, the amount of interest expense from
interest-bearing liabilities and the average rate, net interest income, interest
rate spread, and the net yield on interest-earning assets, refer to page 13 of
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 2000 Annual Report to Stockholders, incorporated
herein by reference.
<PAGE>
For information regarding the combined weighted average effective interest
rate earned by the Banks on their loan portfolios and investments, the combined
weighted average effective cost of the Banks' deposits and borrowings, the
interest rate spread of the Banks, and the net yield on combined monthly
weighted average interest-earning assets of the Banks on their loan portfolios
and investments for the fiscal years ending September 30, 2000, 1999, and 1998
refer to page 10 of Management's Discussion and Analysis of Financial Condition
and Results of Operations in the Company's 2000 Annual Report incorporated
herein by reference.
For information concerning the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
the Banks' interest income and expense during the fiscal years ending September
30, 2000, 1999, and 1998 refer to page 14 of Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's 2000
Annual Report incorporated herein by reference.
Market Area
Peoples Federal's market area in northeastern Indiana spans the counties of
DeKalb, Whitley, Noble, and LaGrange. This market area has a population of
approximately 145,000 and has a diversified industrial economic base with an
emphasis on the production sector that includes major manufacturers of
international scope. Moreover, the distribution sector, primarily in the
wholesale and retail trades, constitutes a substantial portion of the area's
economy, both in terms of product mix, sales receipts, and employment. The most
rapid growth has occurred in the manufacturing sector, especially in the
production of automotive and electronics products, and in the service sector
with respect to packaging, warehousing, and distribution services.
With the addition of First Savings Bank to the Company, the market area has
expanded into southern Michigan and additional towns of Howe and Middlebury in
northeastern Indiana. First Savings serves St. Joseph, southern Kalamazoo, and
Cass counties in Michigan and LaGrange and eastern Elkhart counties in Indiana.
This expanded market area is contiguous to the Peoples Federal market area and
is a natural expansion. This aggregate market area has a population estimate of
489,108 and consists of a diversified economic base that includes manufacturing,
wholesale and retail trades, small farming, and service industries. The general
area serviced by First Savings would be classified as rural.
Lending Activities
General
The Banks have attempted to emphasize investments in adjustable-rate
residential mortgages and consumer loans in their market areas. In order to
lessen their risk from interest rate fluctuations, the Banks emphasize the
origination of interest rate sensitive loan products, such as one-year
adjustable-rate mortgage loans, and prime plus equity loans. However, during the
recent low interest rate market, customers preferred fixed rate products. The
Banks reacted to this trend by offering a new mortgage product of a seven-year
fixed rate loan, which converts to a one-year adjustable product at the end of
the seventh year. In this way, the Banks offered a fixed rate product to satisfy
the customer demand, but are not locked into low interest rates for a long
period of time. For regulatory reporting purposes, these loans are shown as
fixed rate product until the period remaining to the next repricing is under
five years. Seven year/one year loans originated during the initial
implementation of this product are now shown in this Form 10-K as adjustable
rate product. More recent originations of these types of loans are shown as
fixed rate mortgages. First Savings sells any loans they originate for longer
than seven year fixed rate terms on the secondary market.
Residential Mortgage Loans
A substantial portion of the Banks' lending activity involves the
origination of loans secured by residential real estate, consisting of
single-family dwelling units. The Banks also lend on the security of mid-size
multifamily dwelling units. The residential mortgage loans included in the
Banks' portfolio are primarily conventional fixed-rate loans with a maturity of
up to 30 years.
The Banks also offer adjustable-rate mortgage loans. Currently, these loans
generally have interest rates that adjust (up or down) every year. Generally,
these loans provide for a maximum adjustment of 6% over the life of the loans
with a maximum adjustment of 2% during any given year. Adjustments are based
upon an index established at the time the commitments are issued by the Banks.
The index used for most loans is tied to the applicable United States Treasury
security index. While adjustable-rate mortgage loans assist the Banks in
maintaining a positive spread during periods of high interest rates, it is not
expected that adjustments in interest rates on adjustable-rate mortgages will
match precisely changes in the Banks' cost of funds. The majority of the
adjustable rate mortgages originated by the Banks have limitations on the amount
(generally 6%) and frequency of interest rate changes.
<PAGE>
During the fiscal year ended September 30, 2000, the Banks originated
$127,435,000 of residential loans of which $79,917,000 was five- to 30-year
fixed-rate mortgages and $47,518,000 was adjustable-rate loans. The rates
offered on the Banks' adjustable-rate residential mortgage loans are generally
competitive with the rates offered by other thrift institutions in the Banks'
market areas and are based upon the Banks' cost of funds and the rate of return
the Banks can receive on comparable investments. Fixed-rate loans are originated
only under terms and conditions and using documentation which would permit their
sale in the secondary market and at rates which are generally competitive with
rates offered by other financial institutions in the Banks' market areas.
Set forth below is the amounts and percentages of fixed-rate and
adjustable-rate loans (which include consumer loans) in the Banks' portfolios at
September 30, 2000, 1999, and 1998 (Dollars in thousands).
September 30,
--------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- -------------------
Fixed Adjustable Fixed Adjustable Fixed Adjustable
--------- ---------- -------- ---------- -------- ----------
$291,488 $106,941 $259,133 $42,443 $225,270 $46,740
73.2% 26.8% 85.9% 14.1% 82.8% 17.2%
The terms of the residential loans originated by the Banks range from one to
30 years. Experience during recent years reveals that as a result of prepayments
in connection with refinancings and sales of the underlying properties,
residential loans generally remain outstanding for periods substantially shorter
than maturity of the loan contracts. At September 30, 2000, the average
contractual maturity of the Banks' portfolios of fixed-rate loans was 9 years
and 9 months, and 19 years and 0 months with respect to its portfolio of
adjustable-rate loans.
Substantially all of the Banks' residential mortgages include so-called "due
on sale" clauses, which are provisions giving the Banks the right to declare a
loan immediately due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property subject to the
mortgage, and the loan is not repaid.
Generally, the Banks will not lend more than 80% of the appraised value of a
residential property which is owner occupied unless the borrower obtains private
mortgage insurance reducing the uninsured portion of the loan to 72% of the
appraised value. If private mortgage insurance is obtained, the Banks' policy is
to lend up to 90% of the appraised value of the property securing the loan. The
Banks apply the same standards to residential loans purchased in the secondary
market.
Commercial Real Estate Loans
The Banks also originate commercial real estate loans. From September 30,
1999, to September 30, 2000, commercial real estate loans generated by the Banks
increased from $10,411,049 to $13,167,996, with the percentage of commercial
real estate loans to total loans increasing from 3.80% to 4.30%. These loans
consisted of construction and permanent loans secured by mortgages on mid-size
commercial real estate and farms. Of these loans, approximately $5.1 million are
secured by agricultural real estate. The terms of commercial real estate loans
vary from loan to loan but are usually five-year adjustable-rate loans with
terms of 20 to 25 years. The loan-to-value ratio of commercial real estate loans
is generally 75% or less.
Generally, commercial real estate loans involve greater risk to the Banks
than do residential loans but usually provide for a higher rate of interest and
increased fee income than do residential loans. Commercial real estate loans
typically involve large loan balances to single borrowers or groups of related
borrowers. In addition, the payment experience on loans secured by income
producing properties is typically dependent on the successful operation of the
related project and thus may be subject to a great extent to adverse conditions
in the real estate market or in the economy generally.
