Item 1 - Business
Peoples First, Inc.
Peoples First, Inc. is a bank holding company which was
incorporated under the laws of the Commonwealth of Pennsylvania
on July 27, 2000, through acquisition of all the outstanding
stock of The Peoples Bank of Oxford.
Peoples provides commercial banking and trust services
through its wholly owned subsidiary The Peoples Bank of Oxford.
The consolidated financial statements include Peoples and the
Bank. All significant inter-company accounts and transactions
have been eliminated. Peoples' primary source of operating
funds is dividends received from the Bank. Peoples' expenses
consist of minimal operating expenses. Dividends paid to
stockholders consist of dividends declared and paid to Peoples
by the Bank.
As of December 31, 2000, Peoples had total assets of
$337,643,000 and total stockholders' equity of $41,204,000.
The Peoples Bank of Oxford
The Peoples Bank of Oxford is a state-chartered commercial
banking institution, which was incorporated under the laws of
the Commonwealth of Pennsylvania, on December 19, 1913. The
bank's deposits are insured by the Federal Deposit Insurance
Corporation (FDIC).
As of December 31, 2000, the Bank had total assets of
$337,623,000, total deposits of $267,093,000 and total
stockholders' equity of $41,179,000. At year end, December 31,
2000, the Bank had 136 full-time employees and 21 part-time
employees.
The Bank's Corporate Headquarters, Trust Department and
full service Main Office are located at 24 South Third Street,
Oxford, Pennsylvania. The Bank has seven offices and seven
ATMs. These offices serve a predominately rural agricultural
area, which includes southern Chester County, Pennsylvania and
to a lesser extent southern Lancaster County, Pennsylvania and
northern Cecil County, Maryland. The Bank's Operations Center,
located at 125 Peoples Drive, Oxford, Pennsylvania, opened in
August of 2000.
The Bank provides a broad range of retail and commercial
banking services, investment services and trust services for its
customers, which are primarily individuals and small to medium
sized farms and businesses. These services include providing
various types of demand, savings and time deposit accounts,
making secured and unsecured consumer, real estate and
commercial loans, sale of investment products and safe deposit
box rentals. Additionally retail customers can access their
account information, pay bills, transfer funds, and access
information regarding bank services via their personal computer
using online banking. The Bank provides its customers with
access to invest in mutual funds, annuities, insurance and
various other financial instruments via the INVEST Financial
Corporation. In addition, the Bank also provides trust and
investment services to individuals, small businesses and
charitable organizations through its Trust Department. These
services include investment management, estate settlement and
maintenance of securities and accounting records for various
types of trust relationships.
On April 10, 2000, the Bank purchased Gee, Wilmerding &
Associates, an investment counseling firm located in Rosemont,
Pennsylvania. As of January 1, 2001, the name of Gee,
Wilmerding & Associates was changed to Wilmerding & Associates.
Wilmerding is a Registered Investment Advisor providing counsel
to individuals, trusts, estates, endowments, foundations, and
corporate clients. At year-end, December 31, 2000, Wilmerding
had seven full-time employees.
The Bank's business is not seasonal in nature nor is the
Bank involved in operations in foreign countries. Management
does not separately allocate expenses, including the cost of
funding loan demand, between the commercial, retail, mortgage
banking and trust operations. As a result, discrete information
is not available and segment reporting would not be meaningful.
The operations of Gee, Wilmerding & Associates are not material
to the consolidated financial statements.
Competition
There is strong competition in Peoples' service area for
banking business among commercial banks, thrift institutions,
other financial institutions and financial intermediaries. In
addition to commercial banks, federal and state savings and loan
associations, savings banks and credit unions actively compete
in Peoples' market area providing a wide variety of banking
services. Mortgage banking firms, finance companies, insurance
companies, leasing companies, brokerage companies and financial
affiliates of industrial companies provide additional
competition for loans and various financial services. Peoples
also currently competes for interest-bearing funds with a number
of other financial intermediaries which offer a diverse range of
investment alternatives including brokerage firms and mutual
funds. Many competitors have substantially greater financial
resources and larger branch systems than those of Peoples.
There are nine full service commercial banks and two
savings banks with branches in the southern Chester County
portion of Peoples' designated market area. Peoples maintains
the majority of the market share in the Oxford area and has now
gained the largest market share in the Avondale-West Grove area;
in the remainder of the market area Peoples continues to grow
the size of its market share. Peoples is also subject to
competition from banks outside of its service area for various
financial services.
In consumer transactions, Peoples believes that it is able
to compete effectively by offering low cost checking accounts,
comparable banking hours and competitive rates on its interest
bearing accounts. In competing with other banks and financial
institutions, Peoples seeks to provide personalized services
through management's knowledge and awareness of Peoples' service
area, customers and borrowers.
With respect to commercial transactions, Peoples' legal
lending limit to a single borrower is generally lower than the
other larger commercial lenders. Management believes that
Peoples' legal lending limit is sufficient to handle the credit
requirements of its target market. In addition, Peoples will
participate in commercial loans with other financial
institutions if necessary, in order to accommodate a customer's
needs.
Peoples has not engaged in any material research activities
relating to the development of new services or the improvement
of existing bank services. However, marketing activities have
occurred that enable Peoples to remain competitive, which
include the addition of new services, additional branches and
improvements to services currently offered.
