UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ýx Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended ~~September 30~~December 31, ~~2004~~2008

o Transition report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

Commission File No.: 000-29949

PEOPLES COMMUNITY BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland		31-1686242
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		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

Common Stock (par value $.01 per share)		Nasdaq Global Market
(Title of Class)		(Name of Each Exchange on Which Registered)

Securities registered under Section 12(g) of the Exchange Act:

~~Common Stock (par value $.01 per share)~~None

~~(Title~~Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the ~~Class)~~Securities Act. Yes o No x

Indicate by check mark ~~whether~~ if the Registrant: ~~(1)~~is ~~has~~not ~~filed~~required ~~all~~to file reports ~~required~~pursuant to ~~be filed by~~ Section 13 or Section 15(d) of ~~the Exchange Act during the preceding 12 months (or for~~ ~~such shorter period that~~ the ~~Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days~~Act. Yes ~~ý No~~ o No x

Indicate by check mark if ~~disclosure~~whether ofthe ~~delinquent~~Registrant: ~~filers~~(1) has ~~pursuant~~filed toall ~~Item~~reports ~~405~~required ofto ~~Regulation~~be ~~S-K~~filed isby ~~not~~Section 13 ~~contained~~or ~~herein,~~15(d) of ~~and~~the ~~will~~Exchange ~~not~~Act beduring ~~contained,~~the topreceding ~~the~~12 ~~best~~months of(or ~~Registrant’s~~for such ~~knowledge,~~shorter inperiod ~~definitive~~that ~~proxy~~the orRegistrant ~~information~~was ~~statements~~required ~~incorporated~~to ~~by reference~~file insuch ~~Part~~reports), ~~III~~and of(2) has been ~~this~~subject ~~Form~~to ~~10-K~~such orfiling ~~any~~requirements ~~amendment~~for tothe ~~this~~past ~~Form~~90 ~~10-K~~days. ý Yes x No o

Indicate by check mark whether the ~~registrant~~Registrant ishas ansubmitted ~~accelerated~~electronically ~~filer~~and posted on its corporate ~~(as~~Web ~~defined~~site, inif ~~Exchange~~any, ~~Act~~every Interactive Data File required to be submitted and posted pursuant to Rule 405 ~~12b~~of Regulation S-2T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o

~~Yes~~Indicate by check mark if disclosure of delinquent ~~o No~~filers ýpursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

AsIndicate ofby ~~December~~check ~~28,~~mark ~~2004,~~whether the ~~aggregate~~registrant ~~value~~is ofa large ~~the~~accelerated 3filer,~~310,044~~ ~~shares~~an ~~of Common~~accelerated ~~Stock~~filer, ofa ~~the~~non-accelerated ~~Registrant issued and outstanding on such date~~filer, ~~which excludes~~or ~~589,074 shares held by all directors and executives officers of the Registrant and the Registrant’s Employee Stock Ownership Plan (“ESOP”) as~~ a ~~group,~~ ~~was~~smaller ~~approximately~~reporting ~~$79~~company.~~4 million.~~ ~~This figure~~See ~~is based on~~ the ~~closing~~definitions ~~sales price~~ of ~~$24.00~~“large ~~per share of the~~accelerated ~~Registrant’s Common Stock on December 28~~filer”, ~~2004. Although~~“accelerated ~~directors~~filer” and ~~executive~~“smaller ~~officers~~reporting ~~and~~company” ~~the~~in ~~ESOP were assumed to~~Rule 12b-2 ~~be “affiliates”~~ of the ~~Registrant~~Exchange ~~for~~Act. ~~purposes~~(Check ~~of this calculation, the classification is not to be interpreted as an admission of such status.~~one):

~~Number~~Large ofaccelerated ~~shares~~filer ofo ~~Common Stock~~Accelerated ~~outstanding~~filer aso ofNon-accelerated ~~December~~filer ~~28,~~o ~~2004: 3,899,118~~Smaller reporting company x (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of June 30, 2008, the aggregate value of the 3,904,422 shares of Common Stock of the Registrant issued and outstanding on such date, which excludes 940,067 shares held directly or indirectly by all directors and executives officers of the Registrant and the Registrant’s Employee Stock Ownership Plan (“ESOP”) as a group, was approximately $8.7 million. This figure is based on the closing sales price of $2.24 per share of the Registrant’s Common Stock on June 30, 2008. Although directors and executive officers and the ESOP were assumed to be “affiliates” of the Registrant for purposes of this calculation, the classification is not to be interpreted as an admission of such status.

Number of shares of Common Stock outstanding as of April 30, 2009: 4,844,489

Table of Contents

TABLE OF CONTENTS

		Page
	PART I

Item 1.	Business	1
	General	1
	Operations	1
	Regulatory Enforcement Actions	2
	Report of Independent Registered Public Accounting Firms	4
	Default on Line of Credit and Termination of Strategic Transaction	4
	Establishment of Valuation Allowance	5
	Peoples Lending Activities	5
	Asset Quality	13
	Investment Securities	17
	Sources of Funds	19
	Employees	23
	Competition	23
	Regulation	23
	Taxation	30
	Forward Looking Statements	32

Item 1A.	Risk Factors	33
Item 1B.	Unresolved Staff Comments	38
Item 2.	Properties	39
Item 3.	Legal Proceedings	40
Item 4.	Submission of Matters to a Vote of Security Holders	40

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	40
Item 6.	Selected Financial Data	40
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	40
Item 9A(T).	Controls and Procedures	40
Item 9B.	Other Information	41

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	42
Item 11.	Executive Compensation	45
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	49
Item 13.	Certain Relationships and Related Transactions and Director Independence	51
Item 14.	Principal Accountant Fees and Services	52

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	53

Signatures

Table of Contents

PART I

Item 1. Business

General

Peoples Community Bancorp, Inc. (“Peoples” or the “Company”) was organized in December 1999 at the direction of the Board of Directors of The People’s Building, Loan and Savings Company, presently Peoples Community Bank (the “Bank”), for the purpose of holding all of the capital stock of the Bank and in order to facilitate the conversion of the Bank from an Ohio-chartered mutual savings and loan association to a federally-chartered stock savings bank ~~(the “Conversion”)~~. (Unless the context otherwise requires, reference to Peoples includes the Bank). ~~Peoples is a unitary savings~~ ~~and~~People’s ~~loan holding company whose~~ assets consist primarily of the outstanding shares of common stock of the Bank,. Peoples ~~investments~~has ~~made~~no ~~with~~significant ~~the~~liabilities ~~portion~~other ofthan ~~the net~~junior ~~proceeds~~subordinated ~~from~~debentures ~~the~~issued ~~issuance~~in offiscal ~~Peoples~~2005 ~~shares~~and to$17.5 ~~the~~million ~~public~~of ~~(the “Offering”)~~principal ~~retained~~plus byaccrued ~~Peoples~~interest and ~~Peoples’~~fees ~~loan~~currently tooutstanding ~~the~~as ~~employee~~of ~~stock~~April 30, ~~ownership~~2009 under ~~plan~~a ~~(the “ESOP”). Peoples~~line ~~has~~of nocredit ~~significant liabilities~~which ~~other~~is ~~than~~secured ~~junior~~by ~~subordinated~~the ~~debentures~~outstanding ~~issued~~shares inof ~~fiscal~~common ~~2002~~stock of the Bank. The management of Peoples and the Bank are substantially identical and Peoples neither owns nor leases any property but instead uses the premises, equipment and furniture of the Bank. ~~The Bank is a federally-chartered stock savings bank that was originally organized in 1889.~~ ~~The~~At ~~Bank conducts its~~December 31, ~~business~~2008, ~~from~~Peoples ~~thirteen~~had ~~offices~~$712.4 million in ~~Hamilton,~~total ~~Warren~~assets, ~~and Butler Counties in Ohio~~$630. ~~The~~2 ~~Bank~~million ~~is primarily engaged~~ in ~~attracting~~ deposits ~~from the general public and using those funds to originate~~, ~~loans~~$76.5 ~~and~~million ~~invest~~ in ~~securities. The~~borrowings ~~Bank’s primary lending emphasis has been, and continues to be, loans secured by first liens on single-family~~ (~~one-~~excluding ~~to-four~~subordinated ~~units~~debentures) ~~residential properties located in Hamilton, Warren~~ and ~~Butler Counties in Ohio~~$14. 8 ~~However,~~million ~~over~~of ~~the~~stockholders’ ~~past four fiscal years, the Bank has placed an increasing emphasis on multi-family residential loans, nonresidential real estate and land loans, construction loans, commercial loans and consumer loans~~deficit. AsPeoples’ aprincipal ~~result,~~executive asoffice ~~a percentage of~~is ~~the~~located ~~total loan portfolio, single-family residential loans have decreased from 72.7%~~ at ~~September~~6100 ~~30,~~West ~~2000~~Chester ~~to 33.7% at September 30~~Road, ~~2004,~~West ~~while multi-family residential loans~~Chester, ~~nonresidential~~Ohio ~~real estate and land loans, construction loans, commercial loans and consumer loans have increased during the same time period from 4~~45069.~~3% to 15.9%, 9.7% to 23.6%, 12.8% to 18.6%, 0.0% to 4.9% and 0.1% to 3.2%, respectively.~~ ~~At September 30, 2004,~~ Peoples ~~had $889.1 million in total assets, $472.4 million in deposits~~’ ~~and~~telephone ~~$75.8~~number ~~million~~is of(513) ~~stockholders’ equity~~870-3530.

The ~~Company~~Bank ~~was~~is ~~formed in~~a ~~December~~federally-chartered ~~1999 in connection with the mutual to~~ stock ~~conversion~~savings ofbank ~~the~~that ~~Bank, and~~was ~~the~~originally ~~sale~~organized ~~of 1,190,000 shares of common stock to depositors and members of~~in ~~the community~~1889. The Bank conducts its business from ~~thirteen~~nineteen full service offices in Hamilton, Warren and Butler counties in Southwest Ohio~~. The~~ ~~Bank’s business~~and isDearborn ~~conducted through an aggressive marketing~~ and ~~selling effort of its~~Ohio ~~lending~~counties ~~products and services to the communities~~ in ~~its~~Southeast ~~market area and through the continued development of innovative lending programs that give Peoples Bank a competitive advantage~~Indiana. The Bank ~~offers a~~is ~~wide~~primarily ~~variety~~engaged ofin ~~loan~~attracting deposits ~~products,~~from ~~including~~the ~~single~~general public and ~~multi-family~~using ~~residential loans,~~those ~~nonresidential~~funds ~~real~~to ~~estate~~originate ~~and land~~ loans and invest ~~construction loans. In addition, the Bank invests~~ in securities. The ~~funds for the~~ Bank’s ~~lending~~ ~~and~~primary ~~investment~~lending ~~activities~~emphasis ~~are~~has ~~primarily~~been, ~~provided by deposits~~ and ~~borrowings. At~~continues ~~September~~to 30be, ~~2004,~~loans ~~the Company~~secured ~~had~~by ~~$889.1~~first ~~million~~liens inon ~~total~~real ~~assets,~~estate ~~$472.4~~located ~~million~~ in ~~deposits, $324.5~~its ~~million~~local ~~in borrowings (excluding subordinated debentures) and $75~~market.8 million of stockholders’ equity. The Company’s principal executive office is located at 6100 West Chester Road, P.O. Box 1130, West Chester, Ohio 45071-1130. The Company’s telephone number is (513) 870-3530.

AsThe aBank ~~result of acquisitions~~is ~~and~~subject ~~internal growth, the Company has grown significantly from $320.6 million in total assets as of September 30, 2000~~ to ~~$889.1~~examination ~~million~~and incomprehensive ~~total~~regulation ~~assets~~by ~~as of September 30, 2004. Since~~ the ~~completion of~~Office ~~the initial public offering in March 2000, the Company has acquired three financial institutions with aggregate total assets as~~ of ~~the time of~~Thrift ~~acquisition~~Supervision ~~of $231.2 million. In addition~~(“OTS”), inwhich ~~September~~is ~~2003,~~ the ~~Company~~Bank’s ~~purchased~~chartering ~~$32.8~~authority ~~million in loans~~ and ~~assumed~~ ~~$55.6 million in deposits in connection with the acquisition of two~~primary ~~branch~~federal ~~offices from another financial institution~~regulator. The ~~Company~~Bank ~~has~~is ~~supplemented~~also ~~this~~regulated ~~growth from acquisitions with loan generation secured primarily~~ by ~~real~~the ~~estate~~Federal ~~in its~~Deposit ~~market~~Insurance ~~area. Loan~~Corporation ~~originations~~(the ~~increased from $73.7 million in fiscal 2000~~“FDIC”), toadministrator ~~$241.1~~of ~~million~~the inDeposit ~~fiscal 2001, $261.6~~Insurance ~~million in fiscal 2002, $278~~Fund.~~6 million in fiscal 2003 and $289.5 million in fiscal 2004.~~ ~~Loans~~The ~~receivable,~~Bank ~~net~~is ~~increased from~~a ~~$196.5~~member ~~million~~of ~~at September 30, 2000 to $599.5 million at September 30, 2004. In addition, since September 30, 2000,~~ the ~~Company~~ ~~has~~Federal ~~expanded~~Home ~~its~~Loan ~~franchise~~Bank ~~through~~ (the ~~opening~~“FHLB”) of ~~four full service~~ ~~branch~~Cincinnati, ~~offices~~which ~~including~~is ~~the~~one ~~Voice~~ of ~~America~~the ~~branch~~12 ~~office~~regional inbanks ~~Butler~~comprising ~~County opened~~the inFHLB ~~October 2004~~System. ~~These new branch offices, as well as acquired branch~~

As previously announced, the Board of Directors of the Company adopted an amendment to Article VI of the Company’s Bylaws to change the Company’s fiscal year end from September 30, to December 31, effective retroactively to January 1, 2006, in order to increase operational efficiency. As a result, the consolidated statements of financial condition compares December 31, 2007 to December 31, 2006, while the consolidated statements of operations, the consolidated statements of comprehensive income (loss), and the consolidated statements of cash flow reflect, as applicable, the twelve month periods ended December 31, 2007 and December 31, 2006, the three month period ended December 31, 2005, and the twelve month period ended September 30, 2005.

The Board of Directors of the Bank adopted an amendment to Article II of the Bank’s Bylaws to eliminate the shareholders’ ability to take action by consent without a formal meeting. The amendment was effective July 10, 2008.

Operations

As a result of acquisitions and internal growth, Peoples grew from $416.0 million in total assets as of September 30, 2001 to a high of $1.0 billion in total assets as of December 31, 2005. Between the completion of the public offering in March 2000 and December 31, 2005, Peoples acquired five financial institutions with aggregate total assets as of the time of acquisition of $428.5 million. Also, in September 2003, Peoples purchased $32.8 million in loans and assumed $55.6 million in deposits in connection with the acquisition of

Table of Contents

two branch offices from another financial institution. Peoples supplemented this growth due to acquisitions with loan generation secured primarily by real estate in its market area. Total gross loans increased from $419.5 million at September 30, 2001 to $944.7 million at December 31, 2005. In addition, since September 30, 2000, Peoples expanded its franchise through the opening of six full service branch offices. These new branch offices, as well as acquired branch offices, have expanded Peoples’ market presence. Peoples’ loan growth was funded in part by deposits. Peoples placed an emphasis on deposit generation both internally and through whole bank and branch acquisitions. Deposits increased from $233.1 million at September 30, 2001 to $755.3 million at December 31, 2006.

Beginning in early 2007, however, Peoples began to reduce all aspects of its lending exposure due in large part to the downturn in the local economy and, in particular, values of residential and residential development properties. At December 31, 2008, total gross loans amounted to $531.4 million, a decrease of $413.3 million or 43.8% compared to $944.7 million of loans at December 31, 2005. In addition, to address such slowdown and the resulting decrease in the value of its collateral, Peoples charged off $18.3 million of loans in 2007 and $47.8 million of loans in 2008, and provided $32.8 million and $41.5 million during 2007 and 2008, respectively, to the allowance for loan losses. As a result, the allowance for loan losses to total gross loans at December 31, 2008 amounted to 5.4%. Further, beginning in 2006, Peoples revised its underwriting standards to place an increased focus on cash flow analysis, tightened its credit standards and provided additional resources to the resolution of its classified assets.

Despite the actions taken by Peoples during 2006, 2007 and 2008, discussed above, the continued recessionary forces in the local economy have had a significant adverse impact on Peoples’ financial condition and results of operations. For 2007 and 2008, net losses amounted to $33.3 million and $68.5 million, respectively, and stockholders’ equity decreased from $53.6 million or 6.04% of total assets at December 31, 2007 to a deficit of $14.8 million at December 31, 2008. Further, the level of non-performing assets has and will continue to negatively impact Peoples’ interest rate spread, interest income, provision for losses on loans and net earnings or loss. Non-performing assets totaled $26.1 million, $32.8 million and $53.3 million at December 31, 2006, 2007 and 2008, respectively. While Peoples has devoted and will continue to devote substantial resources toward the resolution of all delinquent and non-performing assets, no assurance can be made that these efforts will be successful.

Regulatory Enforcement Actions

The OTS is the primary federal regulator of Peoples Community Bank. In light of Peoples’ losses in 2007 and 2006 and levels of nonperforming assets, the OTS has imposed certain operations restrictions on the Company and the Bank, many of which had previously been taken by the Company and the Bank. On April 2, 2008, the Company and the Bank each consented to the terms of Cease and Desist Orders issued by the OTS (the “Orders”). The Company attached copies of the Orders to a Current Report on Form 8-K filed with the Securities and Exchange Commission on April 3, 2008.

The Orders require the Company and the Bank to, among other things, file with the OTS within prescribed time periods updated business plans, which specifically incorporate the requirements set forth in the Orders and comments contained in the most recently completed examinations of the Company and the Bank. On a quarterly basis, the Company and the Bank are required to compare the projected operating results from the business plans with the actual results. The results of this variance analysis are to be submitted to the OTS within the prescribed time periods. In addition, the Orders require that the Company and the Bank receive the permission of the OTS prior to (i) making or declaring any dividends or payments on their outstanding securities; (ii) adding or replacing a director or hiring an executive officer; and (iii) making any golden parachute payments to any institution-affiliated party. Pursuant to the Order issued to the Company, the Company must also receive the permission of the OTS prior to increasing its debt position and before any repurchase of its securities.

The Order issued to the Bank also requires the Bank to take or refrain from certain actions, including (i) not making any new loans or issuing new lines of credit for land acquisition or development, speculative residential

~~offices,~~Table ~~have~~of expanded the Company’s market presence and facilitated its loan production growth. The Company’s loan growth has been funded in part by deposits. The Company has placed an emphasis on deposit generation both internally and through whole bank and branch acquisitions. Deposits have increased from $151.4 million at September 30, 2000 to $472.4 million at September 30, 2004.Contents

~~The~~construction, commercial ~~Company~~and ~~intends~~multi-family ~~to continue~~construction, toacquisition ~~pursue~~or ~~growth~~retention ~~both~~of commercial ~~internally~~property, and ~~through~~non-owner ~~strategic acquisitions. The~~occupied ~~Company~~one-to-four-family ~~believes its~~residential ~~internal~~property; ~~growth~~(ii) engaging ~~will~~an ~~continue~~independent consultant to ~~come~~conduct ~~from~~a loan portfolio ~~originations,~~review ~~and,~~for ~~in particular,~~the ~~multi-family~~purpose ~~residential~~of ~~loans,~~determining ~~nonresidential~~asset ~~real~~quality ~~estate~~ and ~~land~~the ~~loans~~appropriateness ~~and~~of ~~construction~~the ~~loans. These~~Bank’s asset classification process related to loan ~~types~~relationships ~~complement~~that ~~its~~equal ~~single-family~~or ~~lending,~~exceed ~~diversify~~$4.0 ~~its~~million; ~~loan~~(iii) establishing ~~portfolio~~a ~~and~~plan ~~are~~for ~~expected~~reducing toadversely ~~increase~~classified ~~its~~assets; ~~yield~~(iv) reviewing onand, ~~interest-earning~~where appropriate, ~~assets. The~~adjusting ~~Company~~the Bank’s ~~primary~~allowance ~~funding~~for ~~vehicle~~loan ~~will~~and ~~continue~~lease losses tomethodology; be(v) limiting ~~deposits. The~~asset ~~Company~~growth ~~intends~~during each calendar quarter to an ~~increase~~amount ~~its~~not ~~deposit~~to ~~generation~~exceed bynet ~~expanding~~interest ~~its~~credited ~~products~~on deposit liabilities; and ~~services,~~(vi) establishing ~~increasing~~an ~~its~~Oversight ~~branch~~Committee ~~network~~of ~~and~~the ~~cross-selling~~Bank’s ~~its~~Board ~~current~~of ~~and~~Directors ~~prospective~~comprised of ~~business~~independent ~~customers~~outside directors. ~~The~~In ~~expansion~~an ofeffort ~~its~~to proactively address the ~~market~~downturn ~~share~~in ~~through~~the ~~selective~~local ~~branching~~real ~~and~~estate ~~opportunistic~~market, ~~acquisitions~~the ~~will~~Bank had previously curtailed or ~~depend~~ceased onthe ~~market~~lending ~~and~~activities ~~economic~~restricted ~~conditions~~in the Orders.

OnDuring ~~March 12~~2008, management ~~2004,~~of Peoples worked diligently to resolve the issues associated with ~~Company~~the ~~entered~~Bank’s ~~into~~nonperforming aassets ~~stock~~and ~~purchase~~to ~~agreement~~provide ~~with~~the ~~various~~information ~~stockholders~~or oftake the ~~Columbia~~actions ~~Bancorp,~~required ~~Inc~~by the Orders. Concurrently, amanagement ~~privately~~and ~~held~~the ~~bank~~Board ~~holding~~of ~~company,~~Directors toconsidered ~~acquire~~all ~~69,925~~strategic ~~shares~~alternatives ~~held~~available byto ~~these~~the ~~stockholders~~Company ~~for~~and anthe ~~aggregate~~Bank. As ~~purchase~~required, ~~price~~Peoples ofhas filed a consolidated ~~$2.5~~business ~~million~~plan with the OTS covering operations through 2010. ~~These~~Peoples’ ~~shares~~business ~~represent~~plan contemplates, among ~~approximately~~other ~~38%~~things, a consolidation of ~~Columbia’s~~its ~~presently~~operations ~~issued~~through branch sales and ~~outstanding~~a reduction ~~common~~in adversely classified assets through loan resolutions, repayments, ~~stock~~sales and charge-offs. ~~The~~Branch ~~Company~~sale transactions ~~presently~~would ~~intends~~decrease toPeoples’ assets and liabilities, improve capital ~~hold~~ratios, ~~these~~generate ~~shares~~income, asand areduce ~~passive~~general, ~~investment~~administrative and other expense. Despite management’s efforts, ~~This~~the ~~proposed~~extremely ~~stock~~difficult ~~purchase~~economic isconditions ~~subject~~have continued to ~~regulatory~~negatively ~~approval. Assuming~~impact real ~~regulatory~~estate ~~approval,~~values and the ~~Company would~~ability ~~become~~of aborrowers ~~bank~~to ~~holding~~service ~~company. The~~or ~~Company~~repay ~~does~~their loans. As ~~not~~a ~~anticipate~~result, ~~any~~Peoples has continued to incur significant ~~changes~~losses towhich ~~its~~has ~~operations~~severely ifimpacted itstockholders’ equity ~~becomes~~and athe ~~bank~~related ~~holding~~regulatory ~~company~~capital of the Bank.