<PAGE>
Construction Loans
The Banks offer residential construction loans both to owner-occupants and
to persons building residential property. Construction loans are usually offered
with fixed rates of interest during construction. Generally, construction loans
have terms ranging from six to 12 months at fixed rates over the construction
period. Practically all residential construction loans are written so as to
become permanent loans at the end of the construction period.
Construction loans involve greater underwriting and default risks to the
Banks than do loans secured by mortgages on existing properties. Loan funds are
advanced upon the security of the project under construction, which is more
difficult to value prior to the completion of construction. Moreover, because of
the uncertainties inherent in estimating construction costs, it is relatively
difficult to evaluate accurately the total loan funds required to complete a
project and the related loan-to-value ratios. Should a default occur which
results in foreclosure, the Banks could be negatively impacted in that they
would have to take control of the project and attempt either to arrange for
completion of construction or dispose of the unfinished project.
The Banks' underwriting criteria are designed to evaluate and minimize the
risks of each construction loan. The Banks carefully consider a wide variety of
factors before originating a construction loan, including the availability of
permanent financing or a takeout commitment to the borrower (which may be
provided by the Banks at market rates); the reputation of the borrower and the
contractor; independent valuations and reviews of cost estimates;
pre-construction sale information; and cash flow projections of the borrower.
Inspections of construction sites are made by the Banks on a timely basis to
verify progress made to date as a further reinforcement of its conservative
lending policy. To reduce the risks inherent in construction lending, the Banks
limit the number of properties that can be constructed on a "speculative" or
unsold basis by a developer at any one time and generally require the borrower
or its principals to personally guarantee repayment of the loan.
Consumer and Other Loans
Federal laws and regulations permit a federally-chartered savings
institution to make secured and unsecured consumer loans including home equity
loans (loans secured by the equity in the borrower's residence, but not
necessarily for the purpose of improvement), home improvement loans (loans
secured by a residential second mortgage), loans secured by deposit accounts,
and credit card loans (unsecured). The Banks offer all of these types of loans
and are currently emphasizing home equity loans to take advantage of the
adjustable interest rate feature of this type of loan versus the mortgage
product. These loans also carry a higher rate of interest than conventional
mortgages, thereby increasing the profit potential while reducing the interest
rate risk.
Loan Portfolio Cash Flows
The following table sets forth the estimated maturity of the Banks' loan
portfolios by type of loan at September 30, 2000. The estimated maturity
reflects contractual terms at September 30, 2000. Contractual principal
repayments of loans do not necessarily reflect the actual term of the Banks'
loan portfolios. The average life of mortgage loans is substantially less than
their contractual terms because of loan prepayments and because of enforcement
of "due on sale" clauses. The average life of mortgage loans tends to increase,
however, when current mortgage loan rates substantially exceed rates on existing
mortgage loans.
<PAGE>
Due in One Year Due After
One Year Through Five
or Less Five Years Years Total
--------- ---------- ---------- ----------
(In thousands)
Type of Loan:
Construction loans --
Residential real estate $ 9,630 $ - $ - $ 9,630
Commercial 110 - - 110
Real estate loans:
Mortgage-residential 29,761 69,803 231,861 331,425
Commercial 2,006 9,274 5,275 16,555
Installment loans --
consumer 17,010 13,382 5,760 36,152
commercial 3,503 969 85 4,557
--------- ---------- ---------- ----------
Total $62,020 $93,428 $242,981 $398,429
========= ========== ========== ==========
The following table sets forth the total amount of loans due after one year
from September 30, 2000, which have a fixed rate or an adjustable rate. (Dollars
in thousands)
Loans Due
October 1, 2001 and thereafter
----------------------------------
Fixed Adjustable Total at September 30, 2000
----------------- ---------------- ---------------------------
$176,238 $160,171 $336,409
Loan Portfolio Composition
The following table sets forth the composition of the Banks' loan portfolios
by type of loan at the dates indicated. The table includes a reconciliation of
total net loans receivable, after consideration of undisbursed portion of loans,
deferred loan fees and discounts, and allowance for losses on loans.
<PAGE>
<TABLE>
At September 30
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------
TYPE OF LOAN AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
----------- -------- ----------- ------- ---------- ------- ---------- ------- ---------- -------
Residential: (Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single family units $ 332,847 83.5% $ 265,992 88.2% $ 243,858 89.7% $ 217,528 90.8% $207,028 91.0%
2-4 family units 3,263 0.8% 1,603 0.5% 1,610 0.6% 1,541 0.6% 1,234 0.5%
Over 4 family units 3,018 0.8% 2,525 0.8% 2,687 1.0% 2,813 1.2% 2,769 1.2%
Commercial real estate 16,665 4.2% 9,392 3.1% 6,425 2.4% 4,269 1.8% 4,006 1.8%
Land acquisition and
development 1,926 0.5% 1,251 0.4% 1,299 0.5% 769 0.3% 702 0.3%
Consumer and other loans 39,657 10.0% 19,861 6.6% 15,157 5.6% 11,915 5.0% 10,959 4.8%
Loans on deposits 1,052 0.3% 952 0.3% 973 0.4% 821 0.3% 877 0.4%
----------- -------- ----------- ------- ---------- ------- ---------- ------- ---------- -------
398,428 100.0% 301,576 100.0% 272,009 100.0% 239,656 100.0% 227,575 100.0%
----------- -------- ----------- ------- ---------- ------- ---------- ------- ---------- -------
Less:
Undisbursed portion
of loans 4,341 2,307 3,081 2,444 2,717
Deferred loan fees and
discounts 2,002 1,394 1,323 1,070 959
----------- ----------- ---------- ---------- ----------
6,343 3,701 4,404 3,514 3,676
----------- ----------- ---------- ---------- ----------
Total loans receivable 392,085 297,875 267,605 236,142 223,899
Allowance for losses
on loans 1,650 1,005 947 887 888
----------- ----------- ---------- ---------- ----------
Net loans $ 390,435 $ 296,870 $ 266,658 $ 235,255 $223,011
=========== =========== ========== ========== ==========
</TABLE>
Origination, Purchase and Sale of Loans and Loan Concentrations
The Banks originate residential loans in conformity with standard
underwriting criteria to assure maximum eligibility for possible resale in the
secondary market. Although the Banks have authority to lend anywhere in the
United States, they have confined their loan origination activities primarily in
the Banks' service areas.
Loan originations are developed from a number of sources, primarily from
referrals from real estate brokers, builders, and existing and walk-in
customers. Peoples Federal also utilizes the services of a loan broker located
in Fort Wayne, Indiana, who is paid on a commission basis (generally 1% of the
loan amount) to originate loans for Peoples Federal.
The Banks' mortgage loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan, and the
adequacy of the value of the property that will secure the loan. The loan
committees of the Banks can approve residential and commercial loans ranging up
to $200,000. The Banks' Boards of Directors must approve loans exceeding
$200,000. The Banks utilize independent qualified appraisers approved by the
Board of Directors to appraise the properties securing its loans and require
title insurance or title opinions so as to insure that the Banks have a valid
lien on the mortgaged real estate. The Banks require borrowers to maintain fire
and casualty insurance on its secured properties.
