As filed with the Securities and Exchange Commission on July 27, 1998
Registration No. 333-57277
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO: 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Nittany Financial Corp.
(Exact name of Small Business Issuer as specified in charter)
Pennsylvania 6035 23-2925762
- ---------------------------- ---------------------- --------------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
637 Kennard Road, State College, Pennsylvania 16801
(814) 466-6625
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
principal executive offices and principal place of business)
Mr. David Z. Richards, Jr.
President
Nittany Financial Corp.
637 Kennard Road, State College, Pennsylvania 16801
(814) 466-6625
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: As soon as practicable after this registration
statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Proposed Proposed Amount
Each Class of Shares Maximum Maximum Aggregate of
Securities to be Offering Price Offering Registration
To Be Registered Registered Per Unit Price(1) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.10 Par Value 615,000 $10.00 $6,150,000 $1,814.25 *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
* Previously paid $1802.45
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
^ 515,000 to 615,000 Shares
^ Common Stock
NITTANY FINANCIAL CORP.
a proposed holding company for
NITTANY BANK
(In Organization)
Nittany Financial Corp., a Pennsylvania corporation (the "Company"),
organized to acquire and hold all of the authorized capital stock to be issued
and outstanding of Nittany Bank, a proposed United States chartered,
FDIC-insured federal savings bank to be located in State College, Pennsylvania
(the "Bank"), is offering for sale a minimum 500,000 shares ("Minimum Number of
Shares") and a maximum of 600,000 shares (Maximum Number of Shares") of the
Company's common stock, par value $0.10 per share ("Common Stock") to the
general public on a "best efforts" basis for a purchase price of $10.00 per
share (the "Offering"). All subscriptions funds tendered will be deposited in an
interest bearing escrow account with Roxborough-Manayunk Bank, (the "Escrow
Agent") pending completion, termination or cancellation of the Offering. The
minimum purchase subscription is 100 shares and the maximum purchase
subscription is 30,000 shares. The Offering will expire on ^ September 15, 1998,
unless extended by the Company ^, without further notice to subscribers. ^
However, subscribers will be given the opportunity to withdraw their orders if
the Offering is not completed by November 30, 1998. The Company reserves the
right, in its sole discretion, to terminate the Offering at any time after the
Minimum Number of shares are sold, to change the purchase limitations and to
accept or reject any subscription for Common Stock, in whole or in part. See
"The Offering and Plan of Distribution." Prior to this Offering, there has been
no market for the Common Stock and there can be no assurance that an active and
liquid market will develop after the Offering. The initial directors of the
Company purchased ^ shares of Common Stock for $300,000 in order to cover
preoperating, organizational and Offering expenses in a private placement (the
"Private Placement"). Additionally, ^ up to 15,000 shares of the Common Stock
will be issued to a banking holding company as partial payment of a premium on
deposits to be assumed by the Bank.
The Company and the Bank have not yet conducted active business
operations, and the authority to commence such operations is dependent upon,
among other things, the receipt of various regulatory approvals and the sale of
the Minimum Number of Shares in the Offering.
AN INVESTMENT IN THE COMMON STOCK INVOLVES SIGNIFICANT RISKS AND SHOULD BE
UNDERTAKEN AS A LONG-TERM INVESTMENT ONLY AFTER CAREFUL EVALUATION OF THE RISK
FACTORS ON PAGE 1, HEREOF, AND ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE
LOSS OF THEIR ENTIRE INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
Price to Public Underwriting Discounts and Proceeds to Company
(1)(3) Selling Commissions (2) (4)
-------- ---------------------------- -------------------
<S> <C> <C> <C>
Per Share: ^ $ 10.00 $0 $ 10.00
Total Maximum (600,000 shares) $6,000,000 $0 $6,000,000
Total Minimum (500,000 shares) $5,000,000 $0 $5,000,000
</TABLE>
(1) The Offering price of the Common Stock was arbitrarily determined by the
Company.
(2) The Common Stock offered hereby will be sold on a "best efforts" basis by
the officers and directors of the Company, none of whom will receive any
commissions or other form of compensation (although such persons may be
reimbursed for reasonable expenses incurred in the Offering), and who each
qualifies under the safe harbor of Rule 3a4-1 under the Securities Exchange
Act of 1934. See "The Offering and Plan of Distribution."
(3) Does not include up to approximately ^ 15,000 shares of Common Stock to be
issued to a bank holding company as partial payment of a premium on
deposits to be assumed by the Bank.
(4) Does not include estimated preoperating and organizational expenses of
$300,000 that will be paid from the proceeds of the Private Placement.
The date of this Prospectus is July ___, 1998
<PAGE>
^ ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement under the Securities Act of 1933, as amended,
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Common Stock, reference
is hereby made to the Registration Statement and the exhibits thereto. The
Registration Statement may be examined at, and copies of the Registration
Statement may be obtained at prescribed rates from, the Public Reference Section
of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, DC 20549. ^ Such
material may also be accessed electronically by means of the SEC's home page on
the Internet at "http://www.sec.gov".
The Company and the Bank have filed various applications with the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). As required by the applicable regulatory authorities^.
Prospective investors should rely only on information contained in this
Prospectus and in the Company's related Registration Statement in making an
investment decision. To the extent that information available from the Company
and information in public files and records maintained by the OTS and the FDIC
is inconsistent with information presented in this Prospectus, such other
information is superseded by the information presented in this Prospectus.
REPORTS TO STOCKHOLDERS
Upon the effective date of the Registration Statement, the Company will
be subject to the reporting requirements of the Securities ^ Exchange Act of
1934 (the "Exchange Act"), which includes requirements to file annual reports on
Form 10-KSB and quarterly reports on Form 10-QSB with the SEC. This reporting
obligation will exist for at least one year and may continue for fiscal years
thereafter, except that such reporting obligations may be suspended for any
subsequent fiscal year if at the beginning of such year the Common Stock of the
Company is held of record by less than three hundred persons or if the Common
Stock of the Company is held of record by less than five hundred persons and the
total assets of the Company have not exceeded $10 million on the last day of
each of the Company's three most recent fiscal years.
Regardless of whether the Company is subject to the reporting
requirements of the Exchange Act, the Company intends to furnish its
stockholders with annual reports containing audited financial information for
each fiscal year. The Company's fiscal year ends on December 31.
<PAGE>
<TABLE>
<CAPTION>
^ TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary....................................................................................... (i)
Highlights of the Offering............................................................................... (iv)
Risk Factors............................................................................................. 1
Use of Proceeds.......................................................................................... 4
Dividends................................................................................................ 6
Market for Common Stock.................................................................................. 6
Dilution................................................................................................. ^ 7
Capitalization........................................................................................... 7
The Offering and Plan of Distribution.................................................................... 8
Branch Purchase Agreement................................................................................ 12
Unaudited ProForma Financial Information................................................................. 14
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 18
Proposed Business of the Company......................................................................... 18
Proposed Business of the Bank............................................................................ 19
Regulation............................................................................................... 25
Management of the Company................................................................................ 30
Management of the Bank................................................................................... 30
Description of Capital Stock............................................................................. 34
Legal Matters............................................................................................ 37
Experts.................................................................................................. 37
Index to Financial Statements............................................................................ 38
Subscription Agreement................................................................................... A-1
</TABLE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION NOR TO MAKE ANY
REPRESENTATIONS OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF THE COMMON STOCK OF NITTANY FINANCIAL CORP.
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF NITTANY FINANCIAL CORP. SINCE THE DATE AS
OF WHICH INFORMATION IS FURNISHED HEREIN.