OnBanking regulations ~~December~~require ~~17,~~savings ~~2004,~~institutions ~~the Company~~to ~~entered~~satisfy ~~into~~several ancapital requirements. Savings ~~agreement~~institutions ~~and~~must maintain ~~plan~~tangible ofcapital ~~merger~~equal to ~~acquire~~at ~~American~~least ~~State Corporation~~1.5% of adjusted total assets, ancore capital ~~Indiana~~equal ~~chartered~~to ~~bank~~at ~~holding~~least ~~company,~~4.0% of adjusted total assets and ~~its~~total ~~wholly~~capital ~~owned~~equal ~~subsidiary,~~to ~~American~~at ~~State~~least ~~Bank,~~8.0% anof ~~Indiana~~risk-~~chartered~~weighted ~~commercial bank~~assets. ~~American~~ A ~~State~~savings ~~Bank~~institution ~~operates~~that ~~three~~fails ~~offices~~any ~~in the~~of ~~Southeast~~these ~~Indiana~~capital ~~communities~~requirements ofis subject ~~Lawrenceburg,~~to ~~Aurora~~possible ~~and~~enforcement ~~Bright. Under~~actions by the ~~terms~~OTS ofor the ~~agreement,~~FDIC. ~~the~~Such ~~Bank~~actions ~~will~~could ~~pay~~include ~~$4.79~~a incapital ~~cash~~directive, ~~for~~a ~~each~~cease ofand ~~the~~desist 1order,~~469,062~~ ~~outstanding~~civil ~~shares~~money penalties, ofthe ~~common stock~~establishment of ~~American~~restrictions ~~State Corporation. In addition, depending~~ on the ~~outcome~~institution’s operations, termination of ~~certain~~federal ~~specific~~deposit ~~events~~insurance ~~primarily~~and ~~related to~~ the ~~performance~~appointment of ~~certain~~a ~~loans~~conservator or ~~and~~receiver. ~~other~~The ~~assets~~capital ofregulations ~~American~~provide ~~State~~that ~~Bank~~such actions, ~~holders~~through ofenforcement ~~American~~proceedings ~~State~~or ~~Corporation~~otherwise, ~~outstanding~~could ~~common~~require ~~stock~~one ~~may~~or ~~receive~~more upof toa anvariety of ~~additional~~corrective $actions.~~82 per share.~~ ~~Outstanding shares~~Application of ~~American~~these corrective ~~State~~actions ~~Corporation~~are ~~preferred~~influenced ~~stock~~by ~~will~~an beinstitution’s ~~redeemed~~capital ~~for~~levels ~~cash~~under the atregulatory ~~par~~framework ~~value,~~for ~~totaling~~prompt ~~$700,000~~corrective action. ~~The transaction~~This isframework ~~expected~~defines tothe befollowing ~~consummated~~five levels inof ~~the~~capital: well ~~second~~capitalized; adequately ~~quarter~~capitalized; ofundercapitalized; ~~2005,~~significantly undercapitalized; and critically ~~pending~~undercapitalized. For ~~approval~~additional details, byrefer ~~American~~to ~~State~~“Business ~~Corporation’s~~— ~~shareholders,~~Regulation ~~regulatory approval~~- ~~and~~The ~~other~~Bank ~~customary~~- ~~conditions~~Regulatory ofCapital Requirements” ~~closing~~contained herein.

~~The~~On January 30, 2009, the Bank issubmitted ~~subject~~its toThrift ~~examination~~Financial ~~and~~Report ~~comprehensive~~(“TFR”) to ~~regulation~~the byOTS for the ~~Office~~quarter ~~of Thrift~~ended ~~Supervision~~December 31, ~~which~~2008. This isreport reflected the Bank’s ~~chartering~~capital under ~~authority~~the ~~and~~framework ~~primary~~for prompt corrective action at the “adequately ~~federal~~capitalized” ~~regulator~~level. ~~The~~During ~~Bank~~the iscourse ~~also~~of ~~regulated~~our external audit for 2008, management was informed of several adjustments identified by ~~the~~OTS ~~Federal~~examiners ~~Deposit~~and ~~Insurance~~our ~~Corporation~~external (auditors related to the ~~“FDIC”),~~estimation ~~administrator~~ of the ~~Savings~~allowance ~~Association~~for ~~Insurance~~loan ~~Fund~~losses. ~~The~~ ~~Bank~~These isadjustments ~~also~~were ~~subject~~due to ~~certain reserve~~information ~~requirements~~received ~~established~~ by ~~the~~Peoples ~~Federal~~subsequent ~~Reserve~~to ~~Board (~~the ~~“FRB”)~~initial ~~and~~year-end isclosing. As a ~~member~~ ofresult, ~~the~~an ~~Federal~~amended ~~Home~~TFR ~~Loan~~for ~~Bank~~December 31, 2008 ~~(the~~was ~~“FHLB”)~~filed ofon ~~Cincinnati~~April 9, ~~which~~2009. The isamended ~~one of~~TFR reflected regulatory capital under the 12framework ~~regional~~for prompt ~~banks~~corrective ~~comprising~~action at the ~~FHLB~~“significantly ~~System~~undercapitalized” level.

The Bank was notified by the OTS by letter dated April 13, 2009 (the “Notice”), that it is subject to certain restrictions and requirements, including the requirement to file a capital restoration plan by April 30, 2009 to demonstrate the ability of the Bank to return to an adequately capitalized status by June 15, 2009 (the “Capital Plan”).

On April 28, 2009, the Bank consented to an Amended Order to Cease and Desist (the “Amended Order”) issued by the OTS. The Amended Order became effective on April 29, 2009. The Amended Order supplements and amends the previously issued Cease and Desist Order issued by the OTS against the Bank on April 2, 2008. The Amended Order requires that the Bank achieve by July 14, 2009 and maintain: (i) a Tier 1 (Core) Capital Ratio of at least eight percent (8%); and (ii) a Total Risk-Based Capital Ratio of at least twelve percent (12%). The Amended Order also requires the Bank to file with the OTS a written contingency plan by May 14, 2009 that will be implemented by the Bank in the event it becomes critically undercapitalized (the “Contingency Plan”). The Contingency Plan will require that the Bank achieve one of the following results: (i) a merger with or acquisition by another federally insured institution or holding company thereof, or (ii) a voluntary liquidation by, among other things, filing the appropriate applications with OTS in conformity with federal laws and regulations. The Contingency Plan will be implemented if the Bank becomes critically undercapitalized or upon notification by the OTS. In addition, the Amended Order requires the Bank to refrain from certain actions, including: (i) accepting, renewing or rolling over any brokered deposit; (ii) acting as a deposit broker; or (iii) soliciting deposits by offering an effective yield on insured deposits that exceeds the limitation provided by OTS regulations.

On April 30, 2009, the Bank filed its Thrift Financial Report for the quarter ended March 31, 2009 . This report reflected the Bank’s capital under the framework for prompt corrective action at the “critically undercapitalized” level.

~~Peoples~~Table ~~Lending Activities~~of Contents

~~General. At~~· Enter ~~September 30,~~into ~~2004,~~any ~~the gross~~material ~~loan~~transactions ~~portfolio of Peoples totaled $672.5 million, representing~~other ~~approximately~~than ~~75.6%~~in ofthe ~~total~~usual ~~assets~~course ~~at that date. The principal lending activity~~ of ~~Peoples is the origination of residential and nonresidential real estate loans. At September 30~~business, ~~2004, residential loans (~~including ~~construction~~ ~~loans~~any ~~secured by residential real estate) amounted to $426.8 million~~investment, ~~or 63.5% of the gross loan portfolio. Nonresidential real estate and land loans totaled $158.9 million~~expansion, ~~or 23.6%~~ ~~of the gross loan portfolio and nonresidential construction loans amounted to $31.8 million~~acquisition, orsale ~~4.7%~~ of ~~the gross loan portfolio as of September 30~~assets, ~~2004. Further, commercial loans amounted to $33.2 million,~~ or ~~4.9%~~similar ofaction ~~the~~with ~~gross~~respect ~~loan portfolio at September 30, 2004 and consumer loans amounted~~ to ~~$21.8~~which ~~million, or 3.2% of~~ the ~~gross loan portfolio at such~~Bank ~~time. Peoples~~is ~~has~~required placed an increased emphasis on multi-family residential loans, nonresidential real estate and land loans, construction loans, commercial loans and consumer loans over the last four fiscal years. The aggregate amount of these loans has increased to ~~$445.7~~give ~~million,~~notice ~~or 66.3% of the gross loan portfolio at September 30, 2004, compared~~ to ~~$57.8 million, or 27.3% of the gross loan portfolio at September 30, 2000.~~OTS;

~~The types~~· Extend ofcredit ~~loans that Peoples may originate are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand~~ for ~~such~~any ~~loans~~highly ~~and the supply of money available for lending~~leveraged purposes and the rates offered by its competitors. These factors are affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative and tax policies, and governmental budgetary matters.transaction;

~~A savings~~· Amend ~~institution generally may not make loans to one borrower and related entities in an amount which exceeds 15% of~~ its ~~unimpaired~~charter ~~capital~~or ~~and surplus. However~~bylaws, ~~loans~~except ~~in an amount equal~~ to ~~an additional 10% of unimpaired capital and surplus may be made to a borrower if~~ the ~~loans are fully secured by readily marketable securities. At September 30, 2004, Peoples’~~ ~~regulatory~~extent ~~limit~~necessary ~~on loans-~~to~~-one~~ ~~borrower~~carry ~~was~~out ~~$12.7~~any ~~million. All~~other ofrequirement ~~Peoples’ five largest loans or groups~~ of ~~loans-to-one~~any ~~borrower~~law, ~~amounting to $11.8 million~~regulation, ~~$11.7 million, $10.7~~or ~~million, $10.2 million and $9.5 million at September 30, 2004 were performing in accordance with their terms at such date. See “Asset Quality - Classified Assets.”~~order;

· Make any material change in accounting methods;

· Engage in any covered transaction;

· Pay excessive compensation or bonuses; or

· Make payments on subordinated debt.

The Company and the Bank are currently in negotiations concerning a transaction to sell certain branches of the Bank (the “Branch Transaction”), the proposed results of which are the basis for the Bank’s Capital Plan, as filed with the OTS on April 30, 2009, as required by the Notice. The Bank intends to negotiate and enter into the Branch Transaction in order to reduce assets and liabilities, generate a deposit premium and return the Bank to an adequately capitalized status. The Company cannot provide assurance that an agreement related to the Branch Transaction will be entered into or consummated or that the Bank’s Capital Plan will be acceptable to the OTS. If the Bank’s Capital Plan is not approved by the OTS or the Bank cannot enter into and consummate a transaction to return the Bank to an adequately capitalized status on a timely basis, the Company will not be able to continue as a going concern.

Report of Independent Registered Public Accounting Firm

The report of the Company’s independent registered public accounting firm for the year ended December 31, 2007, contained an explanatory paragraph as to the Company’s ability to continue as a going concern primarily due to the Company’s current lack of liquidity to repay its obligation under an outstanding line of credit with Integra Bank, N.A. (“Integra”). The line of credit is secured by all outstanding shares of common stock of the Bank. The Orders prohibit the Bank from paying cash dividends to the Company without the prior consent of the OTS and the Company will be able to rely upon only a limited amount of existing cash and cash equivalents for its liquidity. Without the ability to rely on dividends from the Bank, the Company will require funds from other capital sources to meet its obligations such as restructuring or replacing the line of credit. Peoples is actively evaluating various funding strategies to meet its obligations, including restructuring its outstanding debt and selling branch offices. Any increase in the Company’s outstanding indebtedness will also require OTS approval. The Company cannot provide assurance that it will succeed in obtaining funds to meet its financial obligations. Failure to do so will have a material adverse effect on, and impair the Company’s business, financial condition and ability to operate as a going concern.

The report of the Company’s independent registered public accounting firm for the year ended December 31, 2008, also contained an explanatory paragraph as to the Company’s ability to continue as a going concern. Reasons cited include the Bank’s low level of capital, exposure to significant regulatory sanctions and significant losses from operations.

Default on Line of Credit and Termination of Strategic Transaction

As of December 31, 2007, the Company was not in compliance with certain covenants of its line of credit with Integra. On June 30, 2008, the loan matured and was due in full. Effective July 24, 2008, the Company entered into a forbearance agreement with Integra regarding its $17.5 million line of credit. The forbearance was

~~Loan~~Table ~~Portfolio Composition. The following table sets forth the composition~~ of ~~Peoples’ loans at the dates indicated.~~Contents

	September 30,
	2004					2003					2002					2001					2000
	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	$	226,735		37.8	%	$	230,775		41.7	%	$	296,294		58.8	%	$	242,540		64.2	%	$	153,627		78.1	%
Multi-family residential	106,799			17.8		95,459			17.2		56,980			11.3		36,487			9.7		8,999			4.6
Nonresidential real estate and land	158,907			26.5		131,444			23.7		88,029			17.5		65,842			17.4		20,440			10.4
Construction loans	124,996			20.9		122,598			22.1		90,002			17.9		62,982			16.7		27,056			13.8
Total mortgage loans	617,437			103.0		580,276			104.7		531,305			105.5		407,851			108.0		210,122			106.9
Commercial loans	33,238			5.5		29,955			5.4		21,280			4.2		9,800			2.6		—			—
Consumer loans	21,781			3.6		11,769			2.1		4,265			0.8		1,883			0.5		1,307			0.7
Total loans receivable	672,456			112.1		622,000			112.2		556,850			110.5		419,534			111.1		211,429			107.6
Less:
Undisbursed portion of loans in process	(59,045		)	(9.8	)	(55,308		)	(10.0	)	(43,144		)	(8.6	)	(36,782		)	(9.7	)	(13,546		)	(6.9	)
Allowance for loan losses	(11,025		)	(1.8	)	(9,744		)	(1.8	)	(7,656		)	(1.5	)	(3,662		)	(1.0	)	(762		)	(0.4	)
Deferred loan fees	(2,920		)	(0.5	)	(2,597		)	(0.4	)	(2,038		)	(0.4	)	(1,363		)	(0.4	)	(636		)	(0.3	)
Loans receivable, net	$	599,466		100.0	%	$	554,351		100.0	%	$	504,012		100.0	%	$	377,727		100.0	%	$	196,485		100.0	%

negotiated in order to extend the repayment period and allow the Company to structure a transaction which would result in repayment of the $17.5 million line of credit.

On September 12, 2008, the Company entered into a purchase and assumption agreement (“Agreement”) with a buyer and a third party. The Agreement provided for the purchase of a substantial portion of the Bank’s assets, as well as the assumption of the Bank’s deposits and certain other liabilities. The Company or the buyer could terminate the Agreement if the closing of the transactions did not occur on or before December 31, 2008. By letter dated December 29, 2008, the buyer terminated its obligations under the Agreement pursuant to Section 25(f) of the Agreement.

On December 31, 2008, the Company and the third party entered into the First Amendment (“Amendment”) to the Agreement to extend the Company’s and third party’s obligations under the Agreement to January 31, 2009. The Company and the third party reaffirmed their respective representations and warranties and acknowledged that the third party will require another financial institution acceptable to the Office of Thrift Supervision to perform its or their obligations under the Agreement. No agreement was reached by January 31, 2009.

On December 31, 2008, the Company and Integra extended the forbearance period to January 31, 2009. The forbearance period has expired and the Company is in default on its line of credit with Integra. This matter remains unresolved.

Establishment of Valuation Allowance

In light of the matters discussed above, the Company established a valuation allowance of deferred federal income taxes of approximately $4.4 million in 2007. As of December 31, 2008 the allowance had been increased to $27.2 million. Generally, the losses incurred in 2006, 2007 and 2008 resulted in deferred federal income taxes or deferred tax assets which may be applied against current period earnings, carried back against prior years’ earnings or used to the extent of management’s estimate of future taxable income. The valuation allowance was established since the Company’s current circumstances might impair the Company’s ability to generate future taxable income and therefore impair its ability to realize all benefits of the deferred tax asset.

Peoples Lending Activities

At December 31, 2008, the net loan portfolio of Peoples totaled $461.9 million, representing approximately 64.8% of total assets at that date. Historically, the principal lending activity of Peoples has been the origination of residential and nonresidential real estate loans. At December 31, 2008, residential loans (including construction loans secured by residential real estate) amounted to $425.8 million, or 80.1% of the gross loan portfolio. Nonresidential real estate and land loans totaled $75.3 million, or 14.2% of the gross loan portfolio and nonresidential construction loans amounted to $9.3 million, or 1.7% of the gross loan portfolio as of December 31, 2008. Further, commercial loans amounted to $8.1 million, or 1.5% of the gross loan portfolio at December 31, 2008 and consumer loans amounted to $13.0 million, or 2.5% of the gross loan portfolio at such time. Peoples curtailed its acquisition and development lending, one-to-four-family residential investment lending, and unsecured commercial lending beginning in early 2007 due in large part to the downturn in the local housing market, the increase in the Bank’s non-accrual loans and charge-offs, and to realign the portfolio due to loan concentrations. Further, as discussed above, the Bank is currently prohibited from making any new loans or issuing new lines of credit for the following purposes:

· Land acquisition or development

· Speculative residential construction

· Commercial and multi-family construction

· Acquisition or retention of commercial property, and

· Non-owner-occupied one-to-four-family property.

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

~~Under~~A savings ~~the~~institution ~~real~~generally ~~estate~~may ~~lending~~not ~~policy~~make ofloans ~~Peoples~~to one borrower and related entities, if anot ~~title~~fully ~~opinion~~secured, ~~must~~in bean ~~obtained~~amount ~~for each~~which ~~real~~exceeds ~~estate~~15% ~~loan~~of its unimpaired capital and surplus. ~~Peoples~~However, ~~also~~loans in an amount equal to an additional 10% of ~~requires~~unimpaired ~~fire~~capital and ~~extended~~surplus ~~coverage~~may ~~casualty~~be ~~insurance,~~made into ~~order~~a toborrower ~~protect~~if the ~~properties~~ ~~securing~~loans ~~its~~are ~~real~~fully secured ~~estate~~by ~~loans~~readily marketable securities. The Bank’s decrease in ~~Borrowers~~unimpaired ~~must~~capital ~~also~~and ~~obtain~~surplus ~~flood~~as ~~insurance~~of ~~policies~~December 31, ~~when~~2008 ~~the~~has ~~property~~lowered isthe inregulatory alimit ~~flood~~on ~~hazard~~loans ~~area~~to asone ~~designated~~borrower byto ~~the~~$6.6 ~~Department~~million. As of ~~Housing~~December 31, ~~and~~2008, ~~Urban~~there were 10 ~~Development~~borrowers with loans from the Bank totaling over the $6. ~~Peoples~~6 ~~does~~million ~~not~~limit; ~~require~~the ~~borrowers~~largest tobeing ~~advance~~$11.9 ~~funds~~million. Because these tototal anamounts ~~escrow~~were ~~account~~within ~~for~~the Bank’s regulatory limit at the ~~payment~~time the loans were made, they are not considered a violation of ~~real~~the ~~estate~~loans to one ~~taxes~~borrower orregulation. However, ~~hazard~~they ~~insurance~~are considered ~~premiums~~non-conforming loans.

Peoples’ loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the adequacy of the value of the collateral that will secure the loan. The Board of Directors has granted authority to 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 senior officers and loans greater than $1.0 million must be approved by the Board of Directors or the executive committee of the Board of Directors.

Unsecured loans up to $500,000 require approval by three senior executive officers and those greater than $500,000, individually or in the aggregate, must be approved by the Board of Directors or the executive committee of the Board of Directors. The executive committee ratifies all approvals and presents its report on a monthly basis for the Board of Directors review and approval.

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

	Year Ended September 30,
	2004			2003			2002			2001			2000
	(In Thousands)
Total loans held at beginning of period	$	622,000		$	556,850		$	419,534		$	211,429		$	98,703
Originations of loans:
Mortgage loans:
Single-family residential	89,145			63,502			90,592			87,272			51,281		(1)
Multi-family residential	29,357			50,686			28,531			30,605			4,886
Commercial real estate and land	70,158			30,170			39,855			51,030			16,519
Construction	75,278			101,019			72,167			58,467			—		(1)
Commercial loans	23,051			25,852			26,656			12,394			—
Consumer loans	12,374			7,344			3,775			1,344			1,037
Total originations (2)	299,368			278,573			261,576			241,112			73,723
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
Transfers to real estate owned	(513		)	(2,863		)	(620		)	(197		)	(110		)
Charge-offs	(2,360		)	(2,122		)	(1,547		)	—			(4		)
Other increases (decreases) (3)	(9,641		)	5,879			(9,212		)	22,285			10,772
Repayments	(236,398		)	(247,086		)	(153,207		)	(92,571		)	(33,989		)
Net activity in loans	50,456			65,150			137,316			208,105			112,726
Gross loans held at end of period	$	672,456		$	622,000		$	556,850		$	419,534		$	211,429

(1) Construction loan originations made during fiscal year 2000 are not separately identified but are included in the total for single-family residential loan originations.

(2) Undisbursed portions of loans in process totaled $59.0 million $55.3 million, $43.1 million, $36.8 million and $13.5 million at September 30, 2004, 2003, 2002, 2001and 2000, respectively.

(3) Includes loan participations sold of $5.0 million, $10.2 million, $6.7 million and $2.7 million in fiscal 2004, 2003, 2002 and 2001, respectively. Peoples did not sell any loan participations in fiscal 2000. For fiscal 2004 only, includes loans sold of $9.9 million. The reduction in total loans resulting from sales of loans and loan participations in fiscal 2004, 2003, 2002 and 2001 were offset (increased) by increases (decreases) in undisbursed loans in process, and other net items totaling approximately $5.3 million, $16.1 million, ($2.5 million), and $25.0 million, respectively.

~~The significant~~Table ~~repayments~~ of ~~$236.4 million and $247.1 million during fiscal 2004~~ and 2003, respectively, were primarily due to the repayment of short-term construction loans and land development loans as well as the refinancing activity related to single-family residential loans in the low interest rate environment during such periods. The transfers to real estate owned of $513,000 during fiscal 2004 were due to three separate borrowers with residential real estate properties acquired through, foreclosure.Contents

~~Charge-offs~~Loan ofPortfolio $2Composition.~~4 million during fiscal 2004, consisted primarily of $1.4 million in loans secured by multi-family residential real estate.~~ The ~~increased~~following ~~level~~table ofsets ~~charge-offs~~forth ~~during~~ the ~~past~~composition ~~three years was due primarily to the increased risk~~ of ~~loss associated with the Bank~~Peoples’s ~~diversification of its loan portfolio and increased originations of multi-family~~ loans, ~~nonresidential~~at ~~real~~the ~~estate~~dates ~~and land loans, construction loans and commercial loans~~indicated.

Although federal laws and regulations permit savings institutions to originate and purchase loans secured by real estate located throughout the United States, Peoples generally confines its lending activity to its primary market area of Warren, Butler and Hamilton Counties, Ohio. Subject to its loans-to-one borrower limitation, Peoples is permitted to invest without limitation in residential mortgage loans and up to 400% of its capital in loans secured by non-residential or commercial real estate. Peoples may also invest in secured and unsecured consumer loans in an amount not exceeding 35% of total assets. This 35% limitation may be exceeded for certain types of consumer loans. In addition, Peoples may invest up to 10% of its total assets in secured and unsecured loans for commercial, corporate, business or agricultural purposes. At September 30, 2004, Peoples was within each of the above lending limits.

	December 31,																				September 30,
	2008					2007					2006					2005					2005					2004
				Percent of					Percent of					Percent of					Percent of					Percent of					Percent of
	Amount			Net loans		Amount			Net loans		Amount			Net loans		Amount			Net loans		Amount			Net loans		Amount			Net loans
	(Dollars in thousands)
Mortgage loans:
One-to-four-family	$	300,340		65.0	%	$	311,968		49.2	%	$	343,346		42.3	%	$	341,233		40.1	%	$	252,424		35.8	%	$	226,735		37.8	%
Multi-family	55,502			12.0		82,176			12.9		122,221			15.0		124,984			14.7		122,802			17.4		106,799			17.8
Nonresidential real estate and land	75,251			16.3		128,955			20.3		140,909			17.3		147,086			7.3		132,502			18.8		158,907			26.5
Construction loans	79,224			17.1		144,171			22.7		234,830			28.9		259,249			30.4		220,733			31.3		124,996			20.9
Total mortgage loans	510,317			110.5		667,270			105.1		841,306			103.5		872,552			102.5		728,461			103.3		617,437			103.0

Commercial loans	8,082			1.7		20,012			3.2		30,933			3.8		47,258			5.6		43,231			6.1		33,238			5.5
Consumer loans	13,029			2.8		16,758			2.6		23,022			2.9		24,898			2.9		22,502			3.2		21,781			3.6
Total loans receivable	531,428			115.1		704,040			110.9		895,261			110.2		944,708			111.0		794,194			112.6		672,456			112.1
Less:
Undisbursed portion of loans in process	(40,110		)	(8.7	)	(33,661		)	(5.3	)	(62,042		)	(7.6	)	(77,094		)	(9.1	)	(72,894		)	(10.3	)	(59,045		)	(9.8	)
Allowance for loan losses	(28,705		)	(6.2	)	(34,499		)	(5.4	)	(18,369		)	(2.3	)	(13,444		)	(1.6	)	(13,697		)	(1.9	)	(11,025		)	(1.8	)
Deferred loan fees	(752		)	(0.2	)	(1,459		)	(0.2	)	(2,272		)	(0.3	)	(2,900		)	(0.3	)	(2,889		)	(0.4	)	(2,920		)	(0.5	)
Loans receivable, net	$	461,861		100.0	%	$	634,421		100.0	%	$	812,578		100.0	%	$	851,270		100.0	%	$	704,714		100.0	%	$	599,466		100.0	%

One- to Four-Family Residential Real Estate Loans. Despite the diversification of the loan portfolio over the past few years, the primary real estate lending activity of Peoples continues to be the origination of loans secured by first mortgage liens on one- to four-family residences. At September 30, 2004, $226.7 million, or 37.8% of the net loan portfolio of Peoples consisted of conventional first mortgage, one- to four-family residential loans, compared to $230.8 million, or 41.7% at September 30, 2003. The decrease of $4.0 million, or 1.8%, was due primarily to the refinancing activity in the low interest rate environment and Peoples’ reluctance to originate long-term fixed rate loans for portfolio in such environment.

