**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

| **(Mark  One)**                                        |
|--------------------------------------------------------|
|                                                   |   |
| **ý**                                             | **Annual report pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934** |
|                                                   |   |
| **For the  fiscal year ended September 30, 2003** |
|                                                   |   |
| **OR**                                                 |
|                                                   |   |
| **o**                                                  | **Transition report pursuant to Section 13 or  15(d) of the Securities and Exchange Act of 1934** |
|                                                   |   |
| **Commission  File No.: 000-29949**                    |

 

**PEOPLESCOMMUNITY BANCORP, INC.**

(Exact Name of Registrant as Specified in ItsCharter)

 

| **Maryland**                                                         |   | **31-1686242**                           |
|----------------------------------------------------------------------|--------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization)     |   | (I.R.S. Employer  Identification Number) |
|                                                                 |   |                                     |
| **6100 West  Chester Road, West Chester, Ohio**                      |   | **45069**                                |
| (Address of Principal  Executive Offices)                            |   | (Zip Code)                               |
|                                                                 |   |                                     |
| **(513)  870-3530**                                                  |
| (Registrant’s Telephone  Number, Including Area Code)           |
|                                                                 |   |                                     |
| Securities registered  under Section 12(b) of the Exchange Act: |
| **Not  Applicable**                                                  |
|                                                                 |   |                                     |
| Securities registered  under Section 12(g) of the Exchange Act: |
|                                                                 |   |                                     |
| **Common  Stock (par value $.01 per share)**                         |
| (Title of  Class)                                                    |

 

Indicateby check mark whether the Registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes  ý    No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.  ý

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2)

Yes  o    No o

 

As of December 22, 2003, the aggregate value of the 2,080,844shares of Common Stock of the Registrant issued and outstanding on such date,which excludes 441,244 shares held by all directors and executives officers ofthe Registrant and the Registrant’s Employee Stock Ownership Plan (“ESOP”) as agroup, was approximately $44.7 million. This figure is based on the closing sales price of $21.50 per share ofthe Registrant’s Common Stock on December 22, 2003.  Although directors and executive officersand the ESOP were assumed to be “affiliates” of the Registrant for purposes ofthis calculation, the classification is not to be interpreted as an admissionof such status.

 

Numberof shares of Common Stock outstanding as of December 22, 2003:  **2,522,088**

 

 

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**DOCUMENTSINCORPORATED BY REFERENCE**

 

List hereunder the following documents incorporatedby reference and the Part of the Form 10-K into which the document isincorporated.

 

(1)                                  Portions of the Annual Report to Stockholdersfor the year ended September 30, 2003 are incorporated into Part II, Items5 through 8 and Item 9A of this Form 10-K.

 

(2)                                  Portions of the definitive proxy statementfor the 2003 Annual Meeting of Stockholders to be filed within 120 days of theRegistrant’s fiscal year end are incorporated into Part III, Items 10 through14 of this Form 10-K.

 

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**PARTI**

 

**Item 1. Business**

 

**General**

 

Peoples Community Bancorp, Inc. (“Peoples” orthe “Company”) was organized in December 1999 at the direction of theBoard of Directors of The People’s Building, Loan and Savings Company,presently Peoples Community Bank, (the “Bank”) for the purpose of holding allof the capital stock of the Bank and in order to facilitate the conversion ofthe Bank from an Ohio-chartered mutual savings and loan association to afederally-chartered stock savings bank (the “Conversion”).  (Unless the context otherwise requires,reference to Peoples includes the Bank). Peoples is a unitary savings and loan holding company whose assetsconsist primarily of the outstanding shares of common stock of the Bank,investments made with the portion of the net proceeds from the issuance ofPeoples shares to the public (the “Offering”) retained by Peoples and Peoples’loan to the employee stock ownership plan (the “ESOP”).  Peoples has no significant liabilities otherthan junior subordinated debentures issued in fiscal 2002.  The management of Peoples and the Bank aresubstantially identical and Peoples neither owns nor leases any property butinstead uses the premises, equipment and furniture of the Bank. The Bank is afederally-chartered stock savings bank that was originally organized in1889.  The Bank conducts its businessfrom thirteen offices in Hamilton, Warren, and Butler Counties in Ohio.  The Bank is primarily engaged in attractingdeposits from the general public and using those funds to originate loans andinvest in securities.  The Bank’sprimary lending emphasis has been, and continues to be, loans secured by firstliens on single-family (one- to-four units) residential properties located inHamilton, Warren and Butler Counties in Ohio. However, over the past three fiscal years, the Bank has placed anincreasing emphasis on multi-family residential loans, nonresidential realestate and land loans, construction loans, commercial loans and consumerloans.  As a result, as a percentage ofthe total loan portfolio, single-family residential loans have decreased from72.7% at September 30, 2000 to 37.1% at September 30, 2003, whilemulti-family residential loans, nonresidential real estate and land loans,construction loans, commercial loans and consumer loans have increased duringthe same time period from 4.3% to 15.3%, 9.7% to 21.1%, 12.8% to 19.7%, 0.0% to4.8% and 0.1% to 1.9%, respectively.  AtSeptember 30, 2003, Peoples had $738.7 million in total assets, $455.9million in deposits and $46.7 million of stockholders’ equity.

 

Immediately prior to the Conversion, TheOakley Improved Building and Loan Company, an Ohio-chartered mutual savings andloan association (“Oakley”), merged with and into the Bank (the “Oakleymerger”).  No consideration wasexchanged in the Oakley merger.  TheOakley merger was accounted for on a pooling of interests basis whereby prioryear amounts are restated to include the assets and liabilities of Oakley.  Simultaneously with the Conversion, HarvestHome Financial Corporation, an Ohio corporation with its principal place ofbusiness in Ohio (“Harvest Home Financial”), merged with and into Peoples (the“Harvest Home merger”).  The HarvestHome merger was accounted for using the purchase method of accounting and assuch, prior period amounts are not restated. The Conversion, the Oakley merger and the Harvest Home merger wereinterdependent transactions.

 

On March 30, 2001, the Company acquiredMarket Financial Corporation (“Market”) for consideration of $7.8 million incash and 527,930 shares of common stock. The acquisition was accounted for using the purchase method ofaccounting, consequently prior period amounts were not restated.

 

On January 18, 2002, the Bank sold $11.0million in total loans and $9.9 million in total deposits to another financialinstitution pursuant to a Purchase and Assumption Agreement.  These assets and liabilities had beenassigned to the Bank’s branch office located in Blanchester, Ohio.

 

On April 26, 2002, the Company completedits acquisition of Kenwood Bancorp, Inc. for consideration of $25.22 peroutstanding share, totaling $7.9 million in cash.  Kenwood was merged with and into the Corporation and Kenwood’swholly-owned banking subsidiary, Kenwood Savings Bank, became a wholly-ownedsubsidiary of the Bank.  The Companyacquired $56.6 million in total assets and recorded approximately $3.4 millionin goodwill as part of the transaction.

 

3

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On July 25, 2003, the Bank sold KenwoodSavings Bank, including $10.0 million in deposits and $10.1 million of loans toFort Washington Trust Company, a subsidiary of Western and Southern LifeInsurance Company.

 

On September 26, 2003, the Bank acquiredtwo Ohio branch offices of Ameriana Bank and Trust, including $32.8 million inloans and $55.6 million in deposits. The Bank recorded approximately $2.3 million in goodwill as a result ofthe transaction.

 

 TheBank is subject to examination and comprehensive regulation by the Office ofThrift Supervision, which is the Bank’s chartering authority and primaryfederal regulator.  The Bank is alsoregulated by the Federal Deposit Insurance Corporation (the “FDIC”), administratorof the Savings Association Insurance Fund. The Bank is also subject to certain reserve requirements established bythe Federal Reserve Board (the “FRB”) and is a member of the Federal Home LoanBank (the “FHLB”) of Cincinnati, which is one of the 12 regional bankscomprising the FHLB System.

 

**Peoples Lending Activities**

 

**General.**  At September 30, 2003, the net loanportfolio of Peoples totaled $554.4 million, representing approximately 75.0%of total assets at that date. The principal lending activity of Peoples is theorigination of residential and nonresidential real estate loans. AtSeptember 30, 2003, residential loans (including construction loanssecured by residential real estate) amounted to $417.0 million, or 75.2% of thenet loan portfolio.  Nonresidential realestate and land loans totaled $131.4 million, or 23.7% of the net loanportfolio and nonresidential construction loans amounted to $31.8 million, or5.7% of  the net loan portfolio as ofSeptember 30, 2003.  Further,commercial loans amounted to $30.0 million, or 5.4% of the net loan portfolioat September 30, 2003 and consumer loans amounted to $11.8 million, or2.1% of the net loan portfolio at such time. Peoples has placed an increased emphasis on multi-family residentialloans, nonresidential real estate and land loans, construction loans,commercial loans and consumer loans over the last three fiscal years.  The aggregate amount of these loans hasincreased to $391.2 million, or 70.6% of the net loan portfolio at September 30,2003, compared to $57.8 million, or 29.4% of the net loan portfolio atSeptember 30, 2000.

 

The types of loans that Peoples may originateare subject to federal and state laws and regulations. Interest rates chargedon loans are affected principally by the demand for such loans and the supply ofmoney available for lending purposes and the rates offered by its competitors.These factors are affected by general and economic conditions, the monetarypolicy of the federal government, including the Federal Reserve Board,legislative and tax policies, and governmental budgetary matters.

 

A savingsinstitution generally may not make loans to one borrower and related entitiesin an amount which exceeds 15% of its unimpaired capital and surplus.  However, loans in an amount equal to anadditional 10% of unimpaired capital and surplus may be made to a borrower ifthe loans are fully secured by readily marketable securities.   At September 30, 2003, Peoples’regulatory limit on loans-to-one borrower was $9.7 million.  All of Peoples’ five largest loans or groupsof loans-to-one borrower, amounting to $9.7 million, $9.0 million, $8.6million, $8.6 million and $8.6 million at September 30, were performing inaccordance with their terms at such date. See “Asset Quality - Classified Assets.”

 

4

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**Loan PortfolioComposition.** The following table sets forth the composition of Peoples’ loans at thedates indicated.

 
|                                     |   | **September 30,** |       |
|------------------------------------------|--------|------------------------|------------|
|                                     |   | **2003**               |       | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|                                     |   | **Amount**             | ** ** | **Percent of  Total** | ** ** | **Amount** | ** ** | **Percent of  Total** | ** ** | **Amount** | ** ** | **Percent of  Total** | ** ** | **Amount** | ** ** | **Percent of  Total** | ** ** | **Amount** | ** ** | **Percent of  Total** |   |
|                                     |   |                   |       |   |   |   |   |   |   | **(Dollars in Thousands)** |   |   |   |   |   |   |   |   |   |
| Mortgage loans:                          |   |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family residential                |   | $                      | 230,775    |   | 41.7 | % | $ | 296,294 |   | 58.8 | % | $ | 242,540 |   | 64.2 | % | $ | 153,627 |   | 78.1 | % | $ | 87,574 |   | 92.6 | % |
| Multi-family residential                 |   | 95,459                 |       | 17.2 |   | 56,980 |   | 11.3 |   | 36,487 |   | 9.7 |   | 8,999 |   | 4.6 |   | 1,588 |   | 1.7 |   |
| Nonresidential real estate  and land     |   | 131,444                |       | 23.7 |   | 88,029 |   | 17.5 |   | 65,842 |   | 17.4 |   | 20,440 |   | 10.4 |   | 5,935 |   | 6.3 |   |
| Construction loans                       |   | 122,598                |       | 22.1 |   | 90,002 |   | 17.9 |   | 62,982 |   | 16.7 |   | 27,056 |   | 13.8 |   | 3,473 |   | 3.7 |   |
| Total mortgage loans                     |   | 580,276                |       | 104.7 |   | 531,305 |   | 105.5 |   | 407,851 |   | 108.0 |   | 210,122 |   | 106.9 |   | 98,570 |   | 104.3 |   |
|                                     |   |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial loans                         |   | 29,955                 |       | 5.4 |   | 21,280 |   | 4.2 |   | 9,800 |   | 2.6 |   | — |   | — |   | — |   | — |   |
| Consumer loans                           |   | 11,769                 |       | 2.1 |   | 4,265 |   | 0.8 |   | 1,883 |   | 0.5 |   | 1,307 |   | 0.7 |   | 133 |   | 0.1 |   |
| Total loans receivable                   |   | 622,000                |       | 112.2 |   | 556,850 |   | 110.5 |   | 419,534 |   | 111.1 |   | 211,429 |   | 107.6 |   | 98,703 |   | 104.4 |   |
| Less:                                    |   |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Undisbursed portion of loans  in process |   | (55,308                | )          | (10.0 | ) | (43,144 | ) | (8.6 | ) | (36,782 | ) | (9.7 | ) | (13,546 | ) | (6.9 | ) | (3,337 | ) | (3.6 | ) |
| Allowance for loan losses                |   | (9,744                 | )          | (1.8 | ) | (7,656 | ) | (1.5 | ) | (3,662 | ) | (1.0 | ) | (762 | ) | (0.4 | ) | (415 | ) | (0.4 | ) |
| Deferred loan fees                       |   | (2,597                 | )          | (0.4 | ) | (2,038 | ) | (0.4 | ) | (1,363 | ) | (0.4 | ) | (636 | ) | (0.3 | ) | (400 | ) | (0.4 | ) |
|                                     |   |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable, net                    |   | $                      | 554,351    |   | 100.0 | % | $ | 504,012 |   | 100.0 | % | $ | 377,727 |   | 100.0 | % | $ | 196,485 |   | 100.0 | % | $ | 94,551 |   | 100.0 | % |

 

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**Origination of Loans.**  The lending activities of Peoples aresubject to the written underwriting standards and loan origination proceduresestablished by the Board of Directors and management.  Loan originations are obtained through a variety of sources,including referrals from real estate brokers, builders and existing customers.Written loan applications are taken by loan officers.  Loan processors obtain or procure credit reports, appraisals andother documentation involved with a loan. Property valuations are performed by independent outside appraisersapproved by the Board of Directors of Peoples.