<PAGE>
[MAP PAGE]
<PAGE>
PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Organizers....................... The organizers and initial board of directors of the Company are David
Z. Richards Jr., Samuel J. Malizia, William A. Jaffe, D. Michael
Taylor, and Donald J. Musso. See "Management." The Organizers
previously purchased for long-term investment $300,000 of Common
Stock in a Private Placement to fund organizational, preoperating and
Offering expenses and plan to subscribe for additional shares in the
Offering, for total purchases of ^ at least $670,000. The Organizers
reserve the right to purchase additional shares in the Offering. The
remaining shares are being offered to the public on a first come, first
served basis, subject to the right of the Company to refuse to accept any
subscription in whole or in part for any reason. All potential investors
in the Common Stock in the Offering will have the opportunity to
purchase the stock at the same price and on the same terms.
The Company...................... Nittany Financial Corp. (the "Company") was incorporated in December
1997 to acquire and hold all of the authorized capital stock to be issued
and outstanding of Nittany Bank (the "Bank"). The Company is
currently located at 637 Kennard Road, State College, Pennsylvania,
16801. The mailing address of the Company is Calder Square, P.O. Box
10283, State College, Pennsylvania, 16805. The telephone number of
the Company at such office is (814) 466-6336. After the opening of the
Bank, the main office of the Company is expected to be located at 116
East College Avenue, State College, Pennsylvania 16801. See "Proposed
Business of the Company."
The Bank ........................ The principal business of the Bank will be to accept various types of
transaction and savings deposits from the general public and to make
mortgage, consumer, small business and other loans. See "The Bank."
As a result of the Branch Purchase Agreement, the Bank's offices will be
located at 116 East College Avenue (main office) and 1276 North
Atherton Street, State College, Pennsylvania; both locations are presently
branch offices of a regional commercial bank. See "Proposed Business
of the Bank."
Branch Purchase
Agreement........................ The Company entered into a Branch Purchase and Deposit Assumption
Agreement on March 24, 1998, which was subsequently amended, (the
"Branch Purchase Agreement") with First Commonwealth Bank, a state
chartered commercial bank having its principal office in Indiana,
Pennsylvania (the "Seller" or "First Commonwealth"). Pursuant to the
Agreement, the Company will assume the deposit liabilities and purchase
certain assets of two offices located at 116 East College Avenue and 1276
North Atherton Street, State College, Pennsylvania (the "Offices"). See
"Proposed Business of the Bank." See "Branch Purchase Agreement."
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Conditions of the Offering....... The Offering will be terminated and all subscription funds will be
returned promptly to subscribers, unless on or before September 15,
1998 (or such later date if the Offering is extended by the Company) (i)
the Company has accepted subscriptions and payment in full for the
Minimum Number of Shares and (ii) the Organizers have made adequate
provisions for satisfying (as they determine in their reasonable discretion)
any regulatory or other conditions that must be satisfied before the Bank
may commence banking operations. See "Terms of the Offering and
Plan of Distribution - Conditions of the Offering and Release of Funds."
Investors may not receive interest on their subscription funds, if the
Offering expenses are in excess of the amounts to be covered by the
proceeds of the Private Placement. However, if such funds are held by
the Company in excess of 90 days, such funds will be returned promptly
to the subscriber with any interest earned thereon.
Subscription proceeds for shares subscribed for will be deposited
promptly in an interest-earning escrow account with the Roxborough-
Manayunk Bank, as escrow agent (the "Escrow Agent"), under the terms
of an escrow agreement (the "Escrow Agreement") pending the
satisfaction of ^ the conditions set forth ^ above or the termination of
the Offering. Upon satisfaction of the conditions set forth ^ above, all
subscription funds held in escrow, including any interest earned thereon,
shall be released to the Company for its immediate use.
The Offering..................... The Offering consists of a minimum 500,000 shares and a maximum of
600,000 shares of Common Stock at $10.00 per share. In the Offering,
there is a minimum purchase requirement of 100 shares and a maximum
purchase limitation of 30,000 shares per subscriber including all affiliates
of such subscriber. The Offering will terminate on ^ September 15,
1998, unless extended by the ^ Company, without further notice to
subscribers. ^ However, subscribers will be given the opportunity to
withdraw their orders if the Offering is not completed by November 30,
1998. See "Terms of the Offering and Plan of Distribution^."
Private Placement for
Preoperating Expenses............ The Directors of the Company previously subscribed in a Private
Placement to an aggregate of ^ 30,000 shares of the Company's Common
Stock at a price of ^ $10.00 per share for a total of $300,000. The
$300,000, and accrued interest thereon, from the Private Placement has
been, and will continue to be, used to pay Offering, organizational and
preoperating expenses of the Company and the Bank. ^ Subscriptions for
the Offering are placed in escrow pending the completion of the Offering
and all required regulators approvals to commence operations. If the
Offering is not completed or regulatory conditions are not met, the
money will be promptly returned to investors. In contrast, the
subscriptions in the Private Placement have, and will continue to be,
expended prior to the receipt of all regulatory approvals and completion
of the Offering.
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Use of Proceeds.................. All of the proceeds of the Offering are expected to be invested by the
Company in the common stock of the Bank. See "Use of Proceeds."
Dividends........................ It is the current intention of the Board of Directors to initially fund the
growth in assets and deposits of the Bank and not issue cash dividends.
The Company may declare dividends on the Common Stock at some time
in the future depending upon the profitability of the Company, its
regulatory and financial condition and other factors. However, no
assurance can be given that any dividends will be declared or, if
declared, what the amount of dividends will be, or whether such
dividends, once declared, will continue. See Risk Factors "Dividends."
Market for Common Stock.......... It is not anticipated that there will be an active trading market for the
Common Stock upon completion of the Offering or that the Common
Stock will be listed on any exchange. Investors should have a long-term
investment intent. Investors may not be able to sell their shares when
they desire or sell them a price equal to or above the Offering Price.
Following completion of the Offering, it is anticipated that the Common
Stock will be traded on the OTC Bulletin Board. See "Risk Factors -
Lack of Trading Market."
Payment for Subscription......... Payments for subscriptions must be for the full amount subscribed and
must be made by check, bank draft or money order made payable to
Roxborough-Manayunk Bank, Escrow Agent for Nittany Financial
Corp.," and sent to or delivered to the office of the Company.
Subscriptions will be deemed accepted if notice of rejection is not mailed
to the subscriber within ten business days of receipt of the subscription.
See ^ "Terms of The Offering and Plan of Distribution - ^ How To
Subscribe."
</TABLE>
-iii-
<PAGE>
HIGHLIGHTS OF THE OFFERING
This Summary highlights selected information from this document and may not
contain all the information that is important to a prospective investor. To
understand the stock offering fully, please read the entire document.
<TABLE>
<CAPTION>
<S> <C>
Strategy......................... The State College area is currently serviced almost entirely by large,
regional financial institutions headquartered out of State College. The
Bank is being formed to again provide the area with a bank that is
operated and owned primarily by the community with the policies and
decisions of the Bank being made by people known to the customers.
In a market dominated by large, regional and statewide banks and their
branches, the Bank intends to offer the community an alternative.
Nittany Bank will be highly personalized, community oriented, financial
services company delivering the exceptional service that can only come
from responsive and local decision-making. These attributes will make
the Bank attractive to local businesses and residents by providing:
^o Accessibility to the Bank's President, officers and directors, whether
during or after business hours.
^o Flexibility in loan and business decisions to account for local
community and customer needs.
o Investment of depositors funds back into the community.
o Involvement in the community affairs of State College.
o Competitive products and pricing on a wide array of financial
services.
o Responsiveness to customer needs supported by an experienced and
service-oriented staff.