The procedure for approval of construction loans is the same as for
residential mortgage loans, except that the appraiser evaluates the building
plans, construction specifications, and estimates of construction costs. The
Banks also evaluate the feasibility of the proposed construction project and the
experience and track record of the developer. In addition, all construction
loans generally require a commitment from a third-party lender or from the Banks
for a permanent long-term loan to replace the construction loan upon completion
of construction.
<PAGE>
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan, and the value of the collateral, if any. A consumer loan officer must
approve consumer loans. Consumer loan originations currently are being generated
primarily through advertising.
Currently, it is the Banks' policy to originate both fixed-rate and
adjustable-rate loans, providing all such loans are eligible for sale in the
secondary market. It is Peoples Federal's intention to hold all originated and
purchased loans in its portfolio and not for sale. First Savings is currently
active in the secondary market and sells the majority of its fixed rate loan
products.
The following table shows mortgage and other loan origination, purchase, and
repayment activity for the Banks during the periods indicated:
Years Ended September 30
-----------------------------
2000 1999 1998
-------- ---------- ---------
(Dollars in thousands)
Mortgage loans originated
for the purpose of:
Construction-commercial 90 $ - $ 1,425
Construction-residential 13,096 10,080 8,386
Purchase/refinance-commercial 4,278 2,325 2,324
Purchase/refinance-residential 72,772 92,772 82,553
Consumer and other loans originated 28,989 22,258 14,463
--------- --------- ---------
Total loans originated 119,225 127,435 109,151
--------- --------- ---------
Loans acquired in merger with First Savings 73,381 - -
--------- --------- ---------
192,606 127,435 109,151
--------- --------- ---------
Loan credits:
Principal repayments 98,962 97,440 77,980
--------- --------- ---------
Other:
Provision for losses on loans 160 89 75
Amortization of loan fees (337) (426) (380)
Loan foreclosures, net 256 121 73
--------- --------- ---------
79 (216) (232)
--------- --------- ---------
Total credits, net 99,041 97,224 77,748
--------- --------- ---------
Net increases in mortgage and other
loans receivable, net $ 93,565 $ 30,211 $ 31,403
========= ========= =========
Interest Rates, Points and Fees
The Banks realize interest, point, and fee income from its lending
activities. The Banks also realize income from commitment fees for making
commitments to originate loans, from prepayment and late charges, loan fees,
application fees, and fees for other miscellaneous services.
The Banks account for loan origination fees in accordance with the Statement
of Financial Accounting Standards on Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans ("SFAS No. 91") issued by the
Financial Accounting Standards Board (the "FASB"). SFAS No. 91 prohibits the
immediate recognition of loan origination fees as revenues and requires that
such income (net of certain direct loan origination costs) for each loan be
amortized, generally by the interest method, over the estimated life of the loan
as an adjustment of yield.
<PAGE>
First Savings also realizes income from gains on sales of loans, and
servicing fees for loans sold with servicing retained.
Nonperforming Assets
Loans are reviewed on a regular basis and are generally placed on nonaccrual
status when the loans become 90 days or more past due, or when, in the judgment
of management, the probability of collection is deemed to be insufficient to
warrant further accrual. When a loan is placed on a nonaccrual status,
previously accrued but unpaid interest is deducted from interest income. When
the Banks are unable to resolve a delinquency satisfactorily within 45 days
after the loan is past due, they will undertake foreclosure or other
proceedings, as necessary, to minimize any potential loss.
Real estate acquired by the Banks 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 so acquired, it is recorded at the lower of loan balance or fair
market value at the date of acquisition. Periodically, real estate owned is
reviewed to ensure that net realizable value is not less than carrying value,
and any allowance resulting there from is charged to operations as a provision
for loss on real estate owned. All costs incurred in maintaining the property
from the date of acquisition are expensed.
The following table reflects the amount of loans in delinquent status as of
the dates indicated:
<TABLE>
Loans Delinquent For
----------------------------------------------------------------------------
30-59 Days 60-89 Days 90 Days and Over
------------------------- ----------------------- --------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------- -------- -------- ------ ------- -------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate: (Dollars in thousands)
One to four 16 $ 626 0.19% 1 $ 24 0.01% 11 $ 521 0.16%
family
Consumer 29 207 0.57% 5 14 0.04% 10 302 0.84%
------- -------- ------- -------- ------- ------
Total 45 $ 833 0.21% 6 $ 38 0.01% 21 $ 823 0.21%
======= ======== ======= ======== ======= =======
</TABLE>
The following table sets forth the Banks' nonperforming assets at
the dates indicated:
<PAGE>
At September 30,
-----------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ -------
(Dollars in thousands)
Nonaccrual loans $587 $474 $729 $658 $ 814
Loans past due 90 days and
still accruing 7 64 23 64 88
------ ------ ------ ------ --------
594 538 752 722 902
Real estate owned, net
of allowance 165 - - - 110
------ ------ ------ ------ --------
Total nonperforming
assets $759 $538 $752 $722 $1,012
====== ====== ====== ====== ========
Consumer loans are placed on nonaccrual generally when the loan exceeds 90
days delinquent or if, in the opinion of management, the possibility of
collecting the loan becomes questionable. Mortgage loans are placed on
nonaccrual generally when the loan exceeds 90 days delinquent; however, if the
loan is below a 25% loan-to-value, management may at their option decide to
accrue interest on the loan, since collection of the loan appears highly likely.
Interest income that would have been recognized for the year ended September
30, 2000, if nonaccrual loans had been current in accordance with their original
terms, approximated $13,000. Interest income recognized on such loans for the
year ended September 30, 2000, approximated $37,000. At September 30, 2000, the
Banks had no loans that were deemed impaired in accordance with Statement of
Financial Accounting Standards No. 114.
Federal regulations require savings associations to review their assets on
a regular basis and to classify them as: special mention; substandard; doubtful
and loss. Loans classified as special mention, are loans which currently do not
expose the Banks to an unusual risk of loss but based on information available
require the attention of management. This classification usually includes loans
secured by unusual collateral, loans with documentary items that are being
addressed by counsel, and relatively large loans where the borrower has had a
history of delinquent payments and the collateral has a cashflow shortfall,
however, the borrower has continued to service the debt.
Loans classified as substandard or doubtful generally represent balances
where the borrower has made several late payments and is unable to bring the
loan current. Substandard loans generally represent situations where the
borrower is attempting to resolve the delinquency in the normal course of
business (i.e., sale of the property or infusion of additional capital). Loans
classified as doubtful represent situations where the borrower has been
unsuccessful in attempts to resolve the delinquency in the normal course of
business. Doubtful loans involve a greater degree of uncertainty regarding
estimate of loss.
Loans classified as loss represent situations where the loan is severely
delinquent. These loans typically involve extensive bankruptcy proceedings or
other unusual circumstances where the debtor contests foreclosure.
Loans classified as special mention; substandard or doubtful do not
necessarily require specific reserves. Individual loan balances may be
classified in one or more categories based on management's analysis and estimate
of the risk underlying each individual situation.
In accordance with the federal regulations, the Banks' management
continually reviews the mix and delinquency status of its loan portfolio and
classifies those loans, which it deems appropriate.