 

Under the real estate lending policy ofPeoples, a title opinion must be obtained for each real estate loan.  Peoples also requires fire and extendedcoverage casualty insurance, in order to protect the properties securing itsreal estate loans.  Borrowers must alsoobtain flood insurance policies when the property is in a flood hazard area asdesignated by the Department of Housing and Urban Development.  Peoples does not require borrowers toadvance funds to an escrow account for the payment of real estate taxes orhazard insurance premiums.

 

Peoples’ loan approval process is intended toassess the borrower’s ability to repay the loan, the viability of the loan andthe adequacy of the value of the collateral that will secure the loan.  The Board of Directors has granted authorityto approve secured loans as follows: loans up to $500,000 must be approved by two senior executive officers;loans between $500,000 and $1.0 million must be approved by three seniorofficers and loans greater than $1.0 million are approved by the Board ofDirectors or the executive committee of the Board of Directors.

 

Unsecured loans up to $500,000 requireapproval by three senior executive officers and those greater then $500,000must be approved by the Board of Directors or the executive committee of theBoard of Directors.  The executivecommittee shall ratify all approvals and present its report on a monthly basisfor the Board of Directors review and approval.

 

**Activity in Loans.**  The following table shows the activity inPeoples’ loans during the periods indicated.

 
|                                         |   | **Year Ended September 30,** |       |
|----------------------------------------------|--------|-----------------------------------|------------|
|                                         |   | **2003**                          |       | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** |
|                                         |   | **(In Thousands)**                | ** ** |
|                                         |   |                              |       |   |   |   |   |   |   |   |   |
| Total loans  held at beginning of period     |   | $                                 | 556,850    |   | $ | 419,534 |   | $ | 211,429 |   | $ | 98,703 |   | $ | 93,303 |   |
| Originations  of loans:                      |   |                              |       |   |   |   |   |   |   |   |   |
| Mortgage  loans:                             |   |                              |       |   |   |   |   |   |   |   |   |
| Single-family  residential (1)               |   | 63,502                            |       | 90,592 |   | 87,272 |   | 51,281 |   | 28,236 |   |
| Multi-family  residential                    |   | 50,686                            |       | 28,531 |   | 30,605 |   | 4,886 |   | 484 |   |
| Commercial  real estate and land             |   | 30,170                            |       | 39,855 |   | 51,030 |   | 16,519 |   | 2,514 |   |
| Construction                                 |   | 101,019                           |       | 72,167 |   | 58,467 |   | — |   | — |   |
| Commercial  loans                            |   | 25,852                            |       | 26,656 |   | 12,394 |   | — |   | — |   |
| Consumer  loans                              |   | 7,344                             |       | 3,775 |   | 1,344 |   | 1,037 |   | 50 |   |
| Total  originations (2)                      |   | 278,573                           |       | 261,576 |   | 241,112 |   | 73,723 |   | 31,284 |   |
|                                         |   |                              |       |   |   |   |   |   |   |   |   |
| Increase due  to Harvest Home acquisition    |   | —                            |       | — |   | — |   | 62,334 |   | — |   |
| Increase due  to Market acquisition          |   | —                            |       | — |   | 37,476 |   | — |   | — |   |
| Increase due  to Kenwood acquisition         |   | —                            |       | 40,326 |   | — |   | — |   | — |   |
| Increase due  to Ameriana branch acquisition |   | 32,769                            |       | — |   | — |   | — |   | — |   |
| Total  increases                             |   | 311,342                           |       | 301,902 |   | 278,588 |   | 136,057 |   | 31,284 |   |
|                                         |   |                              |       |   |   |   |   |   |   |   |   |
| Transfers to  real estate owned              |   | (2,863                            | )          | (620 | ) | (197 | ) | (110 | ) | — |   |
| Charge-offs                                  |   | (2,122                            | )          | (1,547 | ) | — |   | (4 | ) | — |   |
| Other  increases (decreases) (3)             |   | 5,879                             |       | (9,212 | ) | 22,285 |   | 10,772 |   | 121 |   |
| Repayments                                   |   | (247,086                          | )          | (153,207 | ) | (92,571 | ) | (33,989 | ) | (26,005 | ) |
| Net activity  in loans                       |   | 65,150                            |       | 137,316 |   | 208,105 |   | 112,726 |   | 5,400 |   |
|                                         |   |                              |       |   |   |   |   |   |   |   |   |
| Gross loans  held at end of period           |   | $                                 | 622,000    |   | $ | 556,850 |   | $ | 419,534 |   | $ | 211,429 |   | $ | 98,703 |   |

 

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(1)                      Includesconstruction loan originations made during fiscal year 2000 and 1999.

 

(2)                      Undisbursedportions of loans in process totaled $55.3 million, $43.1 million, $36.8million, $13.5 million and $3.3 million at September 30, 2003, 2002, 2001,2000 and 1999 respectively.

 

(3)                      Includesloan participations sold of $10.2 million, $6.7 million and $2.7 million infiscal 2003, 2002 and 2001, respectively. Peoples did not sell any loan participations in fiscal 2000 or 1999.

 

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The significant repayments of $229.1 millionand $153.2 million during fiscal 2003 and 2002, respectively, were primarilydue to the refinancing activity related to single-family residential loans inthe low interest rate environment during such period.  The transfers to real estate owned of $2.9 million during fiscal2003 were partially due to a troubled builder of 1-4 family residential realestate, who deeded five properties back to the bank in lieu offoreclosure.  These properties are beingactively marketed with one property sold in November 2003. Additionally,during fiscal year 2003, the Bank continued to foreclose on the residentialproperties of a now defunct builder, with two properties remaining unsold as ofSeptember 30, 2003.

 

Charge-offs of $2.1 million during fiscal2003, consisted primarily of $1.8 million in loans secured by commercial realestate, equipment and other assets. This loss resulted from the liquidation of assets of a troubledmanufacturing company, which was further complicated by environmental issues.

 

Although federal laws and regulations permitsavings institutions to originate and purchase loans secured by real estatelocated throughout the United States, Peoples generally confines its lendingactivity to its primary market area of Warren, Butler and Hamilton Counties,Ohio.  Subject to its loans-to-oneborrower limitation, Peoples is permitted to invest without limitation inresidential mortgage loans and up to 400% of its capital in loans secured bynon-residential or commercial real estate. Peoples may also invest in secured and unsecured consumer loans in anamount not exceeding 35% of total assets. This 35% limitation may be exceeded for certain types of consumer loans,such as home equity and property improvement loans secured by residential realproperty.  In addition, Peoples mayinvest up to 10% of its total assets in secured and unsecured loans forcommercial, corporate, business or agricultural purposes.  At September 30, 2003, Peoples waswithin each of the above lending limits.

 

**One- to Four-FamilyResidential Real Estate Loans.**  A primary real estate lending activity ofPeoples is the origination of loans secured by first mortgage liens on one- tofour-family residences.  AtSeptember 30, 2003, $230.8 million, or 41.7% of the net loan portfolio ofPeoples consisted of conventional first mortgage, one- to four-familyresidential loans, compared to $296.3 million, or 58.8% at September 30,2002.  The decrease of $65.5 million, or22.1%, was due to the refinancing activity in the low interest rate environmentas well as the use of such excess funds to originate multi-family residential,nonresidential real estate, land and commercial loans.

 

The loan-to-value ratio, maturity and otherprovisions of the loans made by Peoples generally have reflected Peoples’policy of making less than the maximum loan permissible under applicableregulations, in accordance with sound lending practices, market conditions andunderwriting standards established by Peoples. Peoples’ lending policies on one- to four-family residential mortgageloans generally limit the maximum loan-to-value ratio to 80% of the lesser ofthe appraised value or purchase price of the property. Residential mortgageloans are amortized on a monthly basis with principal and interest due eachmonth. The loans generally include “due-on-sale” clauses.

 

The residential mortgage loans originated byPeoples consist of fixed rate and adjustable rate loans.  Presently, the single-family fixed-rateresidential mortgage loans originated by Peoples have terms of up to 30years.  In addition, Peoples originatesadjustable-rate mortgage loans on which the interest rate adjusts every one orthree years based upon the one-year or three-year rate on T-bills plus a specifiedmargin. At September 30, 2003, $129.1 million, or 55.9% of oursingle-family residential loans were adjustable rate and $101.7 million, or44.1% were fixed-rate.  Althoughsignificantly all of Peoples’ single-family loans are originated for its portfolio,the single-family residential mortgage loans presently being originated byPeoples generally conform to Fannie Mae and Freddie Mac requirements and areavailable for sale in the secondary market.

 

**Multi-familyResidential Loans.** Peoples also originates multi-family (over four units) residentialloans.  Peoples’ multi-family loans areprimarily secured by apartment buildings. The multi-family residential mortgage loans of Peoples are underwrittenon substantially the same basis as its nonresidential real estate loans,discussed below, although loan-to-value ratios are limited to 80%.  At September 30, 2003, Peoples had$95.5 million in multi-family residential mortgage loans, which amounted to17.2% of Peoples’ net loan portfolio, compared to $57.0 million, or 11.3% ofPeoples’ net loan portfolio at September 30, 2002.  During the year ended September 30,2003, Peoples originated $50.7 million of multi-family residential loanscompared to $38.0 million during fiscal 2002. Peoples intends to continue its increased emphasis on this type oflending.

 

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**Nonresidential RealEstate and Land Loans.**  Peoples’ nonresidential real estate and land loan portfolioprimarily consists of loans secured by professional offices, small retailcenters, warehouses and land for development purposes located within Peoples’primary market area.  Nonresidentialreal estate and land loans amounted to $131.4 million, or 23.7% of the net loanportfolio at September 30, 2003, with an average loan balance ofapproximately $387,000. This compares to $88.0 million, or 17.5% atSeptember 30, 2002, with an average loan balance of approximately$304,000.

 

The nonresidential real estate loans ofPeoples typically have a loan-to-value ratio of 75% or less and generally havehigher interest rates than single-family residential mortgage loans. Themaximum term of Peoples’ nonresidential real estate loans is25 years.  Decisions to lend arebased on the economic viability of the property and the creditworthiness of theborrower.  Creditworthiness isdetermined by considering the character, experience, management and financialstrength of the borrower, and the ability of the property to generate adequatefunds to cover both operating expenses and debt services.  In evaluating whether to make anonresidential real estate loan, Peoples places primary emphasis on the ratioof net cash flow to debt service on the property and generally requires a ratioof cash flow to debt service of at least 120%, computed after deduction for avacancy factor and property expenses as Peoples deems appropriate.

 

The land loans of Peoples generally aresecured by single-family residential lots or undeveloped land being held forresidential development.  Loans made onundeveloped land have a loan-to-value ratio of 75% or less (on an undevelopedbasis) and are amortized over a five-year period or over a 15-year period witha balloon payment of the remaining principal amount due at five years from thedate of origination.  Land loans securedby single-family residential lots are structured similar to undeveloped landwith a loan-to-value ratio of 80% or less.

 

Nonresidential real estate lending isgenerally considered to involve a higher degree of risk than one- tofour-family residential lending. Such lending typically involves large loanbalances concentrated in a single borrower or groups of related borrowers forrental or business properties. In addition, the payment experience on loanssecured by income-producing properties is typically dependent on the success ofthe operation of the related project and thus is typically affected by adverseconditions in the real estate market and in the economy. Peoples generallyattempts to mitigate the risks associated with its nonresidential real estatelending by, among other things, lending primarily in its market area and usinglow loan-to-value ratios in the underwriting process.

 

Land development and acquisition loansinvolve significant additional risks when compared with loans on existingresidential properties. These loans may involve larger loan balances to singleborrowers, and the payment experience may be dependent on the successfuldevelopment of the land and the sale of the lots. These risks can besignificantly impacted by supply and demand conditions as well as localeconomic conditions.