The loan-to-value ratio, maturity and other provisions of the loans made by Peoples generally have reflected Peoples’ policy of making less than the maximum loan permissible under applicable regulations, in accordance with sound lending practices, market conditions and underwriting standards established by Peoples. Peoples’ generally limits the loan-to-value ratio on one- to four-family residential mortgage loans to 80% of the lesser of the appraised value or purchase price of the property. Residential mortgage loans are amortized on a monthly basis with principal and interest due each month. The loans generally include “due-on-sale” clauses.

The residential mortgage loans originated by Peoples consist of fixed rate and adjustable rate loans. Presently, the single-family fixed-rate residential mortgage loans originated by Peoples have terms of up to 30 years. In addition, Peoples originates adjustable-rate mortgage loans on which the interest rate adjusts every one, three or five years based upon the one-year or three-year rate on T-bills plus a specified margin. During fiscal 2004, Peoples introduced a five year fixed rate balloon product and a five year fixed rate product which adjusts on an annual basis thereafter based on the one-year rate on the T-bill. At September 30, 2004, $109.5 million, or 48.3% of our single-family residential loans were adjustable rate and $117.2 million, or 51.7% were fixed-rate. Although significantly all of Peoples’ single-family loans are originated for its portfolio, the single-family residential mortgage loans presently being originated by Peoples generally conform to Fannie Mae and Freddie Mac requirements and may be sold in the secondary market.

Multi-family Residential Loans. Peoples also originates multi-family (over four units) residential loans. Peoples’ multi-family loans are primarily secured by apartment buildings or apartments being converted to condominium units. The multi-family residential mortgage loans of Peoples are underwritten on substantially the same basis as its nonresidential real estate loans, discussed below, although loan-to-value ratios are generally limited to 80%. At September 30, 2004, Peoples had $106.8 million in multi-family residential mortgage loans, which amounted to 17.8% of Peoples’ net loan portfolio, compared to $95.5 million, or 17.2% of Peoples’ net loan portfolio at September 30, 2003. During the year ended September 30, 2004, Peoples originated $29.4 million of multi-family residential loans compared to $50.7 million during fiscal 2003. The decrease was primarily due to competitive market forces and the Bank’s reluctance to follow lower priced loan products offered by its competitors.

Nonresidential Real Estate and Land Loans. Peoples’ nonresidential real estate and land loan portfolio primarily consists of loans secured by land for development purposes, professional offices, small retail centers, warehouses

~~and building~~Table ~~lots located within Peoples’ primary market area. Nonresidential real estate and land loans amounted to $158.9 million, or 26.5%~~ of ~~the net loan portfolio~~ ~~at September 30, 2004, with an average loan balance of approximately $436,000. This compares to $131.4 million, or 23.7% at September 30, 2003, with an average loan balance of approximately $387,000.~~Contents

~~The~~ Origination of ~~nonresidential~~Loans. In ~~real~~addition ~~estate~~to ~~loans~~the ofOrders ~~Peoples~~and ~~typically~~applicable ~~have~~banking alaws ~~loan-to-value~~and ~~ratio~~regulations, ofthe ~~75%~~lending oractivities ~~less~~of ~~and~~Peoples ~~generally have higher~~are ~~interest~~subject ~~rates~~to ~~than~~the ~~single-family~~written ~~residential~~underwriting ~~mortgage~~standards ~~loans~~and ~~with~~loan ~~similar~~origination procedures ~~terms~~established ~~and~~by ~~structure.~~the ~~The~~board ~~maximum term~~ of ~~Peoples’~~directors ~~nonresidential~~and ~~real estate loans is 25 years~~management. ~~Decisions~~Loan tooriginations ~~lend~~ are ~~based~~obtained onthrough ~~the~~a ~~economic~~variety ~~viability~~ of ~~the~~sources, ~~property~~including ~~and~~referrals ~~the creditworthiness~~from ofreal ~~the borrower.~~ estate ~~Creditworthiness~~brokers, isbuilders ~~determined~~and byexisting ~~considering~~customers. ~~the~~Written ~~character,~~loan ~~experience, management~~applications ~~and~~are ~~financial~~taken by ~~strength~~loan ofrelationship ~~the~~managers ~~borrower,~~ and ~~the~~branch ~~ability~~personnel. Credit ~~of the~~reports, ~~property~~appraisals toand ~~generate~~other ~~adequate~~documentation ~~funds~~involved towith ~~cover~~a ~~both~~loan ~~operating~~are ~~expenses~~obtained ~~and debt~~as ~~services~~necessary. InProperty ~~evaluating~~valuations ~~whether~~are toperformed ~~make~~by independent outside aappraisers ~~nonresidential~~approved ~~real~~by ~~estate~~the ~~loan,~~Board of directors of Peoples. The ~~places~~Bank’s underwriting ~~primary~~standards ~~emphasis~~primarily focus on the ~~ratio of~~borrower’s ~~net~~ cash flow tocapacity ~~debt~~ to service on the ~~property~~loan and ~~generally~~to ~~requires~~ a ~~ratio~~lesser extent, the collateral value. This ofrepresents ~~cash~~a ~~flow~~transition tofrom ~~debt~~underwriting ~~service~~standards ofprimarily atbased ~~least~~on collateral ~~120%~~value, ~~computed~~which ~~after~~are ~~deduction~~generally ~~for~~used ~~a vacancy~~by ~~factor~~thrifts, ~~and~~to ~~property~~underwriting standards ~~expenses~~more aswidely ~~Peoples~~used ~~deems~~by ~~appropriate~~commercial banks.

~~The~~Under ~~land~~the ~~loans~~real estate lending policy of Peoples, ~~generally~~title ~~are~~insurance ~~secured~~must ~~by single-family~~be ~~residential~~obtained ~~lots or undeveloped land being held~~ for ~~residential~~ ~~development. Lot loans generally~~each ~~have~~real aestate loan~~-to-value~~. Peoples ~~ratio~~also ofrequires ~~80%~~fire orand ~~less~~extended ~~(on~~coverage casualty aninsurance, ~~undeveloped~~in ~~basis)~~order ~~and~~to ~~are typically~~protect ~~interest~~the ~~only~~properties ~~loans~~securing ~~with~~its ~~one-year~~real ~~maturities~~estate loans. ~~Loans~~Borrowers ~~originated~~must onalso ~~developed~~obtain ~~land~~flood ~~generally have~~insurance apolicies ~~loan~~when tothe property ~~value~~is ~~ratio~~in ofa ~~75%~~flood orhazard ~~less~~area ~~with~~as ~~interest~~designated ~~only~~by ~~over~~the ~~either~~Department aof ~~one~~Housing orand ~~two~~Urban ~~year term~~Development. ~~Land~~Peoples ~~loans~~does ~~secured~~not ~~by single-family~~require ~~residential~~borrowers ~~lots~~to ~~are~~advance funds ~~generally~~to ~~structured~~an ~~similar~~escrow ~~to undeveloped~~account ~~land~~for ~~with~~the apayment ~~loan-to-value~~of ~~ratio~~real ofestate ~~80%~~taxes or ~~less~~hazard insurance premiums.

~~Nonresidential~~Peoples’ loan ~~real~~approval ~~estate~~process ~~lending~~ is ~~generally considered~~intended to ~~involve~~assess athe ~~higher~~borrower’s ~~degree~~ability ~~of risk than one-~~ to ~~four-family residential~~repay ~~lending. Such lending typically involves large~~ the loan, ~~balances concentrated~~the inviability ~~a single borrower or groups~~ of ~~related~~the ~~borrowers~~property ~~for rental~~ or ~~business~~ ~~properties.~~project Inand ~~addition,~~ the ~~payment~~adequacy ~~experience~~of onthe ~~loans~~value ~~secured by~~of ~~income-producing~~the ~~properties~~collateral isthat ~~typically~~will ~~dependent~~secure on the ~~success~~loan. The ofboard ~~the operation~~ of ~~the~~directors ~~related~~has granted ~~project~~loan ~~and~~approval ~~thus~~authority isof ~~typically~~up ~~affected~~to by$1 ~~adverse conditions~~million into ~~the~~any ~~real~~two ~~estate~~senior ~~market~~officers or ~~and in~~ the ~~economy~~Loan Committee. The ~~Peoples generally~~Loan ~~attempts~~Committee, towhich ~~mitigate~~is ~~the~~chaired ~~risks~~by ~~associated~~the ~~with~~Chief ~~its~~Lending ~~nonresidential~~Officer, ~~real~~may ~~estate~~also approve ~~lending~~loans ~~by,~~being ~~among~~renewed ~~other~~or ~~things,~~refinanced ~~lending~~for ~~primarily~~any inamount ~~its~~provided ~~market~~that ~~area~~no ~~and using reasonable~~additional ~~loan-to-value~~funds ~~ratios~~are ~~in the underwriting process~~advanced.

~~Land development~~Activity ~~and~~in ~~acquisition loans involve significant additional risks when compared with loans on existing residential properties~~Loans. ~~These loans may involve~~ ~~larger~~The ~~loan~~following ~~balances~~table toshows ~~single borrowers, and~~ the ~~payment~~activity ~~experience~~in ~~may~~Peoples’ ~~be dependent~~loans onduring the ~~successful development of the land and the sale of the lots.~~periods ~~These risks can be significantly impacted by supply and demand conditions as well as local economic conditions~~indicated.

Construction Loans. At September 30, 2004, Peoples had approximately $125.0 million, or 20.9% of the net loan portfolio, in construction loans, compared to $122.6 million, or 22.1% of the total loan portfolio at September 30, 2003. Of this amount, $93.2 million, or 74.6%, consisted of residential construction loans and $31.8 million, or 25.4%, consisted of nonresidential construction loans. The increase in construction loans during fiscal 2004 was due primarily to increased originations of construction loans to builders. The construction loans of Peoples are comprised largely of loans made to builders on a pre-sold basis, as well as, to a lesser extent, to builders for homes on an unsold or speculative basis. Peoples’ construction loans to builders are generally made with a term not to exceed twelve months. Interest-only payments are required during the construction period, which is typically twelve months. Peoples generally limits the number of unsold homes under construction to its builders. This number is dependent on the financial strength of the builder, marketability of the property and the Bank’s experience with and present exposure to the builder. In addition, loans made to borrowers to construct their personal residences are originated at one closing as a construction/permanent loan.

	Year Ended December 31,									Three Months Ended December 31,			Year Ended September 30,
	2008			2007			2006			2005			2005			2004
	(In thousands)

Total loans held at beginning of period	$	704,040		$	895,261		$	944,708		$	794,194		$	672,456		$	622,000
Originations of loans:
Mortgage loans:
One-to-four-family	22,513			58,345			90,797			29,831			79,588			89,145
Multi-family	6,739			7,664			40,510			12,659			42,248			29,357
Construction	9,342			29,131			106,240			19,295			91,494			75,278
Nonresidential real estate and land	6,329			49,626			80,004			32,450			85,658			70,158
Commercial loans	2,064			15,012			18,995			8,899			34,768			23,051
Consumer loans	1,298			2,656			5,093			846			11,058			12,374
Total originations (1)	48,285			162,434			341,639			103,980			344,814			289,465
American State acquisition	—			—			—			—			38,358			—
Peoples Federal acquisition	—			—			—			122,643			—			—
Mercantile acquisition	—			—			38,030			—			—			—
Transfers to real estate owned	(5,810		)	(6,861		)	(1,008		)	—			(1,854		)	(513		)
Charge-offs	(47,765		)	(18,284		)	(13,103		)	(2,206		)	(1,081		)	(2,360		)
Other increases (decreases) (2)	(23,536		)	(59,147		)	(48,481		)	2,188			5,197			(9,641		)
Repayments	(143,786		)	(269,363		)	(366,524		)	(76,091		)	(263,696		)	(236,398		)
Net activity in loans	(172,612		)	(191,221		)	(49,447		)	150,514			121,738			50,456
Gross loans held at end of period	$	531,428		$	704,040		$	895,261		$	944,708		$	794,194		$	672,456

Peoples also originates loans for the construction of nonresidential real estate such as small office buildings and warehouses. These loans are typically originated as construction/permanent loans with interest only payments during the construction period and converting to a permanent loan at the end of the construction period. These loans are generally made with a construction term of 12 months. The loan to value ratio is generally limited to 75% on these loans on an as completed basis. At September 30, 2004, nonresidential construction loans amounted to $31.8 million, or 5.3% of the net loan portfolio.

Prior to making a commitment to fund a construction loan, Peoples requires an appraisal of the property. Peoples’ also generally requires third party inspections of each project prior to disbursement of funds. Loan proceeds are then disbursed based on a percentage of completion.

~~Construction~~(1) Undisbursed ~~lending~~portions ~~is generally considered to involve a higher degree~~ of ~~risk~~loans ofin ~~loss~~process ~~than long-term~~totaled ~~financing~~$40.1 ~~on improved~~million, ~~owner-occupied~~$33.7 ~~real~~million, ~~estate because of~~$62.0 ~~the~~million, ~~uncertainties~~$77.1 ~~of construction~~million, ~~including~~$72.9 ~~the~~million, ~~possibility~~and of$59.0 ~~costs~~million, ~~exceeding the initial estimates~~ and ~~the~~at ~~need to obtain a tenant or purchaser if the property will not be owner-occupied.~~December 31, ~~Peoples~~2008, ~~generally attempts to mitigate the risks associated with construction lending by~~2007, ~~among~~2006 ~~other~~and ~~things~~2005, ~~primarily~~and ~~lending in its market area~~September 30, ~~using conservative underwriting guidelines~~2005, and ~~monitoring~~2004, ~~the construction process~~respectively.

~~Commercial~~(2) Includes loan ~~Loans~~participations sold of $69,000, $4. ~~Peoples’~~9 ~~commercial~~million, ~~loans~~$5.1 million, $1.1 million, ~~consist~~and ~~primarily~~$5.0 ofmillion ~~unsecured~~in ~~lines~~fiscal of2008, ~~credit~~2007, ~~for~~2006, ~~working~~2005, ~~capital~~and ~~purposes~~2004, ~~and~~respectively. There towere ano ~~lesser~~loan ~~extent,~~participations ~~loans~~sold ~~secured~~for bythe ~~business~~three ~~equipment~~months ended December 31, 2005. AtFor ~~September~~fiscal 302008, ~~2004~~2007, ~~commercial~~2006 ~~loans~~and 2005, ~~amounted~~includes towhole loans sold of $3328.23 million, or$27.1 million, $29.5 million and $6.7 million, respectively, and for the three months ended December 31, 2005, includes whole loans sold of $3.5% million. The reduction in total loans resulting from sales of ~~Peoples’~~loans ~~net~~and loan ~~portfolio~~participations in fiscal 2008, ~~compared~~2007 toand 2006, the three months ended December 31, 2005, and fiscal 2005, and 2004 were offset (increased) by increases (decreases) in undisbursed loans in process, and other net items totaling approximately $304.08 million, or$(27.1) million, 5$(13.4%9) ofmillion, ~~the~~$5.7 ~~net~~million, ~~loan~~$13.0 ~~portfolio~~million, atand ~~September~~$5.3 30million, ~~2003~~ respectively.

~~Consumer~~The ~~Loans. Peoples’ consumer and other~~significant ~~loans~~repayments ~~consist~~ of ~~loans~~$143.8 ~~secured~~million, by$269.4 ~~deposit accounts~~million, ~~automobiles~~$366.5 ~~and~~million, ~~stock~~$76. At1 ~~September 30~~million, $263.7 ~~2004~~million, ~~consumer~~ and ~~other loans amounted to~~ $21236.84 million during 2008, or2007, ~~3.6%~~2006, ofthe ~~Peoples’~~three ~~net~~months ended ~~loan~~December 31, ~~portfolio~~2005, ~~compared~~ tofiscal ~~$11.8~~2005 ~~million,~~and orfiscal ~~2.1%~~2004, ofrespectively, ~~Peoples’~~were primarily ~~net~~due ~~loan~~to ~~portfolio~~the asrepayment of ~~September~~ ~~30,~~short-term ~~2003. The~~construction ~~increase~~loans inand land ~~consumer~~development loans ~~was~~as ~~primarily~~well ~~due~~as to the ~~origination~~refinancing ofactivity ~~$11.5~~related ~~million~~to adjustable-rate inone-to-four-family residential loans ~~secured~~ bythat ~~stock~~were ~~from~~set ~~initial~~to ~~public~~reprice in ~~offerings~~the ofcurrent ~~several financial institutions~~year.

~~Loan~~Charge ~~Origination~~offs ~~and~~of ~~Other Fees~~$47. In8 ~~addition~~million toduring ~~interest~~fiscal ~~earned~~2008 onconsisted ~~loans,~~primarily ~~Peoples~~of ~~receives~~$6.7 ~~loan~~million ~~origination~~in ~~fees~~loans orsecured ~~“points”~~by ~~for~~one-to-four-family ~~originating~~residential ~~loans. Loan points~~real ~~are~~estate, a$9.3 ~~percentage~~million ofin ~~the~~loans ~~principal~~secured ~~amount~~by multi-family ofresidential ~~the~~real ~~mortgage~~estate, ~~loan~~$8.8 ~~and~~million ~~are charged~~in toconstruction ~~the~~loans, ~~borrower~~$18.9 million in ~~connection~~loans ~~with~~secured ~~the~~by ~~origination~~nonresidential ofreal ~~the~~estate ~~loan. In~~and ~~accordance with Statement of Financial Accounting Standards No. 91~~land, ~~loan origination fees~~ and ~~certain related~~$4.0 ~~direct~~million ~~loan~~in ~~origination~~commercial ~~costs are offset,~~ and ~~the~~consumer ~~resulting~~loans. The ~~net~~increase ~~amount~~in ~~is deferred~~charged-off ~~and~~loans ~~amortized~~was asprimarily ~~interest~~due ~~income~~to ~~over~~both ~~the~~real ~~contractual~~estate ~~life~~investors ofand ~~the related loans~~developers asexperiencing ancash ~~adjustment~~flow todifficulties and the ~~yield~~downturn ofin ~~such~~the ~~loans. At September 30, 2004,~~local ~~Peoples had $2~~economy.9 See ~~million~~“Asset ~~of deferred loan fees compared to $2~~Quality.~~6 million of deferred loan fees at September 30, 2003.~~”

~~Contractual~~Although ~~Principal~~federal ~~Repayments~~laws and regulations ~~Interest~~permit ~~Rates. The~~savings institutions to originate and purchase loans secured ~~following~~by ~~table~~real ~~sets~~estate ~~forth~~located ~~scheduled~~throughout ~~contractual~~the ~~amortization~~United States, the Bank generally confines its lending activity to its primary market area of ~~Peoples’~~Warren, ~~loans~~Butler and atHamilton ~~September~~counties in Ohio and Dearborn and Ohio counties in Indiana. ~~30,~~ Subject ~~2004~~to asits ~~well~~loans-to-one asborrower limitation, the ~~dollar~~Bank ~~amount~~is ofpermitted ~~such~~to invest without limitation in residential mortgage loans ~~which~~and ~~are scheduled~~up to ~~mature~~400% ~~after~~of ~~one~~its capital ~~year~~in ~~which~~uninsured ~~have~~or ~~fixed~~unguaranteed orloans ~~adjustable~~secured ~~interest~~by non-residential real ~~rates~~estate. ~~Demand~~The Bank may also invest in secured and unsecured consumer loans, in an amount not exceeding 35% of total assets. This 35% limitation may be exceeded for certain types of consumer loans. In ~~having~~addition, nothe Bank ~~schedule~~may invest up to 10% of ~~repayments~~its ~~and~~total noassets ~~stated~~in ~~maturity~~secured and ~~overdraft~~unsecured loans for commercial, corporate, business or agricultural purposes. At December 31, 2008, the Bank was within each of the above lending limits. Notwithstanding the foregoing, Peoples’ lending activities are ~~reported~~significantly asrestricted due into ~~one~~the ~~year~~requirements orof ~~less~~the Orders. See “Business — Regulatory Enforcement Actions.”

	Principal Repayments Contractually Due in Year(s) Ended September 30,
	2005		2006		2007		2008- 2009		2010- 2015		2016- 2020		There- after		Total at September 30, 2004
	(In Thousands)
Mortgage loans:
Single-family residential	$	6,358	$	1,248	$	771	$	2,924	$	72,127	$	30,073	$	113,234	$	226,735
Multi-family residential	1,319		267		7,061		213		2,195		6,598		89,146		106,799
Nonresidential real estate and land	40,586		20,278		4,246		2,360		17,400		6,102		67,935		158,907
Construction loans	61,429		10,690		4,077		29,826		287		3,128		15,559		124,996
Commercial loans	23,142		767		—		6,350		2,979		—		—		33,238
Consumer loans	852		1,538		2,774		16,433		184		—		—		21,781
Total (1)	$	133,686	$	34,788	18,929		$	58,106	$	95,172	$	45,901	$	285,874	$	672,456

One-to-Four-Family Residential Real Estate Loans. The primary real estate lending activity of Peoples continues to be the origination of loans secured by residential real estate. At December 31, 2008, $300.3 million, or 65.0% of the loan portfolio of Peoples consisted of conventional one-to-four-family residential loans, compared to $312.0 million, or 49.2% at December 31, 2007 and $343.3 million or 42.3% of the loan portfolio at December 31, 2006. Owner occupied residential real estate loans are not restricted by the Orders.

~~(1) Of~~The loan-to-value ratio, maturity and other provisions of the ~~$538.8~~loans ~~million~~made by Peoples generally have reflected Peoples’ policy of making less than the maximum loan ~~principal~~permissible ~~payments~~under ~~contractually~~applicable ~~due~~regulations, ~~after~~in ~~September~~accordance ~~30,~~with ~~2005~~sound lending practices, market ~~$157~~conditions and underwriting standards established by Peoples.0 Peoples’ ~~million~~lending ~~have~~policies ~~fixed~~on one-to-four-family residential mortgage loans ~~rates~~generally limit the loan-to-value ratio to 80% of ~~interest~~the ~~and~~lesser ~~$381.8~~of ~~million~~the ~~have~~appraised value ~~adjustable~~or ~~rates~~purchase price of the property. Residential mortgage loans are amortized on a monthly basis with principal and interest due each month. The loans generally include “due-on-sale” clauses.

~~Scheduled contractual maturities of loans do not necessarily reflect the actual expected term of the loan portfolio.~~ The ~~average~~residential ~~life of~~ mortgage loans isoriginated ~~substantially~~by ~~less~~Peoples ~~than~~consist ~~their~~of ~~average~~fixed ~~contractual~~rate ~~terms~~and ~~because~~adjustable ofrate ~~prepayments~~loans. Presently, ~~The~~the ~~average life of mortgage loans tends~~ one-to-four-family ~~increase~~fixed-rate ~~when~~residential ~~current~~ mortgage ~~loan rates are higher than rates on existing mortgage loans~~ ~~and,~~loans ~~conversely,~~originated ~~decrease~~by ~~when~~Peoples ~~rates~~have onterms ~~current~~of ~~mortgage~~up ~~loans~~to ~~are~~30 ~~lower than existing mortgage loan rates~~ years.

~~(due~~Table ~~to refinancing~~ of ~~adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstance, the weighted-average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates.~~Contents

~~Asset~~In ~~Quality~~addition, Peoples originates adjustable-rate mortgage loans on which the interest rate adjusts every one, three or five years based upon the one-year or three-year T-bill rates plus a specified margin. During fiscal 2004, Peoples introduced a five year fixed rate balloon product and a five year fixed rate product which adjusts on an annual basis thereafter based on the one-year rate on the T-bill. At December 31, 2008, $177.8 million, or 59.2% of our one-to-four-family residential loans were fixed rate and $122.5 million, or 40.8% were adjustable rate. Most of Peoples’ one-to-four-family loans in 2008 were originated for its portfolio, and some of these loans did not conform to Fannie Mae or Freddie Mac requirements and therefore, could not be readily sold in the secondary market.