As of September 30, 2000, loan balances were classified by the Banks as
follows:
<PAGE>
Loss $ 29,602
Doubtful -0-
Substandard 1,933,264
Special Mention 451,374
Allowance for Losses on Loans and Real Estate Owned
The allowances for loan and real estate owned losses represent amounts
available to absorb inherent losses in the loan and real estate owned
portfolios. Such allowances are based on management's continuing review of the
portfolios, historical charge-offs, current economic conditions, and such other
factors, which in management's judgment deserve recognition in estimating
possible losses. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the allowance for loan losses.
Such agencies may require additions to the allowances based on their judgment
about the information available to them at the time of their examination.
Provisions for losses are charged to earnings to bring the allowances to levels
considered necessary by management. Losses are charged to the allowances when
considered probable. As of September 30, 2000 allowances for losses on loans and
real estate owned were $1,638,948 and $11,000, respectively. The Banks'
management believes that the allowances are adequate to absorb known and
inherent losses in the portfolios. No assurance can be given, however, that
economic conditions which may adversely affect the Banks' markets or other
circumstances will not result in additions to the allowance for loan and real
estate owned losses.
The following table presents an allocation of the Banks' allowance for loan
losses at the dates indicated and the percentage of loans in each category to
total loans.
<TABLE>
September 30,
2000 1999 1998 1997 1996
-------------- -------------- --------------- ------------- -------------
Amount % Amount % Amount % Amount % Amount %
------- ------ -------- ----- ------- ------- ------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of (Dollars in thousands)
period applicable to:
Residential Mortgage Loans $1,122 88.7% $ 869 88.7% $742 91.5% $726 91.7% $594 91.8%
Commercial Real Estate Loans 101 4.4% 76 4.4% 121 2.6% 16 3.0% 15 3.0%
Consumer Loans 196 6.9% 60 6.9% 84 5.9% 37 5.3% 47 5.2%
Unallocated 220 - - 107 231
------- ------ ------- ------ ------ ------ ------ ------ ------ ------
Total $1,639 100.0% $1,005 100.0% $947 100.0% $886 100.0% $887 100.0%
======= ====== ======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table is a summary of activity in the Banks' allowance for loan
and real estate owned losses for the periods indicated.
<PAGE>
Summary of Loan Loss Experience Years ended September 30,
---------------------------------------
(Dollars in Thousands) 2000 1999 1998 1997 1996
------- --------- ------ ------- ------
Balance of loan loss allowance at
beginning of year $ 1,005 $ 947 $886 $887 $912
Allowance acquired in merger 562 - - - -
Charge-offs
Residential - - - - -
Commercial real estate - - - - -
Commercial - - - - -
Consumer 118 53 47 84 55
-------- -------- ------ ------ ------
Total Charge-offs 118 53 47 84 55
-------- -------- ------ ------ ------
Recoveries
Residential - - - - -
Consumer 41 22 33 33 21
-------- -------- ------ ------ ------
Total Recoveries 41 22 33 33 21
-------- -------- ------ ------ ------
Net Charge-offs (Recoveries) 77 31 14 51 34
Provision for loan losses 160 89 75 50 9
-------- ------- ------ ------ ------
Balance of loan loss allowance at
end of year $ 1,650 $1,005 $947 $886 $887
======== ======= ====== ====== ======
Ratio of net charge-offs to average
loans outstanding 0.02% 0.01% 0.01% 0.02% 0.02%
Investment Activities
Federal thrift institutions, such as the Banks, have authority to invest in
various types of liquid assets, including United States Treasury obligations and
securities of various federal agencies, certificates of deposit at insured
banks, bankers' acceptances and federal funds. As a member of the FHLB System,
the Banks must maintain minimum levels of liquid assets specified by the OTS,
which vary from time to time. Subject to various regulatory restrictions,
federal thrift institutions may also invest a portion of their assets in certain
commercial paper, corporate debt securities and mutual funds whose assets
conform to the investments that a federal thrift institution is authorized to
make directly.
The carrying values of the Banks' investment securities, including its
liquid assets, as of the dates indicated are presented in the following table.
<PAGE>
At September 30,
------------------------------------
2000 1999 1998
--------- ----------- ------------
Interest-bearing deposits and (Dollars in thousands)
certificates of deposit (1) $11,937 $ 834 $ 718
U.S. government and federal
agency securities
Held to maturity 500 - 4,000
Available for sale 8,474 7,139 11,287
Mortgage backed securities
Held to Maturity 9,092 258 372
Available for sale 1,601
Stock in FHLB of Indianapolis 4,234 2,474 2,218
Other
Held to maturity 684 610 696
Available for sale(2) 8,129 9,793 10,591
---------- ---------- ----------
Total investments $44,651 $21,108 $29,882
========== ========== ==========
------------------------------------------------
(1) In interest-bearing accounts in FHLB of Indianapolis $8,773; In insured
certificates of deposit $3,164 at September 30, 2000; In FHLB of
Indianapolis at September 30, 1999; In insured certificates of deposit at
September 30, 1998;
(2) Van Kampen Prime Income Fund $2,407, Van Kampen Senior Income Trust $1,540,
Nuveen Senior Income Fund $158, State and Municipal obligations $4,707 at
September 30, 20000; Van Kampen Prime Income Fund $3,677, Van Kampen Senior
Income Trust $1,617, State and Municipal obligations $4,500 at September
30, 1999; Van Kampen Prime Income Fund $3,784, Van Kampen Senior Income
Trust $1,677, State and Municipal obligations $5,130 at September 30, 1998;
The following table sets forth information regarding the maturity
distribution of investment securities at September 30, 2000, and the weighted
average yield on those securities.
<TABLE>
At September 30, 2000
-------------------------------------------------------------
Available for Sale Held to Maturity
----------------------------- ------------------------------
(Dollars in thousands) Weighted Approximate Weighted Approximate
Amortized Average Fair Amortized Average Fair
Maturity Distribution at September 30: Cost Yield Value Cost Yield Value
--------- ------- ----------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 651 5.06% $ 651 $ 65 5.67% $ 65
Due after one through five years 7,813 5.60% 7,671 425 5.81% 428
Due after five through ten years 4,112 6.84% 4,059 695 7.07% 695
Due after ten years 113 4.60% 115 - -
--------- ----------- --------- ---------
12,689 12,496 1,185 1,188
Mortgage-backed securities 1,611 6.74% 1,601 9,092 6.15% 9,167
Marketable equity securities 4,453 4,106 - -
--------- ----------- --------- ---------
Total $18,753 $18,203 $10,277 $10,355
========= =========== ========= =========
</TABLE>
<PAGE>
Sources of Funds
General
Deposits have traditionally been the primary source of funds of the Banks
for use in lending and investment activities. In addition to deposits, the Banks
derive funds from loan prepayments and income on earning assets. While income on
earning assets is a relatively stable source of funds, deposit inflows and
outflows can vary widely and are influenced by prevailing interest rates, money
market conditions, and levels of competition.
Deposits
Deposits are attracted principally from within the Banks' primary market
areas through the offering of a variety of deposit instruments, including
passbook and statement accounts and certificates of deposit ranging in terms
from three months to five years. Deposit account terms vary, principally on the
basis of the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. The Banks also offer individual retirement
accounts ("IRA's").
The Banks' policies are designed primarily to attract deposits from local
residents rather than to solicit deposits from areas outside their primary
markets. The Banks do not accept deposits from brokers due to the volatility and
rate sensitivity of such deposits. Interest rates paid, maturity terms, service
fees and withdrawal penalties are established by the Banks on a periodic basis.