 

**ConstructionLoans. **AtSeptember 30, 2003, Peoples had approximately $122.6 million, or 22.1% ofthe net loan portfolio, in construction loans, compared to $90.0 million, or17.9% of the total loan portfolio at September 30, 2002.  Of this amount, $90.8 million, or 74.1%,consisted of residential construction loans and $31.8 million, or 25.9%,consisted of nonresidential construction loans.  The increase in construction loans during fiscal 2003 was dueprimarily to increased originations of construction loans to builders.  The construction loans of Peoples arecomprised largely of loans made to builders on a pre-sold basis, as well as, toa lesser extent, to builders for homes on an unsold or speculative basis.  Peoples’ construction loans to builders aregenerally made with a term not to exceed twelve months.  Interest-only payments are required duringthe construction period, which is typically twelve months.  Peoples generally limits the number ofunsold homes under construction to its builders. This number is dependent onthe reputation of the builder, the present exposure of the builder, thelocation of the property and the financial strength of the builder.  In addition, loans made to borrowers toconstruct their homes are originated at one closing as a construction/permanentloan.

 

Peoples also originates loans for theconstruction of nonresidential real estate such as small office buildings andwarehouses.  These loans are typicallyoriginated as construction/permanent loans with interest only payments duringthe construction period and converting to a permanent loan at the end of theconstruction period.  These loans aregenerally made with a construction term of 12 months.  The loan to value ratio is generally limited to 75% on theseloans on an as completed basis.  AtSeptember 30, 2003, nonresidential construction loans amounted to $31.8million, or 5.7% of the net loan portfolio.

 

Prior to making a commitment to fund aconstruction loan, Peoples requires an appraisal of the property.  Peoples’ also requires inspections of eachproject.  Loan proceeds are thendisbursed based on a percentage of completion.

 

8

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Construction lending is generally consideredto involve a higher degree of risk of loss than long-term financing onimproved, owner-occupied real estate because of the uncertainties ofconstruction, including the possibility of costs exceeding the initialestimates and the need to obtain a tenant or purchaser if the property will notbe owner-occupied.  Peoples generallyattempts to mitigate the risks associated with construction lending by, amongother things, lending in its market area, using conservative underwritingguidelines, and monitoring the construction process.

 

**Commercial Loans.** Peoples’ commercial loans consist primarilyof unsecured lines of credit for working capital purposes, and to a lesserextent, loans secured by business equipment. At September 30, 2003, commercial loans amounted to $30.0 million,or 5.4% of Peoples’ net loan portfolio, compared to $21.3 million, or 4.2% ofthe net loan portfolio at September 30, 2002.

 

**Consumer Loans.** Peoples’ consumer and other loans consist ofloans secured by deposit accounts, automobiles and stock.  At September 30, 2003, consumer andother loans amounted to $11.8 million, or 2.1% of Peoples’ net loan portfolio,compared to $4.3 million, or 0.8% of Peoples’ net loan portfolio as ofSeptember 30, 2002.  The increasein consumer loans was primarily due to the origination of $7.1 million in loanssecured by stock from initial public offerings of several financialinstitutions, as well as the purchase of $1.0 million of consumer loans inconnection with the acquisition of two branch offices from Ameriana Bank and Truston September 26, 2003.

 

**Loan Origination andOther Fees.**  Inaddition to interest earned on loans, Peoples receives loan origination fees or“points” for originating loans.  Loanpoints are a percentage of the principal amount of the mortgage loan and arecharged to the borrower in connection with the origination of the loan.  In accordance with Statement of FinancialAccounting Standards No. 91, loan origination fees and certain relateddirect loan origination costs are offset, and the resulting net amount isdeferred and amortized as interest income over the contractual life of therelated loans as an adjustment to the yield of such loans. AtSeptember 30, 2003, Peoples had $2.6 million of deferred loan feescompared to $2.0 million of deferred loan fees at September 30, 2002.

 

**Contractual PrincipalRepayments and Interest Rates.**  The following table sets forth scheduledcontractual amortization of Peoples’ loans at September 30, 2003 as wellas the dollar amount of such loans which are scheduled to mature after one yearwhich have fixed or adjustable interest rates. Demand loans, loans having no schedule of repayments and no statedmaturity and overdraft loans are reported as due in one year or less.

 
|                                 |   | **Principal Repayments Contractually Due  in Year(s) Ended September 30,** | ** **  |
|--------------------------------------|--------|---------------------------------------------------------------------------------|-------------|
|                                 |   | **2004**                                                                        |        | **2005** | ** ** | **2006** | ** ** | **2007-  2008** | ** ** | **2009-  2014** | ** ** | **2015-  2019** | ** ** | **There-  after** | ** ** | **Total at  September 30,  2003** | ** ** |
|                                 |   | **(In Thousands )**                                                             | ** **  |
|                                 |   |                                                                            |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage  loans:                     |   |                                                                            |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Single-family  residential           |   | $                                                                               | 8,047       |   | $ | 7,465 |   | $ | 8,393 |   | $ | 15,964 |   | $ | 81,942 |   | $ | 34,751 |   | $ | 74,213 |   | $ | 230,775 |   |
| Multi-family  residential            |   | 2,089                                                                           |        | 1,807 |   | 1,895 |   | 3,950 |   | 16,218 |   | 15,463 |   | 54,037 |   | 95,459 |   |
| Nonresidential  real estate and land |   | 30,732                                                                          |        | 26,125 |   | 19,351 |   | 4,500 |   | 18,270 |   | 10,538 |   | 21,928 |   | 131,444 |   |
| Construction  loans                  |   | 57,292                                                                          |        | 19,495 |   | 774 |   | 6,385 |   | 6,632 |   | 7,593 |   | 24,427 |   | 122,598 |   |
| Commercial  loans                    |   | 24,606                                                                          |        | 3,588 |   | 209 |   | 429 |   | 1,096 |   | 11 |   | 16 |   | 29,955 |   |
| Consumer  loans                      |   | 592                                                                             |        | 1,178 |   | 257 |   | 9,642 |   | 100 |   | — |   | — |   | 11,769 |   |
|                                 |   |                                                                            |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total (1)                            |   | **$**                                                                           | **123,358** | ** ** | **$** | **59,658** | ** ** | **$** | **30,879** | ** ** | **$** | **40,870** | ** ** | **$** | **124,258** | ** ** | **$** | **68,356** | ** ** | **$** | **174,621** | ** ** | **$** | **622,000** | ** ** |

 

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(1)                      Of the $498.6 million of loan principalpayments contractually due after September 30, 2004, $143.8 million have fixedrates of interest and $354.8 million have adjustable rates of interest.

 

9

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Scheduled contractual maturities of loans donot necessarily reflect the actual expected term of the loan portfolio. Theaverage life of mortgage loans is substantially less than their averagecontractual terms because of prepayments. The average life of mortgage loanstends to increase when current mortgage loan rates are higher than rates onexisting mortgage loans and, conversely, decrease when rates on currentmortgage loans are lower than existing mortgage loan rates (due to refinancingof adjustable-rate and fixed-rate loans at lower rates). Under the lattercircumstance, the weighted-average yield on loans decreases as higher yieldingloans are repaid or refinanced at lower rates.

 

**Asset Quality**

 

**General.**  Peoples mails delinquent notices toborrowers when a borrower fails to make a required payment within 15 daysof the date due. Additional notices begin when a loan becomes 30 days pastdue. If a loan becomes 90 days past due, Peoples refers it to an attorneyto commence foreclosure. In most cases, deficiencies are cured promptly. WhilePeoples generally prefers to work with borrowers to resolve such problems, Peopleswill institute foreclosure or other collection proceedings when necessary tominimize any potential loss.

 

Loans are placed on non-accrual status whenmanagement believes the probability of collection of interest is insufficientto warrant further accrual. When a loan is placed on non-accrual status,previously accrued but unpaid interest is deducted from interest income. As amatter of policy, Peoples generally discontinues the accrual of interest incomewhen the loan becomes 90 days past due as to principal or interest.

 

Real estate acquired by Peoples as a resultof foreclosure or by deed-in-lieu of foreclosure is classified as real estateowned until sold.  Peoples had realestate owned of $1.3 million and $97,000 at September 30, 2003 and 2002,respectively. There was no real estate owned at September 30, 2001.

 

**Delinquent Loans.**  The following table sets forth informationconcerning delinquent mortgage loans at the dates indicated, in dollar amountsand as a percentage of each category of Peoples’ loan portfolio. The amountspresented represent the total outstanding principal balances of the relatedloans, rather than the actual payment amounts which are past due.

 
|                                |   | **2003  60-89 Days  Delinquent** |   | **At  September 30,  2002  60-89 Days  Delinquent** |   | **2001  60-89 Days  Delinquent** |   |
|-------------------------------------|--------|----------------------------------|--------|----------------------------------------------------------|--------|----------------------------------|--------|
|                                |   | **Amount**                       |   | **Percent  of Loan  Category**                           |   | **Amount**                       |   | **Percent  of Loan  Category** |   | **Amount** |   | **Percent  of Loan  Category** |   |
|                                |   | **(Dollars  in Thousands)**      |   |
|                                |   |                             |   |                                                     |   |                             |   |   |   |   |   |   |   |
| Mortgage loans:                     |   |                             |   |                                                     |   |                             |   |   |   |   |   |   |   |
| Single-family                       |   | $                                | 1,146  |                                                     | .50    | %                                | $      | 3,027 |   | 1.02 | % | $ | 1,904 |   | .79 | % |
| Multi-family                        |   | —                           |   | —                                                   | %      | 112                              |   | .20 | % | — |   | — | % |
| Nonresidential real estate and land |   | 354                              |   | .27                                                      | %      | 198                              |   | .22 | % | 232 |   | .35 | % |
|                                |   |                             |   |                                                     |   |                             |   |   |   |   |   |   |   |
| Total                               |   | $                                | 1,500  |                                                     | .27    | %                                | $      | 3,337 |   | .66 | % | $ | 2,136 |   | .57 | % |

 

10

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**Non-PerformingAssets.**  Thefollowing table sets forth information with respect to non-performing assetsidentified by Peoples, including non-accrual loans, loans more than90 days past due and still accruing interest and other real estate owned.

 
|                                                |   | **At September 30,**  |       |
|-----------------------------------------------------|--------|----------------------------|------------|
|                                                |   | **2003**                   |       | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** |
|                                                |   | **(Dollars in Thousands)** | ** ** |
|                                                |   |                       |       |   |   |   |   |   |   |   |   |
| Loans past  due 90 days or more and still accruing: |   |                       |       |   |   |   |   |   |   |   |   |
| Single-family  residential                          |   | $                          | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | 223 |   |
| Nonresidential  real estate and land                |   | —                     |       | — |   | — |   | — |   | 166 |   |
| Total                                               |   | —                     |       | — |   | — |   | — |   | 389 |   |
|                                                |   |                       |       |   |   |   |   |   |   |   |   |
| Non-accrual  loans:                                 |   |                       |       |   |   |   |   |   |   |   |   |
| Single-family  residential                          |   | 1,752                      |       | 1,274 |   | 783 |   | 1,062 |   | 690 |   |
| Multi-family  residential                           |   | 3,557                      |       | 3,217 |   | — |   | 194 |   | — |   |
| Nonresidential  real estate and land                |   | —                     |       | 232 |   | — |   | — |   | — |   |
| Construction  loans                                 |   | 1,951                      |       | 2,769 |   | — |   | — |   | — |   |
| Commercial  loans                                   |   | —                     |       | — |   | — |   | — |   | — |   |
| Consumer  loans                                     |   | 4                          |       | — |   | — |   | — |   | — |   |
| Total  non-accruing loans                           |   | 7,264                      |       | 7,492 |   | 783 |   | 1,256 |   | 690 |   |
|                                                |   |                       |       |   |   |   |   |   |   |   |   |
| Total  non-performing loans                         |   | 7,264                      |       | 7,492 |   | 783 |   | 1,256 |   | 1,079 |   |
|                                                |   |                       |       |   |   |   |   |   |   |   |   |
| Other real  estate owned, net                       |   | 1,293                      |       | 97 |   | — |   | 110 |   | — |   |
|                                                |   |                       |       |   |   |   |   |   |   |   |   |
| Total  non-performing assets                        |   | $                          | 8,556      |   | $ | 7,589 |   | $ | 783 |   | $ | 1,366 |   | $ | 1,079 |   |
| Non-performing  assets to total assets              |   | 1.16                       | %          | 1.30 | % | 0.19 | % | 0.43 | % | 1.01 | % |
| Non-performing  loans to total loans-net            |   | 1.54                       | %          | 1.49 | % | 0.21 | % | 0.64 | % | 1.09 | % |

 

The $967,000 increase in nonperforming assetsresulted primarily from an increase of $1.2 million in other real estate owned.During fiscal year 2003, the Bank continued to foreclose on the residentialproperties of a now defunct builder, with two properties remaining unsold as ofSeptember 30, 2003.  Additionally,a financially troubled builder of 1-4 family residential real estate, deeded fiveproperties back to the bank in lieu of foreclosure.  These properties are being actively marketed with one propertysold in November 2003.

 

If the $8.6 million of non-accruing andnonperforming loans of Peoples had been current in accordance with their termsduring fiscal 2003, the gross income on such loans would have beenapproximately $645,000.  A total ofapproximately $206,000 of interest income was actually recorded by Peoples onsuch loans in the fiscal year ended September 30, 2003.