~~General.~~ Peoples’ ~~mails delinquent~~non-owner ~~notices~~occupied toresidential ~~borrowers~~mortgage ~~when~~loans ahave ~~borrower~~been ~~fails~~originated primarily to ~~make~~investors and abuilders. These ~~required~~loans ~~payment~~are ~~within~~generally ~~15 days~~made ofat ~~the~~higher ~~date~~interest ~~due.~~rates ~~Additional~~and ~~notices~~fees ~~begin~~than ~~when~~owner aoccupied ~~loan~~residential ~~becomes~~real ~~30 days~~estate ~~past due~~loans. In If2008, aPeoples ~~loan~~curtailed ~~becomes~~its ~~90 days~~one-to-four-family residential lending ~~past~~to ~~due~~investors, ~~Peoples~~due ~~refers it~~in tolarge anpart ~~attorney~~ to ~~commence~~the ~~foreclosure.~~downturn Inin the ~~most~~local ~~cases~~housing market, ~~deficiencies~~the ~~are cured~~increase ~~promptly.~~in ~~While~~the ~~Peoples~~Bank’s ~~generally~~nonaccrual ~~prefers~~loans and charge offs, and to ~~work~~realign ~~with~~the ~~borrowers~~portfolio due to ~~resolve~~ ~~such~~loan ~~problems~~concentrations. As previously stated, Peoples ~~will~~is ~~institute~~currently ~~foreclosure~~prohibited orfrom ~~other~~originating ~~collection~~such ~~proceedings~~loans. See ~~when~~“Business ~~necessary~~— toRegulatory ~~minimize~~Enforcement ~~any potential loss~~Actions.”

Multi-Family Residential Loans. Peoples ~~are~~has ~~placed~~also onoriginated ~~non~~multi-~~accrual~~family ~~status~~(over ~~when~~four ~~management~~units) ~~believes the~~residential ~~probability~~loans. Peoples’ ofmulti-family ~~collection~~loans ofare ~~interest~~primarily issecured ~~insufficient~~by apartment buildings or apartments being converted to ~~warrant~~condominium ~~further accrual~~units. The multi-family ~~When~~residential amortgage ~~loan~~loans isof ~~placed~~Peoples have been underwritten on substantially ~~non-accrual~~the ~~status,~~same ~~previously~~basis ~~accrued~~as ~~but~~its nonresidential real estate loans, discussed ~~unpaid~~below, ~~interest~~although isloan-to-value ~~deducted~~ratios ~~from~~are ~~interest~~generally ~~income~~limited to 80%. At AsDecember 31, 2008, aPeoples ~~matter~~had of$55.5 ~~policy~~million in multi-family residential mortgage loans, which amounted to 12.0% of Peoples’ ~~generally~~loan ~~discontinues~~portfolio, ~~the~~compared ~~accrual~~to of$82.2 ~~interest~~million, or ~~income~~12.9% ~~when~~of ~~the~~Peoples’ loan ~~becomes~~ 90portfolio at December ~~days~~31, ~~past~~2007. As previously ~~due~~stated, asPeoples tois ~~principal~~currently orprohibited ~~interest~~from originating such loans. See “Business — Regulatory Enforcement Actions.”

Nonresidential Real ~~estate~~Estate ~~acquired~~and byLand Loans. Peoples’ asnonresidential areal ~~result~~estate and land loan portfolio primarily consists of ~~foreclosure~~loans orsecured by land for development purposes, professional offices, small ~~deed-in-lieu~~retail ofcenters, ~~foreclosure~~warehouses isand ~~classified~~building aslots ~~real~~located ~~estate~~within ~~owned~~Peoples’ ~~until~~primary market ~~sold~~area. ~~Peoples~~Nonresidential ~~had~~ real estate ~~owned~~and ofland ~~$301,000,~~loans amounted to $175.3 million, ~~and~~or 16.3% of the net loan portfolio at December 31, 2008. This compares to $97129.0 million,~~000~~ ator ~~September~~20.3% 30at December 31, 2007. As ~~2004~~previously stated, ~~2003~~Peoples ~~and~~is ~~2002,~~currently ~~respectively~~prohibited from originating such loans. See “Business — Regulatory Enforcement Actions.”

~~Delinquent~~Nonresidential ~~Loans. The~~real ~~following~~estate ~~table~~loans ~~sets~~originated ~~forth~~by ~~information~~Peoples ~~concerning~~typically ~~delinquent~~have ~~mortgage~~a ~~loans~~loan-to-value atratio of 75% ~~the~~or ~~dates~~less ~~indicated,~~and ingenerally ~~dollar~~have ~~amounts~~higher ~~and~~interest asrates athan ~~percentage~~one-to-four-family residential ofmortgage ~~each~~loans ~~category~~with ofsimilar terms and structure. The maximum original term of Peoples’ ~~loan~~nonresidential ~~portfolio~~real estate loans is 25 years. Decisions ~~The~~to ~~amounts~~lend ~~presented~~are ~~represent~~based on the ~~total~~economic ~~outstanding~~viability of ~~principal~~the ~~balances~~property and the creditworthiness of the ~~related~~borrower. Creditworthiness is ~~loans~~determined by considering the character, ~~rather~~experience, ~~than~~management and financial strength of the ~~actual~~borrower, ~~payment~~and ~~amounts~~the ability of the property to generate ~~which~~adequate ~~are~~funds ~~past~~to ~~due~~cover both operating expenses and debt service. In evaluating whether to make a nonresidential real estate loan, Peoples places primary emphasis on the ratio of net cash flow to debt service on the property and generally requires a ratio of cash flow to debt service of at least 120%, computed after deduction for a vacancy factor and property expenses as Peoples deems appropriate.

	At September 30,
	2004 60-89 Days Delinquent				2003 60-89 Days Delinquent				2002 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	$	821	.36	%	$	1,146	.50	%	$	3,027	1.02	%
Multi-family	16		.01	%	—		—	%	112		.20	%
Nonresidential real estate and land	—		—	%	354		.27	%	198		.22	%
Total	$	837	.12	%	$	1,500	.27	%	$	3,337	.66	%

The land loans of Peoples generally are secured by unimproved land, land which is being developed into lots, or lots which have been developed for single-family homes. Unimproved land loans generally have a loan-to-value ratio of up to 65%, require monthly payments of interest only, and mature within one year. Development loans generally have a loan-to-value ratio of up to 75%, require monthly payments of interest only, and mature within one or two years. Lot loans generally have a loan-to-value ratio of up to 80%, require monthly payments of interest only, and mature within one year.

Nonresidential real estate lending is generally considered to involve a higher degree of risk than one-to-four-family residential lending. Such lending typically involves larger loan balances concentrated in a single borrower or groups of related borrowers for rental or business properties. In addition, the payment experience on

~~Non-Performing~~Table Assets. The following table sets forth information with respect to non-performing assets identified by Peoples, including non-accrual loans and other real estate owned. Peoples did not have any loans more than 90 days past due and still accruing interest at any of ~~the dates indicated.~~ Contents

	At September 30,
	2004			2003			2002			2001			2000
	(Dollars in Thousands)
Non-accrual loans:
Single-family residential	$	2,090		$	1,752		$	1,274		$	783		$	1,062
Multi-family residential	2,535			3,557			3,217			—			194
Nonresidential real estate and land	197			—			232			—			—
Construction loans	1,039			1,951			2,769			—			—
Commercial loans	165			—			—			—			—
Consumer loans	3			4			—			—			—
Total non-accruing loans	6,029			7,264			7,492			783			1,256
Other real estate owned, net	301			1,293			97			—			110
Total non-performing assets	$	6,330		$	8,557		$	7,589		$	783		$	1,366
Non-performing assets to total assets	0.71		%	1.16		%	1.30		%	0.19		%	0.43		%
Non-performing loans to total loans-net	1.01		%	1.31		%	1.49		%	0.21		%	0.64		%

loans secured by income-producing properties is typically dependent on the success of the operation of the related project and thus is typically affected by adverse conditions in the real estate market and in the economy. Peoples generally attempts to mitigate the risks associated with its nonresidential real estate lending by, among other things, lending primarily in its market area and using reasonable loan-to-value ratios in the underwriting process.

~~The~~Land ~~$2.2~~development ~~million~~and acquisition ~~decrease~~loans ininvolve ~~nonperforming~~significant ~~assets~~additional ~~resulted~~risks ~~from~~when acompared with loans ~~decrease~~on ofexisting $1residential properties.2 ~~million~~These inloans ~~non-accruing~~may ~~loans~~involve larger loan balances to single borrowers, and athe ~~decrease~~payment experience may be dependent on the successful development of ~~$992,000~~the inland and the sale of the lots. These risks ~~other~~can ~~real~~be ~~estate~~significantly ~~owned~~impacted by supply and demand conditions as well as local economic conditions. ~~The~~In ~~decrease~~early in2007, the Bank curtailed new origination of ~~non-accruing~~land development and acquisition loans ~~was~~based ~~primarily~~on ~~due~~the todownturn in the local housing market, the increase in the Bank’s nonaccrual loans and charge-offs, and onto ~~multi-family~~realign ~~residential~~the portfolio due to loan concentrations. As previously stated, Peoples is currently prohibited from originating such loans. See “Business — Regulatory Enforcement Actions.”

IfConstruction ~~the~~Loans. At December 31, 2008, Peoples had approximately $679.02 million, ~~of non-accruing~~or ~~loans~~17.1% of ~~Peoples~~the ~~had~~loan ~~been current~~ portfolio, in ~~accordance~~construction ~~with~~loans, ~~their~~compared ~~terms during~~to ~~fiscal~~$144.2 ~~2004~~million, or 22.7% of the ~~gross~~total ~~income~~loan portfolio onat ~~such~~December 31, ~~loans~~2007. Of ~~would~~this ~~have~~amount ~~been~~at December 31, ~~approximately~~2008, $~~560~~69.9 million,~~000~~ or 15. A1%, ~~total~~consisted of ~~approximately~~ residential construction loans and $~~120~~9.3 million,~~000~~ or 2.0%, consisted of ~~interest~~nonresidential ~~income~~construction ~~was~~loans. The ~~actually~~construction ~~recorded~~loans byof Peoples ~~on such~~have been comprised of loans inmade ~~the~~to ~~fiscal~~builders on ~~year~~a ~~ended~~pre-sold ~~September 30~~basis, ~~2004~~as well as to builders for homes on an unsold or speculative basis.

~~Classified~~Peoples’ ~~Assets. Federal regulations require~~construction ~~that~~loans ~~each~~to ~~insured~~builders ~~savings~~have ~~institution~~generally ~~classify~~been ~~its~~made ~~assets~~with on a ~~regular~~term ~~basis. In~~not ~~addition, in connection with examinations of insured institutions, federal examiners have authority~~ to ~~identify~~exceed ~~problem assets and, if appropriate,~~twelve ~~classify them~~months. Interest-only ~~There~~payments are ~~three~~required ~~classifications~~during ~~for~~the ~~problem assets: “substandard,”~~construction ~~“doubtful”~~period, ~~and~~which ~~“loss.”~~is ~~Substandard~~typically ~~assets~~twelve ~~have~~months. Peoples ~~one~~generally orlimits ~~more defined weaknesses and are characterized by~~ the ~~distinct possibility that the insured institution~~ ~~will~~number ~~sustain~~of ~~some~~unsold ~~loss~~homes ifunder ~~the~~construction ~~deficiencies~~to ~~are~~its ~~not corrected~~builders. ~~Doubtful~~This ~~assets have~~number ~~the weaknesses of substandard assets with the additional characteristic~~is ~~that~~dependent ~~the weaknesses make collection or liquidation in full~~ on the ~~basis~~financial strength of ~~currently~~ ~~existing~~the ~~facts~~builder, ~~conditions~~marketability ~~and values questionable, and there is a higher possibility~~ of ~~loss. An asset classified loss is considered~~the ~~uncollectible~~property and ~~of such little value that continuance as an asset of~~ the ~~institution~~ isBank’s ~~not~~experience ~~warranted.~~with ~~Another category designated “special mention” also must be established~~ and ~~maintained~~present ~~for~~exposure ~~assets which do not currently expose an insured institution~~ to ~~a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful may require~~ the ~~institution to establish general allowances for loan~~ ~~losses~~builder. IfIn ~~an asset or portion thereof is classified loss~~addition, ~~the~~loans ~~insured~~made institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to ~~cover~~borrowers ~~possible losses related~~ to ~~assets classified~~construct ~~substandard~~their ~~or doubtful may be included in determining an~~personal ~~institution’s~~residences ~~regulatory~~are ~~capital,~~originated ~~while~~at ~~specific~~one ~~valuation~~closing ~~allowances for loan losses do not qualify~~ as ~~regulatory~~a ~~capital. Federal~~construction/permanent ~~examiners may disagree with an insured institution’s classifications and amounts reserved~~loan.

Peoples~~’ total~~ ~~classified~~has ~~assets~~also originated atloans ~~September 30,~~for ~~2004~~the ~~amounted~~construction toof ~~$13.2~~nonresidential ~~million, of~~real ~~which~~estate ~~$851,000,~~such ~~$8.1~~as small ~~million~~office buildings and $4warehouses.3 These ~~million~~loans ~~were~~are ~~classified~~typically originated as ~~loss, substandard~~construction/permanent ~~and~~loans ~~special~~with ~~mention,~~interest ~~respectively. The~~only ~~largest~~payments ~~classified~~during the ~~asset~~construction atperiod ~~September 30,~~and ~~2004~~converting ~~consisted~~to of a ~~$2.0~~ ~~million~~permanent ~~multi-family~~ loan ~~which~~at ~~was~~the ~~classified~~end asof ~~substandard and~~the ~~subsequently~~construction ~~foreclosed upon in October 2004~~period. ~~The~~ These ~~remaining~~loans ~~$11.2~~are ~~million~~generally ofmade ~~classified~~with ~~assets~~a ~~at September 30,~~construction ~~2004~~term ~~consisted~~ of ~~approximately~~12 $9months.6 The ~~million~~loan ofto ~~residential~~value ~~real~~ratio ~~estate~~is ~~loans, $301,000~~generally oflimited ~~foreclosed~~to ~~real~~75% ~~estate, $123,000 of nonresidential real estate and~~on ~~land~~these loans, ~~and~~on ~~$1.2~~an ~~million~~“as ofcompleted” ~~commercial loans~~basis.

Prior to making a commitment to fund a construction loan, Peoples requires an appraisal of the property. Peoples also generally requires third party inspections of each project prior to disbursement of funds. Loan proceeds are then disbursed based on a percentage of completion.

Construction lending is generally considered to involve a higher degree of risk of loss than financing on improved, owner-occupied real estate because of the uncertainties of construction, including the possibility of costs exceeding the initial estimates and the need to obtain a tenant or purchaser if the property will not be owner-occupied. Peoples generally attempts to mitigate the risks associated with construction lending by, among other things, primarily lending in its market area, using conservative underwriting guidelines, and monitoring the construction process.

Peoples is currently prohibited from originating speculative residential construction loans, multi-family residential construction loans and commercial construction loans. See “Business — Regulatory Enforcement Actions.”

Commercial Loans. Peoples’ commercial loans consist primarily of secured and unsecured lines of credit predominantly to builders and developers for working capital purposes, and to a lesser extent, loans secured by business equipment. At December 31, 2008, commercial loans amounted to $8.0 million, or 1.7% of Peoples’ net loan portfolio, compared to $20.0 million, or 3.2% of the net loan portfolio at December 31, 2007. In early

~~Allowance~~Table ~~for Loan Losses. The allocation~~ of ~~the allowance for loan losses based on particular types of loans~~ ~~at September 30, 2004, 2003 and 2002 was as follows:~~Contents

	2004				2003				2002
			Percent of				Percent of				Percent of
	Balance		total loans		Balance		total loans		Balance		total loans
	(Dollars in Thousands)
Single-family residential	$	1,100	33.7	%	$	1,120	37.1	%	$	954	53.2	%
Multi-family residential	1,661		15.9		1,342		15.4		1,015		10.2
Nonresidential real estate and land	2,461		23.7		1,721		21.1		1,428		15.8
Construction loans	2,211		18.6		2,192		19.7		1,729		16.2
Commercial loans	3,122		4.9		3,124		4.8		2,452		3.8
Consumer loans	470		3.2		245		1.9		78		.8
	$	11,025	100.0	%	$	9,744	100.0	%	$	7,656	100.0	%

2007, the Bank curtailed new origination of commercial unsecured loans in recognition of the downturn in the local housing market and the increase in the Bank’s nonaccrual loans and charge offs. As previously stated, Peoples is currently prohibited from originating such loans. See “Business — Regulatory Enforcement Actions.”

~~The~~Consumer ~~allowance~~Loans. Peoples’ consumer ~~for~~and ~~loan~~other ~~losses~~loans isconsist ~~maintained~~of byloans ~~management~~secured atby adeposit ~~level~~accounts, ~~considered~~automobiles ~~sufficient~~and tostock. At ~~cover~~December 31, ~~estimated~~2008, ~~losses~~consumer ~~inherent~~and ~~in the existing~~other ~~portfolio~~loans ~~based~~amounted onto ~~prior~~$13.0 ~~loan loss experience~~million, ~~known~~or ~~and~~2.8% ~~probable~~of ~~risks~~Peoples’ innet ~~the~~ loan portfolio, compared ~~adverse~~to ~~situations~~$16.8 ~~that~~million, ~~may~~or ~~affect~~2.6% ~~the~~of ~~borrower~~Peoples’s ~~ability~~net toloan ~~repay, the~~portfolio ~~estimated~~as ~~value~~ of ~~any underlying collateral~~December 31, ~~general economic conditions,~~ ~~and other factors and estimates which are subject to change over time~~2007.

ALoan ~~quarterly~~Origination ~~analysis~~and ofOther ~~the~~Fees. ~~allowance~~In ~~for~~addition ~~loan~~to ~~loss~~interest ~~requirements~~earned ~~includes~~on ~~general~~loans, ~~allocations~~Peoples ~~based~~receives onloan ~~the~~origination fees ~~type~~or of“points” ~~collateral~~for ~~securing~~originating ~~the~~some ~~loan~~of its loans. InLoan points are a percentage of the ~~analysis,~~principal ~~loans~~amount ~~determined~~of the mortgage loan and are charged to ~~have~~the borrower ain ~~higher~~connection ~~risk~~with ~~will~~the ~~have~~origination ~~higher~~of ~~allowance requirements~~the loan. ~~Additional~~In ~~allowance~~accordance ~~requirements~~with ~~are~~Statement ~~allocated~~of toFinancial ~~criticized~~Accounting ~~assets~~Standards No. 91, ~~based~~loan onorigination fees ~~the~~and ~~classified~~certain ~~status on~~related ~~the~~direct loan~~. For~~ ~~example~~origination costs are offset, ~~loans~~and the ~~classified~~resulting ~~substandard~~net ~~require~~amount ~~higher~~is ~~loan~~deferred ~~loss~~and ~~allowances~~amortized as ~~compared~~interest toincome ~~loans~~over the ~~classified~~contractual ~~special~~life ~~mention. No~~of ~~special allowances~~the ~~are~~related ~~provided~~loans ~~for~~as ~~concentration~~an adjustment to the yield of such loans. toPeoples ~~one~~had ~~borrower~~$752,000 ~~unless management~~and ~~becomes~~$1.5 ~~aware~~million of adeferred ~~potential~~loan ~~problem~~fees ~~with~~at ~~collectibility~~December 31, 2008 and December 31, 2007, respectively. ~~Allocations~~ The ofdrop ~~the~~in ~~allowance~~deferred ~~may~~loan befees ~~made~~is ~~for specific~~primarily ~~loans,~~due ~~but~~to the ~~entire~~selling ~~allowance~~of isloans and ~~available~~the ~~for~~decline ~~any~~in loan ~~that~~originations ~~should be~~in ~~charged-off~~2008.

InContractual Principal ~~the~~Repayments ~~event~~and ~~that~~Interest ~~Peoples determines~~Rates. The ~~there~~following istable ansets ~~allowance~~forth ~~required~~scheduled contractual onamortization ~~unfunded~~of ~~commitments~~Peoples’ ~~or off-balance~~loans ~~sheet~~at ~~items~~December 31, ~~such~~2008 ~~allowances~~as ~~are~~well ~~recorded~~ as the adollar ~~component~~amount of ~~other liabilities~~such onloans ~~the~~which ~~balance~~are ~~sheet. Peoples~~scheduled ~~determines~~to ~~the~~mature ~~amount~~after ofone ~~the~~year according ~~allowance~~to ~~based~~fixed onor aadjustable ~~number~~interest ~~of factors~~rates. Demand loans, ~~including~~loans having ~~financial~~no ~~condition~~schedule of ~~the~~repayments ~~borrower,~~and ~~status~~no ofstated ~~the underlying~~maturity ~~project, if applicable,~~ and ~~economic~~overdraft ~~conditions. As~~loans ofare reported ~~September~~as ~~30,~~due ~~2004,~~in noone ~~such~~year ~~allowances had~~or ~~been recorded~~less.

Peoples increased its allowance for loan losses in fiscal 2004 by recording a $3.6 million provision for losses on loans due to an increase in the volume of loans, as well as changes in the composition of the loan portfolio during the year and an increase in the level of charge-offs. The change in the mix of the loan portfolio during the fiscal year 2004, resulted in increases to the allowance related to growth in multi-family residential loans, nonresidential real estate and land loans, construction loans and unsecured commercial lines of credit, all of which are generally considered to involve a higher degree of risk than single-family owner-occupied residential lending. Peoples intends to continue to increase its allowance for loan losses as its loan portfolio increases and will adjust its allowance should the composition and relative credit risk of the portfolio change. While management believes that it determines the size of the allowance based on the best information available at the time, the allowance will need to be adjusted as circumstances change and assumptions are updated. Future adjustments to the allowance could significantly affect net earnings.

	Principal Repayments Contractually Due for the Years Ending December 31,
															Total at
							2012-		2014-		2019-		There-		December 31,
	2009		2010		2011		2013		2018		2023		after		2008
	(In thousands)
Mortgage loans:
One-to-four-family	$	89,193	$	18,051	$	10,618	$	17,576	$	47,696	$	36,072	$	76,846	$	296,052
Multi-family	17,394		6,266		2,925		4,035		7,149		4,893		14,530		57,192
Nonresidential real estate and land	32,607		5,876		4,001		5,170		11,328		9,559		9,181		77,722
Construction loans	78,962		—		—		—		—		—		—		78,962
Commercial loans	7,633		788		231		47		7		—		—		8,706
Consumer loans	9,579		455		433		851		1,476		—		—		12,794
Total (1)	$	235,368	$	31,436	$	18,208	$	27,679	$	67,656	$	50,524	$	100,557	$	531,428

As(1) Of ~~previously stated, over~~ the ~~past~~$296.1 ~~four~~million ~~years,~~of ~~the Bank has placed an increased emphasis on multi-family~~loan ~~residential~~principal ~~loans,~~payments ~~non-residential~~contractually ~~real~~due ~~estate~~after ~~and land loans~~December 31, ~~construction loans~~2009, ~~commercial loans and consumer loans~~$138. 0 ~~Correspondingly,~~million ~~the~~have ~~allowance~~fixed ~~for~~rates ~~loan losses has increased from $762,000 or .36%~~ of ~~total~~interest ~~loans~~and ~~at September 30, 2000 to~~ $11158.01 million orhave ~~1.64%~~adjustable rates of ~~total loans at September 30, 2004~~interest.

Scheduled contractual maturities of loans do not necessarily reflect the actual expected term of the loan portfolio. The average life of mortgage loans is substantially less than their average contractual terms because of prepayments. The average life of mortgage loans tends to increase when current mortgage loan rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on current mortgage loans are lower than existing mortgage loan rates (due to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstance, the weighted-average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates.

~~The~~Table ~~following table sets~~of ~~forth the activity in Peoples’ allowance for loan losses during the periods indicated.~~Contents

	Year Ended September 30,
	2004				2003			2002			2001			2000
	(Dollars in Thousands)
Allowance at beginning of period	$		9,744		$	7,656		$	3,662		$	762		$	415
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	3,600				4,198			5,265			2,449			156
Charge-offs:
Single-family residential	(609			)	(97		)	—			—			(4		)
Multi-family residential	(1,431			)	—			—			—			—
Nonresidential real estate and land	(151			)	(1,097		)	—			—			—
Construction	—				(62		)	—			—			—
Commercial	(145			)	(866		)	(1,547		)	—			—
Consumer and other loans	(24			)	—			—			—			—
Total charge-offs	(2,360			)	(2,122		)	(1,547		)	—			(4		)
Recoveries:
Single-family residential	—				12			—			—			—
Multi-family residential	—				—			—			—			—
Nonresidential real estate and land	—				—			—			—			—
Construction	—				—			—			—			—
Commercial	21				—			—			—			—
Consumer and other loans	20				—			—			—			—
Total recoveries	41				12			—			—			—
Net loans charged-off to allowance for loan losses	(2,319			)	(2,110		)	(1,547		)	—			(4		)
Allowance at end of period	$	11,025			$	9,744		$	7,656		$	3,662		$	762
Allowance for loan losses to total nonperforming loans at end of period	182.87			%	134.15		%	102.19		%	467.69		%	60.67		%
Allowance for loan losses to total loans at end of period	1.64			%	1.57		%	1.37		%	0.87		%	0.36		%

Asset Quality

~~Investment~~Peoples mails delinquent ~~Securities~~notices to borrowers when a borrower fails to make a required payment within 15 days of the date due. Additional notices begin when a loan becomes 30 days past due. If a loan becomes 90 days past due, Peoples refers it to an attorney to commence foreclosure. In many cases, deficiencies are cured promptly. While Peoples generally prefers to work with borrowers to resolve such problems, Peoples will institute foreclosure or other collection proceedings when necessary to minimize any potential loss.