Community Ownership.............. The Organizers of the proposed Company and Bank who have proposed
the establishment of the Bank due to their belief that the area of State
College, Pennsylvania, is in need of a locally-headquartered financial
institution dedicated to the needs of its community. As a locally operated
financial institution, the Bank will be able to more quickly recognize the
needs of the local community, versus out-of-state and out-of-area
financial institutions, and implement services, deposits and credit
programs, that will fulfill the financial needs of the primary market area
of the Bank. See "Proposed Business of the Bank."
Economic Strength................ The present and projected population base, in addition to the growth in
the number of households and presence of the Pennsylvania State
University, are expected to provide a solid customer base for a locally
owned financial institution operating in State College. See "Proposed
Business of the Bank."
-iv-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
New Operation.................... As a newly established financial institution, the Bank will not be
burdened with the problem loans and liabilities that have caused some
financial institutions major problems. The Bank intends to structure
loans and savings accounts with flexibility to react to changes in the
interest rate environment of today's economy. Further, the Bank will be
able to more easily adapt to the regulatory changes enacted over the past
few years.
Expertise of Management.......... David Z. Richards will serve as President and Chief Executive Officer.
Mr. Richards is the former President of Mifflinburg Bank & Trust Co.
and Mifflinburg Bancorp, Inc. in Mifflinburg, Pennsylvania. The Board
of Directors includes local business persons and an attorney and a
consultant who specialize in the representation of financial institutions
nationally. Members of the Board of Directors also have involvement in
local civic and non-profit organizations, including the Pennsylvania State
University. See "Management of the Company" and "Management of the
Bank."
Business Plans................... The Bank has prepared a strategic business plan to provide direction for
the Bank over the next several years. Although the Bank anticipates
numerous revisions as to tactics and possibly even to strategy, the basic
objectives of the Bank, though there is no assurance that such objectives
will be attained, are as follows:
^o The Company will pursue aggressive, but controlled balance
sheet growth with the Bank originating a broad array of
lending products, including secured one to four family
residential, home equity, consumer, small business and
commercial real estate loans.
^o On the liability side, the Bank anticipates attracting
deposits emphasizing core deposits and transaction accounts
with competitive rates and products, supported by high
quality personal banking service.
^o The Bank will seek to maintain earnings by emphasizing asset
quality and controlling expenses. The Bank will attempt
to secure strategic affiliations with other financial
service providers. Fee income will be positively impacted
as these financial services assist customers.
^o The Bank intends to outsource non-essential services in
order to employ a core group of banking professionals focused
on customer needs.
Existing Operations............ As a result of the Branch Purchase Agreement, the Bank, unlike other de
novo financial institutions which start primarily with a charter and a
building, will commence active business operations immediately from
</TABLE>
-v-
<PAGE>
existing operating bank offices with a
deposit and customer base. In addition to the
proceeds of the Offering, the deposits
assumed pursuant to the Branch Purchase
Agreement will provide an immediate source of
funds for loans and investments. The Bank
also intends to continue to employ the
existing experienced personnel at the Offices
who are familiar with the operations and
customers, supplemented by new senior
management.
An investment in the Common Stock involves significant risks and should be
undertaken as a long-term investment only after careful evaluation of the Risk
Factors on page 1, hereof.
-vi-
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS WHICH ADDRESS THOSE RISKS MATERIAL TO THIS OFFERING AND THE COMPANY,
SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMMON SHARES
OFFERED BY THIS PROSPECTUS. CERTAIN STATEMENTS IN THIS PROSPECTUS ARE
FORWARD-LOOKING AND ARE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS OR
PHRASES SUCH AS "INTENDED," "WILL BE POSITIONED," "EXPECTS," IS OR ARE
"EXPECTED," "ANTICIPATES," AND "ANTICIPATED." THESE FORWARD-LOOKING STATEMENTS
ARE BASED ON THE COMPANY'S CURRENT EXPECTATIONS.^ THE RISK FACTORS SET FORTH
BELOW ARE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENT.
INVESTMENT IN THESE SECURITIES INVOLVES SIGNIFICANT RISK. EACH
POTENTIAL INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL
AS ALL OF THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
Potential Total Loss of Investment
Subscription for the shares of the Company involves significant risk
and each subscriber should be financially able to sustain a total loss of his
investment in the shares. THE SHARES CANNOT AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
Lack of Operating History
Both the Company and the Bank are newly formed and neither has any
operating history. Accordingly, prospective investors do not have access to all
of the information that, in assessing their proposed investment, is available to
the purchasers of securities of a financial institution with a history of
operations. Because the primary asset of the Company will be the capital stock
of the Bank, the Company's operating results and financial position will be
dependent upon the operating results and financial position of the Bank. The
business of the Bank is subject to the risks inherent in the establishment of
any new business and, specifically, of a new federal stock savings bank. As a
result of the substantial start-up expenditures that must be incurred by a new
bank, the bank (and therefore the Company) may not be profitable for several
years after commencing business, if ever. See "Unaudited ProForma Financial
Information."
No Assurance of Ability to Raise Additional Capital
Although the Organizers believe the proceeds from the Offering will be
sufficient to support the initial operations and commitments of the Company
without additional financing, there can be no assurance that the proceeds of the
Offering will be sufficient to meet the future capital requirements of the
Company without additional financing. The amount of capital required will
depend, among other things, upon operating results, the growth of assets and
regulatory requirements. The Organizers have made no commitments to provide
additional funds for the operation of the Company. Therefore, investors should
not expect the Organizers personally to provide additional funds for the
operations or capital requirements of the Company if the proceeds of this
Offering are insufficient.
-1-
<PAGE>
Lack of Trading Market
Due to the small size of the Offering, it is highly unlikely that an active
trading market will develop and be maintained. If an active market does not
develop, an investor may not be able to sell his shares promptly or perhaps at
all, or sell his shares at a price equal to or above the Offering Price. It is
anticipated that the Company's Common Stock will be traded on the OTC Bulletin
Board. The Common Stock may not be appropriate as a short-term investment. See
"Market for the Common Stock."
Arbitrary Determination of Offering Price
The Offering price of the Common Stock has been arbitrarily determined by
the Organizers as the Company is a new enterprise. Accordingly, there can be no
assurance that the shares of Common Stock can be resold at the Offering price or
any other amount. See "The Offering and Plan of Distribution - Price and Terms"
and "Capitalization."
Dividends
The Company is a legal entity separate and distinct from the Bank. Because
the Company initially will engage in no business other than owning all of the
outstanding shares of capital stock of the Bank, the Company's payment of
dividends on the Common Stock will generally be funded only from dividends
received by the Company from the Bank, which dividends are dependent on, among
other things, the Bank's profitability. In addition, the payment of dividends
may be made only if the Bank and the Company are in compliance with certain
applicable regulatory requirements governing the payment of dividends by each of
them. No assurance can be given that dividends on the Common Stock will ever be
paid. The Company expects that earnings, if any, will be used initially for
operating capital and the Company does not foresee payment of any dividends in
the near future. THE COMMON STOCK SHOULD NOT BE PURCHASED BY PERSONS WHO NEED OR
DESIRE DIVIDEND INCOME FROM THIS INVESTMENT. See "Dividends."