 

**Classified Assets.**  Federal regulations require that eachinsured savings institution classify its assets on a regular basis. Inaddition, in connection with examinations of insured institutions, federalexaminers have authority to identify problem assets and, if appropriate,classify them. There are three classifications for problem assets:“substandard,” “doubtful” and “loss.” Substandard assets have one or moredefined weaknesses and are characterized by the distinct possibility that theinsured institution will sustain some loss if the deficiencies are notcorrected. Doubtful assets have the weaknesses of substandard assets with theadditional characteristic that the weaknesses make collection or liquidation infull on the basis of currently existing facts, conditions and valuesquestionable, and there is a higher possibility of loss. An asset classifiedloss is considered uncollectible and of such little value that continuance asan asset of the institution is not warranted. Another category designated“special mention” also must be established and maintained for assets which donot currently expose an insured institution to a sufficient degree of risk towarrant classification as substandard, doubtful or loss.  Assets classified as substandard or doubtfulmay require the institution to establish general allowances for loanlosses.  If an asset or portion thereofis classified loss, the insured institution must either establish specificallowances for loan losses in the amount of 100% of the portion of the assetclassified loss, or charge-off such amount. General loss allowances established to cover possible losses related toassets classified substandard or doubtful may be included in

 

11

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determining an institution’s regulatory capital, while specificvaluation allowances for loan losses do not qualify as regulatory capital.  Federal examiners may disagree with aninsured institution’s classifications and amounts reserved.

 

Peoples’ total classified assets at September 30,2003 amounted to $14.5 million, of which $11.2 million and $3.3 million wereclassified as substandard and special mention, respectively.  The largest classified asset atSeptember 30, 2003 consisted of a $3.5 million multi-family loan which wasclassified as substandard due to its delinquent status.  The remaining $11.0 million of classifiedassets at September 30, 2003 consisted of approximately $9.1 million ofresidential real estate loans, $1.2 million of foreclosed real estate, $373,000of nonresidential real estate and land loans, and $345,000 of commercial loans.

 

**Allowance for LoanLosses.**  Theallocation of the allowance for loan losses based on particular types of loansat September 30, 2003, 2002 and 2001 was as follows:

 
|                                 |   | **2003**                   |       | **2002**                    |       | **2001**    |       |
|--------------------------------------|--------|----------------------------|------------|-----------------------------|------------|-------------|------------|
|                                 |   | **Balance**                |       | **Percent of  total loans** | ** ** | **Balance** | ** ** | **Percent of  total loans** | ** ** | **Balance** | ** ** | **Percent of  total loans** | ** ** |
|                                 |   | **(Dollars in Thousands)** | ** ** |
|                                 |   |                       |       |                        |       |        |       |   |   |   |   |   |   |
| Single-family  residential           |   | $                          | 1,120      |                        | 11.5       | %           | $          | 954 |   | 53.2 | % | $ | 690 |   | 63.7 | % |
| Multi-family  residential            |   | 1,342                      |       | 13.8                        |       |        | 1,015      |   | 10.2 |   |   | 469 |   | 9.5 |   |
| Nonresidential  real estate and land |   | 1,721                      |       | 17.7                        |       |        | 1,428      |   | 15.8 |   |   | 999 |   | 17.2 |   |
| Construction  loans                  |   | 2,192                      |       | 22.5                        |       |        | 1,729      |   | 16.2 |   |   | 281 |   | 6.9 |   |
| Commercial  loans                    |   | 3,124                      |       | 32.0                        |       |        | 2,452      |   | 3.8 |   |   | 1,189 |   | 2.3 |   |
| Consumer  loans                      |   | 245                        |       | 2.5                         |       |        | 78         |   | .8 |   |   | 34 |   | .4 |   |
|                                 |   |                       |       |                        |       |        |       |   |   |   |   |   |   |   |   |
|                                 |   | $                          | 9,744      |                        | 100.0      | %           | $          | 7,656 |   | 100.0 | % | $ | 3,662 |   | 100.0 | % |

 

The allowance for loan losses is maintained by management at a levelconsidered sufficient to cover estimated losses inherent in the existingportfolio based on prior loan loss experience, known and probable risks in theportfolio, adverse situations that may affect the borrower’s ability to repay,the estimated value of any underlying collateral, general economic conditions,and other factors and estimates which are subject to change over time.** **Peoplesincreased its allowance for loan losses in fiscal 2003 by recording a $4.2million provision for losses on loans due to an increase in the volume ofloans, as well as changes in the composition of the loan portfolio and increasein the level of charge-offs, impaired loans and nonperforming loans.  The change in the composition of the loanportfolio included increases in multi-family residential loans, nonresidentialreal estate and land loans, construction loans and unsecured commercial linesof credit, which are generally considered to involve a higher degree of riskthan single-family residential lending. Peoples intends to continue to increase its allowance for loan losses asits loan portfolio increases and the composition and relative credit risk ofthe portfolio changes.  While managementbelieves that it determines the size of the allowance based on the bestinformation available at the time, the allowance will need to be adjusted ascircumstances change and assumptions are updated. Future adjustments to theallowance could significantly affect net earnings.

 

12

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The following table sets forth the activityin Peoples’ allowance for loan losses during the periods indicated.

 
|                                                                     |   | **Year Ended September 30,** |       |
|--------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                     |   | **2003**                          |       | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** |
|                                                                     |   | **(Dollars in Thousands)**        | ** ** |
|                                                                     |   |                              |       |   |   |   |   |   |   |   |   |
| Allowance at  beginning of period                                        |   | $                                 | 7,656      |   | $ | 3,662 |   | $ | 762 |   | $ | 415 |   | $ | 240 |   |
| Increase due  to Harvest Home Financial acquisition                      |   | —                            |       | — |   | — |   | 195 |   | — |   |
| Increase due  to Market acquisition                                      |   | —                            |       | — |   | 451 |   | — |   | — |   |
| Increase due  to Kenwood acquisition                                     |   | —                            |       | 276 |   | — |   | — |   | — |   |
| Provision  for losses on loans                                           |   | 4,198                             |       | 5,265 |   | 2,449 |   | 156 |   | 175 |   |
| Charge-offs:                                                             |   |                              |       |   |   |   |   |   |   |   |   |
| Single-family  residential                                               |   | (97                               | )          | — |   | — |   | (4 | ) | — |   |
| Multi-family  residential                                                |   | —                            |       | — |   | — |   | — |   | — |   |
| Nonresidential  real estate and land                                     |   | (1,097                            | )          | — |   | — |   | — |   | — |   |
| Construction                                                             |   | (62                               | )          | — |   | — |   | — |   | — |   |
| Commercial                                                               |   | (866                              | )          | (1,547 | ) | — |   | — |   | — |   |
| Consumer and  other loans                                                |   | —                            |       | — |   | — |   | — |   | — |   |
| Total  charge-offs                                                       |   | (2,122                            | )          | (1,547 | ) | — |   | (4 | ) | — |   |
|                                                                     |   |                              |       |   |   |   |   |   |   |   |   |
| Recoveries:                                                              |   |                              |       |   |   |   |   |   |   |   |   |
| Single-family  residential                                               |   | 12                                |       | — |   | — |   | — |   | — |   |
| Multi-family  residential                                                |   | —                            |       | — |   | — |   | — |   | — |   |
| Nonresidential  real estate and land                                     |   | —                            |       | — |   | — |   | — |   | — |   |
| Construction                                                             |   | —                            |       | — |   | — |   | — |   | — |   |
| Commercial                                                               |   | —                            |       | — |   | — |   | — |   | — |   |
| Consumer and  other loans                                                |   | —                            |       | — |   | — |   | — |   | — |   |
| Total  recoveries                                                        |   | 12                                |       | — |   | — |   | — |   | — |   |
|                                                                     |   |                              |       |   |   |   |   |   |   |   |   |
| Net loans  charged-off to allowance for loan losses                      |   | (2,110                            | )          | (1,547 | ) | — |   | (4 | ) | — |   |
|                                                                     |   |                              |       |   |   |   |   |   |   |   |   |
| Allowance at  end of period                                              |   | $                                 | 9,744      |   | $ | 7,656 |   | $ | 3,662 |   | $ | 762 |   | $ | 415 |   |
|                                                                     |   |                              |       |   |   |   |   |   |   |   |   |
| Allowance  for loan losses to total nonperforming loans at end of period |   | 134.15                            | %          | 102.19 | % | 467.69 | % | 60.67 | % | 38.46 | % |
|                                                                     |   |                              |       |   |   |   |   |   |   |   |   |
| Allowance  for loan losses to total loans at end of period               |   | 1.57                              | %          | 1.37 | % | 0.87 | % | 0.36 | % | 0.42 | % |

 

**Investment Securities**

 

Peoples has authority to invest in varioustypes of securities, including mortgage-backed securities, United StatesTreasury obligations, securities of various federal agencies and of state andmunicipal governments, certificates of deposit at federally-insured banks andsavings institutions, certain bankers’ acceptances and federal funds.  Each significant purchase of an investmentsecurity is approved by the Board of Directors.

 

13

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The following table sets forth informationregarding the carrying value and fair value of Peoples’ securities at the datesindicated.

 
|                          |   | **September 30,** |       |
|-------------------------------|--------|------------------------|------------|
|                          |   | **2003**               | ** ** | **2002** | ** ** | **2001** | ** ** |
|                          |   | **Amortized  Cost**    |       | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
|                          |   | **(In Thousands)**     | ** ** |
|                          |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Available  for sale:          |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed  securities   |   | $                      | 134,598    |   | $ | 133,828 |   | $ | 18,479 |   | $ | 18,763 |   | $ | — |   | $ | — |   |
| FHLMC stock                   |   | 1,391                  |       | 1,123 |   | 1,391 |   | 1,199 |   | 1,391 |   | 1,364 |   |
| Mutual funds                  |   | 1,039                  |       | 1,033 |   | — |   | — |   | — |   | — |   |
| Other equity  securities      |   | —                 |       | — |   | 29 |   | 32 |   | — |   | — |   |
|                          |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Total                         |   | $                      | 137,028    |   | $ | 135,984 |   | $ | 19,899 |   | $ | 19,994 |   | $ | 1,391 |   | $ | 1,364 |   |
|                          |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Required  investment:         |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Federal Home  Loan Bank stock |   | $                      | 10,221     |   | $ | 10,221 |   | $ | 9,907 |   | $ | 9,907 |   | $ | 7,880 |   | $ | 7,880 |   |

 

The following table sets forth the activityin Peoples’ aggregate securities portfolio during the periods indicated.

 
|                                                                      |   | **Year Ended September 30,** |       |
|---------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                      |   | **2003**                          |       | **2002** | ** ** | **2001** | ** ** |
|                                                                      |   | **(In Thousands)**                | ** ** |
|                                                                      |   |                              |       |   |   |   |   |
| Securities  at beginning of period                                        |   | $                                 | 29,901     |   | $ | 9,244 |   | $ | 109,113 |   |
| Purchases  (1)                                                            |   | 209,532                           |       | 21,664 |   | 528 |   |
| Sales of  available for sale securities                                   |   | (67,996                           | )          | (3,523 | ) | (71,181 | ) |
| Amortization  of premiums and discounts                                   |   | (1,058                            | )          | (264 | ) | 436 |   |
| Repayments,  prepayments and maturities                                   |   | (23,032                           | )          | (1,730 | ) | (37,112 | ) |
| Securities  acquired through acquisition – net                       |   | —                            |       | 4,386 |   | 9,589 |   |
| Increase  (decrease) in unrealized gains on available-for-sale securities |   | (1,142                            | )          | 124 |   | (2,129 | ) |
|                                                                      |   |                              |       |   |   |   |   |
| Securities  at end of period (2)                                          |   | $                                 | 146,205    |   | $ | 29,901 |   | $ | 9,244 |   |

 

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(1)                                  Includesincreases in Federal Home Loan Bank stock and mutual funds from purchases anddividends.

 

(2)                                  AtSeptember 30, 2003 and 2002, $133.8 million or 91.5%, and $18.8 million or62.8%, respectively, of Peoples’ securities portfolio consisted ofadjustable-rate securities.  AtSeptember 30, 2001, Peoples had no adjustable-rate securities.

 

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The following table sets forth certain information regarding thematurities of Peoples’ mortgage-backed securities at September 30, 2003.

 
|                        |   | **Contractually Maturing** |       |
|-----------------------------|--------|----------------------------|------------|
|                        |   | **Under 1  Year**          | ** ** | **Weighted  Average  Yield** | ** ** | **1-5  Years** | ** ** | **Weighted  Average  Yield** | ** ** | **6-10  Years** | ** ** | **Weighted  Average  Yield** | ** ** | **Over 10  Years** | ** ** | **Weighted  Average  Yield** | ** ** |
|                        |   | **(Dollars in Thousands)** | ** ** |
|                        |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed  securities |   | $                          | —     |   | — | % | $ | — |   | — | % | $ | — |   | — | % | $ | 133,828 |   | 2.92 | % |
|                             |        |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Mortgage-backed securities represent aparticipation interest in a pool of one- to four-family or multi-familymortgages.  The mortgage originators useintermediaries (generally U.S. Government agencies and government-sponsoredenterprises) to pool and repackage the participation interests in the form ofsecurities, with investors receiving the principal and interest payments on themortgages.  Such U.S. Government agenciesand government-sponsored enterprises guarantee the payment of principal andinterest to investors.