Determination of rates and terms are predicated upon funds acquisition and
liquidity requirements, rates paid by competitors, growth goals and federal
regulations.
A major determinant of the Banks' average cost of funds is the distribution
of the Banks' accounts by interest rate paid. An important indicator of the
Banks' stability of lendable funds is the distribution of the Banks' accounts by
maturity.
For information on the amounts of certificate accounts at September 30,
2000, maturing during the next five years and thereafter see page eleven in
Management's Discussion and Analysis of the Company's 2000 Annual Report to
Stockholders.
The following table lists maturities of certificates of deposits where the
balance of the certificate exceeds $100,000 for the periods indicated. None of
these certificates were brokered deposits. (dollars in thousands)
At September 30,
----------------
2000
----------------
3 months or less $ 4,294
3-6 months 5,411
6-12 months 6,326
over 12 months 13,449
----------------
Total $29,480
================
Borrowings
As members of the FHLB System and the FHLB of Indianapolis, the Banks are
eligible to arrange borrowings or advances for various purposes and on various
terms. As of September 30, 2000, 1999 and 1998 the Banks had outstanding
advances to the FHLB of Indianapolis of $47,182,393, $7,2000,000, and
$5,000,000, respectively. Of the $7,200,000 outstanding at September 30, 1999,
$5,000,000 was long-term debt. See page 24 of the Company's 2000 Annual Report
to Stockholders for the maturity breakdown of these long-term instruments.
<PAGE>
Reverse repurchase agreements, another source of borrowing for Peoples
Federal, are retail obligations of Peoples Federal with a maturity of 90 days or
less, and are generally secured with specific investment securities owned by
Peoples Federal.
The following tables set forth certain information as to the Banks'
short-term borrowings consisting of FHLB of Indianapolis advances and reverse
repurchase agreements for the periods and at the dates indicated. Average
balances and average interest rates are based on month-end balances.
Years Ended September 30
--------------------------
2000 1999 1998
------- -------- --------
(Dollars in thousands)
Average balance of short-term borrowings $5,859 $3,533 $4,166
Highest month-end balance of total borrowings 7,568 4,417 5,088
Weighted average interest rate of total borrowing 5.28% 5.28% 5.21%
At September 30
-------------------------
2000 1999 1998
-------- -------- -------
Reverse Repurchase agreements - 3,040 4,203
-------- -------- -------
Total short-term borrowings $ - $3,040 $4,203
======== ======= =======
Weighted average interest rate 0.00% 6.33% 5.22%
Trust Department
In October 1984, the FHLB of Indianapolis granted full trust powers to
Peoples Federal, one of the first savings institutions in Indiana to be granted
such powers. As of September 30, 2000, Peoples Federal's trust department assets
totaled approximately $57,858,000 including self-directed Individual Retirement
Accounts ("IRA's"), and it was offering a variety of trust services including
estate planning. As of that date, the trust department was administering
approximately 650 trust accounts, including estates, guardianships, revocable
and irrevocable trusts, testamentary trusts, and self-directed IRA accounts. The
trust department also offers and administers self-directed IRA's and Simplified
Employee Pension IRA's for small businesses. The trust department provides a
needed service to the communities served by Peoples Federal, as well as
generating fee income which is largely unaffected by interest rate fluctuations.
Non-Bank Subsidiary
Peoples Financial Services, Inc. ("PFSI") was organized in 1977 under the
laws of the State of Indiana. It is wholly owned by Peoples Federal and conducts
a general insurance business within the State of Indiana under the name of
Peoples Insurance Agency. During fiscal years ended September 30, 2000 and 1999,
PFSI recorded total income of $84,351 and $90,515, respectively, with net income
for such periods amounting to $20,322 and $24,327, respectively.
Alpha Financial was organized under the laws of the state of Michigan in
1975 as a wholly owned subsidiary of First Savings. First Savings' investment in
Alpha Financial was $100,000 at September 30, 2000. The assets of Alpha
Financial consist of cash and stock in MIMLIC Life Insurance Company, which
reinsures credit life insurance policies written on the lives of borrowers of
various financial institutions.
<PAGE>
Discount Brokerage Services
Since 1985, Peoples Federal has offered discount brokerage services to its
customers. In 1996, this service was moved to the service corporation and was
offered through U.S. Clearing Corp. Prior to 1996, another vendor was used. This
service also reduces the expenses of securities transactions for the various
trust accounts administered by the trust department and provides customers with
a convenient and inexpensive means of conducting brokerage transactions.
Employees
As of September 30, 2000, the Banks employed 135 persons on a full-time
basis and 16 persons on a part-time basis. The Banks' employees are not
represented by any collective bargaining group, and management considers its
relations with its employees to be excellent. The holding company has no
employees.
REGULATION
General
The Company, as a savings and loan holding company, and the Banks, as
federally chartered savings associations, are subject to extensive regulation by
the OTS and the FDIC. The lending activities and other investments of the Banks
must comply with various federal regulatory requirements, and the OTS
periodically examines the Banks for compliance with various regulatory
requirements and for safe and sound operations. The FDIC also has the authority
to conduct examinations. The Banks must file reports with the OTS describing
their activities and financial condition and are also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve
System. This supervision and regulation is intended primarily for the protection
of depositors and the deposit insurance funds and not for the protection of
stockholders of the Company. Certain of these regulatory requirements are
referred to below or appear elsewhere herein.
Recent Legislation
Financial Services Modernization Legislation. The Gramm-Leach-Bliley
Act (the "Financial Services Modernization Act") became effective March 11,
2000. The Financial Services Modernization Act repeals the two affiliation
provisions of the Glass-Steagall Act: Section 20, which restricted the
affiliation of Federal Reserve Member Banks with firms "engaged principally" in
specified securities activities; and Section 32, which restricts officer,
director, or employee interlocks between a member bank and any company or person
"primarily engaged" in specified securities activities. In addition, the
Financial Services Modernization Act also contains provisions that expressly
preempt any state law restricting the establishment of financial affiliations,
primarily related to insurance. The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms, and other financial service providers by revising
and expanding the Bank Holding Company Act framework to permit a holding company
system to engage in a full range of financial activities through a new entity
known as a "Financial Holding Company." "Financial activities" is broadly
defined to include not only banking, insurance, and securities activities, but
also merchant banking and additional activities that the Federal Reserve Board,
in consultation with the Secretary of the Treasury, determines to be financial
in nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally.
The Financial Services Modernization Act provides that no company may
acquire control of an insured savings association, unless that company engages,
and continues to engage, only in the financial activities permissible for a
Financial Holding Company, unless grandfathered as a unitary savings and loan
holding company. The Financial Institution Modernization Act grandfathers any
company that was a unitary savings and loan holding company on May 4, 1999 (or
becomes a unitary savings and loan holding company pursuant to an application
pending on that date). Such a company may continue to operate under laws prior
to the Financial Services Modernization Act as long as the company continues to
meet the two tests: it can control only one savings institution, excluding
supervisory acquisitions, and each such institution must meet the QTL test. It
further requires that a grandfathered unitary savings and loan holding company
must continue to control at least one savings association, or a successor
institution, that is controlled on May 4, 1999.
<PAGE>
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the Bank Holding Company Act of 1956 ("BHCA") or permitted
by regulation.