~~Peoples~~Loans ~~has~~are ~~authority~~placed toon non-accrual ~~invest~~status inwhen ~~various~~management ~~types~~believes the probability of ~~securities,~~collection of ~~including~~interest ~~mortgage-backed~~is ~~securities,~~insufficient ~~United~~to ~~States~~warrant ~~Treasury~~further ~~obligations, securities~~accrual. ofWhen ~~various~~a ~~federal~~loan ~~agencies~~is ~~and~~placed ofon non-accrual ~~state~~status, ~~and~~previously ~~municipal~~accrued ~~governments, certificates~~but ofunpaid ~~deposit~~interest atis ~~federally-insured~~deducted ~~banks~~from interest ~~and~~income. ~~savings~~As ~~institutions~~a matter of policy, Peoples generally discontinues the ~~certain~~accrual ~~bankers’~~of ~~acceptances~~interest ~~and~~income ~~federal~~when ~~funds.~~the loan becomes 90 ~~Each~~days ~~significant~~past ~~purchase~~due ofas anto principal ~~investment~~or ~~security~~interest, isand ~~approved~~if bycollection of the ~~Board~~ ofinterest ~~Directors~~is questionable.

~~The~~At ~~investment~~December 31, 2008, ~~policy~~Peoples had $43.1 million of non-performing loans. If the current ~~Peoples~~downturn isin ~~designed~~the tolocal ~~maintain~~economy ~~adequate~~continues ~~liquidity,~~and ~~manage~~borrowers ~~investment~~are ~~assets~~not inable to meet ~~conjunction~~their ~~with~~debt ~~interest~~service ~~rate~~obligations, ~~risk~~Peoples ~~and~~may ~~maximize~~experience ~~stability~~a ~~through diversification. Excess~~continued ~~funds~~migration ~~not~~of ~~utilized~~non-performing loans to ~~meet~~real ~~loan~~estate ~~demand~~owned. The ~~are~~level ~~typically~~of ~~invested~~non-performing ~~using~~loans ~~the~~has ~~guidelines~~had ofand ~~the investment~~will ~~policy~~continue to ~~seek~~have a significant adverse impact on the ~~maximum~~Company’s ~~return~~financial ~~with~~condition ~~minimal~~and ~~risk~~results of operations. Further, ~~All~~the ~~investments~~level of the ~~are~~Company’s ~~approved~~non-performing assets has and will continue to benegatively ~~held~~impact People’s asinterest ~~“Available~~rate spread, interest income, provision for ~~sale”~~losses oron ~~“Held~~loans and tonet ~~maturity”~~loss. ~~Peoples~~While ~~does~~the ~~not~~Company ~~maintain~~has devoted ~~any~~and ~~investments~~will ascontinue ~~“Trading”. Peoples~~to ~~handles~~devote ~~all~~substantial ~~investment~~resources ~~activity through~~toward athe ~~select~~resolution of ~~group~~all ofdelinquent ~~dealers~~and innon-performing ~~securities~~assets, ~~approved~~no byassurance ~~the~~can ~~Board~~be ofmade that ~~Directors~~management’s efforts will be successful.

Real estate acquired by Peoples as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until sold. Peoples had real estate owned of $10.2 million and $6.9 million at December 31, 2008 and December 31, 2007, respectively. At December 31, 2008, approximately $5.1 million of real estate owned consisted of a residential land development for multi-family residences and condominiums in a northern Cincinnati suburb. Another property consisting of land and single-family housing lots is valued at $3.1 million.

Delinquent Loans. The following tables set forth information concerning delinquent loans at the dates indicated, in dollar amounts and as a percentage of each category of Peoples’ loan portfolio. The amounts presented represent the total outstanding principal balances of the related loans, rather than the actual payment amounts which are past due.

	At December 31, 2008 31-59 Days Delinquent				At December 31, 2008 60-89 Days Delinquent				At December 31, 2007 60-89 Days Delinquent				At December 31, 2006 60-89 Days Delinquent
			Percent				Percent				Percent				Percent
			Of Loan				Of Loan				Of Loan				Of Loan
	Amount		Category		Amount		Category		Amount		Category		Amount		Category
	(Dollars in thousands)
Mortgage loans:
One-to-four-family	$	931	0.30	%	$	3,247	1.05	%	$	3,465	1.12	%	$	3,140		0.91	%
Multi-family	375		0.56		—		—		—		—		1,699			1.39
Nonresidential real estate and land	527		0.37		3		—		2,892		2.24		2,804			1.99
Commercial	—		0.00		—		—		359		1.80		1,377			4.45
Consumer	19		0.15		—		—		715		4.27		45			0.20
Total	$	1,852	0.35		$	3,250	0.61		$	7,431	1.06		$	9,065		1.01

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Non-Performing Assets. The following table sets forth information with respect to non-performing assets identified by Peoples, including non-accrual loans and other real estate owned.

	At December 31,												At September 30,
	2008			2007			2006			2005			2005			2004
	(Dollars in thousands)

Non-accrual loans:
One-to-four-family	$	6,566		$	4,834		$	7,140		$	5,481		$	6,674		$	2,090
Multi-family	7,086			5,225			4,243			928			2,325			2,535
Nonresidential real estate and land	25,216			10,070			8,273			2,488			3,787			197
Construction	3,858			4,643			2,302			4,361			2,640			1,039
Commercial	200			537			2,028			4,759			3,220			165
Consumer	180			8			97			742			741			3
Total non-accrual loans	43,106			25,317			24,083			18,758			19,387			6,029
Loans 90 days past due and accruing	—			613			1,716			—			1,266			—
Total non-performing loans	43,106			25,930			25,799			18,758			20,653			6,029
Real estate owned, net	10,176			6,916			333			188			207			301
Total non-performing assets	$	53,282		$	32,846		$	26,132		$	18,946		$	20,860		$	6,330
Non-performing assets to total assets	7.48		%	3.70		%	2.54		%	1.82		%	2.07		%	0.71		%
Non-performing loans to total loans-net	9.33		%	4.09		%	3.17		%	2.20		%	2.96		%	1.01		%

Nonperforming assets totaled $53.3 million, $32.8 million, and $26.1 million at December 31, 2008, 2007 and 2006, respectively. Nonperforming assets at December 31, 2008 consisted of $6.6 million of loans secured by one-to-four-family residential real estate, $7.1 million of loans secured by multi-family residential real estate, $25.2 million of loans secured by nonresidential real estate and land, $3.9 million in construction loans, $380,000 of commercial and consumer loans, and $10.2 million in foreclosed real estate. Over the past two years, the Bank has revised its methods of reviewing loans for potential weaknesses, which includes a strong emphasis on cash flow analysis. The Bank’s management continues to take this proactive approach, in addition to aggressively pursuing the collection and resolution of all delinquent and nonperforming loans. The increase in nonperforming loans was due in large part to the downturn in the local housing market and resultant cash flow issues faced by local property investors.

At December 31, 2008, non-accrual loans secured by one-to-four-family residential real estate consisted of $4.5 million in owner-occupied residences with an average balance of $161,000, and $2.1 million in non-owner occupied residential real estate with an average balance of $71,000. Non-accrual loans secured by multi-family residential real estate amounted to $7.1 million with an average balance of $787,000. One borrower represented $5.3 million of the multi-family residential non-accrual loans.

Nonresidential real estate and land secured non-accrual loans totaled $25.2 million at December 31, 2008. The average balance of these loans was $647,000. Three borrowers represented $7.8 million of the nonresidential real estate and land secured non-accrual loans, with the largest borrower representing $3.9 million. Loans secured by building lots included in the nonresidential real estate secured non-accrual loans totaled $1.4 million at December 31, 2008, and were primarily comprised of four borrowers, with the largest borrower representing $1.3 million.

Non-accrual construction loans totaled $3.9 million at December 31, 2008, with an average balance of $241,000. Approximately $2.3 million of these construction loans are secured by one-to-four-family residential real estate. Commercial and consumer non-accrual loans totaled $381,000, with $3,000 of these loans being unsecured.

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If the $43.1 million of non-accruing loans of Peoples had been current in accordance with their terms during 2008, the gross income on such loans would have been approximately $1.5 million. A total of approximately $49,000 of interest income was actually recorded by Peoples on such loans in the year ended December 31, 2008.

Classified Assets. Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a higher possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “special mention” also must be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful may require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution’s classifications and amounts reserved.

The following table sets forth information with respect to classified assets as identified by Peoples, at the dates indicated.

	At December 31, 2008						At December 31, 2007
	Substandard		Doubtful		Loss		Substandard		Doubtful		Loss
	(In thousands)
One-to-four-family loans	$	7,314	$	—	$	—	$	6,348	$	—	$	—
Multi-family loans	12,948		—		—		5,621		—		—
Nonresidential real estate and land loans	33,508		—		—		15,673		—		—
Construction loans	9,466		—		—		4,643		—		—
Commercial loans	2,839		—		—		1,323		—		—
Consumer loans	6,556		—		—		38		—		—
Real estate owned	10,176		—		—		6,915		—		—
Total	$	82,807	$	—	$	—	$	40,551	$	—	$	—

Peoples’ total classified assets at December 31, 2008, net of full or partial charge offs, amounted to $82.8 million, with no assets classified doubtful or loss. It was management’s opinion that as of December 31, 2008, no loans exhibited characteristics to warrant a doubtful classification, while loan amounts classified loss were charged off. The largest classified loan at December 31, 2008 was a $7.6 million loan secured by an apartment complex. The remaining $75.3 million of classified assets at December 31, 2008 consisted of approximately $7.3 million secured by one-to-four-family real estate, $5.6 million secured by multi-family residential real estate, $9.5 million in residential construction loans, $33.5 million in loans secured by nonresidential real estate and land, $9.4 million of commercial and consumer loans, and $10.2 million of foreclosed real estate. The real estate owned consisted of $8.6 million of land and land development, $838,000 of one-to-four-family residential real estate, and $707,000 of construction projects.

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Approximately $21.1 million of loans were categorized as special mention by the Bank as of December 31, 2008, compared to $43.1 million at December 31, 2007. Although these loans are not deemed classified, these loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the Bank’s credit position. Concerns may lie with cash flow, liquidity, leverage, collateral or industry conditions. Over the past two years, the Bank has revised its methods of reviewing loans for potential weaknesses, which includes a strong emphasis on cash flow analysis. The Bank’s management believes that this proactive approach has resulted in earlier detection of loans with potential exposure. The Bank’s management has also increased its monitoring of these loans and is working proactively with borrowers to remediate and mitigate risk associated with these loans.

Allowance for Loan Losses. The allocation of the allowance for loan losses based on particular types of loans was as follows:

	December 31,
	2008				2007				2006
Loan Types	Balance		Percent of Total		Balance		Percent of Total		Balance		Percent of Total
	(Dollars in thousands)
One-to-four-family	$	8,916	31.1	%	$	13,217	38.3	%	$	4,615	25.2	%
Multi-family	5,452		19.0		6,599		19.1		4,084		22.2
Nonresidential real estate and land	9,389		32.7		6,154		17.8		2,904		15.8
Construction	3,185		11.1		4,893		14.2		2,027		11.0
Commercial	1,432		5.0		3,475		10.1		4,551		24.8
Consumer	331		1.2		161		0.5		188		1.0
Total	$	28,705	100.0	%	$	34,499	100.0	%	$	18,369	100.0	%

The allowance for loan losses is maintained by management at a level considered sufficient to cover estimated losses inherent in the existing portfolio based on prior loan loss experience, known risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, general economic conditions, and other factors and estimates which are subject to change over time.

A quarterly analysis of the allowance for loan loss requirements includes general allocations based on the type of collateral securing the loan. In the analysis, loans determined to have a higher risk, such as land development loans, non-owner occupied residential real estate loans, and unsecured commercial loans, will have higher allowance requirements. Additional allowance requirements are allocated to criticized assets, based on the classified status of the loan. For example, loans classified substandard require higher loan loss allowances as compared to loans classified special mention. No special allowances are provided for concentration of loans to one borrower, unless management becomes aware of a potential problem with collectibility. Allocations of the allowance may be made for any of the above loan types, but the entire allowance is available for any loan that should be charged off.

Peoples increased its allowance for loan losses by recording a $41.5 million provision for losses on loans for 2008 based on the current level of non-performing, classified and criticized loans. The level of these loans is primarily due to delinquent loans in the Bank’s non-owner occupied (investment property) residential loan portfolio and its acquisition, development, and construction loan portfolio. The delinquencies in these portfolios are due primarily to the continuing downturn in the local economy and resultant cash flow issues faced by local property investors and developers.

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At the beginning of 2007, Peoples curtailed its acquisition and development lending, one-to-four-family residential investment lending and commercial lending. While management believes that it determines the size of the allowance based on the best information available at the time, the allowance will need to be adjusted as circumstances change and assumptions are updated. Future adjustments to the allowance could significantly affect future net earnings.

The following table sets forth the activity in the allowance for loan losses during the periods indicated.

	Year Ended December 31,									Three Months Ended December 31,			Year Ended September 30,
	2008			2007			2006			2005			2005			2004
	(Dollars in thousands)
Allowance at beginning of period	$	34,499		$	18,369		$	13,444		$	13,697		$	11,025		$	9,744
Increase due to Peoples Federal acquisition	—			—			—			907			—			—
Increase due to Mercantile acquisition	—			—			302			—			—			—
Provision for losses on loans	41,477			32,800			17,450			900			3,600			3,600
Charge-offs:
One-to-four-family	(6,666		)	(8,484		)	(4,053		)	(1,519		)	(103		)	(609		)
Multi-family	(9,259		)	(4,741		)	(2,369		)	(360		)	(940		)	(1,431		)
Nonresidential real estate and land	(18,945		)	(1,274		)	(1,307		)	(204		)	—			(151		)
Construction	(8,843		)	(844		)	(1,601		)	—			(16		)	—
Commercial	(3,982		)	(2,887		)	(1,042		)	—			—			(145		)
Consumer	(70		)	(54		)	(2,731		)	(123		)	(22		)	_ (24
Total charge-offs	(47,765		)	(18,284		)	(13,103		)	(2,206		)	(1,081		)	(2,360		)
Recoveries:
One-to-four-family	45			357			78			—			9			—
Multi-family	187			190			9			—			140			—
Nonresidential real estate and land	—			199			—			—			—			—
Construction	—			593			1			—			—			—
Commercial	198			158			73			142			—			21
Consumer	64			117			115			4			4			20
Total recoveries	494			1,614			276			146			153			41
Net loans charged off to allowance for loan losses	(47,271		)	(16,670		)	(12,827		)	(2,060		)	(928		)	(2,319		)
Allowance at end of period	$	28,705		$	34,499		$	18,369		$	13,444		$	13,697		$	11,025

Allowance for loan losses to total nonperforming loans at end of period	66.6		%	133.0		%	71.20		%	71.67		%	66.32		%	182.87		%

Allowance for loan losses to total gross loans at end of period	5.40		%	4.90		%	2.05		%	1.42		%	1.72		%	1.64		%

Investment Securities

Peoples has authority to invest in various types of securities, including mortgage-backed securities, United States Treasury obligations, securities of various federal agencies and of state and municipal governments,

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certificates of deposit at federally-insured banks and savings institutions, certain bankers’ acceptances and federal funds. Each large purchase of an investment security is approved by the Board of Directors.

The investment policy of Peoples is designed to maintain adequate liquidity, manage investment assets in conjunction with interest rate risk and maximize stability through diversification. All investments are approved to be held as “Available for sale”. Peoples does not maintain any investments as “Trading” or “Held to Maturity”. Peoples transacts all investment activity through a select group of securities dealers approved by the Board of Directors.

The following table sets forth information regarding the carrying value and fair value of Peoples’ securities at the dates indicated.

	September 30,
	December 31,
	2004						2003							2002
	2008					2007						2006
	Amortized		Fair			Amortized	~~Amortized~~		Fair		~~Fair~~	Amortized		~~Amortized~~Fair		~~Fair~~
	Cost		Value			Cost	~~Cost~~		Value		~~Value~~	Cost		~~Cost~~Value		~~Value~~
	(In Thousands)
	(In thousands)
Available for sale:
Mortgage-backed securities	$	~~228~~23,~~568~~562	$	22,985	~~228,085~~	$	$63,258		~~134,598~~$	63,335	$	$	~~133~~52,~~828~~818	$	1852,~~479~~669	$	~~18,763~~
FHLMC stock	—		—				1,391				1,123			1,391		1,199
Mutual funds	1,309		1,255			1,251			1,210			1,199		1,146
Mutual funds	1,091		1,069				1,039				1,033			—		—
US treasuries and agencies	75,497		75,787			1,974			1,993			1,966		1,965
Other equity securities	—		—				—				—			29		32
Municipal securities	943		925			1,027			1,034			1,114		1,111
Total	$	229,659	$	229,154			$		137,028		$		135,984	$	19,899	$	19,994
Other equity securities	—		—			—			—			7		8
Required investment:
Total	$	101,311	$	100,952		$	67,510		$	67,572		$	57,104	$	56,899
Federal Home Loan Bank stock	$	10,841	$	10,841			$	10,221			$	10,221		$	9,907	$		9,907
Membership investment:
Federal Home Loan Bank stock	$	14,549	$	14,549		$	14,024		$	14,024		$	14,024	$	14,024

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

	Year Ended September 30,
	Year Ended December 31,
	2004			2003				2002
	2008			2007			2006
	(In Thousands)
Securities at beginning of period	$	~~146~~81,~~205~~596		$	70,923	~~29,901~~	$	$87,604	~~9,244~~
Purchases (1)	~~147~~82,~~624~~217			~~209~~29,~~532~~854			721	~~21,664~~
Sales of available for sale securities	(128,~~391~~886		)	(~~67,996~~8		)	)(2,008	~~(3,523~~	)		)
Amortization of premiums and discounts	~~(1,493~~167		)	(~~1,058~~90		)	)(628	~~(264~~	)		)
Repayments, prepayments and maturities	(5119,~~489~~173		)	(2319,~~032~~349		)	)(22,425	~~(1,730~~	)		)
Securities acquired through acquisition – net	—			—				4,386
Securities acquired through acquisition — net	—			—			7,407
Increase (decrease) in unrealized gains (losses) on available-for-sale securities	~~539~~(420		)	~~(1,142~~266			)252	~~124~~
Securities at end of period (2)	$	~~239~~115,~~995~~501		$	~~146~~81,~~205~~596		$	$70,923		~~29,901~~

(1) Includes increases in Federal Home Loan Bank stock and mutual funds from purchases and dividends.

(2) At ~~September 30~~December 31, ~~2004~~2008, ~~2003~~2007 and ~~2002~~2006, $~~228~~22.1 5 million or 9519.05%, $~~133~~78.82 million or 9195.59%, and $1867.83 million or 6294.8%, respectively, of Peoples’ securities portfolio consisted of adjustable-rate securities.

1418

~~The~~Table ~~following table sets forth certain information regarding the maturities~~ of ~~Peoples’ mortgage-backed securities at September 30, 2004.~~Contents

	Contractually Maturing
				Weighted				Weighted				Weighted				Weighted
		Under 1		Average		1-5		Average		6-10		Average		Over 10		Average
		Year		Yield		Years		Yield		Years		Yield		Years		Yield
	(Dollars in Thousands)
Mortgage-backed securities		$	—	—	%	$	—	—	%	$	—	—	%	$	228,085	3.22	%

The following table sets forth certain information regarding the maturities of Peoples’ security portfolio at December 31, 2008.

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

	Contractual Maturity
			Weighted				Weighted				Weighted				Weighted
	Under 1		Average		1-5		Average		6-10		Average		Over 10		Average
	Year		Yield		Years		Yield		Years		Yield		Years		Yield
	(Dollars in Thousands)
Investment securities	$	75,310	3.33	%	$	170	5.76	%	$	531	4.79	%	$	701	5.49	%
Mortgage-backed securities	—		—		284		4.50		385		4.05		22,316		4.31
Total	$	75,310	3.33		$	454	4.97		$	916	4.48		$	23,017	4.35

Mortgage-backed ~~securities~~ ~~are~~securities ~~typically~~represent ~~issued~~a ~~with~~participation ~~stated~~interest ~~principal~~in ~~amounts,~~a ~~and~~pool ~~the~~of ~~securities are~~one-to-four-family ~~backed~~or bymulti-family ~~pools~~mortgages. The ofmortgage ~~mortgages~~originators ~~that~~use ~~have~~intermediaries, generally ~~loans~~U.S. ~~with~~Government ~~interest~~agencies ~~rates~~and ~~that~~government-sponsored ~~are~~enterprises, to ~~within~~pool aand ~~range~~repackage ~~and~~the ~~have~~participation ~~varying~~interests ~~maturities. The~~in ~~underlying~~the ~~pool~~form of ~~mortgages,~~securities ~~i.e., fixed-rate or adjustable-rate,~~with asinvestors ~~well~~receiving asthe ~~prepayment~~principal ~~risk,~~and ~~are~~interest ~~passed~~payments on to the ~~certificate~~mortgages. Such ~~holder~~U. ~~The~~S. ~~life~~Government ofagencies aand ~~mortgage~~government-~~backed~~sponsored ~~pass-through security~~enterprises ~~approximates~~ guarantee the ~~life~~payment of ~~the~~principal ~~underlying~~and ~~mortgages~~interest to investors.

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

The mortgage-backed securities of Peoples may consist of Government National Mortgage Association (“Ginnie Mae”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”) securities. Ginnie Mae is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration, or guaranteed by the Veterans Administration, and the timely payment of principal and interest on Ginnie Mae securities are guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government.

Mortgage-backed ~~securities~~ securities generally yield less than the loans which underlie such securities because of their payment guarantees or credit enhancements which offer nominal ~~credit~~ credit risk. In addition, mortgage-backed securities are more liquid than ~~individual~~ individual mortgage loans and may be used to collateralize borrowings or other ~~obligations~~ obligations of Peoples. At ~~September 30~~December 31, ~~2004~~2008, Peoples had mortgage-backed securities with a fair value totaling $~~228~~23.1 0 million.

~~During fiscal~~In ~~year~~addition ~~2004,~~to ~~management purchased $147.0 million in adjustable-rate~~the ~~mortgage-backed~~above ~~securities~~investment ~~as a tool to manage interest rate risk~~securities, asPeoples ~~well~~also ~~as to~~has ~~provide~~invested ~~interest~~in ~~income~~approximately ~~with minimal credit risk, due to the implicit~~$18.6 ~~guaranty~~million ofin ~~government~~bank-~~sponsored~~owned ~~agencies~~life insurance.

Sources of Funds

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

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

~~Peoples obtains deposits primarily from residents of southwestern Ohio. Peoples does not solicit deposits from outside Ohio or pay fees to brokers to solicit funds for deposit.~~19

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remain on deposit and the interest rate. The Bank offers traditional passbook savings accounts, money market accounts, checking accounts and certificates of deposit. The Bank obtains deposits primarily from residents of its primary market areas of southwestern Ohio and southeastern Indiana. The Bank does not solicit deposits from outside its primary market area or pay fees to brokers to solicit funds for deposit.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Management determines the rates and terms based on rates paid by competitors, the need for funds or liquidity, growth goals and federal and state regulations.

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

	Year Ended September 30,
	Year Ended December 31,
	2004			2003			2002
	2008			2007			2006
	(In Thousands)
	(In thousands)
Beginning balance	$	~~455~~735,~~900~~212		$	~~369~~755,~~080~~261		$	726,629	~~233,063~~
Net increase before interest credited	5,255			76,378			125,999
Net increase (decrease) before interest credited	(123,678		)	(47,044		)	4,316
Interest credited	1118,~~281~~664			1026,~~442~~995			1024,~~018~~316
Net increase in deposits (including acquisitions)	16,536			86,820			136,017
Net increase (decrease) in deposits	(105,014		)	(20,049		)	28,632
Ending balance	$	~~472~~630,~~436~~198		$	~~455~~735,~~900~~212		$	~~369~~755,~~080~~261

The decrease in deposits was primarily due to pricing by the Bank at levels intended to provide controlled runoff throughout 2008.