 

Mortgage-backed securities are typicallyissued with stated principal amounts, and the securities are backed by pools ofmortgages that have loans with interest rates that are within a range and havevarying maturities.  The underlying poolof mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk,are passed on to the certificate holder. The life of a mortgage-backed pass-through security approximates thelife of the underlying mortgages.

 

The mortgage-backed securities of Peoples mayconsist of Government National Mortgage Association (“Ginnie Mae”), FederalHome Loan Mortgage Corporation (“FHLMC”) and Federal National MortgageAssociation (“FNMA”) securities.  GinnieMae is a government agency within the Department of Housing and UrbanDevelopment which is intended to help finance government-assisted housingprograms.  Ginnie Mae securities arebacked by loans insured by the Federal Housing Administration, or guaranteed bythe Veterans Administration, and the timely payment of principal and intereston Ginnie Mae securities are guaranteed by Ginnie Mae and backed by the fullfaith and credit of the U.S. Government.

 

Mortgage-backed securities generally yieldless than the loans which underlie such securities because of their paymentguarantees or credit enhancements which offer nominal credit risk. In addition,mortgage-backed securities are more liquid than individual mortgage loans andmay be used to collateralize borrowings or other obligations of Peoples.  At September 30, 2003, Peoples hadmortgage-backed securities with a fair value totaling $133.8 million.

 

During fiscal year 2003, management purchased$208.1 million in adjustable-rate mortgage-backed securities as a tool tomanage liquidity and interest rate risk, as well as to provide interest incomewith minimal credit risk, due to the implicit guaranty of government-sponsoredagencies.

 

**Sources of Funds**

 

**General.**  Deposits are the primary source of Peoples’funds for lending and other investment purposes. In addition to deposits,principal and interest payments on loans and mortgage-backed securities are asource of funds. Loan repayments are a relatively stable source of funds, whiledeposit inflows and outflows are significantly influenced by general interestrates and money market conditions. Borrowings may also be used on a short-termbasis to compensate for reductions in the availability of funds from othersources and on a longer-term basis for general business purposes.

 

**Deposits.**  Deposits are attracted by Peoplesprincipally from within its primary market area. Deposit account terms vary,with the principal differences being the minimum balance required, the timeperiods the funds must remain on deposit and the interest rate.  Peoples offers traditional passbook savingsaccounts, money market accounts, checking accounts and certificates of deposit.

 

Peoples obtains deposits primarily fromresidents of southwestern Ohio.  Peopleshas not solicited deposits from outside Ohio or paid fees to brokers to solicitfunds for deposit.

 

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Interest rates paid, maturity terms, servicefees and withdrawal penalties are established on a periodic basis. Managementdetermines the rates and terms based on rates paid by competitors, the need forfunds or liquidity, growth goals and federal and state regulations.

 

The following table sets forth the activity in Peoples’ deposits duringthe periods indicated.

 
|                                               |   | **Year Ended September 30,** |       |
|----------------------------------------------------|--------|-----------------------------------|------------|
|                                               |   | **2003**                          |       | **2002** | ** ** | **2001** | ** ** |
|                                               |   | **(In Thousands)**                | ** ** |
|                                               |   |                              |       |   |   |   |   |
| Beginning  balance                                 |   | $                                 | 369,080    |   | $ | 233,063 |   | $ | 151,353 |   |
|                                               |   |                              |       |   |   |   |   |   |   |   |
| Net increase  before interest credited             |   | 76,378                            |       | 125,999 |   | 72,117 |   |
| Interest  credited                                 |   | 10,442                            |       | 10,018 |   | 9,593 |   |
|                                               |   |                              |       |   |   |   |   |
| Net increase  in deposits (including acquisitions) |   | 86,820                            |       | 136,017 |   | 81,710 |   |
|                                               |   |                              |       |   |   |   |   |
| Ending  balance                                    |   | $                                 | 455,900    |   | $ | 369,080 |   | $ | 233,063 |   |

 

The following table sets forth by variousinterest rate categories the certificates of deposit with Peoples at the datesindicated.

 
|            |   | **September 30,** |       |
|-----------------|--------|------------------------|------------|
|            |   | **2003**               |       | **2002** | ** ** | **2001** | ** ** |
|            |   | **(In Thousands)**     | ** ** |
|            |   |                   |       |   |   |   |   |
| 0.00% to  2.99% |   | $                      | 104,180    |   | $ | 69,445 |   | $ | — |   |
| 3.00% to  3.99% |   | 56,216                 |       | 62,981 |   | 2,232 |   |
| 4.00% to  4.99% |   | 48,162                 |       | 53,175 |   | 58,763 |   |
| 5.00% to  6.99% |   | 35,713                 |       | 43,266 |   | 95,008 |   |
| 7.00% to  8.99% |   | 562                    |       | 460 |   | 9,835 |   |
|            |   |                   |       |   |   |   |   |
| Total           |   | $                      | 244,833    |   | $ | 229,327 |   | $ | 165,838 |   |

 

The following table sets forth the amount andremaining maturities of Peoples’ certificates of deposit at September 30,2003.

 
|            |   | **Six  Months  And Less** |   | **Over Six  Months  Through  One  Year** |   | **Over One  Year  Through  Two  Years** |   | **Over Two  Years  Through  Three  Years** |   | **Over  Three  Years** |   |
|-----------------|--------|---------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|--------------------------------------------|--------|------------------------|--------|
|            |   | **(In Thousands)**        |   |
|            |   |                      |   |                                     |   |                                    |   |                                       |   |                   |   |
| 0.00% to  2.99% |   | $                         | 50,157 |                                     | $      | 30,236                                  |   | $                                          | 17,994 |                   | $      | 5,656 |   | $ | 137 |   |
| 3.00% to  3.99% |   | 16,005                    |   | 13,030                                   |   | 6,081                                   |   | 3,036                                      |   | 18,064                 |   |
| 4.00% to  4.99% |   | 2,073                     |   | 3,175                                    |   | 14,124                                  |   | 7,454                                      |   | 21,336                 |   |
| 5.00% to  6.99% |   | 6,671                     |   | 3,432                                    |   | 9,183                                   |   | 4,104                                      |   | 12,323                 |   |
| 7.00% to  8.99% |   | 433                       |   | —                                   |   | 129                                     |   | —                                     |   | —                 |   |
|            |   |                      |   |                                     |   |                                    |   |                                       |   |                   |   |
| Total           |   | $                         | 75,339 |                                     | $      | 49,873                                  |   | $                                          | 47,511 |                   | $      | 20,250 |   | $ | 51,860 |   |

 

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As of September 30, 2003, the aggregateamount of outstanding certificates of deposit at Peoples, in amounts greaterthan $100,000, was approximately $46.2 million.  The following table presents the maturity of these certificatesof deposit at such date.

 
|                             |   | **September 30, 2003** |       |
|----------------------------------|--------|-----------------------------|------------|
|                             |   | **(In Thousands)**          | ** ** |
|                             |   |                        |       |
| 3 months or  less                |   | $                           | 6,491      |   |
| Over 3  months through 6 months  |   | 5,196                       |       |
| Over 6  months through 12 months |   | 7,538                       |       |
| Over 12  months                  |   | 26,952                      |       |
|                             |   |                        |       |
|                             |   | $                           | 46,177     |   |

 

The following table sets forth the dollaramount of deposits in various types of deposits offered by Peoples at the datesindicated.

 
|                            |   | **2003**                   | ** ** | **At September 30,  2002** | ** ** | **2001**   | ** ** |
|---------------------------------|--------|----------------------------|------------|---------------------------------|------------|------------|------------|
|                            |   | **Amount**                 |       | **Percentage**                  | ** ** | **Amount** | ** ** | **Percentage** | ** ** | **Amount** | ** ** | **Percentage** | ** ** |
|                            |   | **(Dollars in Thousands)** | ** ** |
|                            |   |                       |       |                            |       |       |       |   |   |   |   |   |   |
| Non-interest  checking accounts |   | $                          | 9,266      |                            | 2.03       | %          | $          | 6,075 |   | 1.65 | % | $ | 7,552 |   | 3.24 | % |
| Savings and  checking accounts  |   | 164,369                    |       | 36.06                           |       |       | 104,413    |   | 28.29 |   |   | 32,082 |   | 13.77 |   |
| Certificates  of deposit        |   | 244,883                    |       | 53.71                           |       |       | 229,327    |   | 62.13 |   |   | 165,838 |   | 71.15 |   |
| Money market  accounts          |   | 37,382                     |       | 8.20                            |       |       | 29,265     |   | 7.93 |   |   | 27,591 |   | 11.84 |   |
|                            |   |                       |       |                            |       |       |       |   |   |   |   |   |   |   |   |
| Total                           |   | $                          | 455,900    |                            | 100.00     | %          | $          | 369,080 |   | 100.00 | % | $ | 233,063 |   | 100.00 | % |

 

Peoples attempts to control the flow ofdeposits by pricing its accounts to remain generally competitive with otherfinancial institutions in its market area.

 

**Borrowings.**  Peoples may obtain advances from the FederalHome Loan Bank of Cincinnati upon the security of the common stock Peoples ownsin that bank and certain of its residential mortgage loans and mortgage-backedsecurities, provided certain standards related to creditworthiness have beenmet. These advances are made pursuant to several credit programs, each of whichhas its own interest rate and range of maturities. Federal Home Loan Bankadvances are generally available to meet seasonal and other withdrawals ofdeposit accounts and to permit increased lending.  As of September 30, 2003, Peoples was permitted to borrow upto $302.0 million from the Federal Home Loan Bank of Cincinnati.  At such date, Peoples had $218.5 million ofFederal Home Loan Bank advances.

 

Also, Peoples has a line of credit withanother financial institution for $10 million. As of September 30, 2003, Peoples had drawn $1.4 million on thisline of credit.  This line of creditmatures on March 31, 2004.

 

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The following table shows certain informationregarding the borrowings of Peoples at or for the dates indicated:

 
|                                                           |   | **At or for the Year  Ended September 30,** | ** ** |
|----------------------------------------------------------------|--------|--------------------------------------------------|------------|
|                                                           |   | **2003**                                         |       | **2002** | ** ** | **2001** | ** ** |
|                                                           |   | **(Dollars in Thousands )**                      | ** ** |
|                                                           |   |                                             |       |   |   |   |   |
| Federal Home  Loan Bank advances:                              |   |                                             |       |   |   |   |   |
| Average  balance outstanding                                   |   | $                                                | 173,731    |   | $ | 152,995 |   | $ | 129,923 |   |
| Maximum  amount outstanding at any month-end during the period |   | $                                                | 218,500    |   | $ | 180,489 |   | $ | 140,000 |   |
| Balance  outstanding at end of period                          |   | $                                                | 218,500    |   | $ | 152,500 |   | $ | 140,000 |   |
| Average  interest rate during the period                       |   | 3.59                                             | %          | 2.86 | % | 5.05 | % |
| Weighted-average  interest rate at end of period               |   | 3.08                                             | %          | 3.93 | % | 3.31 | % |
|                                                           |   |                                             |       |   |   |   |   |
| Line of  Credit:                                               |   |                                             |       |   |   |   |   |
| Average  balance outstanding                                   |   | $                                                | 946        |   | $ | 113 |   | $ | — |   |
| Maximum  amount outstanding at any month-end during the period |   | $                                                | 1,400      |   | $ | 450 |   | — |   |
| Balance  outstanding at end of period                          |   | $                                                | 1,400      |   | $ | 450 |   | — |   |
| Average  interest rate during the period                       |   | 2.85                                             | %          | 3.55 | % | — |   |
| Weighted-average  interest rate at end of period               |   | 2.62                                             | %          | 3.31 | % | — |   |

 

**Subsidiaries**

 

At September 30, 2003, Peoples did nothave any direct unconsolidated subsidiaries.

 

**Total Employees**

 

Peoples had 114 full-time employees and 5part-time employees at September 30, 2003.  None of these employees are represented by a collectivebargaining agent, and Peoples believes that it enjoys good relations with itspersonnel.

 

**Competition**

 

Peoples faces significant competition both inattracting deposits and in making loans. Its most direct competition for deposits has come historically fromcommercial banks, credit unions and other savings institutions located in itsprimary market area, including many large financial institutions which havegreater financial and marketing resources available to them. In addition, itfaces significant competition for investors’ funds from short-term money marketsecurities, mutual funds and other corporate and government securities.  Peoples does not rely upon any individualgroup or entity for a material portion of its deposits.  The ability of Peoples to attract and retaindeposits depends on its ability to generally provide a rate of return,liquidity and risk comparable to that offered by competing investmentopportunities.