The Company and the Banks do not believe that the Financial Services
Modernization Act will have a material adverse effect on the operations of the
Company and the Banks in the near-term. However, to the extent that the act
permits banks, securities firms, and insurance companies to affiliate, the
financial services industry may experience further consolidation. The Financial
Services Modernization Act is intended to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis and which unitary savings and loan holding companies already possess.
Nevertheless, this act may have the result of increasing the amount of
competition that the Company and the Bank face from larger institutions and
other types of companies offering financial products, many of which may have
substantially more financial resources that the Company and the Bank. In
addition, because the Company may only be acquired by other unitary savings and
loan holding companies or Financial Holding Companies, the legislation may have
an anti-takeover effect by limiting the number of potential acquirers or by
increasing the costs of an acquisition transaction by a bank holding company
that has not made the election to be a Financial Holding Company under the new
legislation.
Regulation of the Company
General. The Company is a savings and loan holding company as defined
by the HOLA. As such, the Company is registered with the OTS and is subject to
OTS regulation, examination, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, the Banks are subject to
certain restrictions in their dealings with the Company and affiliates thereof.
The Company also is required to file certain reports with, and otherwise comply
with, the rules and regulations of the SEC under the federal securities laws.
Activities Restrictions. There are generally no restrictions on the
activities of a savings and loan holding company. The broad latitude to engage
in activities under current law can be restricted if the OTS determines that
there is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the OTS
may impose such restrictions as deemed necessary to address such risk including
limiting: (i) payment of dividends by the savings institution; (ii) transactions
between the savings institution and its affiliates; and (iii) any activities of
the savings institution that might create a serious risk that the liabilities of
the holding company and its affiliates may be imposed on the savings
institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the QTL test,
then such unitary holding company shall also become subject to the activities
restrictions applicable to multiple holding companies and, unless the savings
institution requalifies as a QTL within one year thereafter, register as, and
become subject to, the restrictions applicable to a bank holding company. See
"Regulation of the Bank--Qualified Thrift Lender."
Restrictions on Acquisitions. Savings and loan holding companies are
prohibited from acquiring, without prior approval of the OTS, (i) control of any
other savings institution or savings and loan holding company or substantially
all the assets thereof or (ii) more than 5% of the voting shares of a savings
institution or holding company thereof which is not a subsidiary. Under certain
circumstances, a registered savings and loan holding company is permitted to
acquire, with the approval of the OTS, up to 15% of the voting shares of an
undercapitalized savings institution pursuant to a "qualified stock issuance"
without that savings institution being deemed controlled by the holding company.
In order for the shares acquired to constitute a "qualified stock issuance," the
shares must consist of previously unissued stock or treasury shares, the shares
must be acquired for cash, the saving and loan holding company's other
subsidiaries must have tangible capital of at least 6-1/2% of total assets,
there must not be more than one common director or officer between the savings
and loan holding company and the issuing savings institution, and transactions
between the savings institution and the savings and loan holding company and any
of its affiliates must conform to Sections 23A and 23B of the Federal Reserve
Act. Except with the prior approval of the OTS, no director or officer of a
savings and loan holding company or person owning by proxy or otherwise more
than 25% of such company's stock, may also acquire control of any savings
institution, other than a subsidiary savings institution, or of any other
savings and loan holding company.
<PAGE>
Regulation of the Banks
Federal Home Loan Bank System. The Banks are members of the FHLB
System, which consists of 12 district Federal Home Loan Banks subject to
supervision and regulation by the Federal Housing Finance Board ("FHFB"). The
Federal Home Loan Banks provide a central credit facility primarily for member
institutions. As members of the FHLB of Indianapolis, the Banks are required to
acquire and hold shares of capital stock in the FHLB of Indianapolis in an
amount at least equal to 1% of the aggregate unpaid principal of its home
mortgage loans, home purchase contracts, and similar obligations at the
beginning of each year, or 1/20 of its advances (i.e., borrowings) from the FHLB
of Indianapolis, whichever is greater. The Banks were in compliance with this
requirement with an investment in FHLB of Indianapolis stock at September 30,
2000, of $4,234,400.
The FHLB of Indianapolis serves as a reserve or central bank for its
member institutions within its assigned district. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB System.
It makes advances to members secured by certain prescribed collateral in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB of Indianapolis. Long-term advances may only be made for
the purpose of providing funds for residential housing finance. Members must
meet standards of community investment or service established by the FHLB of
Indianapolis in order to maintain continued access to long-term advances. As of
September 30, 2000, the Banks had advances totaling $47,182,393 outstanding.
See "Business of the Company--Deposit Activity and Other Sources of Funds" and
"--Borrowings."
Liquidity Requirements. Under OTS regulations, a savings association is
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits and savings accounts, bankers' acceptances, certain
government obligations, and certain other investments) in each calendar quarter
of not less than 4% of either (1) its liquidity base (consisting of certain net
withdrawable accounts plus short-term borrowings) as of the end of the preceding
calendar quarter, or (2) the average daily balance of its liquidity base during
the preceding quarter. The OTS may change this liquidity requirement from time
to time to any amount from 4.0% to 10.0%, depending upon certain factors,
including economic conditions and savings flows of all savings associations. The
Banks maintains liquid assets in compliance with these regulations. Monetary
penalties may be imposed upon an institution for violations of liquidity
requirements.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test, which test may be met either by
maintaining a specified level of assets in qualified thrift investments as
specified in HOLA or by meeting the definition of a "domestic building and loan
association" in section 7701 of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Banks maintain an appropriate level of certain specified
investments (primarily residential mortgages and related investments, including
certain mortgage-related securities) and otherwise qualifies as a QTL or a
domestic building and loan association, it will continue to enjoy full borrowing
privileges from the FHLB. The required percentage of investments under HOLA is
65% of assets while the Code requires investments of 60% of assets. An
association must be in compliance with the QTL test or definition of domestic
building and loan association on a monthly basis in nine out of every 12 months.
Associations that fail to meet the QTL test will generally be prohibited from
engaging in any activity not permitted for both a national bank and a savings
association. As of September 30, 2000, the Banks were in compliance with their
QTL requirements and met the definition of a domestic building and loan
association.
<PAGE>
Regulatory Capital Requirements. Under OTS capital regulations, savings
institutions must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3% of adjusted total assets and "total" capital
(a combination of core and "supplementary" capital) equal to 8% of risk-weighted
assets. In addition, OTS regulations which impose certain restrictions on
savings associations that have a total risk-based capital ratio that is less
than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of less than 4.0%
or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0%
if the institution is rated Composite 1 under the OTS examination rating
system).
The OTS has adopted an amendment to its risk-based capital
requirements that requires savings institutions with more than a "normal" level
of interest rate risk to maintain additional total capital (the OTS is delaying
implementation of this requirement). A savings institution's interest rate risk
will be measured in terms of the sensitivity of its "net portfolio value" to
changes in interest rates. Net portfolio value is defined, generally, as the
present value of expected cash inflows from existing assets and off-balance
sheet contracts less the present value of expected cash outflows from existing
liabilities. A savings institution will be considered to have a "normal" level
of interest rate risk exposure if the decline in its net portfolio value after
an immediate 200 basis point increase or decrease in market interest rates
(whichever results in the greater decline) is less than 2% of the current
estimated economic value of its assets. A savings institution with a greater
than normal interest rate risk will be required to deduct from total capital,
for purposes of calculating its risk-based capital requirement, an amount (the
"interest rate risk component") equal to one-half the difference between the
institution's measured interest rate risk and the normal level of interest rate
risk, multiplied by the economic value of its total assets.