The following table sets forth by various interest rate categories the certificates of deposit with Peoples at the dates indicated.

	September 30,
	December 31,
	2004		2003		2002
	2008		2007		2006
	(In Thousands)
	(In thousands)
0.00% to 2.99%	$	~~124~~52,~~115~~658	$	~~104~~1,~~180~~475	$	8,438	~~69,445~~
3.00% to 3.99%	56140,~~156~~009		5641,~~216~~767		6278,~~981~~277
4.00% to 4.99%	55215,~~199~~326		48227,~~162~~548		53253,~~175~~708
5.00% to 6.99%	2519,~~194~~989		35241,~~713~~002		43158,~~266~~864
7.00% to 8.99%	~~137~~—		~~562~~5		~~460~~5
Total	$	~~260~~427,~~801~~982	$	~~244~~511,~~833~~797	$	~~229~~499,~~327~~292

~~The following table sets forth the amount and remaining maturities of Peoples’ certificates of deposit at September 30, 2004.~~20

			Over Six		Over One		Over Two
			Months		Year		Years
	Six		Through		Through		Through		Over
	Months		One		Two		Three		Three
	And Less		Year		Years		Years		Years
	(In Thousands)
0.00% to 2.99%	$	54,801	$	35,832	$	27,565	$	5,917	$	—
3.00% to 3.99%	3,763		2,327		9,180		6,073		34,804
4.00% to 4.99%	6,646		7,258		7,586		17,845		15,864
5.00% to 6.99%	4,853		3,915		4,010		12,408		7
7.00% to 8.99%	127		20		—		—		—
Total	$	70,190	49,352		$	48,341	$	42,243	$	50,675

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16The following table sets forth the amount and remaining maturities of Peoples’ certificates of deposit at December 31, 2008.

As of September 30, 2004, the aggregate amount of outstanding certificates of deposit at Peoples, in amounts greater than $100,000, was approximately $52.2 million. The following table presents the maturity of these certificates of deposit at such date.

	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%	$	31,459	$	16,992	$	3,033	$	1,174	$	—
3.00% to 3.99%	75,780		34,797		23,367		564		5,501
4.00% to 4.99%	15,039		126,688		42,223		12,679		18,697
5.00% to 6.99%	2,860		853		378		1,195		14,703
7.00% to 8.99%	—		—		—		—		—
Total	$	125,138	$	179,330	$	69,001	$	15,612	$	38,901

	September 30, 2004
	(In Thousands)
3 months or less	$	4,643
Over 3 months through 6 months	8,321
Over 6 months through 12 months	6,188
Over 12 months	33,072
	$	52,224

As of December 31, 2008, the aggregate amount of outstanding certificates of deposit at Peoples, in amounts greater than $100,000, was approximately $106.9 million. The following table presents the maturity of these certificates of deposit at such date.

	December 31, 2008
	(In thousands)

3 months or less	$	16,755
Over 3 months through 6 months	18,579
Over 6 months through 12 months	41,320
Over 12 months	30,267

Total	$	106,921

The following table sets forth the dollar amount of deposits in various types of deposits offered by Peoples at the dates indicated.

	At September 30,
	At December 31,
	2004				2003				2002
	2008				2007				2006
	Amount		Percentage		Amount		Percentage		Amount		Percentage
	(Dollars in Thousands)
	(Dollars in thousands)
Non-interest checking accounts	$	1715,~~638~~897	32.7452	%	$	921,~~266~~936	2.0399	%	$	621,~~075~~967	12.6591	%
Savings and checking accounts	~~164~~57,~~415~~075		349.8006		~~164~~79,~~369~~942		3610.0687		~~104~~92,~~413~~059		2812.2919
Certificates of deposit	~~260~~427,~~801~~982		5567.2091		~~244~~511,~~883~~797		5369.7161		~~229~~499,~~327~~292		6266.1311
Money market accounts	29129,~~582~~244		620.2651		37121,~~382~~537		816.2053		29141,~~265~~943		718.9379
Total	$	~~472~~630,~~436~~198	100.00	%	$	~~455~~735,~~900~~212	100.00	%	$	~~369~~755,~~080~~261	100.00	%

~~Peoples attempts to control the flow of deposits by pricing its accounts to remain generally competitive with other financial institutions in its market area.~~21

~~Borrowings. Peoples~~Table ~~may obtain advances from the Federal Home Loan Bank~~ of ~~Cincinnati upon the security of the common stock~~ Peoples owns in that bank and certain of its residential mortgage loans and mortgage-backed securities, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending. As of September 30, 2004, Peoples was permitted to borrow, subject to security pledge agreements, up to $423.3 million from the Federal Home Loan Bank of Cincinnati. At such date, Peoples had $324.5 million of Federal Home Loan Bank advances. The Bank has used Federal Home Loan Bank advances in order to complement deposits as a funding source for loans and investments. During 2004, such advances were used in large part to fund the purchase of $147.0 million of adjustable rate mortgage-backed securities. Of the $324.5 million of advances at September 30, 2004, $172.0 million mature in fiscal 2005.Contents

~~Also, Peoples~~The ~~has~~average adaily ~~line~~deposits ~~of credit with another financial institution~~ for ~~$10 million. As~~the ofyears ~~September~~ended December 3031, ~~2004~~2008, ~~Peoples~~2007 ~~did~~and ~~not~~2006, ~~have~~and anthe ~~outstanding~~average ~~balance~~rates paid on ~~this~~those ~~line~~deposits ofare ~~credit. This~~summarized ~~line~~in the offollowing ~~credit matures on March 31, 2005~~table.

	For Year Ended December 31,
	2008				2007				2006
	Average Daily Balance		Average Rate Paid		Average Daily Balance		Average Rate Paid		Average Daily Balance		Average Rate Paid
	(Dollars in thousands)

Non-interest checking	$	18,671	0.00	%	$	22,394	0.00	%	$	23,944	0.00	%
Savings and checking accounts	79,365		1.16		69,133		2.13		103,865		1.09
Certificates of deposit	465,491		3.99		506,294		4.78		478,148		4.30
Money market accounts	95,606		2.65		144,809		3.01		146,791		3.69

Total deposits	$	659,133	3.35	%	$	742,630	4.04	%	$	752,748	3.62	%

Borrowings. Peoples may obtain advances from the Federal Home Loan Bank of Cincinnati upon the security of the common stock Peoples owns in that bank and certain of its residential mortgage loans and mortgage-backed securities, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending. As of December 31, 2008, Peoples was permitted to borrow, subject to security pledge agreements, up to $360.5 million from the Federal Home Loan Bank of Cincinnati, subject to security pledge agreements and acceptable collateral. At such date, Peoples had $59.0 million of Federal Home Loan Bank advances. The Bank has used Federal Home Loan Bank advances in order to complement deposits as a funding source for loans and investments. Of the $59.0 million of advances at December 31, 2008, $3.0 million mature in fiscal 2009.

The Company has a $17.5 million line of credit with Integra, secured by all outstanding shares of the Bank’s stock. At December 31, 2008 and 2007, the outstanding principal balance was $17.5 million and $16.5 million, respectively. At December 31, 2007, the Company was not in compliance with certain loan covenants and the lender had the ability to accelerate all outstanding amounts upon notice. The line of credit matured June 30, 2008. Effective July 24, 2008, the Company entered into a forbearance agreement to extend the repayment period and allow the Company to structure a transaction which would result in repayment of the line of credit in full. On December 31, 2008, the Company and Integra extended the forbearance period to January 31, 2009. The forbearance period has expired and the Company is in default on its line of credit with Integra. This matter remains unresolved.

At December 31, 2008, interest was calculated at the prime rate plus 300 basis points. The effective interest rate at December 31, 2008 was 6.25%. During the forbearance period, interest was payable monthly at the prime rate (3.25% at December 31, 2008); when the loan principal and initial interest is paid in full, under the forbearance terms, the remainder of the interest is due. Interest accrued and not paid related to the line of credit totaled $264,000 at December 31, 2008 and is included in accrued interest payable in the consolidated statement of financial condition. A loan fee of $175,000 was also due and is included in accounts payable in the consolidated statement of financial condition. At December 31, 2007, interest was payable at daily LIBOR plus 200 basis points or prime less 50 basis points based on the selection made by the Company. The effective interest rate at December 31, 2007 was 7.24%.

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

	At or for the Year
	At or for the Year Ended December 31,
	Ended September 30,
	2008			2007			2006
	2004			2003			2002
	(Dollars in thousands)
	(Dollars in Thousands)
Federal Home Loan Bank advances:
Average balance outstanding	$	~~299~~59,~~224~~307		$	~~173~~102,~~731~~745		$	~~152~~172,~~995~~073
Maximum amount outstanding at any month-end during the period	$	~~327~~61,~~000~~115		$	~~218~~142,~~500~~181		$	~~180~~203,~~489~~148
Balance outstanding at end of period	$	~~324~~59,~~500~~007		$	~~218~~61,~~500~~128		$	~~152~~144,~~500~~185
Average interest rate during the period	23.5698		%	34.5908		%	24.8610		%
Weighted-average interest rate at end of period	23.8590		%	3.0891		%	3.9396		%
Line of Credit:
Average balance outstanding	$	117,~~100~~454		$	~~946~~14,705		$	~~113~~1,357
Maximum amount outstanding at any month-end during the period	~~1,900~~$	17,500		$	116,~~400~~500		$	~~450~~12,700
Balance outstanding at end of period	—$	17,500		$	116,~~400~~500		$	~~450~~12,700
Average interest rate during the period	26.9712		%	27.8578		%	37.5584		%
Weighted-average interest rate at end of period	~~N/A~~6.25		%	27.6224		%	37.3137		%

~~Subsidiaries~~Employees

AtPeoples had 153 ~~September~~full-time equivalent employees at December 3031, ~~2004~~2008. None of these employees are represented by a collective bargaining agent, and Peoples believes ~~did~~that ~~not~~it ~~have~~enjoys ~~any~~good ~~direct~~relations ~~unconsolidated subsidiaries~~with its personnel.

Total Employees

Peoples had 142 full-time equivalent employees at September 30, 2004. None of these employees are represented by a collective bargaining agent, and Peoples believes that it enjoys good relations with its personnel.

Competition

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

Peoples’ competition for loans comes principally from mortgage banking companies, commercial banks, other savings institutions and credit unions. It competes for loan originations primarily through the interest rates and loan fees it charges, and the efficiency and quality of services it provides borrowers. Factors which affect competition include general and local ~~economic~~ economic conditions, current interest rate levels and volatility in the ~~mortgage~~ mortgage markets. ~~Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions and the anticipated slowing of refinancing activity.~~

18Regulation

REGULATION

The following is a summary of certain statutes and regulations affecting Peoples and the Bank. This summary is qualified in its entirety by such statutes and regulations. A change in applicable laws or regulations may have a material effect on Peoples, the Bank and the business of Peoples and the Bank.

~~General~~Financial institutions and their holding companies are extensively regulated under federal and state law. Consequently, the growth and earnings performance of Peoples and the Bank can be affected not only by management decisions and general economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. Those authorities include, but are not limited to, the SEC, the Office of Thrift Supervision, the Federal Reserve Board, the FDIC, the Internal Revenue

Financial institutions and their holding companies are extensively regulated under federal and state law. Consequently, the growth and earnings performance of Peoples and the Bank can be affected not only by management decisions and general economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. Those authorities include, but are not limited to, the Office of Thrift Supervision, the Federal Reserve Board, the FDIC, the Internal Revenue Service, and state taxing authorities. The effect of such statutes, regulations and policies can be significant, and cannot be predicted with a high degree of certainty.23

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Service, and state taxing authorities. The effect of such statutes, regulations and policies can be significant, and cannot be predicted with a high degree of certainty.

Federal and state laws and regulations generally applicable to financial institutions and their holding companies regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, lending activities and practices, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to Peoples and the Bank establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC’s deposit insurance funds, the depositors of the Bank and the public, rather than shareholders of the Bank or Peoples.

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

The Company. Peoples ~~Community~~is ~~Bancorp~~a registered savings and loan holding company within the meaning of Section 10 of the Home Owners’ Loan Act, and is subject to OTS examination and supervision as well as certain reporting requirements. Federal law generally prohibits a savings and loan holding company, without prior OTS approval, from acquiring the ownership or control of any other savings institution or savings and loan holding company, or all, or substantially all, of the assets or more than 5% of the voting shares thereof. These provisions also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of such holding company, from acquiring control of any savings institution not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the OTS.

Holding Company ~~Acquisitions~~Activities. Peoples operates isas a ~~registered~~unitary savings and loan holding company ~~within the meaning of Section 10 of the Home Owners’ Loan Act, and is subject to Office of Thrift Supervision examination and supervision as well as certain reporting requirements~~. ~~Federal~~The ~~law generally~~activities ~~prohibits a savings and loan holding company, without prior Office~~ of ~~Thrift~~Peoples ~~Supervision~~and ~~approval,~~its ~~from acquiring the ownership or control of any other~~ non-savings institution orsubsidiaries ~~savings~~are ~~and~~restricted ~~loan holding company, or all, or~~to ~~substantially~~activities ~~all,~~traditionally ofpermitted ~~the~~to ~~assets~~multiple ~~or more than 5% of the voting shares thereof. These provisions also prohibit, among other things, any director or officer of a~~ savings and loan holding ~~company,~~companies orand ~~any~~to ~~individual~~financial ~~who~~holding ~~owns~~companies orunder ~~controls~~added ~~more~~provisions ~~than 25%~~ of the ~~voting shares~~Bank ofHolding ~~such~~Company ~~holding~~Act. ~~company,~~Multiple ~~from acquiring control of any~~ savings ~~institution not a subsidiary of such savings~~ and loan holding ~~company,~~companies ~~unless the acquisition is approved by the Office of Thrift Supervision.~~may:

~~Holding~~· furnish ~~Company~~or ~~Activities. Peoples~~perform ~~operates~~management asservices afor ~~unitary savings and loan holding company. The activities of Peoples and its non-savings~~a ~~institution subsidiaries are restricted to activities traditionally permitted to multiple~~ savings ~~and~~association ~~loan~~subsidiary ~~holding companies and to financial holding companies under newly added provisions~~ of ~~the~~a ~~Bank Holding Company Act. Multiple~~ savings and loan holding ~~companies may:~~company;

•· ~~furnish~~ hold, manage or ~~perform~~liquidate ~~management~~assets ~~services~~owned ~~for~~or acquired from a savings association subsidiary of a savings and loan holding company;

•· hold~~, manage~~ or ~~liquidate~~manage ~~assets~~properties ~~owned~~used or ~~acquired~~occupied ~~from~~ by a savings association subsidiary of a savings and loan holding company;

•· ~~hold~~engage in activities determined by the orFederal ~~manage~~Reserve ~~properties~~to ~~used~~be orclosely ~~occupied~~related byto banking and a ~~savings~~proper ~~association~~incident ~~subsidiary~~thereto and ofengage ain services and activities previously determined by the Federal Home Loan Bank Board by regulation to be permissible for a multiple savings and loan holding company; as of March 5, 1987.

19· lend, exchange, transfer or invest for others, or safeguard money or securities;

•· ~~engage in~~insure, ~~activities~~guarantee ~~determined~~or byindemnify ~~the~~others, ~~Federal~~issue annuities, ~~Reserve~~and toact beas ~~closely~~principal, ~~related~~agent ~~to banking~~or ~~and~~broker afor ~~proper~~purposes ~~incident~~of ~~thereto;~~the ~~and~~foregoing;

•· ~~engage in~~provide ~~services~~financial, ~~and~~investment ~~activities~~or ~~previously determined by the Federal Home Loan Bank~~economic ~~Board~~advisory byservices, ~~regulation~~including toadvising bean ~~permissible~~investment ~~for a multiple savings and loan holding~~ company ~~as of March 5, 1987.~~;

~~The activities~~· issue ~~financial~~or ~~holding~~sell ~~companies~~interests ~~may~~in ~~engage~~pooled inassets ~~include:~~that a bank could hold directly; and

•· ~~lending~~underwrite, ~~exchanging,~~ ~~transferring~~deal in or ~~investing~~make ~~for~~a ~~others,~~market orin securities ~~safeguarding~~and ~~money~~merchant ~~or securities;~~banking activities.

~~• insuring,~~If the OTS ~~guaranteeing~~determines orthat ~~indemnifying~~there ~~others,~~is ~~issuing~~reasonable ~~annuities,~~cause to believe that the continuation by a savings and ~~acting~~loan asholding company of an activity constitutes a serious risk to ~~principal~~the financial safety, ~~agent~~soundness or ~~broker~~stability ~~for~~of ~~purposes~~its ofsubsidiary savings institution, the ~~foregoing;~~OTS may impose such restrictions as deemed necessary to address such risk. These restrictions include limiting the following:

•· ~~providing financial,~~the ~~investment~~payment orof ~~economic~~dividends ~~advisory~~by ~~services,~~the ~~including advising an~~savings ~~investment company~~institution;

~~• issuing or selling interests in pooled assets that a bank could hold directly;~~24

~~• underwriting,~~Table ~~dealing~~of ~~in or making a market in securities; and~~Contents

•· ~~merchant~~transactions between the savings institution ~~banking~~and ~~activities.~~its affiliates; and

~~If the~~· any ~~Office~~activities of ~~Thrift~~the ~~Supervision~~savings ~~determines that there is reasonable cause to~~institution ~~believe~~ that ~~the~~might ~~continuation~~create by a ~~savings and loan holding company of an activity constitutes a~~ serious risk tothat the ~~financial~~liabilities ~~safety, soundness or stability~~ of ~~its subsidiary savings institution,~~ the ~~Office~~holding ~~of Thrift~~company ~~Supervision~~and ~~may~~its ~~impose~~affiliates ~~such~~may ~~restrictions~~be asimposed ~~deemed~~on ~~necessary~~the tosavings ~~address such risk~~institution. ~~These restrictions include limiting the following:~~

~~• the~~The ~~payment~~Company is subject to the restrictions and requirements of ~~dividends~~an byOrder issued by the ~~savings~~OTS. The Order is summarized under “Business — Regulatory Enforcement Actions” herein. Every savings institution; subsidiary of a savings and loan holding company is required to give the OTS at least 30 days’ advance notice of any proposed dividends to be made on its guaranty, permanent or other non-withdrawable stock, or else such dividend will be invalid.

~~• transactions~~Restrictions on Transactions With Affiliates. Transactions between ~~the~~a savings institution and its “affiliates;” are subject to quantitative and qualitative restrictions under Sections 23A and 23B of the Federal Reserve Act and OTS regulations. Affiliates of a savings institution generally include, among other entities, the savings institution’s holding company and companies that are controlled by or under common control with the savings institution. However, most subsidiaries of savings institutions are not considered affiliates for the purposes of these rules.

• any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings institution.

Every savings institution subsidiary of a savings and loan holding company is required to give the Office of Thrift Supervision at least 30 days’ advance notice of any proposed dividends to be made on its guaranty, permanent or other non-withdrawable stock, or else such dividend will be invalid. See “Peoples Community Bank - Capital Distributions.”

Restrictions on Transactions With Affiliates. Transactions between a savings institution and its “affiliates” are subject to quantitative and qualitative restrictions under Sections 23A and 23B of the Federal Reserve Act and Office of Thrift Supervision regulations. Affiliates of a savings institution generally include, among other entities, the savings institution’s holding company and companies that are controlled by or under common control with the savings institution. However, most subsidiaries of savings institutions are not considered affiliates for the purposes of these rules.

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

•· make a loan or extension of credit to an affiliate unless the affiliate is engaged only in activities permissible for bank holding companies;

•· purchase or invest in securities of an affiliate other than shares of a subsidiary;

20· purchase a low-quality asset from an affiliate; or

•· ~~purchase~~engage in covered transactions and certain other transactions between a ~~low-quality~~savings ~~asset~~institution ~~from~~or anits subsidiaries and an affiliate; orexcept on terms and conditions that are consistent with safe and sound banking practices.

• engage in covered transactions and certain other transactions between a savings institution or its subsidiaries and an affiliate except on terms and conditions that are consistent with safe and sound banking practices.

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

Federal Securities Laws. Peoples registered its common stock with the Securities and Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934. Peoples is subject to the proxy ~~and~~ and tender offer rules, insider trading reporting requirements and restrictions, and certain other requirements under the Exchange Act. ~~Pursuant to Office of Thrift Supervision regulations and the Plan of Conversion, Peoples has agreed to maintain such registration for a minimum of three years following the conversion in March 2000.~~

Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of a new accounting oversight board which will enforce auditing, quality control and independence standards and will be funded by fees from all publicly traded companies, the bill restricts provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client will ~~require~~ require preapproval by the company’s audit committee members. In addition, the audit partners must be rotated. The bill requires chief ~~executive~~ executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this ~~certification~~ certification requirement. In addition, ~~under~~ the Act, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

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under the Act, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

Longer prison terms and increased penalties will also be applied to corporate executives who violate federal securities laws, the period during which certain types of suits can be brought against a company or its officers has been extended, and bonuses issued to top executives prior to restatement of a company’s financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan “blackout” periods, and loans to company executives are restricted. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution (“FAIR”) provision also requires the SEC to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company’s securities within two business days of the change.

The Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company’s “registered public accounting firm” (“RPAF”). Audit committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose ~~whether~~ whether at least one member of the committee is a “financial expert” (as such term will be defined by the SEC) and if not, why not. Under the Act, a RPAF is prohibited from performing statutorily mandated audit services for a company if such company’s chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions has been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent public or certified accountant engaged in the audit of the company’s financial statements for the purpose of rendering the financial statement’s materially misleading. The Act also requires the SEC to prescribe rules requiring inclusion of an internal control report and assessment by management in the annual report to stockholders. The Act requires the RPAF that issues the audit report to attest to and report on management’s assessment of the company’s internal controls. In addition, the Act requires that each financial report required to be prepared in accordance with (or reconciled to) accounting principles generally accepted in the United States of America and filed with the SEC reflect all material correcting adjustments that are identified by a RPAF in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC.

21The Bank. The Bank is a federally chartered stock savings bank. The OTS is the chartering authority and primary federal regulator of the Bank. The OTS has extensive authority over the operations of federally chartered savings institutions. As part of this authority, federally chartered savings institutions are required to file periodic reports with the OTS and are subject to periodic examinations by the OTS and the FDIC. The Bank also is subject to regulation and examination by the FDIC and to requirements established by the Federal Reserve Board. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision is primarily intended for the protection of depositors and the Deposit Insurance Fund (“DIF”).

~~SEC to prescribe rules~~The ~~requiring~~OTS’ ~~inclusion~~enforcement ofauthority anover ~~internal~~all ~~control~~savings ~~report~~institutions and ~~assessment~~their ~~by management~~holding incompanies ~~the~~includes, ~~annual~~among ~~report~~other tothings, ~~stockholders. The Act requires~~ the ~~RPAF~~ability ~~that~~to ~~issues~~assess ~~the~~civil ~~audit~~money penalties, ~~report~~ to ~~attest~~issue tocease and ~~report~~ ondesist ~~management’s~~or ~~assessment~~removal oforders ~~the~~and ~~company’s~~to ~~internal~~initiate injunctive ~~controls~~actions. In ~~addition~~general, ~~the~~these ~~Act~~enforcement ~~requires~~actions ~~that~~may ~~each financial report required to~~ be ~~prepared in accordance with (or reconciled to)~~ ~~accounting~~initiated ~~principles~~for ~~generally~~violations ~~accepted in the United States~~ of ~~America~~laws and ~~filed~~ ~~with~~regulations ~~the~~and ~~SEC~~unsafe ~~reflect~~or ~~all~~unsound ~~material correcting adjustments that are~~practices. ~~identified~~Other byactions aor ~~RPAF~~inactions inmay ~~accordance~~provide ~~with accounting principles generally accepted in~~ the ~~United~~basis ~~States~~for ofenforcement ~~America~~action, ~~and the rules and regulations of the SEC.~~

~~Peoples Community Bank~~26

~~General. The~~Table ~~Bank is a federally chartered stock savings bank. The Office~~ of ~~Thrift Supervision is the chartering authority and primary federal regulator~~ of the Bank. The Office of Thrift Supervision has extensive authority over the operations of federally chartered savings institutions. As part of this authority, federally chartered savings institutions are required to file periodic reports with the Office of Thrift Supervision and are subject to periodic examinations by the Office of Thrift Supervision and the FDIC. The Bank also is subject to regulation and examination by the FDIC and to requirements established by the Federal Reserve Board. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision is primarily intended for the protection of depositors and the Savings Association Insurance Fund.Contents

~~The~~including ~~Office~~misleading ofor ~~Thrift~~untimely ~~Supervision’s~~reports ~~enforcement~~filed ~~authority~~with ~~over all savings institutions and their holding companies includes, among other things,~~ the ~~ability~~ toOTS. The ~~assess~~Bank ~~civil~~is ~~money~~subject ~~penalties,~~ to ~~issue~~the ~~cease~~restrictions and ~~desist or removal~~ ~~orders~~requirements ~~and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations~~ of ~~laws~~ ~~and~~an ~~regulations~~Order ~~and~~issued ~~unsafe~~by orthe ~~unsound practices~~OTS. ~~Other actions or~~ ~~inactions~~The ~~may~~Order ~~provide~~is ~~the~~summarized ~~basis~~under ~~for~~“Business ~~enforcement~~— ~~action,~~Regulatory ~~including~~Enforcement ~~misleading~~Actions” ~~or untimely reports filed with the Office of Thrift Supervision~~herein.