 

Peoples’ competition for real estate loanscomes principally from mortgage banking companies, commercial banks, othersavings institutions and credit unions. It competes for loan originations primarily through the interest ratesand loan fees it charges, and the efficiency and quality of services itprovides borrowers.  Factors whichaffect competition include general and local economic conditions, current interestrate levels and volatility in the mortgage markets. Competition may increase asa result of the continuing reduction of restrictions on the interstateoperations of financial institutions and the anticipated slowing of refinancingactivity.

 

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**REGULATION**

 

The following is a summary of certainstatutes and regulations affecting Peoples and the Bank.  This summary is qualified in its entirety bysuch statutes and regulations.  A changein applicable laws or regulations may have a material effect on Peoples, theBank and the business of Peoples and the Bank.

 

**General**

 

Financial institutions and their holdingcompanies are extensively regulated under federal and state law.  Consequently, the growth and earningsperformance of Peoples and the Bank can be affected not only by managementdecisions and general economic conditions, but also by the statutesadministered by, and the regulations and policies of, various governmentalregulatory authorities.  Thoseauthorities include, but are not limited to, the Office of Thrift Supervision,the Federal Reserve Board, the FDIC, the Internal Revenue Service, and statetaxing authorities.  The effect of suchstatutes, regulations and policies can be significant, and cannot be predictedwith a high degree of certainty.

 

Federal and state laws and regulationsgenerally applicable to financial institutions and their holding companiesregulate, among other things, the scope of business, investments, reservesagainst deposits, capital levels relative to operations, lending activities andpractices, the nature and amount of collateral for loans, the establishment ofbranches, mergers, consolidations and dividends.  The system of supervision and regulation applicable to Peoplesand the Bank establishes a comprehensive framework for their respectiveoperations and is intended primarily for the protection of the FDIC’s depositinsurance funds, the depositors of the Bank and the public, rather thanshareholders of the Bank or Peoples.

 

Federal law and regulations establishsupervisory standards applicable to the lending activities of the Bank,including internal controls, credit underwriting, loan documentation andloan-to-value ratios for loans secured by real property.

 

**Peoples Community Bancorp**

 

**Holding Company Acquisitions.**  Peoples is a registered savings and loanholding company within the meaning of Section 10 of the Home Owners’ LoanAct, and is subject to Office of Thrift Supervision examination and supervisionas well as certain reporting requirements. Federal law generally prohibits a savings and loan holding company,without prior Office of Thrift Supervision approval, from acquiring theownership or control of any other savings institution or savings and loanholding company, or all, or substantially all, of the assets or more than 5% ofthe voting shares thereof.  Theseprovisions also prohibit, among other things, any director or officer of asavings and loan holding company, or any individual who owns or controls morethan 25% of the voting shares of such holding company, from acquiring controlof any savings institution not a subsidiary of such savings and loan holdingcompany, unless the acquisition is approved by the Office of ThriftSupervision.

 

**Holding CompanyActivities.** Peoples operates as a unitary savings and loan holding company.  The activities of Peoples and itsnon-savings institution subsidiaries are restricted to activities traditionallypermitted to multiple savings and loan holding companies and to financialholding companies under newly added provisions of the Bank Holding Company Act.Multiple savings and loan holding companies may:

 

•                  furnishor perform management services for a savings association subsidiary of asavings and loan holding company;

 

•                  hold,manage or liquidate assets owned or acquired from a savings associationsubsidiary of a savings and loan holding company;

 

•                  holdor manage properties used or occupied by a savings association subsidiary of asavings and loan holding company;

 

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•                  engagein activities determined by the Federal Reserve to be closely related tobanking and a proper incident thereto; and

 

•                  engagein services and activities previously determined by the Federal Home Loan BankBoard by regulation to be permissible for a multiple savings and loan holdingcompany as of March 5, 1987.

 

The activities financial holding companiesmay engage in include:

 

•                  lending,exchanging, transferring or investing for others, or safeguarding money orsecurities;

 

•                  insuring,guaranteeing or indemnifying others, issuing annuities, and acting asprincipal, agent or broker for purposes of the foregoing;

 

•                  providingfinancial, investment or economic advisory services, including advising aninvestment company;

 

•                  issuingor selling interests in pooled assets that a bank could hold directly;

 

•                  underwriting,dealing in or making a market in securities; and

 

•                  merchantbanking activities.

 

If the Office of Thrift Supervisiondetermines that there is reasonable cause to believe that the continuation by asavings and loan holding company of an activity constitutes a serious risk tothe financial safety, soundness or stability of its subsidiary savingsinstitution, the Office of Thrift Supervision may impose such restrictions asdeemed necessary to address such risk. These restrictions include limiting thefollowing:

 

•                  thepayment of dividends by the savings institution;

•                  transactionsbetween the savings institution and its affiliates; and

•                  anyactivities of the savings institution that might create a serious risk that theliabilities of the holding company and its affiliates may be imposed on thesavings institution.

 

Every savings institution subsidiary of asavings and loan holding company is required to give the Office of Thrift Supervisionat least 30 days’ advance notice of any proposed dividends to be made onits guaranty, permanent or other non-withdrawable stock, or else such dividendwill be invalid.  See “Peoples CommunityBank - Capital Distributions.”

 

**Restrictions onTransactions With Affiliates.**  Transactions between a savings institutionand its “affiliates” are subject to quantitative and qualitative restrictionsunder Sections 23A and 23B of the Federal Reserve Act and Office of ThriftSupervision regulations. Affiliates of a savings institution generally include,among other entities, the savings institution’s holding company and companiesthat are controlled by or under common control with the savingsinstitution.  However, most subsidiariesof savings institutions are not considered affiliates for the purposes of theserules.

 

In general, a savings institution or itssubsidiaries may engage in certain “covered transactions” with affiliates up tocertain limits. In addition, a savings institution and its subsidiaries may engagein covered transactions and certain other transactions only on terms and undercircumstances that are substantially the same, or at least as favorable to thesavings institution or its subsidiary, as those prevailing at the time forcomparable transactions with nonaffiliated companies. A “covered transaction”is defined to include a loan or extension of credit to an affiliate; a purchaseof investment securities issued by an affiliate; a purchase of assets from anaffiliate, with certain exceptions; the acceptance of securities issued by anaffiliate as collateral for a loan or extension of credit to any party; or theissuance of a guarantee, acceptance or letter of credit on behalf of anaffiliate. In addition, a savings institution may not:

 

•                  makea loan or extension of credit to an affiliate unless the affiliate is engagedonly in activities permissible for bank holding companies;

 

•                  purchaseor invest in securities of an affiliate other than shares of a subsidiary;

 

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•                  purchasea low-quality asset from an affiliate; or

 

•                  engagein covered transactions and certain other transactions between a savingsinstitution or its subsidiaries and an affiliate except on terms and conditionsthat are consistent with safe and sound banking practices.

 

With certain exceptions, each loan orextension of credit by a savings institution to an affiliate must be secured bycollateral with a market value ranging from 100% to 130% (depending on the typeof collateral) of the amount of the loan or extension of credit.

 

**Federal SecuritiesLaws**.  Peoplesregistered its common stock with the Securities and Exchange Commission underSection 12(g) of the Securities Exchange Act of 1934.  Peoples is subject to the proxy and tenderoffer rules, insider trading reporting requirements and restrictions, andcertain other requirements under the Exchange Act. Pursuant to Office of ThriftSupervision regulations and the Plan of Conversion, Peoples has agreed tomaintain such registration for a minimum of three years following theconversion in March 2000.

 

**Sarbanes-Oxley Act of2002.**  OnJuly 30, 2002, the President signed into law the Sarbanes-Oxley Act of2002 implementing legislative reforms intended to address corporate andaccounting fraud.  In addition to theestablishment of a new accounting oversight board which will enforce auditing,quality control and independence standards and will be funded by fees from allpublicly traded companies, the bill restricts provision of both auditing andconsulting services by accounting firms. To ensure auditor independence, any non-audit services being provided toan audit client will require preapproval by the company’s audit committeemembers.  In addition, the auditpartners must be rotated.  The billrequires chief executive officers and chief financial officers, or theirequivalent, to certify to the accuracy of periodic reports filed with the SEC,subject to civil and criminal penalties if they knowingly or willfully violatethis certification requirement.  Inaddition, under the Act, counsel will be required to report evidence of amaterial violation of the securities laws or a breach of fiduciary duty by acompany to its chief executive officer or its chief legal officer, and, if suchofficer does not appropriately respond, to report such evidence to the auditcommittee or other similar committee of the board of directors or the boarditself.

 

Longer prison terms and increased penaltieswill also be applied to corporate executives who violate federal securitieslaws, the period during which certain types of suits can be brought against acompany or its officers has been extended, and bonuses issued to top executivesprior to restatement of a company’s financial statements are now subject to disgorgementif such restatement was due to corporate misconduct.  Executives are also prohibited from insider trading duringretirement plan “blackout” periods, and loans to company executives arerestricted.  In addition, a provisiondirects that civil penalties levied by the SEC as a result of any judicial oradministrative action under the Act be deposited to a fund for the benefit ofharmed investors.  The Federal Accountsfor Investor Restitution (“FAIR”) provision also requires the SEC to developmethods of improving collection rates. The legislation accelerates the time frame for disclosures by publiccompanies, as they must immediately disclose any material changes in theirfinancial condition or operations. Directors and executive officers must also provide information for mostchanges in ownership in a company’s securities within two business days of thechange.

 

The Act also increases the oversight of, andcodifies certain requirements relating to audit committees of public companiesand how they interact with the company’s “registered public accounting firm”(“RPAF”).  Audit committee members mustbe independent and are barred from accepting consulting, advisory or othercompensatory fees from the issuer.  Inaddition, companies must disclose whether at least one member of the committeeis a “financial expert” (as such term will be defined by the SEC) and if not,why not.  Under the Act, a RPAF isprohibited from performing statutorily mandated audit services for a company ifsuch company’s chief executive officer, chief financial officer, comptroller,chief accounting officer or any person serving in equivalent positions has beenemployed by such firm and participated in the audit of such company during theone-year period preceding the audit initiation date.  The Act also prohibits any officer or director of a company orany other person acting under their direction from taking any action tofraudulently influence, coerce, manipulate or mislead any independent public orcertified accountant engaged in the audit of the company’s financial statementsfor the purpose of rendering the financial statement’s materiallymisleading.  The Act also requires the

 

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SEC to prescribe rules requiring inclusion of an internal controlreport and assessment by management in the annual report to stockholders.  The Act requires the RPAF that issues theaudit report to attest to and report on management’s assessment of the company’sinternal controls.  In addition, the Actrequires that each financial report required to be prepared in accordance with(or reconciled to) accounting principles generally accepted in the UnitedStates of America and filed with the SEC reflect all material correctingadjustments that are identified by a RPAF in accordance with accountingprinciples generally accepted in the United States of America and the rules andregulations of the SEC.

 

**Peoples Community Bank**

 

**General.**   The Bank is a federally chartered stocksavings bank.  The Office of ThriftSupervision is the chartering authority and primary federal regulator of theBank. The Office of Thrift Supervision has extensive authority over theoperations of federally chartered savings institutions.  As part of this authority, federally charteredsavings institutions are required to file periodic reports with the Office ofThrift Supervision and are subject to periodic examinations by the Office ofThrift Supervision and the FDIC.  TheBank also is subject to regulation and examination by the FDIC and torequirements established by the Federal Reserve Board.  The investment and lending authority ofsavings institutions are prescribed by federal laws and regulations, and suchinstitutions are prohibited from engaging in any activities not permitted bysuch laws and regulations.  Suchregulation and supervision is primarily intended for the protection ofdepositors and the Savings Association Insurance Fund.

 

The Office of Thrift Supervision’senforcement authority over all savings institutions and their holding companiesincludes, among other things, the ability to assess civil money penalties, toissue cease and desist or removal orders and to initiate injunctiveactions.  In general, these enforcementactions may be initiated for violations of laws and regulations and unsafe orunsound practices. Other actions or inactions may provide the basis forenforcement action, including misleading or untimely reports filed with theOffice of Thrift Supervision.

 

**Insurance ofAccounts.**  Thedeposits of the Bank are insured to the maximum extent permitted by the SavingsAssociation Insurance Fund, which is administered by the FDIC, and are backedby the full faith and credit of the U.S. Government.  As insurer, the FDIC is authorized to conduct examinations of,and to require reporting by, FDIC-insured institutions. It also may prohibitany FDIC-insured institution from engaging in any activity the FDIC determinesby regulation or order to pose a serious threat to the FDIC.  The FDIC also has the authority to initiateenforcement actions against savings institutions, after giving the Office ofThrift Supervision an opportunity to take such action. Currently, FDIC depositinsurance rates generally range from zero basis points to 27 basis points,depending on the assessment risk classification assigned to the depositoryinstitution.

 

The FDIC may terminate the deposit insuranceof any insured depository institution, including the Bank, if it determinesafter a hearing that the institution has engaged or is engaging in unsafe orunsound practices, is in an unsafe or unsound condition to continue operations,or has violated any applicable law, regulation, order or any condition imposedby an agreement with the FDIC.  It also maysuspend deposit insurance temporarily during the hearing process for thepermanent termination of insurance, if the institution has no tangiblecapital.  If insurance of accounts isterminated, the accounts at the institution at the time of the termination,less subsequent withdrawals, shall continue to be insured for a period of sixmonths to two years, as determined by the FDIC.  Management is aware of no existing circumstances which wouldresult in termination of the deposit insurance of the Bank.