The OTS will calculate the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital will be based on
the institution's Thrift Financial Report filed two quarters earlier. In
general, savings institutions with less than $300 million in assets and a
risk-based capital ratio above 12% are exempt from this interest rate risk
component unless the OTS terminates such exemption. Although the Bank qualifies
for the exemption, management believes that based on current financial data, the
Bank would not be deemed to have more than a normal level of interest rate risk.
In addition to generally applicable capital standards for savings
institutions, the Director of the OTS is authorized to establish the minimum
level of capital for a savings institution at such amount or at such ratio of
capital-to-assets as the Director determines to be necessary or appropriate for
such institution in light of the particular circumstances of the institution.
The Director of the OTS may treat the failure of any savings institution to
maintain capital at or above such level as an unsafe or unsound practice and may
issue a directive requiring any savings institution which fails to maintain
capital at or above the minimum level required by the Director to submit and
adhere to a plan for increasing capital. Such a directive may be enforced in the
same manner as an order issued by the OTS.
At September 30, 2000, the Banks exceeded all regulatory minimum
capital requirements as indicated in Note 14, page 27 of the Company's Annual
Report to Stockholders.
Insurance of Deposit Accounts. The Banks' deposit accounts are insured
by the SAIF to the maximum amount permitted by law. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC or the institution's primary regulator.
<PAGE>
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
Under this system as of September 30, 2000, SAIF members paid within a range of
0 cents to 23 cents per $100 of domestic deposits, depending upon the
institution's risk classification. This risk classification is based on an
institution's capital group and supervisory subgroup assignment. Pursuant to the
Economic Growth and Paperwork Reduction Act of 1996 (the "Act"), the Bank pays,
in addition to its normal deposit insurance premium as a member of the SAIF an
amount equal to approximately 6.4 basis points toward the retirement of the
Financing Corporation bonds ("Fico Bonds") issued in the 1980s to assist in the
recovery of the savings and loan industry. Members of the Bank Insurance Fund
("BIF"), by contrast, pay, in addition to their normal deposit insurance
premium, approximately 1.3 basis points. Under the Act, the FDIC also is not
permitted to establish SAIF assessment rates that are lower than comparable BIF
assessment rates. Effective January 1, 2000, the rate paid to retire the Fico
Bonds will be equal for members of the BIF and the SAIF. The Act also provided
for the merging of the BIF and the SAIF by January 1, 1999, provided there were
no financial institutions still chartered as savings associations at that time.
Although legislation to eliminate the savings association charter had been
proposed at January 1, 1999, financial institutions such as the Banks were still
chartered as savings associations.
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
the first $54.0 million of transaction accounts, plus 10% on the remainder. This
percentage is subject to adjustment by the Federal Reserve Board. Because
required reserves must be maintained in the form of vault cash or in a
non-interest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's
interest-earning assets. As of September 30, 2000, the Banks met their reserve
requirements.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends. A savings institution that
is a subsidiary of a savings and loan holding company, such as the Bank, must
file an application or a notice with the OTS at least 30 days before making a
capital distribution. Savings institutions are not required to file an
application for permission to make a capital distribution and need only file a
notice if the following conditions are met: (1) they are eligible for expedited
treatment under OTS regulations, (2) they would remain adequately capitalized
after the distribution, (3) the annual amount of capital distribution does not
exceed net income for that year to date added to retained net income for the two
preceding years, and (4) the capital distribution would not violate any
agreements between the OTS and the savings institution or any OTS regulations.
Any other situation would require an application to the OTS.
In addition, the OTS could prohibit a proposed capital distribution by
any institution, which would otherwise be permitted by the regulation, if the
OTS determines that the distribution would constitute an unsafe or unsound
practice. A federal savings institution is prohibited from making a capital
distribution if, after making the distribution, the savings institution would be
unable to meet any one of its minimum regulatory capital requirements. Savings
institutions cannot distribute regulatory capital that is needed for its
liquidation account.
Affiliate Restrictions. Transactions between a savings association and
its "affiliates" are subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act. Affiliates of a savings
association include, among other entities, the savings association's holding
company and companies that are under common control with the savings
association.
In general, Sections 23A and 23B and OTS regulations issued in
connection therewith limit the extent to which a savings association or its
subsidiaries may engage in certain "covered transactions" with affiliates to an
amount equal to 10% of the association's capital and surplus, in the case of
covered transactions with any one affiliate, and to an amount equal to 20% of
such capital and surplus, in the case of covered transactions with all
affiliates. In addition, a savings association and its subsidiaries may engage
in covered transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance, or letter of credit on behalf of an
affiliate.
<PAGE>
In addition, under the OTS regulations, a savings association may not
make a loan or extension of credit to an affiliate unless the affiliate is
engaged only in activities permissible for bank holding companies; a savings
association may not purchase or invest in securities of an affiliate other than
shares of a subsidiary; a savings association and its subsidiaries may not
purchase a low-quality asset from an affiliate; and covered transactions and
certain other transactions between a savings association or its subsidiaries and
an affiliate must be on terms and conditions that are consistent with safe and
sound banking practices. With certain exceptions, each loan or extension of
credit by a savings association to an affiliate must be secured by collateral
with a market value ranging from 100% to 130% (depending on the type of
collateral) of the amount of the loan or extension of credit.
The OTS regulation generally excludes all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") decides to treat such subsidiaries
as affiliates. The regulation also requires savings associations to make and
retain records that reflect affiliate transactions in reasonable detail, and
provides that certain classes of savings associations may be required to give
the OTS prior notice of affiliate transactions.
Prompt Corrective Action. The prompt corrective action regulation of
the OTS requires certain mandatory actions and authorizes certain other
discretionary actions to be taken by the OTS against a savings bank that falls
within certain undercapitalized capital categories specified in the regulation.
The regulation establishes five categories of capital classification:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Under the regulation, the
risk-based capital, leverage capital, and tangible capital ratios are used to
determine an institution's capital classification. At September 30, 2000, the
Banks met the capital requirements of "well capitalized" institutions under
applicable OTS regulations.
In general, the prompt corrective action regulation prohibits an
insured depository institution from declaring any dividends, making any other
capital distribution, or paying a management fee to a controlling person if,
following the distribution or payment, the institution would be within any of
the three undercapitalized categories. In addition, adequately capitalized
institutions may accept Brokered Deposits only with a waiver from the FDIC and
are subject to restrictions on the interest rates that can be paid on such
deposits. Undercapitalized institutions may not accept, renew, or roll-over
Brokered Deposits.
If the OTS determines that an institution is in an unsafe or unsound
condition, or if the institution is deemed to be engaging in an unsafe and
unsound practice, the OTS may, if the institution is well capitalized,
reclassify it as adequately capitalized; if the institution is adequately
capitalized but not well capitalized, require it to comply with restrictions
applicable to undercapitalized institutions; and, if the institution is
undercapitalized, require it to comply with certain restrictions applicable to
significantly undercapitalized institutions.