Peoples believes it is and will continue to be competitive
in regard to interest rates and product offerings, while
maintaining its profit margins and stable capital structure.
Loan and Deposit Structure
At December 31, 2000, total loans, net of unearned income,
equaled $225,784,000 with an additional $40,171,000 in standby
letters of credit, unused lines of credit and commitments to
extend credit. Peoples has a significant concentration of
residential and commercial mortgage loans collateralized by
properties located in southern Chester County. Approximately
$37,796,000 in loans was outstanding to real estate investors;
included in this category is a diverse group of properties and
borrowers: $17,955,000 is collateralized by mortgages on
commercial properties (stores, offices and convenience centers,
etc.), about $10,359,000 are mortgage loans on one to four
family rental properties, $3,736,000 are mortgages on mobile
home parks, $2,234,000 are secured by multifamily rental
properties and approximately $3,512,000 is outstanding on land
development projects. These figures do not include mortgages on
one to four family owner-occupied properties. Similarly,
approximately, $13,212,000 in unused commitments were
outstanding to real estate investors. Of those commitments,
$3,025,000 are collateralized by commercial properties,
$6,450,000 are secured by one to four family rental properties,
$862,000 are secured by mobile home parks and $2,778,000 are
secured by land development projects. These figures do not
include conventional mortgages on one to four family owner-
occupied properties.
Peoples also has a significant portion of loans outstanding
to the agricultural sector totaling $43,676,000. Approximately
$23,564,000 of these loans are outstanding to the mushroom
industry, which represents 10.4% of total loans, and about
$20,112,000 is outstanding to other segments of the farm
community. Likewise, unused commitments to the mushroom
industry totaled $3,826,000, with $2,399,000 outstanding for
other agricultural loans.
At December 31, 2000, Peoples' total deposits equaled
$267,088,000, of which 22.9% were non-interest bearing deposits
and 77.1% were interest bearing deposits. Although Peoples'
deposits are primarily generated from southern Chester County,
there is no concentration of deposits in one person or group of
persons that if withdrawn would have a material adverse effect
on Peoples. Peoples has no brokered deposits. However, it
should be noted that the liquidity position of any bank could be
tightened in the event a substantial portion of the bank's
depositors decided to withdraw their funds from the bank within
a short period of time.
Regulation
Peoples is subject to extensive regulation and examination
by the Federal Reserve, the Pennsylvania Department of Banking,
and the Federal Deposit Insurance Corporation (FDIC). Peoples'
deposit accounts are insured up to the maximum legal limits by
the FDIC. Peoples is not a member of the Federal Reserve
System.
Federal and state banking laws regulate many aspects of
Peoples' business including, but not limited to, capital
requirements, amount of reserves for deposits, loans and
investments Peoples may make, acceptable collateral that may be
taken and consumer protection laws.
Peoples is subject in the course of its activities to a
growing number of federal, state and local environmental laws
and regulations. Peoples does not anticipate that compliance
with environmental laws and regulations will have any material
effect on capital expenditures, earnings or on the competitive
position of Peoples.
Landmark legislation in the financial services area was
signed into law on November 12, 1999. The Gramm-Leach-Bliley
Act dramatically changed certain banking laws that had been in
effect since the early part of the 20th century. The most
radical changes are that the separation between banking and the
securities businesses mandated by the Glass-Steagall Act has now
been removed, and the provisions of any state law that prohibits
affiliation between banking and insurance entities have been
preempted. Accordingly, the legislation now permits firms
engaged in underwriting and dealing in securities, and insurance
companies, to own banking entities, and permits bank holding
companies (and in some cases, banks) to own securities firms and
insurance companies. The provisions of federal law that
preclude banking entities from engaging in non-financially
related activities, such as manufacturing, have not been
changed. For example, a manufacturing company cannot own a bank
and become a bank holding company, and a bank holding company
cannot own a subsidiary that is not engaged in financial
activities, as defined by the regulators.
The new legislation creates a new category of bank holding
company called a "financial holding company". In order to avail
itself of the expanded financial activities permitted under the
new law, a bank holding company must notify the Federal Reserve
that it elects to be a financial holding company. A bank
holding company can make this election if it, and all its bank
subsidiaries, are well capitalized, well managed, and have at
least a satisfactory Community Reinvestment Act rating, each in
accordance with the definitions prescribed by the Federal
Reserve and the regulators of the subsidiary banks. Once a bank
holding company makes such an election, and provided that the
Federal Reserve does not object to such election by such bank
holding company, the financial holding company may engage in
financial activities (i.e., securities underwriting, insurance
underwriting, and certain other activities that are financial in
nature as to be determined by the Federal Reserve) by simply
giving a notice to the Federal Reserve within thirty days after
beginning such business or acquiring a company engaged in such
business. This makes the regulatory approval process to engage
in financial activities much more streamlined than it was under
prior law.
The intent and scope of the act is positive for the
financial services industry, and is an attempt to modernize
federal banking laws and make U.S. institutions competitive with
those from other countries. While the legislation makes
significant changes in U.S. banking law, such changes may not
directly affect Peoples' business unless it decides to avail
itself of new opportunities available under the new law.
Peoples does not expect any of the provisions of the new Act to
have a material adverse effect on its existing operation, or to
significantly increase its costs.
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