 

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**Regulatory CapitalRequirements.** Federally insured savings institutions are required to maintain minimumlevels of regulatory capital. The Office of Thrift Supervision has establishedcapital standards applicable to all savings institutions. These standardsgenerally must be as stringent as the comparable capital requirements imposedon national banks. The Office of Thrift Supervision also is authorized toimpose capital requirements in excess of these standards on individualinstitutions on a case-by-case basis.

 

Current Office of Thrift Supervision capitalstandards require savings institutions to satisfy three different capitalrequirements. Under these standards, savings institutions must maintain“tangible” capital equal to at least 1.5% of adjusted total assets, “core”capital equal to at least 4.0% of adjusted total assets and “total” capital (acombination of core and “supplementary” capital) equal to at least 8.0% of“risk-weighted” assets.  Tangiblecapital generally equals common stockholders’ equity (including retainedearnings) minus intangible assets, with only a limited exception for purchasedmortgage servicing rights.  Core capitalgenerally consists of tangible capital plus qualifying intangible assets.

 

In determining compliance with the risk-basedcapital requirement, a savings institution is allowed to include both corecapital and supplementary capital in its total capital, provided that theamount of supplementary capital included does not exceed the savingsinstitution’s core capital. Supplementary capital generally consists of generalallowances for loan losses up to a maximum of 1.25% of risk-weighted assets,together with certain other items.  Indetermining the required amount of risk-based capital, total assets, includingcertain off-balance sheet items, are multiplied by a risk weight based on therisks inherent in the type of assets. The risk weights range from 0% for cash and securities issued by theU.S. Government or unconditionally backed by the full faith and credit of theU.S. Government to 100% for loans (other than qualifying residential loansweighted at 50%) and repossessed assets.

 

Savings institutions must value securitiesavailable for sale at amortized cost for regulatory capital purposes. Thismeans that in computing regulatory capital, savings institutions should addback any unrealized losses and deduct any unrealized gains, net of incometaxes, on securities reported as a separate component of generally acceptedaccounting principles capital.

 

At September 30, 2003, the Bank exceededall of its regulatory capital requirements, with tangible, core and risk-basedcapital ratios of 7.5%, 7.5% and 12.1%, respectively.

 

Any savings institution that fails any of thecapital requirements is subject to possible enforcement actions by the Officeof Thrift Supervision or the FDIC. Such actions could include a capitaldirective, a cease and desist order, civil money penalties, the establishmentof restrictions on the institution’s operations, termination of federal depositinsurance and the appointment of a conservator or receiver. The Office ofThrift Supervision’s capital regulation provides that such actions, throughenforcement proceedings or otherwise, could require one or more of a variety ofcorrective actions.

 

**Prompt CorrectiveAction.**  Thefollowing table shows the amount of capital associated with the differentcapital categories set forth in the prompt corrective action regulations.

 
| **Capital Category**            |   | **Total  Risk-Based  Capital** | ** ** | **Tier 1  Risk-Based  Capital** | ** ** | **Tier 1  Leverage  Capital** | ** ** |
|---------------------------------|--------|--------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
|                            |   |                           |       |                            |       |                          |       |
| Well  capitalized               |   | 10% or more                    |       | 6% or more                      |       | 5% or more                    |       |
| Adequately  capitalized         |   | 8% or more                     |       | 4% or more                      |       | 4% or more                    |       |
| Undercapitalized                |   | Less than 8%                   |       | Less than 4%                    |       | Less than 4%                  |       |
| Significantly  undercapitalized |   | Less than 6%                   |       | Less than 3%                    |       | Less than 3%                  |       |

 

In addition, an institution is “criticallyundercapitalized” if it has a ratio of tangible equity to total assets that isequal to or less than 2.0%. Under specified circumstances, a federal bankingagency may reclassify a well capitalized institution as adequately capitalizedand may require an adequately capitalized institution or an undercapitalizedinstitution to comply with supervisory actions as if it were in the next lowercategory (except that the FDIC may not reclassify a significantlyundercapitalized institution as critically undercapitalized).

 

23

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An institution generally must file awritten capital restoration plan which meets specified requirements within45 days of the date that the institution receives notice or is deemed tohave notice that it is undercapitalized, significantly undercapitalized orcritically undercapitalized. A federal banking agency must provide theinstitution with written notice of approval or disapproval within 60 daysafter receiving a capital restoration plan, subject to extensions by theagency. An institution which is required to submit a capital restoration planmust concurrently submit a performance guaranty by each company that controlsthe institution. In addition, undercapitalized institutions are subject tovarious regulatory restrictions, and the appropriate federal banking agencyalso may take any number of discretionary supervisory actions.

 

At September 30, 2003, the Bank wasdeemed a well capitalized institution for purposes of the above regulations andas such is not subject to the above mentioned restrictions.

 

**Safety and SoundnessGuidelines.** The Office of Thrift Supervision and the other federal banking agencieshave established guidelines for safety and soundness, addressing operationaland managerial standards, as well as compensation matters for insured financialinstitutions. Institutions failing to meet these standards are required tosubmit compliance plans to their appropriate federal regulators. The Office ofThrift Supervision and the other agencies have also established guidelinesregarding asset quality and earnings standards for insured institutions.  The Bank believes that it is in compliancewith these guidelines and standards.

 

**CapitalDistributions.** Office of Thrift Supervision regulations govern capital distributions bysavings institutions, which include cash dividends, stock repurchases and othertransactions charged to the capital account of a savings institution to makecapital distributions. A savings institution must file an application forOffice of Thrift Supervision approval of the capital distribution if either(1) the total capital distributions for the applicable calendar yearexceed the sum of the institution’s retained net income for that year to dateplus the institution’s retained net income for the preceding two years,(2) the institution would not be at least adequately capitalized followingthe distribution, (3) the distribution would violate any applicablestatute, regulation, agreement or OTS-imposed condition, or (4) theinstitution is not eligible for expedited treatment of its filings. If anapplication is not required to be filed, savings institutions which are asubsidiary of a holding company (as well as certain other institutions) muststill file a notice with the Office of Thrift Supervision at least30 days before the board of directors declares a dividend or approves acapital distribution.

 

**CommunityReinvestment Act and the Fair Lending Laws.**  Savings institutions have a responsibilityunder the Community Reinvestment Act of 1977 and related regulations of theOffice of Thrift Supervision to help meet the credit needs of theircommunities, including low- and moderate-income neighborhoods. In addition, theEqual Credit Opportunity Act and the Fair Housing Act prohibit lenders fromdiscriminating in their lending practices on the basis of characteristicsspecified in those statutes. An institution’s failure to comply with the provisionsof the Community Reinvestment Act could, at a minimum, result in regulatoryrestrictions on its activities. Failure to comply with fair lending laws couldresult in enforcement actions by the Office of Thrift Supervision, as well asother federal regulatory agencies, and the Department of Justice.

 

**Qualified ThriftLender Test.** All savings institutions are required to meet a qualified thrift lendertest to avoid certain restrictions on their operations. A savings institutioncan comply with the qualified thrift lender test by either qualifying as adomestic building and loan association as defined in the Internal Revenue Codeor by maintaining at least 65% of its portfolio assets in certain housing andconsumer-related assets such as:

 

•                  loansmade to purchase, refinance, construct, improve or repair domestic residentialhousing;

 

•                  homeequity loans;

 

•                  mostmortgage-backed securities;

 

•                  stockissued by a Federal Home Loan Bank; and

 

•                  director indirect obligations of the FDIC.

 

24

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A savings institution that does not meet thequalified thrift lender test must either convert to a bank charter or complywith certain restrictions on its operations.

 

At September 30, 2003, the qualifiedthrift investments of the Bank were approximately 82.9% of its portfolioassets.

 

**Federal Home LoanBank System.** The Bank is a member of the Federal Home Loan Bank of Cincinnati, whichis one of 12 regional Federal Home Loan Banks that administers the homefinancing credit function of savings institutions.  Each Federal Home Loan Bank serves as a reserve or central bankfor its members within its assigned region. It is funded primarily fromproceeds derived from the sale of consolidated obligations of the Federal HomeLoan Bank System. It makes loans to members (i.e., advances) in accordance withpolicies and procedures established by the Board of Directors of the FederalHome Loan Bank.

 

As a member, the Bank is required to purchaseand maintain stock in the Federal Home Loan Bank of Cincinnati in an amountequal to at least 1% of its aggregate unpaid residential mortgage loans orsimilar obligations at the beginning of each year. At September 30, 2003,the Bank had $10.2 million in Federal Home Loan Bank stock, which was incompliance with this requirement.

 

The Federal Home Loan Banks are required toprovide funds for the resolution of troubled savings institutions and tocontribute to affordable housing programs through direct loans or interestsubsidies on advances targeted for community investment and low- andmoderate-income housing projects. These contributions have adversely affectedthe level of Federal Home Loan Bank dividends paid in the past and could do soin the future. These contributions also could have an adverse effect on thevalue of Federal Home Loan Bank stock in the future.

 

**Federal ReserveSystem.**  TheFederal Reserve Board requires all depository institutions to maintain reservesagainst their transaction accounts (primarily NOW and Super NOW checking accounts)and non-personal time deposits. Because required reserves must be maintained inthe form of vault cash or a noninterest-bearing account at a Federal ReserveBank, the effect of this reserve requirement is to reduce an institution’searning assets.

 

25

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**TAXATION**

 

**Federal Taxation**

 

**General.**  Peoples and the Bank are subject to thecorporate tax provisions of the Internal Revenue Code, and the Bank is subjectto certain additional provisions which apply to thrifts and other types offinancial institutions. The following discussion of federal taxation isintended only to summarize certain pertinent federal income tax mattersrelevant to the taxation of Peoples and the Bank and is not a comprehensivediscussion of the tax rules applicable to Peoples and the Bank.

 

**Fiscal Year.**  Peoples and the Bank file federal income taxreturns on the basis of a calendar year ending on December 31.

 

**Bad Debt Reserves.**  In 1996, legislation was enacted thatrepealed the reserve method of accounting (including the percentage of taxableincome method) previously used by many savings institutions to calculate theirbad debt reserve for federal income tax purposes. Savings institutions with$500 million or less in assets may, however, continue to use theexperience method.  The Bank mustrecapture that portion of its reserve which exceeds the amount that could havebeen taken under the experience method for post-1987 tax years.  The Bank’s post-1987 excess reservesamounted to approximately $1.2 million. The recapture will occur over a six-year period, which commenced infiscal 1999. The legislation also requires savings institutions to account forbad debts for federal income tax purposes on the same basis as commercial banksfor tax years beginning after December 31, 1995. This change in accountingmethod and recapture of excess bad debt reserves is adequately provided for inthe Bank’s deferred tax liability.

 

At September 30, 2003, the federalincome tax reserves of the Bank included $1.6 million for which no federalincome tax has been provided.  Becauseof these federal income tax reserves and the liquidation account establishedfor the benefit of certain depositors of the Bank in connection with the recentconversion, the retained earnings of the Bank are substantially restricted.

 

**Distributions.**  If Peoples were to distribute cash orproperty to its stockholders, and the distribution was treated as being fromits accumulated bad debt reserves, the distribution would cause Peoples to haveadditional taxable income.  Adistribution is from accumulated bad debt reserves if (a) the reservesexceed the amount that would have been accumulated on the basis of actual lossexperience, and (b) the distribution is a “non-qualified distribution.”  A distribution with respect to its stock isa non-qualified distribution to the extent that, for federal income taxpurposes,

 

•                  itis in redemption of its shares,

 

•                  itis pursuant to a liquidation of the institution, or

 

•                  inthe case of a current distribution, together with all other such distributionsduring the taxable year, it exceeds the institution’s current and post-1951accumulated earnings and profits.

 

The amount of additional taxable incomecreated by a non-qualified distribution is an amount that when reduced by thetax attributable to it is equal to the amount of the distribution.

 

26

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**Minimum Tax.**  The Code imposes an alternative minimum taxat a rate of 20%. The alternative minimum tax generally applies to a base ofregular taxable income plus certain tax preferences (“alternative minimumtaxable income”) and is payable to the extent such alternative minimum taxableincome is in excess of an exemption amount. Tax preference items include thefollowing:

 

•                  depreciation,and

 

•                  75%of the excess (if any) of:

 

(1)                                  alternativeminimum taxable income determined without regard to this preference and priorto reduction by net operating losses, over

 

(2)                                  adjustedcurrent earnings as defined in the Code.

 

Peoples has not been subject to thealternative minimum tax or had any such amounts available as credits forcarry-over.