Community Reinvestment Act and Fair Lending Developments. The Banks are
subject to certain fair lending requirements and reporting obligations involving
home mortgage lending operations and Community Reinvestment Act ("CRA")
activities. The CRA generally requires the federal banking agencies to evaluate
the record of a financial institution in meeting the credit needs of its local
communities, including low- and moderate-income neighborhoods. A savings
association may be subject to substantial penalties and corrective measures for
a violation of certain fair lending laws. The federal banking agencies may take
compliance with such laws and CRA obligations into account when regulating and
supervising other activities.
<PAGE>
A savings association's compliance with its CRA obligations is based on
a performance-based evaluation system that bases CRA ratings on an institution's
lending service and investment performance. When a holding company applies for
approval to acquire another financial institution or financial institution
holding company, the OTS will review the assessment of each subsidiary savings
association of the applicant; and such records may be the basis for denying the
application. As of the latest CRA Examinations, the Banks each received a rating
of "satisfactory" in complying with its CRA obligations.
Item 2. Properties
Peoples Federal owns eight full-service banking offices located in Avilla,
Auburn, Columbia City, Garrett, Kendallville, LaGrange and Waterloo, Indiana.
The following table provides certain information with respect to Peoples
Federal's full-service offices at September 30, 2000.
Full Service Date Net Book
Offices Opened Value (1)
-------------------------------- ------------ -----------
Main Office, Auburn 1973 $ 149
Avilla 1980 107
Garrett 1972 97
Columbia City-Downtown 1971 128
Columbia City-North 1998 524
Kendallville 1941 430
LaGrange 1972 154
Waterloo 2000 1,028
(1) Of real estate at September 30, 2000.
The total net book value of Peoples Federal's premises and equipment at
September 30, 2000, was $3.2 million.
First Savings Bank owns six full-service banking offices located in Three
Rivers, Union, and Schoolcraft, Michigan and Howe and Middlebury, Indiana.
The following table provides certain information with respect to First
Saving's full service offices at September 30, 2000.
Full Service Date Net Book
Offices Opened Value (1)
-------------------------------- ------------ -----------
Main Office, Three Rivers 1981 $1,261
Schoolcraft 1971 93
Union 1988 269
Three Rivers, branch 1988 128
Howe 1998 399
(1) Of real estate at September 30, 2000.
The total net book value of First Savings' premises and equipment at
September 30, 2000 was $2.9 million.
<PAGE>
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company, the
Banks or any subsidiary is a party or to which any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Reference is made to page 2 of the Company's Annual Report to Stockholders,
for the year ended September 30, 2000 for the information required by this Item,
which is hereby incorporated by reference.
Item 6. Selected Financial Data
Reference is made to page 9 of the Company's Annual Report to Stockholders
for the year ended September 30, 2000, for the information required by this
Item, which is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
--------------
Reference is made to pages 10 to 116 of the Company's Annual Report to
Stockholders for the year ended September 30, 2000, for the information required
by this Item, which is hereby incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to pages 11 and 12 of the Company's Annual Report to
Stockholders for the year ended September 30, 2000, for the information required
by this item, which is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data
Reference is made to pages 17 to 32 of the Company's Annual Report to
Stockholders for the year ended September 30, 2000 for the information required
by this Item, which is hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
--------------------------------------------------------------------------------
Financial Disclosures
---------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the section captioned "The Peoples Bancorp Annual
Meeting-Election of Directors" in the Company's Proxy Statement dated December
12, 2000 for the information required by this Item, which is hereby incorporated
by reference.
Item 11. Executive Compensation
Reference is made to the section captioned "The Peoples Bancorp Annual
Meeting-Executive Officer Compensation" in the Company's Proxy Statement dated
December 12, 2000 for the information required by this Item, which is hereby
incorporated by reference.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the section captioned "The Peoples Bancorp Annual
Meeting-Securities Ownership of Certain Beneficial Owners in the Company's Proxy
Statement dated December 12, 2000 for the information required by this Item
which is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the section captioned "The Peoples Bancorp Annual
Meeting-Transactions with Certain Related Persons" in the Company's Proxy
Statement dated December 12, 2000 for the information required by this Item,
which is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) The following consolidated financial statements of Peoples Bancorp and
Its Wholly-owned Subsidiaries, included in the Annual Report to Stockholders of
the registrant for the year ended September 30, 2000 are filed as part of this
report:
1. Financial Statements
o REPORT OF OLIVE LLP, INDEPENDENT AUDITORS PAGE 7.
o CONSOLIDATED BALANCE SHEET - AS OF SEPTEMBER 30, 2000, AND 1999
PAGE 17.
o CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED SEPTEMBER
30, 2000, 1999, AND 1998 PAGE 18. o CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999,
AND 1998 PAGE 19. o CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998 PAGE 20. .o NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS PAGES 21-32.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, or the
required information is shown in the consolidated financial statements and
notes.
3. Exhibits
Exhibit No. Description of Exhibit
----------- -----------------------
3.1 Articles of Incorporation of Peoples Bancorp (1)
3.2 Bylaws of Peoples Bancorp (1)
10.4 Amended and Restated Stock Option and Stock Grant Plan (2)
10.5 Employee Stock Ownership Plan (1)
10.5(a) First Amendment to Employee Stock Ownership Plan (3)
10.5(b) Second Amendment to Employee Stock Ownership Plan (3)
10.5(c) Third Amendment to Employee Stock Ownership Plan (3)
<PAGE>
10.6 Expense and Tax Sharing Agreement between Peoples Bancorp, Peoples
Federal Savings Bank of DeKalb County and Peoples Financial
Services, Inc., dated May 28, 1992 (3)
10.7 New option plan
13 Annual Report to Stockholders
22 Subsidiaries of the Registrant
23 Consent of Auditors
---------------------------------
(1) Incorporated by reference to Exhibit bearing the same number in the
Company's Registration Statement of Form S-4 (33-37343) filed with the
Securities and Exchange Commission on October 17, 1990.
(2) Incorporated by reference to Exhibit bearing the same number in the
Company's Annual Report on form 10-K for the year ended September 30, 1991.
(3) Incorporated by reference to Exhibit bearing the same number in the
Company's Annual Report on form 10-K for the year ended September 30, 1992.
(b) There were no reports on Form 8-K filed for the period June 1, 2000
through September 30, 2000.
The Securities and Exchange Commission maintains a Web sit that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission including the Company.
That address is http://www.sec.gov.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEOPLES BANCORP
December 22, 2000 Roger J. Wertenberger
Chairman of the Board,
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
December 22, 2000 Roger J. Wertenberger,
Chairman of the Board,
and Director
December 22, 2000 Maurice F. Winkler III,
President, Chief Executive Officer
and Director
December 22, 2000 Deborah K. Stanger
Vice President-Chief Financial Officer
December 22, 2000 Robert D. Ball, Director
December 22, 2000 Bruce S. Holwerda, Director
December 22, 2000 John C. Harvey, Director
December 22, 2000 Douglas D. Marsh, Director
December 22, 2000 Lawrence R. Bowmar, Director
December 22, 2000 John C. Thrapp, Director
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
-------------------------------- ----------------------
Peoples Federal Savings
Bank of DeKalb County United States of America
and its subsidiary
Peoples Financial Services Inc. Indiana
First Savings Bank
Federal Savings Bank United States of America
And its subsidiary
Alpha Financial Michigan