Government Regulation
The Company and the Bank will operate in a highly regulated environment and
will be subject to examination, supervision and comprehensive regulation by the
OTS and the FDIC. Banking regulations, designed primarily for the safety of
depositors, may limit a federal stock savings bank's growth and the return to
its investors by restricting such activities such as the payment of dividends,
mergers with or acquisitions by other institutions, investments, loans and
interest rates, interest rates paid on deposits and the creation of branch
offices. The Bank also will be subject to capitalization guidelines set forth in
federal legislation, and could be subject to enforcement action to the extent
the Bank is found by regulatory examiners to be undercapitalized. Laws and
regulations applicable to the Company and the Bank could change at any time, and
there can be no assurance that such changes would not adversely affect the
business of the Company and/or the Bank. In addition, the cost of compliance
with regulatory requirements could adversely affect the Company's and the Bank's
ability to operate profitably. See "Regulation."
-2-
<PAGE>
Salaries Paid from Proceeds
In the absence of adequate revenues from operations and investments, the
salaries and benefits of the officers and employees hired will be paid from the
proceeds of the Offering. The $300,000 invested by the Organizers in the Private
Placement has been used, in part, to pay salaries and benefits during
organization, which are included in the estimate of preoperating and
organizational expenses disclosed in this Prospectus. See "Use of Proceeds" and
"Management of the Bank - Remuneration of Directors and Officers."
Competition
The Bank's primary market area will be all of the borough of State College
and the townships of College, Ferguson, Halfmoon, Harris and Patton,
Pennsylvania. See "Proposed Business of the Bank Market Area." The Bank's
primary emphasis will be on real estate, consumer and small business lending. As
of March 31, 1998, six commercial banks, one savings bank and four credit unions
had branches in State College and one commercial bank was headquartered in the
State College area. The Bank will be competing for deposits with these larger
established institutions as well as with money market mutual funds, brokerage
services, private banking and other non-traditional financial intermediaries.
The Bank will have to attract its customer base from existing financial
institutions and new residents. Many of the competitors will be much larger than
the Bank in terms of assets, have more extensive facilities and greater depth of
organizational and marketing capabilities, and may initially be able to offer a
greater range of services than the Bank. There can be no assurance that the Bank
will be able to compete successfully. See "Proposed Business of the Bank -
Competition."
Possible Lack of Market Growth
The Organizers' assumptions about the viability of the Company and Bank are
based on their projections of growth in population, deposits and housing starts
in the State College area, as well as on their projections of interest rates and
operating expenses. Although these projections are based on analysis of
historical data, they are merely forecasts and may prove to be inaccurate. The
State College area has experienced stable and significant growth in population,
deposits and housing starts in recent years, but there can be no assurance that
such growth will continue in the future or that the Company will benefit from
any such growth if it does continue. See "Proposed Business of the Bank - Market
Area."
Interest Rate Risk
The operating results of the Bank will depend to a great extent upon its
net interest income, which is the difference between the interest earned on its
assets, which will be primarily loans and investment securities, and the
interest paid for liabilities, which will be primarily savings deposits. Market
interest rates for loans, investments and deposits are highly sensitive to may
factors beyond the control of the Company. Such factors include general economic
conditions and the policies of various governmental and regulatory authorities.
In addition, due to current low prevailing market interest rates, it may be
difficult for the Bank to utilize its capital to originate loans and purchase
investments at a sufficient yield. See "Proposed Business of the Bank - Lending
Activities" and "- Source of Funds."
Proposed Legislation
A bill, H.R. 10, has been passed by the U.S. House of Representatives, that
would curtail the powers of unitary thrift holding companies. Furthermore, other
proposed legislation has been considered that
-3-
<PAGE>
might eliminate the federal thrift charter under which the Bank currently
operates. If this legislation becomes law, the Bank will be forced to become a
state chartered bank or national commercial bank. If the Bank becomes a
commercial bank, its investment authority and the ability of the Company to
engage in diversified activities would be more limited and could affect the
Bank's profitability. See also "Regulation."
Possible Delay in the Opening of the Bank
The Company anticipates that the Bank will have completed all of the
regulatory conditions precedent to commencing business and will have its offices
ready for opening within 30 days after completion of the Offering. This date is
only a projection, however, and the actual opening date may be later.
Anti-Takeover Provisions
Certain provisions included in the Articles of Incorporation and Bylaws of
the Company are designed to encourage potential acquirors to negotiate directly
with the Board of Directors of the Company and to discourage takeover attempts.
Such provisions may discourage non-negotiated takeover attempts which certain
stockholders could deem to be in their best interests. These provisions also
tend to perpetuate management. See "Description of Common Stock - Certain
Anti-Takeover Provisions."
Dilution
After the Offering, the Company, subject to stockholder approval, expects
to adopt a stock option plan^ or plans, which will permit the Company to grant
options to officers, directors, and key employees of the Company. The option
price will be no less than the greater of the fair market value of the Common
Stock on the date the option is granted or $10.00 per share. The exercise of
options could have a dilutive effect on the stockholders' interest in the
Company's earnings and book value. ^ In addition, the Company may issue
additional shares of Common Stock or preferred stock in the future. ^ The shares
issued to the holding company of First Commonwealth in connection with the
Branch Purchase Agreement and any such stock offering by its nature ^ will be
dilutive to the holdings of purchasers in this Offering. See "Dilution^,"
"Branch Purchase Agreement," and "Management of the Bank Remuneration of
Directors and Officers."
Direct Public Offering; No Underwriter
No commitment exists for an underwriter to purchase any shares in this
Offering. Instead, the Company is offering shares of its Common Stock directly
to the public on a "best efforts" basis and no assurance can be given that any
shares will be sold. If necessary, the Company may enter into a marketing or
consulting agreement with a registered broker/dealer to assist in the sale of
Common Stock without notice to subscribers. Currently, the Company has no such
plans to do so.
USE OF PROCEEDS
Although the amounts set forth below provide an indication of the proposed
use of funds based on the plans and estimates of the Organizers, actual expenses
may vary from the estimates. The Organizers believe that the minimum proceeds of
$5,000,000 from the Offering will satisfy the cash requirements of the Company
and the Bank for their respective first year of operations but there can be no
assurance that this will be the case. Because the Company and Bank constitute a
new enterprise, the Organizers cannot predict with any certainty to what extent
the Bank will generate revenues from investments and loan originations. As a
result, the Organizers cannot predict precisely what the actual application of
-4-
<PAGE>
proceeds will be. However, there is no assurance that the proceeds of the
Offering will be sufficient to meet the future capital requirements of the
Company without additional financing.
The net proceeds to the Company from the sale of 500,000 and 600,000 shares
of Common Stock in the Offering are estimated at $5,000,000 and $6,000,000,
respectively, since the preoperating and Offering expenses estimated at $300,000
are to be paid from the proceeds of the Private Placement. Estimated
preoperating and Offering expenses are the total of the following estimated
expenses: preoperating salaries and benefits - $148,000; marketing - $10,500;
legal - $50,000; accounting -$9,500; consulting -$20,000; printing and office
supplies - $10,000; filing fees - $20,000; and other miscellaneous operating
expenses - $32,000. As a result of delays in the Offering, regulatory comments
and other factors, expenses may be significantly greater. On the basis of the
foregoing assumptions, gross proceeds, expenses and net proceeds at the Minimum
and Maximum Offering amount would be as follows:
Minimum Maximum
500,000 600,000(1)
Shares at Shares at
$10.00 Per Share $10.00 Per Share
---------------- ----------------
Gross Proceeds from Private
Placement............................. $ 300,000 $ 300,000
Gross Proceeds from Offering............ 5,000,000 6,000,000
Less Estimated Preoperating and
Offering Expenses..................... (300,000) (300,000)
--------- ---------
Estimated Net Proceeds.................. $5,000,000 $6,000,000
========= =========
(1) Up to an additional 15,000 shares may be issued to the holding company of
First Commonwealth in connection with the Branch Purchase Agreement. No
additional cash proceeds will be received for these shares.