 

**Capital Gains andCorporate Dividends-Received Deduction.**  Corporate net capital gains are taxed at amaximum rate of 35%. Corporations which own 20% or more of the stock of acorporation distributing a dividend may deduct 80% of the dividends received.Corporations which own less than 20% of the stock of a corporation distributinga dividend may deduct 70% of the dividends received. However, a corporationthat receives dividends from a member of the same affiliated group ofcorporations may deduct 100% of the dividends received.

 

**Other Matters.**  Federal legislation is introduced from timeto time that would limit the ability of individuals to deduct interest paid onmortgage loans. Individuals are currently not permitted to deduct interest onconsumer loans. Significant increases in tax rates or further restrictions onthe deductibility of mortgage interest could adversely affect Peoples.

 

Peoples’ federal income tax returns for thetax years ended 2002, 2001 and 2000 are open under the statute of limitationsand are subject to review by the IRS. Peoples has not been audited by the IRS during the last five years.

 

**State Taxation**

 

**Ohio Taxation.**  Peoples is subject to the Ohio corporationfranchise tax, which is a tax measured by both net earnings and net worth. Therate of tax is the greater of (i) 5.1% on the first $50,000 of computedOhio taxable income and 8.9% of computed Ohio taxable income in excess of$50,000 or (ii) 0.582% times taxable net worth.

 

In computing Peoples’ tax under the net worthmethod, 100% of the investment in the capital stock of the Bank after theconversion may be excluded, as reflected on the balance sheet, in computingtaxable net worth as long as Peoples owns at least 25% of the issued andoutstanding capital stock of the Bank. The calculation of the exclusion from net worth is based on the ratio ofthe excludable investment (net of any appreciation or goodwill included in suchinvestment) to total assets multiplied by the net value of the stock.  As a holding company, Peoples may beentitled to various other deductions in computing taxable net worth that arenot generally available to operating companies.

 

A special litter tax is also applicable toall corporations, including Peoples, subject to the Ohio corporation franchisetax other than “financial institutions.” If the franchise tax is paid on thenet income basis, the litter tax is equal to 0.11% of the first $50,000 ofcomputed Ohio taxable income and 0.22% of computed Ohio taxable income inexcess of $50,000. If the franchise tax is paid on the net worth basis, thelitter tax is equal to 0.014% times taxable net worth.

 

The Bank is a “financial institution” forState of Ohio tax purposes. As such, it is subject to the Ohio corporatefranchise tax on “financial institutions,” which is imposed annually at a rateof 1.3% of the Bank’s book net worth determined in accordance with generallyaccepted accounting principles.  As a“financial institution”, the Bank is not subject to any tax based upon netincome or net profits imposed by the State of Ohio.

 

27

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**Maryland Taxation.**  As a Maryland holding company not earningincome in Maryland, Peoples is exempt from Maryland corporate income tax.

 

#### **Item 2. Properties**

 

At September 30, 2003, Peoples conductedits business from its main office in West Chester, Ohio and twelve other branchoffices in Hamilton and Warren counties. The following table sets forth the net book value (including leaseholdimprovement, furnishings and equipment) and certain other information withrespect to the offices and other properties of Peoples at September 30,2003.

 
|                       |   | **Owned or  Leased** | ** ** | **Lease  Expiration  Date** | ** ** | **Net Book Value  of Property and  Leasehold  Improvements at  September 30,  2003** | ** ** | **Deposits at  September 30,  2003** | ** ** |
|----------------------------|--------|----------------------|------------|-----------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
|                       |   |                 | ** ** |                        | ** ** | **(In thousands)**                                                                        | ** ** |
| **Main Office:**           |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| 6100 West  Chester Road    |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| West  Chester, Ohio 45069  |   | Owned                |       | N/A                         |       | $                                                                                         | 2,816      |                                      | $          | 76,429 |   |
|                       |   |                 | ** ** |                        | ** ** |                                                                                      | ** ** |                                      | ** ** |
| **Branch Offices:**        |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| 11 South  Broadway         |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Lebanon,  Ohio 45036       |   | Owned                |       | N/A                         |       | 716                                                                                       |       | 60,086                                    |       |
| 4825 Marburg  Avenue       |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cincinnati,  Ohio 45209    |   | Owned                |       | N/A                         |       | 947                                                                                       |       | 19,122                                    |       |
| 3621  Harrison Avenue      |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cheviot,  Ohio 45211       |   | Owned                |       | N/A                         |       | 334                                                                                       |       | 53,796                                    |       |
| 3663  Ebenezer Road        |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cincinnati,  Ohio 45248    |   | Owned                |       | N/A                         |       | 249                                                                                       |       | 27,110                                    |       |
| 7522  Hamilton Avenue      |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cincinnati,  Ohio 45231    |   | Owned                |       | N/A                         |       | 1,329                                                                                     |       | 61,253                                    |       |
| 4100 State  Route 128      |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cleves, Ohio  45002        |   | Owned                |       | N/A                         |       | 1,108                                                                                     |       | 7,172                                     |       |
| 1101  Columbus Avenue      |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Lebanon,  Ohio 45036       |   | Owned                |       | N/A                         |       | 1,489                                                                                     |       | 31,592                                    |       |
| 5797 South  State Route 48 |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Maineville,  Ohio 45039    |   | Owned                |       | N/A                         |       | 1,105                                                                                     |       | 11,633                                    |       |
| 7711  Montgomery Road      |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cincinnati,  Ohio 45236    |   | Owned                |       | N/A                         |       | 285                                                                                       |       | 35,747                                    |       |
| 3530  Springdale Road      |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cincinnati,  Ohio 45251    |   | Owned                |       | N/A                         |       | 734                                                                                       |       | 16,291                                    |       |
| 7200 Blue  Ash Road        |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Cincinnati,  Ohio 45236    |   | Owned                |       | N/A                         |       | 830                                                                                       |       | 45,847                                    |       |
| 2906-6 West  US 22 & 3 |   |                 |       |                        |       |                                                                                      |       |                                      |       |
| Maineville,  OH 45039      |   | Leased               |       | 06/07                       |       | —                                                                                    |       | 9,822                                     |       |
|                            |        |                      |            |                             |            |                                                                                           |            |                                           |            |  |  |

 

Additionally, the Company had capitalized construction in progresscosts totaling approximately $662,000 at September 30, 2003 and investmentof $454,000 in a building from the Kenwood Savings Bank acquisition which iscurrently under contract for sale.

 

**Item 3. Legal Proceedings**

 

Peoples Bankand Peoples Bancorp are not involved in any pending legal proceedings otherthan nonmaterial legal proceedings occurring in the ordinary course ofbusiness.

 

**Item 4. Submission of Matters to a Vote ofSecurity Holders**

 

Not applicable

 

28

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**PARTII**

 

**Item 5. Market for Registrant’s Common Equityand Related Stockholder Matters**

 

The information required herein isincorporated by reference from page 3 of Peoples’ 2003 Annual Report toStockholders filed as Exhibit 13 hereto (“2003 Annual Report”).

 

#### **Item 6. Selected Financial Data**

 

The information required herein isincorporated from pages 4 and 5 of the 2003 Annual Report.

 

**Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

The information required herein isincorporated by reference from pages 6 to 20 of the 2003 Annual Report.

 

**Item 7A. Quantitative and QualitativeDisclosures About Market Risk**

 

The information required herein isincorporated from pages 17 and 18 of the 2003 Annual Report.

 

**Item 8. Financial Statements andSupplementary Data**

 

The information required herein isincorporated by reference from pages 21 to 52 of the 2003 Annual Report.

 

**Item 9. Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure**

 

Not applicable

 

**Item 9A. Controls and Procedures**

 

Our management evaluated, with theparticipation of our Chief Executive Officer and Chief Financial Officer, theeffectiveness of our disclosure controls and procedures (as defined by Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as ofJune 30, 2003.  Based on suchevaluation, our Chief Executive Officer and Chief Financial Officer haveconcluded that our disclosure controls and procedures are designed to ensurethat information required to be disclosed by us in the reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand regulations and are operating in an effective manner.

 

No change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under theSecurities Exchange Act of 1934) occurred during the fourth fiscal quarter offiscal 2003 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PARTIII**

 

**Item 10. Directors and Executive Officers ofthe Registrant**

 

The information required herein isincorporated by reference from the Registrant’s Proxy Statement to be filedwithin 120 days after the end of the fiscal year covered by this Form 10-K(“Proxy Statement”).

 

**Item 11. Executive Compensation**

 

The information required herein isincorporated by reference from the Proxy Statement.

 

29

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**Item 12. Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters**

 

The information required herein isincorporated by reference from the Proxy Statement.

 

**Item 13. Certain Relationships and RelatedTransactions**

 

The information required herein isincorporated by reference from the Proxy Statement.

 

##### **Item 14. Principal Accountant Fees and Services**

##### ** **

The information required herein isincorporated by reference from the Proxy Statement.

 

**Item 15. Exhibits, Financial StatementSchedules and Reports on Form 8-K**

 

(a) The following documents are filed as part of this report and areincorporated herein by reference from the Registrant’s 2003 Annual Report:

 

Report of Independent Certified PublicAccountants.

 

Consolidated Statements of FinancialCondition as of September 30, 2003 and 2002.

 

Consolidated Statements of Earnings for theYears Ended September 30, 2003, 2002 and 2001.

 

Consolidated Statements of Stockholders’Equity for the Years Ended September 30, 2003, 2002 and 2001.

 

Consolidated Statements of Cash Flows for theYears Ended September 30, 2003, 2002 and 2001.

 

Notes to Consolidated Financial Statements.

 

The following exhibits are filed as part ofthe Form 10-K, and this list includes the Exhibit Index:

 
| **No.** |   | **Exhibits** |
|---------|--------|--------------|
| 3.1     |   |         | Articles of Incorporation of Peoples Community  Bancorp, Inc.* |
| 3.2     |   |         | Bylaws of Peoples Community Bancorp, Inc.* |
| 4       |   |         | Stock Certificate of Peoples Community  Bancorp, Inc.** |
| 13      |   |         | Annual Report to Stockholders for the Year  Ended September 30, 2003 |
| 21      |   |         | List of Subsidiaries (See “Item I. Business  - Subsidiaries” in this Form 10-K) |
| 31.1    |   |         | Certification of Chief Executive Officer  Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934  and Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2    |   |         | Certification of Chief Financial Officer  Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934  and Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1    |   |         | Certification of Chief Executive Officer  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  1350) |
| 32.2    |   |         | Certification of Chief Financial Officer  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  1350) |

 

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* Incorporated herein by reference to Peoples’ Proxy Statement datedJanuary 28, 2002.

** Incorporated herein by reference to Peoples’ Registration Statement onForm S-1 filed with the SEC on December 17, 1999.

 

(b)         Reports filed on Form8-K.

 

Peoples filed an 8-K dated July 30, 2003under Item 12 in order to file its press release reporting earnings for theperiod ended June 30, 2003.  Nofinancial statements were filed.

 

30

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**SIGNATURES**

 

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

 

 
|              | **PEOPLES COMMUNITY BANCORP, INC.** |
|-------------------|-------------------------------------|
|              |                                |
| December 29, 2003 | By:                                 | /s/Jerry D. Williams |   |
|              |                                | Jerry D.  Williams |
|              |                                | President, Chief Executive Officer  and Director |
|                   |                                     |  |  |  |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 

 
| /s/  Jerry D. Williams                  |   | December 29, 2003 |
|---------------------------------------------------|--------|-------------------|
| Jerry D. Williams                                 |   |              |
| President, Chief  Executive  Officer and Director |   |              |
| (principal executive officer)                     |   |              |
|                                              |   |              |
|                                              |   |              |
| /s/  Thomas J. Noe                      |   | December 29, 2003 |
| Thomas J. Noe                                     |   |              |
| Treasurer and Director                            |   |              |
|                                              |   |              |
|                                              |   |              |
| /s/  Paul E. Hasselbring                |   | December 29, 2003 |
| Paul E. Hasselbring                               |   |              |
| Chairman of  the Board and Director               |   |              |
|                                              |   |              |
|                                              |   |              |
| /s/  John E. Rathkamp                   |   | December 29, 2003 |
| John E. Rathkamp                                  |   |              |
| Chief Lending Officer, Secretary and  Director    |   |              |

 

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| /s/  John L. Buchanan               |   | December 29, 2003 |
|-----------------------------------------------|--------|-------------------|
| John L. Buchanan                              |   |              |
| Director                                      |   |              |
|                                          |   |              |
|                                          |   |              |
| /s/  Donald L. Hawke                |   | December 29, 2003 |
| Donald L. Hawke                               |   |              |
| Director                                      |   |              |
|                                          |   |              |
|                                          |   |              |
| /s/  James R. Van DeGrift           |   | December 29, 2003 |
| James R. Van DeGrift                          |   |              |
| Director                                      |   |              |
|                                          |   |              |
|                                          |   |              |
| /s/  Nicholas N. Nelson             |   | December 29, 2003 |
| Nicholas N. Nelson                            |   |              |
| Director                                      |   |              |
|                                          |   |              |
|                                          |   |              |
| /s/  Teresa A. O’Quinn         |   | December 29, 2003 |
| Teresa A. O’Quinn                        |   |              |
| Chief Financial Officer                       |   |              |
| (principal financial and accounting  officer) |   |              |

 

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