Insurance of Accounts. The deposits of the Bank are insured to the maximum extent permitted by the ~~Savings Association~~DIF ~~Insurance Fund, which is administered by the FDIC,~~ and are backed by the full faith and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, ~~FDIC-~~ insured institutions. It also may prohibit any ~~FDIC-~~insured institution from engaging in any activity ~~the~~ ~~FDIC~~determined ~~determines~~ by regulation or order to pose a serious threat to the ~~FDIC. The~~ FDIC ~~also has the authority to initiate enforcement actions against savings institutions, after giving the Office of Thrift Supervision an opportunity to take such action~~. ~~Currently, FDIC deposit insurance rates generally range from zero basis points to 27 basis points, depending on the assessment risk classification assigned to the depository institution.~~

The ~~FDIC~~deposits ~~may~~of ~~terminate~~ the ~~deposit~~Bank ~~insurance~~have ofhistorically ~~any~~been insured ~~depository~~by ~~institution, including~~ the ~~Bank,~~FDIC ifup itto ~~determines after a hearing that the institution has~~$100,000 ~~engaged~~per orinsured isdepositor, ~~engaging~~except incertain ~~unsafe~~types orof ~~unsound~~retirement ~~practices~~accounts, iswhich ~~in an unsafe or~~are ~~unsound~~insured ~~condition~~up to ~~continue operations~~$250,000 orper ~~has~~insured ~~violated~~depositor. On ~~any~~October 3, ~~applicable law~~2008, ~~regulation,~~ ~~order~~the ormaximum ~~any~~amount ~~condition~~insured ~~imposed~~under ~~by an agreement with the~~ FDIC~~. It~~ ~~also may suspend~~ deposit ~~insurance~~ ~~temporarily~~insurance ~~during~~was ~~the~~temporarily ~~hearing~~increased ~~process~~from ~~for~~$100,000 ~~the~~to ~~permanent~~$250,000 ~~termination~~per ofinsured ~~insurance,~~depositor ifthrough ~~the~~December 31, ~~institution~~2009. After ~~has~~December 31, no2009, ~~tangible~~the ~~capital. If~~standard insurance oflimit ~~accounts~~will isreturn to ~~terminated~~$100,000 ~~the accounts~~for atall ~~the~~deposit ~~institution~~categories atexcept ~~the~~retirement ~~time of the termination~~accounts, ~~less~~which ~~subsequent~~will ~~withdrawals, shall~~ continue to be insured ~~for~~up ~~a period of six months~~ to ~~two years~~$250,000 asper ~~determined~~insured ~~by the FDIC~~depositor. ~~Management is aware of no existing circumstances which would result in termination of the deposit insurance of the Bank.~~

22Each FDIC insured institution is assigned to one of three capital groups which are based solely on the level of an institution’s capital— “well capitalized,” “adequately capitalized,” and “undercapitalized.” These capital levels are defined in the same manner as under the prompt corrective action system discussed above. These three groups are then divided into three subgroups which reflect varying levels of supervisory concern, from those which are considered to be healthy to those which are considered to be of substantial supervisory concern. In 2007 and 2008, the annual insurance premiums on bank deposits insured by the DIF varied between $.05 and $.43 per $100 of deposits.

~~Regulatory~~In addition, ~~Capital~~all ~~Requirements. Federally~~institutions with deposits insured ~~savings~~by ~~institutions~~the FDIC are required to ~~maintain minimum~~ ~~levels~~pay ofassessments ~~regulatory~~to ~~capital.~~fund ~~The~~interest ~~Office~~payments ofon ~~Thrift~~bonds ~~Supervision~~issued ~~has~~by ~~established~~the Financing ~~capital~~Corporation, ~~standards~~a ~~applicable~~mixed-ownership togovernment ~~all~~corporation ~~savings~~established ~~institutions.~~to recapitalize ~~These~~the ~~standards~~predecessor ~~generally~~to the DIF. ~~must~~The beannual asassessment ~~stringent~~rate asset for the ~~comparable~~fourth ~~capital~~quarter ~~requirements~~of ~~imposed~~2008 onwas ~~national banks~~27.5 basis ~~The~~points ~~Office~~ of ~~Thrift~~insured ~~Supervision~~deposits ~~also~~and is ~~authorized~~adjusted toquarterly. These ~~impose~~assessments ~~capital requirements~~will incontinue ~~excess~~until ofthe Financing ~~these~~Corporation ~~standards~~bonds onmature ~~individual~~in ~~institutions on a case-by-case basis~~2019.

~~Current~~The ~~Office~~FDIC may terminate the deposit insurance of ~~Thrift~~any ~~Supervision~~insured ~~capital~~depository ~~standards~~institution, including ~~require~~the ~~savings~~Bank, ~~institutions~~if toit determines after a hearing that the institution has ~~satisfy~~engaged ~~three~~or ~~different~~is ~~capital~~engaging ~~requirements.~~in ~~Under~~unsafe ~~these~~or ~~standards~~unsound practices, ~~savings institutions~~is ~~must~~in ~~maintain~~an ~~“tangible”~~unsafe ~~capital~~or unsound ~~equal~~condition to atcontinue ~~least~~operations, ~~1.5%~~or ~~of adjusted~~has ~~total~~violated ~~assets~~any applicable law, regulation, ~~“core”~~order ~~capital~~or ~~equal~~any tocondition atimposed ~~least~~by 4an agreement with the FDIC.0% It ofalso ~~adjusted~~may ~~total assets~~suspend ~~and~~deposit ~~“total”~~insurance temporarily ~~capital~~during (athe ~~combination~~hearing ofprocess ~~core~~for ~~and~~the ~~“supplementary”~~permanent ~~capital)~~termination of ~~equal~~insurance, toif atthe ~~least~~institution ~~8.0%~~has ofno ~~“risk-weighted”~~tangible ~~assets~~capital. ~~Tangible~~If ~~capital~~insurance ~~generally~~of ~~equals~~accounts ~~common~~is terminated, the ~~stockholders’~~accounts ~~equity~~at ~~(including~~the ~~retained~~institution ~~earnings)~~at ~~minus~~the ~~intangible~~time ~~assets~~of the termination, less subsequent ~~with~~withdrawals, ~~only~~shall acontinue ~~limited~~to ~~exception~~be insured for ~~purchased~~a ~~mortgage~~period ~~servicing~~of ~~rights. Core~~six ~~capital~~months ~~generally~~to ~~consists~~two years, as determined by the FDIC. Management is aware of ~~tangible~~no existing circumstances which would result in ~~capital~~termination ~~plus~~of ~~qualifying~~the ~~intangible~~Bank’s ~~assets~~deposit insurance.

On December 16, 2008, the FDIC approved the final rule to raise the risk-based deposit insurance assessment rates uniformly by seven basis points for the first quarter of 2009 assessment period beginning on January 1, 2009. On February 26, 2009, the FDIC approved the final rule to raise the assessment rates for the assessment period beginning on April 1, 2009, and subsequent assessment periods. The new assessment scheme will differentiate between risk profiles and will require riskier institutions to pay higher assessment rates based on classification into one of four risk categories. Institutions that are rated in the category with the lowest risk will see their initial base rates increase to between 12 and 16 basis points.

On February 26, 2009, the FDIC adopted an interim rule, with request for comment, to impose a one-time 20 basis point emergency assessment effective on June 30, 2009 and to be collected on September 30, 2009. The FDIC has indicated in recent press reports that it may consider reducing the emergency special assessment by half to 10 basis points if, among other factors, Congress enacts legislation to expand the FDIC’s line of credit with the Department of Treasury to $100 billion.

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On February 26, 2009, the FDIC adopted another interim rule, with request for comment, to have the option to impose a further special assessment of up to 10 basis points on an institution’s assessment base on the last day of any calendar quarter after June 30, 2009 to be collected at the same time the risk-based assessment is collected. The assessment will be imposed if the FDIC determines the DIF reserve ratio will fall to a level that would adversely affect public confidence or to a level close to zero or negative, among other factors. The ultimate goal of the increase in assessment rates and the proposed special assessments is to restore the DIF ratio to a minimum of 1.15% within the next seven years. However, the interim rules are subject to change and may or may not be enacted.

Given the enacted and proposed increases in assessments for insured financial institutions in 2009, the Company anticipates that FDIC assessments on deposits will have a significantly greater impact on operating expenses in 2009 compared to 2008 and could materially affect our reported earnings, liquidity and capital.

Regulatory Capital Requirements. Banking regulations require savings institutions to satisfy several capital requirements. Savings institutions must maintain “tangible” capital equal to at least 1.5% of adjusted total assets, “core” capital equal to at least 4.0% of adjusted total assets and “total” capital (a combination of core and “supplementary” capital) equal to at least 8.0% of “risk-weighted” assets. Tangible capital generally equals common stockholders’ equity (including retained earnings) minus intangible assets, with only a limited exception for purchased mortgage servicing rights. Core capital generally consists of tangible capital plus qualifying intangible assets.

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

Savings institutions must value securities available for sale at amortized cost for regulatory capital purposes. This means that in computing regulatory capital, savings institutions should add back any unrealized losses and deduct any unrealized gains, net of income taxes, on securities reported as a separate component of ~~capital determined under~~ generally accepted accounting principles capital.

At ~~September~~December 3031, ~~2004,~~ 2008, the Bank ~~exceeded~~did ~~all~~not meet two of its ~~regulatory~~OTS capital requirements, with tangible, core and risk-based capital ratios of 82.32%, 82.32%, and 134.8%, respectively.

~~Any savings~~A savings institution that fails any of the capital requirements is subject to ~~possible~~ possible enforcement actions by the ~~Office~~OTS ~~of Thrift Supervision~~ or the FDIC. Such actions could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. Capital ~~The Office of Thrift Supervision’s capital~~ regulation ~~provides~~ provides that such actions, through enforcement proceedings or otherwise, could ~~require~~ require one or more of a variety of corrective actions. The Company and the Bank are subject to Orders issued by the OTS. In addition, the Bank is subject to an Amended Order. The Orders and the Amended Order are summarized under “Business — Regulatory Enforcement Actions” beginning on page 2 herein.

~~Prompt Corrective Action. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations.~~28

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%

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~~In addition,~~Prompt anCorrective ~~institution~~Action. Application ~~is “critically undercapitalized” if it has a ratio~~ of the ~~tangible~~enforcement ~~equity~~actions tomentioned ~~total~~above ~~assets~~are ~~that~~influenced isby ~~equal~~an toinstitutions’ ~~or less than 2.0%. Under~~capital ~~specified~~levels ~~circumstances,~~under athe ~~federal~~regulatory ~~banking~~framework ~~agency~~for ~~may~~prompt ~~reclassify~~corrective aaction. The ~~well~~following ~~capitalized institution~~table asshows ~~adequately~~the ~~capitalized~~amount ~~and may require an adequately capitalized~~of ~~institution~~capital orassociated ~~an undercapitalized institution to comply~~ with ~~supervisory actions as if it were in~~ the ~~next~~different ~~lower~~capital ~~category~~categories ~~(except~~set ~~that~~forth ~~the~~in ~~FDIC may not~~the ~~reclassify~~prompt acorrective ~~significantly~~action ~~undercapitalized institution as critically undercapitalized)~~regulations.

	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%

~~An institution~~In ~~generally~~addition, ~~must~~an ~~file a~~institution ~~written~~is ~~capital~~“critically ~~restoration~~undercapitalized” ~~plan~~if ~~which~~it has ~~meets~~a ~~specified~~ratio ~~requirements~~of ~~within~~tangible ~~45 days~~equity ofto ~~the~~tangible ~~date~~assets that ~~the institution receives notice or~~ is ~~deemed~~equal to ~~have~~or ~~notice~~less ~~that it is~~than ~~undercapitalized,~~2.0%. ~~significantly~~Under ~~undercapitalized~~specified orcircumstances, ~~critically undercapitalized.~~a A federal banking agency ~~must~~may ~~provide~~reclassify ~~the institution with~~a ~~written~~well ~~notice~~capitalized ofinstitution ~~approval~~as oradequately ~~disapproval~~capitalized ~~within~~and ~~60 days~~may ~~after~~require ~~receiving a~~an ~~capital~~adequately ~~restoration~~capitalized ~~plan,~~institution ~~subject~~or toan ~~extensions~~undercapitalized ~~by the agency. An~~ institution ~~which~~ ~~is required~~ to ~~submit a capital restoration plan must concurrently submit~~comply awith ~~performance~~supervisory ~~guaranty~~actions byas ~~each~~if ~~company~~it ~~that~~were ~~controls~~in the ~~institution.~~next ~~In addition,~~lower ~~undercapitalized~~category ~~institutions~~(except ~~are subject to various regulatory~~that ~~restrictions, and~~ the ~~appropriate~~FDIC ~~federal~~may ~~banking~~not ~~agency~~reclassify ~~also~~a ~~may~~significantly ~~take~~undercapitalized ~~any~~institution as ~~number~~critically ~~of discretionary supervisory actions~~undercapitalized).

~~At September~~As of December 3031, ~~2004~~2008, the Bank’s ~~was~~capital ~~deemed~~level awould ~~well~~be ~~capitalized~~defined as ~~institution~~significantly undercapitalized for purposes of the above regulations. As ~~and~~a asresult, ~~such~~on isApril 13, ~~not~~2009, ~~subject~~Peoples was tonotified by the ~~above~~OTS of certain prompt corrective actions that Peoples is ~~mentioned~~required ~~restrictions~~to take.

~~Safety~~On ~~and~~April 30, ~~Soundness~~2009, ~~Guidelines. The Office~~the ofBank filed its Thrift ~~Supervision~~Financial ~~and~~Report for the ~~other~~quarter ~~federal~~ended ~~banking~~March 31, ~~agencies~~2009. This ~~have~~report reflected the Bank’s capital ~~established~~under ~~guidelines~~the framework for ~~safety~~prompt ~~and~~corrective ~~soundness,~~action ~~addressing~~at ~~operational~~the ~~and~~“critically ~~managerial~~undercapitalized” ~~standards~~level. The Bank’s total risk-based capital, asTier ~~well~~1 asrisk-based ~~compensation~~capital ~~matters~~and ~~for~~tier ~~insured~~1 ~~financial~~leverage capital ~~institutions~~were 4.15%, ~~Institutions~~2.82% ~~failing~~and to1.81%, ~~meet~~respectively. The ~~these~~Bank’s ~~standards~~ratio ~~are~~of ~~required~~tangible equity to ~~submit~~ ~~compliance~~tangible ~~plans~~assets towas ~~their~~1.81% As ~~appropriate~~a ~~federal~~result, ~~regulators.~~the ~~The~~Bank ~~Office~~is ofsubject to ~~Thrift~~numerous ~~Supervision~~operational restrictions and ~~the~~requirements, ~~other~~including ~~agencies~~the ~~have~~requirement that ~~also~~the ~~established~~Bank ~~guidelines regarding~~file ~~asset~~a ~~quality~~capital ~~and~~restoration ~~earnings~~plan ~~standards~~to ~~for~~demonstrate ~~insured~~the ~~institutions. The~~ability of the Bank ~~believes~~to ~~that~~return itto isan inadequately ~~compliance with~~capitalized ~~these~~status ~~guidelines~~by ~~and~~June 15, ~~standards~~2009.

~~Capital~~The ~~Distributions. Office~~Company ~~of Thrift Supervision regulations govern capital distributions by~~and ~~savings~~the ~~institutions,~~Bank ~~which~~are ~~include~~currently ~~cash~~in ~~dividends,~~negotiations ~~stock~~concerning ~~repurchases~~a ~~and~~transaction ~~other transactions charged~~ to ~~the~~sell ~~capital~~certain branches ~~account~~ of athe ~~savings~~Bank, ~~institution~~the toproposed ~~make capital~~results ~~distributions.~~of Awhich ~~savings~~are ~~institution~~the ~~must~~basis ~~file~~for anthe ~~application for~~Bank’s ~~Office~~capital ofrestoration ~~Thrift~~plan, ~~Supervision~~as ~~approval~~filed ofwith the ~~capital~~OTS ~~distribution~~on ~~if either (1)~~April ~~the~~30, ~~total~~2009. The ~~capital~~Bank ~~distributions~~intends ~~for~~to ~~the~~negotiate ~~applicable~~and ~~calendar~~enter ~~year~~into ~~exceed~~a ~~the~~transaction ~~sum~~to ofsell the ~~institution’s~~branches ~~retained~~in ~~net~~order ~~income~~to ~~for~~reduce ~~that~~assets ~~year~~and ~~to date~~liabilities, ~~plus~~generate ~~the~~a ~~institution’s~~deposit ~~retained~~premium ~~net~~and ~~income~~return ~~for~~ the ~~preceding~~Bank ~~two~~to ~~years, (2) the~~an ~~institution would not be at least~~ adequately capitalized ~~following~~ ~~the~~status. The ~~distribution,~~Company ~~(3) the~~cannot ~~distribution~~provide assurance ~~would~~that ~~violate~~such ~~any~~transaction ~~applicable statute,~~will ~~regulation,~~be ~~agreement~~entered into or ~~OTS-imposed~~consummated ~~condition,~~ or ~~(4)~~ that the ~~institution~~Bank’s iscapital ~~not~~restoration ~~eligible~~plan ~~for~~will ~~expedited~~be ~~treatment~~acceptable ofto ~~its~~the ~~filings~~OTS. If ~~an application~~the isBank’s ~~not~~capital ~~required~~plan tois benot ~~filed,~~approved ~~savings~~by the ~~institutions~~OTS ~~which~~or ~~are~~the ~~a subsidiary~~Bank ofcannot aenter ~~holding~~into ~~company~~and ~~(as~~consummate ~~well~~a astransaction ~~certain~~to ~~other institutions) must~~return ~~still~~the ~~file a~~Bank ~~notice~~to ~~with~~an ~~the~~adequately ~~Office~~capitalized ofstatus ~~Thrift~~on ~~Supervision~~a attimely ~~least 30 days~~basis, ~~before~~ the ~~board~~Company will ofnot ~~directors~~be ~~declares~~able ato ~~dividend~~continue oras ~~approves~~ a ~~capital~~ ~~distribution~~going concern.

~~Community~~For ~~Reinvestment Act and the Fair Lending Laws. Savings institutions have~~ a ~~responsibility under the Community~~further ~~Reinvestment~~discussion ~~Act~~ of ~~1977 and related regulations of~~ the ~~Office~~Company’s ~~of Thrift Supervision to help meet the credit needs of their communities, including low-~~ and ~~moderate-income neighborhoods. In addition,~~ the ~~Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An institution~~Bank’s ~~failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in~~ regulatory ~~restrictions on its activities. Failure to comply with fair lending laws could result in~~ enforcement actions ~~by the Office of Thrift Supervision~~, assee ~~well as other~~‘Regulatory ~~federal~~Enforcement ~~regulatory~~Actions” ~~agencies,~~beginning ~~and~~on ~~the~~page 2 ~~Department of Justice~~herein.

~~Qualified~~Safety ~~Thrift~~and ~~Lender~~Soundness ~~Test~~Guidelines. ~~All savings~~The ~~institutions~~OTS ~~are~~and ~~required~~the toother ~~meet~~federal abanking agencies ~~qualified~~have ~~thrift~~established ~~lender~~guidelines ~~test~~for ~~to avoid~~safety ~~certain~~and ~~restrictions~~soundness, onaddressing operational ~~their~~and ~~operations.~~managerial Astandards, ~~savings~~as ~~institution~~well ~~can comply~~as ~~with~~compensation ~~the~~matters ~~qualified~~for insured ~~thrift~~financial ~~lender~~institutions. ~~test~~Institutions byfailing ~~either~~to ~~qualifying~~meet asthese ~~a domestic~~standards ~~building~~are ~~and~~required ~~loan~~to ~~association~~submit ascompliance ~~defined~~plans into ~~the~~their ~~Internal~~appropriate ~~Revenue~~federal ~~Code~~regulators. The orFederal ~~by maintaining~~Reserve, atthe ~~least~~OTS, ~~65%~~and ofthe ~~its~~other ~~portfolio~~agencies ~~assets~~have inalso ~~certain~~established guidelines ~~housing~~regarding asset quality and ~~consumer-related~~ ~~assets~~earnings ~~such~~standards ~~as:~~for insured institutions.

~~• loans~~Capital Distributions. OTS regulations govern capital distributions ~~made~~by savings institutions, which include cash dividends, stock repurchases and other transactions charged to ~~purchase~~the capital account of a savings institution to make capital distributions. A savings institution must file an application for OTS approval of the capital distribution if either (1) the total capital distributions for the applicable calendar year exceed the sum of the institution’s retained net income for that year to date plus the institution’s retained net income for the preceding two years, ~~refinance~~(2) the institution would not be at least adequately capitalized following the distribution, ~~construct~~(3) the distribution would violate any applicable statute, ~~improve~~regulation, agreement or OTS-imposed ~~repair~~condition, ~~domestic~~or ~~residential~~(4) the institution is not eligible for ~~housing;~~expedited treatment of its filings. If an application is not required to be filed, savings institutions which are a subsidiary of a holding company (as well as certain other institutions) must still file a notice with the OTS at least 30 days before the board of directors declares a dividend or approves a capital distribution. The Bank is currently prohibited by the Order issued by the OTS from declaring or making any capital distributions without the prior written approval of the OTS.

~~• home equity loans;~~29

~~• most mortgage-backed~~Table ~~securities;~~of Contents

~~• stock~~Community Reinvestment Act and ~~issued~~the byFair Lending Laws. Savings institutions have a ~~Federal~~responsibility ~~Home~~under ~~Loan~~the ~~Bank;~~Community Reinvestment Act of 1977 and related regulations of the OTS to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities. Failure to comply with fair lending laws could result in enforcement actions by the OTS, as well as other federal regulatory agencies, and the Department of Justice.

~~• direct~~Qualified Thrift Lender Test. All savings institutions are required to meet a qualified thrift lender test to avoid certain restrictions on their operations. A savings institution can comply with the qualified thrift lender test by either qualifying as a domestic building and loan association as defined in the Internal Revenue Code or by maintaining at least 65% of its portfolio assets in certain housing and consumer-related assets such as loans made to purchase, refinance, construct, improve or repair domestic residential housing; home equity loans; most mortgage-backed securities; stock issued by a Federal Home Loan Bank; and direct or indirect obligations of the FDIC.

24A savings institution that does not meet the qualified thrift lender test must either convert to a bank charter or comply with certain restrictions on its operations. At December 31, 2008, the qualified thrift investments of the Bank were approximately 81.9% of its portfolio assets.

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

At September 30, 2004, the qualified thrift investments of the Bank were approximately 82.3% of its portfolio assets.

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

As a member, the Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Cincinnati in an amount equal to at least 1% of its aggregate ~~unpaid~~ unpaid residential mortgage loans or similar obligations at the beginning of ~~each~~ each year. At ~~September~~December 3031, ~~2004~~2008, the Bank had $1013.85 million in Federal ~~Home~~ Home Loan Bank of Cincinnati stock, which was in compliance with this requirement. The Bank also had approximately $1.1 million in Federal Home Loan Bank of Indianapolis stock, which was obtained through the acquisition of American in June 2005 and Peoples Federal in December 2005.

The Federal Home Loan Banks are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of Federal Home Loan Bank dividends paid in the past and could do so in the future. These contributions also could have an adverse effect on the value of Federal Home Loan Bank stock in the future.

Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and non-personal time deposits. Because required reserves must be maintained in the form of vault cash or a noninterest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce an institution’s earning assets.