All of the proceeds of the Offering are expected to be invested by the
Company in the Common Stock of the Bank. The Bank will use the proceeds from the
sale of its Stock to the Company for (i) investment in mortgage, consumer, small
business loans, and other loans, (ii) payment of operating expenses or (iii)
working capital purposes. Until utilized for operations, investments or lending
purposes, proceeds of this Offering will be invested in interest-bearing
investments and securities.
DIVIDENDS
The Board of Directors of the Company initially expects to follow a policy
of retaining any earnings to provide funds to operate and expand the Company.
Consequently, there are no plans for any cash dividends to be paid in the near
future. The Company's ability to pay any cash dividends to its stockholders in
the future will depend primarily on the Bank's ability to pay cash dividends to
the Company. The payment of dividends may be made only if the Bank is in
compliance with certain applicable regulatory requirements governing the payment
of dividends. In addition, the payment of cash dividends by the Company is
subject to the discretion of the Company's Board of Directors, which will
consider a number of factors, including business condition. See "Regulation --
Dividend and Other Capital Distributions Limitations."
-5-
<PAGE>
MARKET FOR COMMON STOCK
As a newly organized company, the Company has never issued capital stock,
and consequently there is no established market for the Common Stock. Following
the completion of the offering, it is anticipated that the Common Stock will be
traded on the over-the-counter market with quotations available through the OTC
Electronic Bulletin Board. If the Common Stock cannot be quoted and traded on
the OTC Bulletin Board it is expected that the transactions in the Common Stock
will be reported in the pink sheets of the National Quotation Bureau, Inc.
The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, it is highly
unlikely that an active trading market will develop and be maintained. Investors
should have a long-term investment intent. Investors may not be able to sell
their shares when they desire or sell them at a price equal to or above the
Offering Price.
DILUTION
The following table illustrates, assuming the receipt of the common stock
subscriptions receivable, branch acquisitions shares issued, and assuming the
minimum or maximum shares to be issued in the Offering and the branch
acquisitions:
500,000 600,000
Shares Shares
Minimum Maximum
------- -------
Offering price per share $10.00 $10.00
----- -----
ProForma net tangible book value per
share at March 31, 1998 ^$7.49 ^ $7.49
Increase per share attributable to receiving
organizers stock subscriptions receivable ^ 0.85 ^ 0.85
----- -------
ProForma net tangible book value per
share ^ before Offering ^ 8.34 ^ 8.34
Increase per share attributable to stock
issued to 1st Commonwealth to effect ^.44 ^.44
branch acquisitions price
Increase per share attributable to new
investors from Offering ^.68 ^.77
------- -------
ProForma net tangible book value per
share after branch acquisitions, and after
Offering ^ 9.44 ^ 9.53
------ ------
Dilution per share to new investors from
Offering and branch acquisitions ^ $0.56 ^ $0.47
==== ====
-6-
<PAGE>
CAPITALIZATION
The table set forth below shows the proforma capitalization of the Company
immediately following completion of the Private Placement and Offering as though
the Private Placement and Offering had been completed on March 31, 1998,
assuming that 500,000 and 600,000 shares of Common Stock are sold pursuant to
the Offering, after deduction of Private Placement and Offering of $300,000.
PROFORMA CAPITALIZATION
<TABLE>
<CAPTION>
500,000 600,000
Shares Sold Shares Sold
----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Common Stock ($0.10 par value
Authorized - 10,000,000 shares; ^
Assumed outstanding ^ 540,000 and
^ 640,000 shares (1)....................... $ ^ 54 $ ^ 64
Preferred Stock ($0.10 par value)
Authorized - 5,000,000; Assumed
none outstanding........................... -- --
Additional Paid-In Capital................... ^ 5,335 ^ 6,325
ProForma Retained Deficit.................... (285) (285)
------ --------
Total Stockholders' Equity............... $^ 5,104 $^ 6,104
======= =======
</TABLE>
- ------------------
(1) In addition to the 500,000 to 600,000 shares to be issued pursuant to the
Offering, ^ 30,000 shares have been issued to Organizers pursuant to the
Private Placement. Also includes approximately 10,000 shares of Common
Stock to be issued to a bank holding company as partial payment of a
premium on deposits to be assumed by the Bank.
^ TERMS OF THE OFFERING AND PLAN OF DISTRIBUTION
^ General
^ The Company is offering for sale in the Offering a minimum of 500,000
shares and a maximum of ^ 600,000 shares of its Common Stock ^ at a purchase
price of $10.00 per share^ to raise proceeds between $5,000,000 and $6,000,000
for the Company. The Company has established a minimum subscription of 100
shares ($1,000) and a maximum subscription of 30,000 shares ($300,000). Because
the Company and the Bank are in organization, the offering price of the Common
Stock was arbitrarily determined by the Organizers without reference to
traditional criteria for determining value such as book value or historical or
projected earnings.
Subscribers should be aware that beneficial ownership of as little as 5% of
the outstanding shares of Common Stock could obligate the beneficial owner to
comply with certain reporting and disclosure requirements of federal banking
laws. No person may purchase more than 5% (on a maximum basis) of the stock sold
in the Offering.
-7-
<PAGE>
The Organizers and officers of the Company ^ are expected to purchase
additional shares in the Offering, resulting in total ^ aggregate purchases of
at least $670,000. The Organizers reserve the right to increase the amount of
Common Stock they purchase in the Offering. ^See "Management of the Bank." In
addition to the shares of Common Stock issued in the Private Placement and
Public Offering, ^ up to 15,000 shares of Common Stock will be issued pursuant
to the Branch Purchase Agreement to the holding company of First Commonwealth ^.
See "Branch Purchase Agreement."
^ The shares are being offered to the public through the directors and
officers of the Company, none of whom is affiliated with a securities broker or
dealer. No commission or other sales compensation will be paid to any Organizer
in connection with the Offering. The Company has not entered into any marketing
or consulting agreement with a registered broker/dealer. If necessary, the
Company may enter into an agreement with a registered broker/dealer to assist in
the sale of Common Stock in the Public Offering, without notice to subscribers.
^ None of the Company's directors and officers participating in the Offering
are registered or licensed as a broker or dealer or an agent of a broker or
dealer. The Company's officers and directors will assist in sales activities in
connection with the Offering pursuant to an exemption from registration as a
broker or dealer provided by Rule 3a4-1 promulgated under the Securities
Exchange Act of 1934 ("Rule 3a4-1"). Rule 3a4-1 generally provides that an
"associated person of an issuer" of securities shall not be deemed a broker
solely by reason of participation in the sale of securities of such issuer if
the associated person meets certain conditions. Such conditions include, but are
not limited to, that the associated person participating in the sale of an
issuer's securities not be compensated in connection therewith at the time of
participating, that such person not be associated with a broker or dealer and
that such person observe certain limitations on his participation in the sale of
securities. For purposes of this exemption, "associated person of an issuer" is
defined to include any person who is a director, officer or employee of the
issuer or a company that controls, is controlled by^, or is under common
control with, the ^ issuer.
^ Subscriptions to purchase shares of the Common Stock will be received until
5:00 p.m. EST, on September 15, 1998, unless all of the Common Stock is earlier
sold or the Offering is earlier terminated or extended by the Company. See
"Conditions of the Offering and Release of Funds" below. The Company reserves
the right to ^ extend the Offering without further notice to subscribers.
However, subscribers will be given the opportunity to withdraw their orders if
the Offering is extended beyond November 30, 1998. The date the Offering expires
(as possibly extended) is referred to herein as the "Expiration Date." No
written notice of an extension of the Offering until November 30, 1998 need be
given prior to any extension and any such extension will not alter the binding
nature of subscriptions already accepted by the Company.
^ Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers. In addition, the Company
reserves the right to cancel accepted subscriptions at any time and for any
reason until the proceeds of the Offering are released from escrow (as discussed
in greater detail in "Conditions of the Offering and Release of Funds" below),
and the Company reserves the right to reject, in whole or in part^ and in its
sole discretion, any subscription.
^ Promptly after receipt of final regulatory approval and authorization to do
business, the Company will cause to be mailed or delivered to each subscriber
stock certificates representing the shares of Common Stock ^ purchased by such
subscriber.
-8-
<PAGE>
Conditions of the Offering and Release of Funds
^ Subscription proceeds for shares subscribed for will be deposited promptly
in an interest-earning escrow account with the Roxborough-Manayunk Bank, of
Philadelphia, Pennsylvania ^, as escrow agent (the "Escrow Agent"), under the
terms of an escrow agreement (the "Escrow Agreement") ^, pending the
satisfaction of the conditions of the ^ Offering or the termination of the
Offering. Neither the Company nor any of its officers or directors is affiliated
with the Escrow Agent. The Offering will be terminated, no shares of Common
Stock will be issued, and no subscription proceeds will be released from escrow
to the Company unless on or before the Expiration Date (i) the Company has
accepted subscriptions and payment in full for the Minimum Number of Shares and
(ii) the Organizers have made adequate provisions for satisfying (as they
determine in their reasonable discretion) any regulatory or other conditions
that must be satisfied before the Bank may commence banking operations.
The Escrow Agent is expected to place the funds held in the Escrow Account
solely in savings deposits at its regular money market deposit account rate.
Until the regulatory authorities authorize the Organizers to use the proceeds of
this Offering to capitalize the Company, the $300,000 invested by Organizers of
the Company in the Private Placement will be used to pay for expenses incurred.
Upon disbursement of funds from the Escrow Account to the Company, the
investment earnings or losses on the Escrow Account will be the property of the
Company. ^The Escrow Agent has not investigated the desirability or advisability
of an investment in the Common Stock by prospective investors and has not
approved, endorsed or passed upon the merits of an investment in the Common
Stock.
^ If the above conditions are not satisfied by November 30, 1998, or if the
Offering is terminated at an earlier date, the funds available from the Escrow
Account, including any interest earned thereon, will be promptly repaid to
investors. Investors may not receive any interest on their subscription funds,
if the Offering expenses are in excess of amounts to be covered by the proceeds
of the Private Placement. However, if such funds are held in excess of 90 days,
such funds will be returned promptly to the subscribers with any interest earned
thereon.
How To Subscribe ^
All subscriptions must be made by completing a Subscription Agreement.
Additional copies of the Prospectus and Subscription Agreement may be obtained
by contacting the Company at the address set forth below. Subscriptions will not
be binding on subscribers until accepted by the Company. SUBSCRIPTIONS WILL NOT
BE ACCEPTED UNLESS ACCOMPANIED BY PAYMENT IN FULL AT THE SUBSCRIPTION PRICE. The
Company reserves the right to reject any subscription, in whole or in part, with
or without cause, but will inform the subscriber of the reason for such
rejection. The Company will refuse any subscription by sending written notice to
the subscriber by personal delivery or first-class mail within ten calendar days
after receipt of the subscription, and the subscriber's Subscription Agreement
and refund of payment will accompany such notice, together with a statement as
to the reason for such rejection. Any Subscription Agreement which is completely
and correctly filled out, which is accompanied by proper and full payment and
which is physically received at the offices of the Company by any employee or
agent of the Company, shall be deemed to have been accepted if it is not refused
as hereinbefore provided within ten business days after such receipt.
-9-
<PAGE>
^ A completed Subscription Agreement and payment in full (made in the
manner specified below) of the total subscription price for the number of shares
subscribed should be mailed directly to the Company at the following address:
Nittany Financial Corp.
Calder Square
P.O. Box 10283
State College, Pennsylvania 16805
Subscriptions and payment in full also may be delivered in person to
the office of the Company at 637 Kennard Road, State College, Pennsylvania
between 10:00 a.m. and 5:00 p.m., Monday through Friday. If the Offering is
canceled, all subscriptions will be promptly refunded. ^
IMPORTANT: PAYMENTS MUST BE MADE IN UNITED STATES FUNDS BY CHECK, BANK DRAFT OR
MONEY ORDER PAYABLE TO "ROXBOROUGH-MANAYUNK BANK ESCROW AGENT FOR NITTANY
FINANCIAL CORP." FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE
SUBSCRIPTION AGREEMENT WILL RESULT IN THE SUBSCRIPTION BEING RETURNED BY THE
COMPANY.
^
Escrow Account
The Offering is being made subject to the requirement that at least 500,000
shares are sold. Pending receipt of insurance of accounts, payments received
from subscribers will be held in an interest-bearing escrow account maintained
with the Escrow Agent. Funds in the Escrow Account may not be reached by
creditors of the Organizers. The agreement with the Escrow Agent includes the
following provisions:
(a) Payments of subscribers will be identified to each subscriber and will
be deposited by the Escrow Agent in the Escrow Account, which shall be known as
"Nittany Financial Corp. - Stock Purchase Account," and shall be held in escrow
and disbursed, including the interest earned thereon, only in accordance with
the provisions of the Escrow Agreement.
(b) The Escrow Agent will maintain its records of the Escrow Account so
that each subscriber will be entitled to FDIC insurance with respect to all
funds up to $100,000 paid by such subscriber.
(c) Funds deposited in the Escrow Account shall earn interest at the Escrow
Agent's current money market rate.
(d) Upon receipt of written confirmation that the Company has obtained FDIC
insurance of its accounts, the Escrow Agent will pay any and all funds in the
Escrow Account to the order of the Company.
In the event that ^ the Offering is not completed by November 30,
1998, all funds in the Escrow Account, including ^ any interest earned thereon,
will be returned promptly to subscribers. Subscribers may not receive any
interest on their money if Offering expenses are in excess of the amounts to be
covered by the proceeds of the Private Placement^. However, if such funds are
held in excess of 90 days, such funds will be returned promptly to the
subscriber with any interest earned thereon. The Escrow Agent may conclusively
rely on a certificate of the president of the Company stating the amount of
organizational expenses.
-10-
<PAGE>
(e) The Escrow Agent will be liable only for moneys received by it and not
disbursed by it pursuant to the provisions of the Escrow Agreement.
(f) The Company has agreed to indemnify the Escrow Agent for, and to hold
it harmless against, any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Escrow Agent.
(g) All interest earned and accrued on the deposited subscription funds
shall accrue for the benefit of the subscribers and the Company and the Escrow
Agent shall report such interest as having been earned by the Company. All ^
funds will be repaid in accordance with paragraph (d) above.
(h) The Escrow Agent's fees will be paid by the Company and the Escrow
Agent is authorized to deduct such fees from the interest earned on the Escrow
Account.