25Taxation

~~TAXATION~~Federal Taxation. Peoples and the Bank are subject to the corporate tax provisions of the Internal Revenue Code, and the Bank is subject to certain additional provisions which apply to thrifts and other types of financial

~~Federal Taxation~~30

~~General. Peoples~~Table ~~and the Bank are subject to the corporate tax provisions~~ of the Internal Revenue Code, and the Bank is subject to certain additional provisions which apply to thrifts and other types of financial institutions. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters relevant to the taxation of Peoples and the Bank and is not a comprehensive discussion of the tax rules applicable to Peoples and the Bank.Contents

institutions. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters relevant to the taxation of Peoples and the Bank and is not a comprehensive discussion of the tax rules applicable to Peoples and the Bank.

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

Bad Debt Reserves. In 1996, legislation was enacted that repealed the reserve method of accounting (including the percentage of taxable income method) previously used by many savings institutions to calculate their bad debt reserve for federal income tax purposes. Savings institutions with $500 million or less in assets may, however, continue to use the experience method. The Bank ~~must~~recaptured ~~recapture~~ that portion of its reserve which exceeded ~~exceeds~~ the amount that could have been taken under the experience method for post-1987 tax years. The Bank’s post-1987 excess reserves amounted to approximately $1.2 million. The recapture ~~will~~has ~~occur~~occurred over a six-year period, which commenced in fiscal 1999. The legislation also requires savings institutions to account for bad debts for federal income tax purposes on the same basis as commercial banks for tax years beginning after December 31, 1995. This change in accounting method and recapture of excess bad debt reserves is adequately provided for in the Bank’s deferred tax liability.

At ~~September~~ December 3031, ~~2004~~ 2008, the federal income tax reserves of the Bank included $1.4 million for which no federal income tax has been provided. Because of these federal income tax reserves and the liquidation account established for the benefit of certain depositors of the Bank in connection with ~~its~~the stock conversion, the retained earnings of the Bank are substantially restricted.

Distributions. If ~~Peoples~~the Bank were to distribute cash or property to its stockholders, and the distribution was treated as being ~~from~~ from its accumulated bad debt reserves, the distribution would cause ~~Peoples~~the Bank to have additional taxable income. A distribution is from accumulated bad debt reserves if (a) the reserves exceed the amount that would have been accumulated on the basis of actual loss experience, and (b) the distribution is a “non-qualified distribution.” A distribution with respect to its stock is a non-qualified distribution to the extent that, for federal income tax purposes, (1) it is in redemption of its shares, (2) it is pursuant to a liquidation of the institution, or (3) in the case of a current distribution, together with all other such distributions during the taxable year, it exceeds the institution’s current and post-1951 accumulated earnings and profits. The amount of additional taxable income created by a non-qualified distribution is an amount that when reduced by the tax attributable to it is equal to the amount of the distribution.

~~• it~~Minimum Tax. The Code imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax generally applies to a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income”) and is payable to the extent such alternative minimum taxable income is in ~~redemption~~excess of ~~its~~an ~~shares~~exemption amount. Tax preference items include depreciation and 75% of the excess (if any) of (1) alternative minimum taxable income determined without regard to this preference and prior to reduction by net operating losses, over (2) adjusted current earnings as defined in the Code. Peoples has not been subject to the alternative minimum tax or had any such amounts available as credits for carry-over.

• it is pursuant to a liquidation of the institution, or

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

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

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

• depreciation, and

• 75% of the excess (if any) of:

(1) alternative minimum taxable income determined without regard to this preference and prior to reduction by net operating losses, over

(2) adjusted current earnings as defined in the Code.

Peoples has not been subject to the alternative minimum tax or had any such amounts available as credits for carry-over.

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

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

Peoples’ federal income tax returns for the tax years ended 2003, 2002 and 2001 are open under the statute of limitations and are subject to review by the IRS. Peoples has not been audited by the IRS during the last five years.31

~~State~~Table ~~Taxation~~of Contents

loans. Significant increases in tax rates or further restrictions on the deductibility of mortgage interest could adversely affect Peoples. Peoples’ federal income tax returns for the tax years ended 2008 and 2007 are open under the statute of limitations and are subject to review by the IRS. Various companies that the Bank has acquired remain under the statute of limitations by the IRS for the years ended 2005 through 2007.

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

In computing Peoples’ tax under the net worth method, 100% of the investment in the capital stock of the Bank after the conversion may be excluded, as reflected on the balance sheet, in computing taxable net worth as long as Peoples owns at least 25% of the issued and outstanding capital stock of the Bank. The calculation of the exclusion from net worth is based on the ratio of the excludable investment (net of any appreciation or goodwill included in such investment) to total assets multiplied by the net value of the stock. As a holding company, Peoples may be entitled to various other deductions in computing taxable net worth that are not generally available to operating companies.

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

The Bank is a “financial institution” for State of Ohio tax purposes. As such, it is subject to the Ohio corporate franchise tax on “financial institutions,” which is imposed annually at a rate of 1.3% of the Bank’s book net worth determined in accordance with generally accepted accounting principles. As a “financial institution”, the Bank is not subject to any tax based upon net income or net profits imposed by the State of Ohio.

Indiana Taxation. Peoples is subject to the Indiana financial institution tax, which is tax calculated at 8.5% of the adjusted gross income of the business conducted in the state of Indiana. This financial institution tax is extended to both resident and nonresident financial institutions.

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

27Forward Looking Statements

~~Item~~This 2report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. ~~Properties~~Such forward-looking statements and the currently reported results are based upon our current expectations and beliefs concerning future developments and their potential effects upon us. These statements and our results reported herein are not guarantees of future performance or results and there can be no assurance that actual developments and economic performance will be as anticipated by us. Actual developments and/or results may differ significantly and adversely from our expected or currently reported results as a result of significant risks, uncertainties and factors, often beyond our control (as well as the various assumptions utilized in determining our expectations), and which include, but are not limited to, the following:

~~At September 30, 2004, Peoples conducted its business from its~~· our ~~main~~ability ~~office~~to inadopt ~~West Chester, Ohio~~ and ~~thirteen~~implement ~~other~~a ~~branch~~viable ~~offices~~business inplan ~~Hamilton and~~that ~~Warren~~will ~~counties. The~~permit ~~following~~us ~~table sets forth the net book value (including leasehold improvement, furnishings and equipment) and certain other information with respect~~ to ~~the offices and other~~ ~~properties~~operate ~~of Peoples at September 30, 2004.~~profitably;

	Owned or Leased	Lease Expiration Date	Net Book Value of Property and Leasehold Improvements at September 30, 2004		Deposits at September 30, 2004
			(In thousands)
Main Office:
6100 West Chester Road West Chester, Ohio 45069	Owned	N/A	$	2,591	$	57,334
Branch Offices:
11 South Broadway Lebanon, Ohio 45036	Owned	N/A	701		56,415
4825 Marburg Avenue Cincinnati, Ohio 45209	Owned	N/A	1,747		24,821
3621 Harrison Avenue Cheviot, Ohio 45211	Owned	N/A	349		66,541
3663 Ebenezer Road Cincinnati, Ohio 45248	Owned	N/A	244		32,822
7522 Hamilton Avenue Cincinnati, Ohio 45231	Owned	N/A	1,287		62,304
4100 State Route 128 Cleves, Ohio 45002	Owned	N/A	1,053		11,680
1101 Columbus Avenue Lebanon, Ohio 45036	Owned	N/A	1,405		35,711
5797 South State Route 48 Maineville, Ohio 45039	Owned	N/A	1,021		15,314
8350 Arbor Square Drive Mason, Ohio 45040	Owned	N/A	1,440		11,123
3530 Springdale Road Cincinnati, Ohio 45251	Owned	N/A	695		19,460
7200 Blue Ash Road Cincinnati, Ohio 45236	Owned	N/A	834		78,911
2906-6 West US 22 & 3 Maineville, OH 45039	Leased	06/07	—		—

· the impact of the Orders on our ability to conduct our business;

~~Additionally, the Company had construction in progress costs totaling~~· our ~~approximately~~ability ~~$4.4~~to ~~million~~maintain atsufficient ~~September 30,~~cash ~~2004,~~flow ~~which~~to ~~consisted primarily~~meet ofdebt ~~$3.0~~service ~~million for its Voice of America location, which opened in October 2004, $900,000 for its Deer Park location remodeling project~~ and ~~approximately $500,000~~other ~~for its Western Commons office relocation project.~~obligations;

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· the variability of general and specific economic conditions and trends, and changes in, and the level of, interest rates;

· the impact of competition and pricing environments on deposit products;

· the ability to access the necessary capital resources in a cost-effective manner to fund our operations;

· the impact of changes in the residential, construction and commercial real estate markets and changes in the fair values of our assets and loans, including the value of the underlying real estate collateral;

· the effect of certain determinations or actions taken by, or the inability to secure regulatory approvals from, the OTS on various matters;

· the ability to maintain effective compliance with laws and regulations and control expenses;

· the ability to maintain an effective system of internal and financial disclosure controls, and to identify and remediate any control deficiencies; and

· other events, risks and uncertainties discussed elsewhere in this Form 10-K and from time to time in our other reports, press releases and filings with the Securities and Exchange Commission.

We undertake no obligation to publicly update such forward-looking statements.

Item 1A. Risk Factors

You should carefully consider the following risk factors, as well as other information in this Form 10-K and the information contained in our other filings with the SEC. You should carefully consider the following risks in light of our current operating environment and regulatory status. The occurrence of any of the events described below could materially adversely affect our liquidity, results of operations and financial condition and our ability to continue as a going concern. Additional risks not presently known by us or that we currently deem immaterial may also have a material adverse impact.

Risks Relating to Our Liquidity

The Company does not on its own have sufficient resources to satisfy its obligations and, therefore, we have substantial doubt about our ability to continue as a going concern.

As a savings institution holding company, the Company has historically paid its operating expenses, interest expense, taxes and other obligations, including interest on its line of credit and junior subordinated debentures, from its cash on hand, investments, and inter-company tax payments. Without an additional capital infusion as well as possibly a restructuring of existing debt obligations, current cash flows and capital resources of the Company will be insufficient to fund the Company’s operating expenses, to meet its debt service obligations on the junior subordinated debentures beginning in August, 2008 and to pay off the $17.5 million line of credit from Integra, which was due and payable on June 30, 2008. Since the Orders prohibit the Bank from paying cash dividends without the prior written consent of the OTS, the Company will be able to rely only upon a limited amount of existing cash and cash equivalents as the sources of its liquidity. Without the ability to rely on dividends from the Bank, the Company will require funds from other capital sources to meet its obligations such as restructuring or replacing its line of credit. Any increase in the Company’s outstanding indebtedness will also require OTS approval.

The Company does not have sufficient liquidity to pay its outstanding debt and to continue to pay its operating expenses. The Bank’s inability to dividend funds to the Company effectively precludes the Company from repaying its outstanding obligations on its line of credit from Integra. The forbearance agreement, dated July 24, 2008, between the Company and Integra that extended the Company’s repayment period has expired. Therefore, Integra has the right to initiate or prosecute any action in any court to collect the indebtedness.

The Company has been actively evaluating various capital strategies to meet its obligations, including restructuring its outstanding debt and selling branch offices. The Company cannot provide assurance that it will succeed in accomplishing any restructuring of its existing debt or selling branches before its capital resources

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are depleted. Failure to restructure the Company’s debt obligations or to sell branches will further jeopardize the Company’s business, financial condition and ability to operate as a going concern. Currently, there is significant doubt whether the Company can continue as an ongoing business. See “Report of Independent Registered Public Accounting Firm.”

A successful transaction or other strategic alternative, if identified, evaluated and consummated, may not provide a greater value to stockholders than that reflected in the current stock price. As a result, you may not realize a return on your investment in the Company’s common stock. Absent an extraordinary transaction, however, the Company may not be able to continue operations. If the Company ceases business activities, it is likely that you will lose your investment.

The Company is in default on its line of credit, which is secured by the Bank’s common stock.

The Company’s primary asset consists of the outstanding shares of common stock of the Bank. The Company’s $17.5 million line of credit with Integra is secured by the outstanding shares of common stock of the Bank. The $17.5 million principal balance currently outstanding under the line of credit became due and payable on June 30, 2008. Effective July 24, 2008, the Company entered into a forbearance agreement with Integra, which extended the Company’s repayment period. The forbearance agreement is no longer in effect, however, and the forbearance period expired on January 31, 2009. Therefore, the Company is currently in default on its line of credit and, as a result, Integra has a legal claim to the outstanding shares of common stock of the Bank that were pledged by the Company to secure the credit line.

Effect of Independent Registered Public Accounting Firm’s Report with disclosure of going concern issue.

The reports of our independent Registered Public Accountants, which are included in our 2007 and 2008 Annual Reports to Stockholders, contain explanatory paragraphs as to our ability to continue as a going concern. Among the factors cited by the accountants as raising substantial doubt as to our ability to continue as a going concern are the recurring losses, the agreements with the OTS and uncertainty about the Company’s ability to meet obligations that came due in 2008. See Note P of Notes to Consolidated Financial Statements. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Discussions of Financial Condition Changes from December 31, 2007 to December 31, 2008” for management’s discussion of our financial condition at December 31, 2008.

Risks Relating to Our Compliance with Applicable Regulatory Requirements, Regulatory Enforcement Actions and Developments

Compliance with applicable regulatory requirements may have a material adverse effect on our business.

The Bank is subject to supervision and regulation by the OTS. As a regulated federal savings bank, the Bank’s good standing with its regulators is of fundamental importance to the continuation of its business. As more fully described in Item 1 — “Business — Regulatory Enforcement Actions,” on April 2, 2008, the Company and the Bank both consented to the Orders issued by the OTS. The Orders require the Company and the Bank to, among other things, file with the OTS an updated business plan and submit to the OTS, on a quarterly basis, variance reports related to the business plan. The Order issued to the Bank also substantially restricts the Bank’s lending activities. We cannot predict the further impact of the Orders upon our business, financial condition or results of operations.

At December 31, 2008, the Bank did not meet two of the three regulatory capital requirements applicable to the Bank. In addition, at such date, the Bank was deemed a significantly undercapitalized institution under the regulatory framework for prompt corrective action. Further, at March 31, 2009, the Bank was deemed a critically undercapitalized institution under the regulatory framework for prompt corrective action. As a result, the Bank is subject to numerous operational restrictions and requirements, including the requirement to file a capital restoration plan to return to an adequately capitalized status. The Company and the Bank are currently in negotiations concerning a transaction to sell certain branches of the Bank, the proposed results of which are the basis for the Bank’s capital restoration plan, as filed with the OTS on April 30, 2009. The Bank

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intends to negotiate and enter unto a transaction to sell certain branches in order to reduce assets and liabilities, generate a deposit premium and return the Bank to an adequately capitalized status. The Company cannot provide assurance that such a transaction will be entered into or consummated or that the Bank’s capital restoration plan will be acceptable to the OTS. If the Bank’s capital plan is not approved by the OTS or the Bank cannot enter into and consummate a transaction to return the Bank to an adequately capitalized status on a timely basis, the Company will not be able to continue as a going concern.

For a further discussion of the Company’s and the Bank’s regulatory enforcement actions, see “Business — Regulatory Enforcement Actions” beginning on page 2 herein.

Other Risks Related to Our Business

Lack of profitable operations in recent periods could continue.

The recessionary forces in the local economy have impacted our operations and profitability and are expected to continue to do so. For the years ended December 31, 2008 and 2007, the Company incurred losses of $68.5 million and $33.3 million, respectively. As the Bank’s primary lending area is the southwest Ohio and southeast Indiana regions, the significant downturn in the real estate market in these regions significantly impacts the asset quality and provision for loan loss requirements of the Bank. While the Bank’s management continues to aggressively pursue the collection and resolution of all delinquent and non-performing loans, future levels of charge offs and adjustments to the allowance could significantly affect future net earnings or losses.

Changes in interest rates could have a material adverse effect on our financial condition and results of operations.

Our earnings depend substantially on the interest rate spread, which is the difference between the rates we earn on loans, investment securities and other interest-earning assets, and the interest rates we pay on deposits and borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. While we have taken measures intended to manage the risk of operating in a changing interest rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk.

Difficult market conditions have adversely affected our industry.

Peoples is particularly exposed to downturns in the U.S. housing market. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities, major commercial and investment banks, and regional financial institutions such as Peoples. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets have adversely affected our business, financial condition and results of operations. We do not expect that the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:

· We expect to face increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

· Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage and underwrite our customers become less predictive of future behaviors.

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· The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans, which may no longer be capable of accurate estimation which may, in turn, impact the reliability of the process.

· Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

· Our liquidity could be negatively impacted by an inability to access the capital markets, unforeseen or extraordinary demands on cash, or regulatory restrictions, which could, among other things, materially and adversely affect our business prospects and financial condition.

Regional economic changes in the Company’s markets have had and may continue to adversely impact results from operations.

Like all financial institutions, Peoples is subject to the effects of any economic downturn, and the significant decline in home values, residential development and commercial properties in our markets have had and will continue to have a negative effect on results of operations. Our success depends primarily on the general economic conditions in the counties in which we conduct business, and in the southwest Ohio and southeast Indiana area in general. Unlike larger financial institutions that are more geographically diversified, Peoples provides banking and financial services to customers primarily in the southwest Ohio counties of Butler, Hamilton and Warren counties, as well as Dearborn and Ohio counties in Indiana. The local economic conditions in these market areas have a significant impact on our ability to originate loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans. The significant declines in the general economic conditions caused by recession, unemployment and other factors beyond our control have had and will continue to adversely affect our financial condition and results of operations. Additionally, because we have a significant amount of loans secured by commercial, multi-family, and non-owner occupied investment properties, decreases in tenant occupancy may also continue to have a negative effect on the ability of many of our borrowers to make timely repayments of their loans, which would continue to have an adverse impact on our earnings. Further declines in home values would likely lead to increased delinquencies and defaults in both consumer and home equity loans and owner-occupied residential real estate loan portfolios and result in increased losses in the portfolios.

Over the last 18 months, there has been a significant downturn in the local economy, a softening in the real estate market and an oversupply of lots, speculative homes and non-owner occupied rental units, leading to cash flow issues faced by local property investors, builders, and developers. These issues have had a material adverse impact on the Bank’s nonaccrual loans. At December 31, 2008, the Bank’s nonperforming loans amounted to $43.1 million, or 9.33% of total net loans. The resolution of such nonperforming loans may substantially impact our provision for loan losses and allowance for loan losses.

There can be no assurance that enacted legislation or any proposed federal programs will stabilize the U.S. financial system.

There has been much legislative and regulatory action in response to the financial crises affecting the banking system and financial markets and threats to investment banks and other financial institutions. There can be no assurance, however, as to the actual impact that the legislation and its implementing regulations or any other governmental program will have on the financial markets. The failure of the actions by the legislators, the regulatory bodies or the U.S. government to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, and access to credit or the trading price of our common shares.

Our loan portfolio is predominantly secured by real estate and thus we have risk from a further downturn in our real estate markets.

A further downturn in our real estate markets will hurt our business because many of our loans are secured by real estate. Real estate values and real estate markets are generally affected by changes in national, regional or

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local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, and changes in tax laws and other governmental statutes, regulations and policies. Substantially all of our real estate collateral is located in southwest Ohio and southeast Indiana. If real estate values continue to further decline, the value of real estate collateral securing our loans could be significantly reduced. Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans.

Losses on a few large loans or lending relationships can cause significant volatility in operations.

Due to our limited size, individual loan values can be large relative to our operations for a particular period. If a few relatively large loan relationships become non-performing in a period and Peoples is required to increase its loss reserves, or to write off principal or interest relative to such loans, the operating results of that period could be significantly adversely affected. The effect on results of operations for any given period from a change in the performance of a relatively small number of loan relationships may be disproportionately larger than the impact of such loans on the quality of Peoples’ overall loan portfolio. In both 2007 and 2008, we incurred losses on lending relationships that significantly impacted operating results for the relevant period. As of December 31, 2008, the Bank’s nonperforming loans amounted to $43.1 million, with five borrowers representing $14.4 million, or 33.4% of total nonperforming loans.

New or revised tax, accounting and other laws, regulations, rules and standards could significantly impact strategic initiatives, results of operations and financial condition.

The financial services industry is highly regulated and laws and regulations may sometimes impose significant limitations on operations. These limitations, and sources or potential liability for the violation of such laws and regulation, are described in Item 1 of Part I of this report under the heading “Business — Regulation.” These regulations, along with the currently existing tax and accounting laws, regulations, rules and standards, control the methods by which financial institutions conduct business; implement strategic initiatives, as well as past, present, and contemplated tax planning; and govern financial disclosures. These laws, regulations, rules, and standards are constantly evolving and may change significantly over time. The nature, extent, and timing of the adoption of significant new laws, changes in existing laws, or repeal of existing laws may have a material impact on our results of operations and financial condition, the effects of which are impossible to predict at this time.

Strong competition within our market area may limit profitability.

Peoples faces significant competition both in attracting deposits and in the origination of loans, as described in Item 1 of Part I of this report under the heading “Business — Competition.” Mortgage bankers, commercial banks, credit unions and other savings institutions, which have offices in the Bank’s market area have historically provided most of our competition for deposits. Many competitors have substantially greater financial and other resources than we do. Moreover, we may face increased competition in the origination of loans if competing thrift institutions convert to stock form, because such converting thrifts would likely seek to invest their new capital into loans. Finally, credit unions do not pay federal or state income taxes and are subject to fewer regulatory constraints than savings banks and as a result, they may enjoy a competitive advantage over us. The Bank competes for loans principally on the basis of the interest rates and loan fees it charges, the types of loans it originates and the quality of services it provides to borrowers. This advantage places significant competitive pressure on the prices of loans and deposits.

Risks Relating to Our Capital Stock

We do not anticipate declaring dividends for the foreseeable future.

The Company’s Board of Directors has not declared any dividends since the third quarter of 2007. The Orders prohibit the Bank from paying cash dividends to the Company, which is its primary source for funding dividends to the Company’s shareholders, without the prior approval of the OTS. We believe that the Company has no ability to pay cash dividends in the foreseeable future, and are prohibited by the Orders from doing so without the consent of the OTS.

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Other Risk Factors.

The above description of risk factors is not exhaustive. Other risk factors are described elsewhere herein as well as in other reports and documents that we file with or furnish to the SEC. Other factors that could also cause results to differ from our expectations may not be described in any such report or document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

Item 1B. Unresolved Staff Comments

None.

Table of Contents

Item 2. Properties

At December 31, 2008, Peoples conducted its business from its main office in West Chester, Ohio and eighteen branch offices in Hamilton and Warren counties in Ohio and Dearborn and Ohio counties in Indiana. The following table sets forth the net book value (including leasehold improvement, furnishings and equipment) and certain other information with respect to the offices and other properties of Peoples at December 31, 2008.

		Lease	Net Book Value		Deposits at
	Owned or	Expiration	December 31,		December 31,
Address	Leased	Date	2008		2008
			(In thousands)
6100 West Chester Road
West Chester, Ohio 45069	Owned	N/A	$	2,176	$	30,963
7615 Voice of America Drive
West Chester, Ohio 45069	Owned	N/A	3,160		14,054
11 South Broadway
Lebanon, Ohio 45036	Owned	N/A	631		42,667
4825 Marburg Avenue
Cincinnati, Ohio 45209	Owned	N/A	1,465		29,156
5712 Bridgetown Road
Cincinnati, Ohio 45248	Owned	N/A	1,763		71,974
6570 Harrison Avenue
Cincinnati, Ohio 45247	Owned	N/A	1,146		34,609
7522 Hamilton Avenue
Cincinnati, Ohio 45231	Owned	N/A	1,179		56,859
4100 State Route 128
Cleves, Ohio 45002	Owned	N/A	791		15,767
1101 Columbus Avenue
Lebanon, Ohio 45036	Owned	N/A	1,287		44,816
5797 South State Route 48
Maineville, Ohio 45039	Owned	N/A	895		20,479
8350 Arbor Square Drive
Mason, Ohio 45040	Owned	N/A	1,296		23,901
3530 Springdale Road
Cincinnati, Ohio 45251	Owned	N/A	621		29,148
7200 Blue Ash Road
Cincinnati, Ohio 45236	Owned	N/A	2,334		70,505
9360 Montgomery Road
Cincinnati, Ohio 45242	Owned	N/A	1,822		34,024
6945 South Liberty Drive
Liberty Township, Ohio 45044	Owned	N/A	1,537		5,206
131 Walnut Street
Lawrenceburg, Indiana 47025	Leased	02/2013	44		31,581
320 Importing Street
Aurora, Indiana 47001	Owned	N/A	2,225		51,677
24128 State Line Road
Bright, Indiana 47025	Owned	N/A	297		7,460
204 Bridgeway Street
Aurora, Indiana 47001	Owned	N/A	510

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