Termination or Extension of the Offering
The Offering will terminate at 5:00 p.m., State College, Pennsylvania
Time, on ^ September 15, 1998, unless extended by the Company ^ without further
notice to the subscriber. The Company reserves the right to terminate the
Offering at any time. However, if the Offering is not completed by November 30,
1998, subscribers will have the right to increase, decrease or rescind
subscriptions for stock previously submitted. If an extension to the Offering is
obtained, subscribers would be provided a supplemental offering prospectus,
declared effective by the Securities and Exchange Commission ("SEC"), and an
opportunity to increase (dependent upon the availability of shares), decrease or
rescind their subscriptions. The Company will deliver an effective prospectus to
all persons to whom the securities offered hereby are to be sold at least 48
hours prior to the acceptance or confirmation of sale to such persons or to send
such a prospectus to such persons under circumstances that it would normally be
received by them 48 hours prior to acceptance or confirmation of the sale.
The Company ^ will mail to all subscribers and other persons who have
received a Prospectus written notice of any such determination to terminate the
Offering at least seven days prior to such terminations. During this seven day
period, the ^ Company may continue to accept subscriptions for up to 600,000
shares. There will be only one closing.
^
BRANCH PURCHASE AGREEMENT
The Company entered into a Branch Purchase Agreement on March 24, 1998 with
First Commonwealth Bank, a state chartered commercial bank having its principal
office in Indiana, Pennsylvania (the "Seller"). Pursuant to the Branch Purchase
Agreement, the Company will assume the deposit liabilities and purchase certain
assets of two offices located at 116 East College Avenue and 1276 North Atherton
Street, State College, Pennsylvania (the "Offices").
The Company will pay the Seller a premium in the form of cash equal to nine
(9%) and in the form of stock equal to one (1%) times the deposit liabilities
less certain excluded deposits (i.e., jumbo certificates of deposits and IRA
accounts). Based upon deposit liabilities of $11.4 million less excluded
deposits of $983,000 at March 31, 1998, the total premium would be approximately
$935,460 in cash and $103,940 in stock. The stock issued to the Seller will be
in addition to the Common Stock sold in the Offering and will be at the $10.00
per share price. Additionally, the Bank will purchase the
-11-
<PAGE>
furniture, fixtures and equipment at the Offices in an amount equal to the
Seller's book value of approximately ^ $34,000.
The Offices are currently being operated under the name of Central Bank.
The office at 116 East College Avenue has 2,106 square feet of retail space plus
basement storage capability. This office will serve as the main office for The
Bank. The current lease has an annual rental of approximately $40,000 and
expires July 31, 2004. The lease may be assigned and is renewable for two
additional five year periods. The 116 East College Avenue office is located in
the heart of downtown State college, across from "Old Main" on the campus of
Penn State University. Two automatic teller machines are located at this office.
The second office of the Bank will be located in the current Central Bank
office at 1276 North Atherton Street. The branch is a leased, brick banking
facility with two dive-up banking lanes. North Atherton Street is a strategic
location in the market as both a retail commercial district and a thoroughfare
for commuting workers to the newer residential areas of the market. The building
was originally built as a branch for Landmark Savings Bank in 1987. Ten parking
spaces are assigned according to the lease, which expires on May 30, 2007. There
are four additional five year renewal periods. This office will serve as the
branch banking and lending center for the Bank. The current annual rent for the
.344 acre site and branch is $44,531. The Bank also intends to lease
approximately 1,000 additional square feet within the same facility for $21,373.
The entire facility is 3,120 square feet.
The Branch Purchase Agreement is subject to several conditions, including
the required approval of government regulatory authorities and the consent of
the landlords for the Company to assume the leases on the Offices.
The Branch Purchase Agreement may be terminated (1) by mutual agreement of
the parties, (2) inability to obtain regulatory approval, or (3) failure to
close the transaction within the earlier of September 30, 1998 or within 30 days
after the receipt of the required regulatory approvals, unless extended.
The Bank intends to make minor renovations to the facilities prior to, or
shortly after, opening. Most of the renovations will be cosmetic in nature or
will provide additional private office space within the facilities. Both
structures are in good condition.
The bank intends to contract for data processing services with LUN Data
Inc. (LUN) and the Kirchman Corporation. LUN was organized in the mid-1980's for
the purpose of serving as a data processing consortium for community banks. The
Bank will ^ incur a monthly data processing fee of approximately $3,000 to
$5,000 and will also incur a one-time software licensing fee of approximately
$14,000.
LUN will perform substantially all of the data services needed by the Bank.
Included in the LUN service will also be statement rendering and mailing, image
statements, telephone banking and ATM/debit card processing. LUN is currently
assessing its data-processing system for Year 2000 compliance and is expected to
be Year 2000 compliant by the Year 2000, if not before such date.
The Company presently occupies office space at 637 Kennard Road, State
College, Pennsylvania. It is expected that sometime after the opening of the
Bank, the Company will move its headquarters to 116 East College Avenue.
-12-
<PAGE>
UNAUDITED PROFORMA FINANCIAL INFORMATION
The following unaudited proforma financial information and explanatory
notes have been derived from the historical financial statements of the Company,
adjusted to give effect to the sale of the minimum number of shares and the
maximum number of shares in the Offering, and to the purchase and assumption
agreement (Agreement) with Commonwealth First Bank, regarding the branch offices
located in State College , Pennsylvania. The Unaudited ProForma Consolidated
Balance Sheet assumes that such transactions occurred on March 31, 1998, and
that the Company's application for the formation of the Bank, which will operate
these branch offices, has been approved. No consolidated proforma income
statement is presented because as of March 31, 1998, the Company has only been
in existence for approximately four months, and activity incurred through this
date has been dedicated to the formation of the Bank. The unaudited proforma
financial information is not necessarily indicative of the financial position
that would have occurred had the transactions reflected therein occurred on the
dates presented, nor are they indicative of the financial position of future
periods. The Company and Commonwealth First Bank intend that the sale of certain
assets and the transfer of the deposit liabilities of the subject branch offices
will be accounted for using the purchase method of accounting. The proforma
adjustments with respect to the Agreement are subject to change prior to the
closing date of the transactions.
-13-
<PAGE>
NITTANY FINANCIAL CORP.
PROFORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Company Company
Commonwealth ProForma As Adjusted As Adjusted
Minimum No. Maximum No. Branch Acquisitions Minimum No. Maximum No.
Company of Shares of Shares Acquisitions Adjustments of Shares of Shares
--------- ----------- ------------ ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and interest-bearing
deposits in banks $ 146,448 $4,851,083 (a) $5,851,083 (a) $ 225,000 $10,182,540 (f) $15,405,071 $16,405,071
Premises, Furniture
and Equipment 2,649 - - 34,000 36,649 36,649
Intangible assets - - - - 1,039,400 (f) 1,039,400 1,039,400
Due from Commonwealth - - - 11,118,000 (11,118,000) (f) - -
Deferred organization costs 70,000 (70,000)(b) (70,000) (b) - - - -
--------- --------- ------------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 219,097 $4,781,083 ^ $5,781,083 $11,377,000 $ 103,940 $16,481,120 $17,481,120
======== ========= ========= ========== =========== ========== ==========
LIABILITIES
Deposits $ - $ - $ $11,377,000 $ $11,377,000 $11,377,000
Accounts payable and
accrued expenses 70,180 (70,000)(c) (70,000) (c) - - 180 180
Advances from organizers - - - - - - -
--------- --------- --------- --------- ----------- --------- ---------
TOTAL LIABILITIES 70,180 (70,000) (70,000) 11,377,000 - 11,377,180 11,377,180
-------- ------- ------- ---------- ------------ ---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - - - - - - -
Common stock ^ 1,988 ^ 51,012 (d) ^ 61,012 (d) - 1,039 (f) ^ 54,039 ^ 64,039
Common stock subscribed ^ 1,012 ^ (1,012)(e) ^(1,012)(e) - - - -
Additional paid-in capital ^ 297,000 4,935,000 (d) 5,925,000 (d) - 102,901 (f) ^ 5,334,901 ^6,324,901
Retained deficit (49,830) (235,170)(b) (235,170)(b) - (285,000) (285,000)
-------- -------- -------- ----------- ----------- ---------- --------
250,170 4,749,830 ^ 5,749,830 - 103,940 5,103,940 6,103,940
Common stock
subscriptions receivable (101,253) 101,253 (e) 101,253 (e) - - - -
--------- ------- ------- ----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY 148,917 4,851,083 ^ 5,851,083 - 103,940 5,103,940 6,103,940
------- --------- ----------- ---------- ----------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 219,097 $4,781,083 ^ $5,781,083 $11,377,000 $103,940 $16,481,120 $17,481,120
======== ========= ========= ========== =========== ========== ==========
</TABLE>
-14-
<PAGE>
^
(a) The net cash to be received, including amounts due from organizer's stock
subscriptions receivable that were outstanding at March 31, 1998, and after
payments are made for certain costs incurred.
<TABLE>
<CAPTION>
Number of Shares Sold
----------------------
Minimum Maximum
------- -------
<S> <C> <C>
Proceeds from offering.................................. $5,000,000 $6,000,000
Proceeds from organizer's subscriptions at March 31..... 101,253 101,253
Less:
Payment for deferred and additional organization costs.. (235,170) (235,170)
Payment for deferred offering costs..................... (15,000) (15,000)
---------- ----------
$4,851,103 $5,851,103
========= =========
</TABLE>
(b) Reflects the reclass of the deferred organization and offering costs
against the offering proceeds and available cash at March 31, 1998.
Organizational costs to be incurred are estimated to be $235,000, and will
be charged to operating expenses when paid. Such items are construed to be
start up activity expenditures, relating primarily to the regulatory
application processes for the proposed bank formation and the branch office
acquisitions. These costs are for consulting, legal , accounting and audit
services , as well as for regulatory filing fees and outside marketing
assistance. These costs also include in-formation period expenses to be
incurred for normal operations and salary and benefits of staff through the
successful completion of the stock offering and regulatory approval
processes.
(c) Reflects the payments of payables outstanding at March 31, 1998 for
offering and organizational costs.
(d) Reflects stockholders' equity, after payments are made for certain
estimated costs incurred in the offering :
Number of Shares Sold
-----------------------------------
Minimum Maximum
------- -------
Proceeds from offering................ $5,000,000 $6,000,000
Less: Offering costs................. (15,000) (15,000)
------- --------
Net proceeds from offering........... 4,985,000 5,985,000
Less: Par value of common stock...... (50,000) (60,000)
--------- ---------
Additional Paid in Capital............ $4,935,000 $5,925,000
========= =========
(e) Reflects receipt of cash due from organizer's for stock subscriptions
receivable outstanding at March 31, 1998.
-15-
<PAGE>
f) Reflects the effect of the branch office acquisition from First Commonwealth
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1. Deposits and accrued interest to be assumed................................ $11,377,000
Leasehold improvements, fixtures and equipment to be acquired.............. (34,000)
Teller, vault and ATM cash funds to be acquired............................ (225,000)
Deposit premium paid in cash (9% x 10,394,000)............................. (935,460)
----------
Net cash due from First Commonwealth....................................... $10,182,540
==========
2. The Company has also agreed to purchase any loans outstanding, in the
form of overdraft lines and those secured by deposits of the offices
being acquired. Management has indicated that such loans, if any, are
minimal in amount and would be purchased at a price equal to book
value from First Commonwealth.
3. Leasehold improvements, fixtures and equipment are to be purchased at
book value from First Commonwealth. This purchase price approximates
the estimated fair value of the items to be purchased. There is no
land or buildings to be purchased. The proposed bank will assume the
remaining facilities operating leases.
4. The total deposits that are to be assumed, and subject to the purchase
premium calculation exclude IRA and certificates of deposit greater
than $100,000. The deposit premium paid by the Company of 10% will be
paid in cash and stock, as follows:
Total premium payable in cash (9%)......................................... $ 935,460
Total premium payable in common stock of Company (1%)...................... 103,940
---------
Total premium payable............................................. $1,039,400
=========
</TABLE>
The premium to be paid in the form of stock represents 10,394 shares of
common stock of the Company, issued at a market value of $10 per share. Such
shares will be issued in addition to those shares available through the
Offering.
The intangible assets represent the deposit premium paid, classified into
two components; core deposit intangible and goodwill. The weighted average life
of these intangible assets, that will be used in subsequent periods for
amortization purposes, is estimated to be 10 years.
-16-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company was incorporated under the laws of the Commonwealth of
Pennsylvania on December 8, 1997, for the purpose of becoming a unitary savings
and loan holding company, which will own all of the outstanding shares of
capital stock of a proposed federal stock savings bank, Nittany Bank^. It is
anticipated, though there is no assurance, that the Company will receive
regulatory approval to open the Bank during the third quarter of 1998.
Prior to the Offering, the only material source of funds for the Company
has been private sales of the Company's common stock to the initial directors of
the Company at a price of ^ $10.00 per share. In connection with such sales, the
initial directors purchased or subscribed to ^ 30,000 common shares of the
Company. As of March 31, 1998, the Company had received aggregate gross proceeds
of $199,000, in addition to subscription receivables of $101,000. ^ Subsequent
to March 31, 1998, all subscriptions have been paid.
The Company and the Bank are newly formed and have no prior operating
history. The operating results of the Company will be dependent upon the
operating results of the Bank. The Bank will to a large extent be a first
mortgage lender on real estate and its profitability will depend in large part
on the real estate market area of its primary market area. The Bank will incur
operating expenses and there can be no assurances as to when, if ever, the Bank
will generate sufficient revenues to operate profitably. Assuming that the
minimum net proceeds from the offering are raised, the Company presently
believes that it will have sufficient capital resources to meets its commitments
over the next twelve months. See "Use of Proceeds", "Unaudited ProForma
Financial Information"; and "Branch Purchase Agreement."
PROPOSED BUSINESS OF THE COMPANY
General
The Company was incorporated under the laws of the Commonwealth of
Pennsylvania on December 8, 1997, primarily to be the holding company of the
Bank. The Company has not conducted any business activities to date other than
entering into the Branch Purchase Agreement and those necessary by the Company
to obtain regulatory approval for the Bank and to proceed with the Offering. The
Company initially will engage primarily in ^ the business ^ of owning all of the
outstanding shares of capital stock of the Bank ^. However, the Company may
pursue other businesses, such as offering brokerage services and securities.
Accordingly, the Company's initial earnings will be dependent upon dividends
received by the Company from the Bank, which dividends are dependent on the
Bank's profitability and the Bank's compliance with certain regulatory
requirements. See "Regulation - Savings Institution Regulation -- Dividend and
Other Capital Distribution Limitations."
The Company may not acquire the capital stock of the Bank without the
approval of the Office of Thrift Supervision (the "OTS"). On April 7, 1998, the
Company filed with the OTS an Application for Permission to Organize the Bank,
and on April 21, 1998 filed an Application for Branch Purchase and an
Application H-(e)1 to become the holding company for the Bank. These
Applications were filed to obtain the necessary approvals and these approvals
were conditionally granted by the OTS on __________ ___, 1998. An FDIC
Application for Federal Deposit Insurance was also filed on April 7, 1998 and
approval was conditionally granted on __________ ___, 1998. Upon satisfaction of
the conditions of the Offering and of the regulators and the release of escrowed
funds to the Company, the Company will proceed to acquire all of the shares of
capital stock of the Bank and the Company will
-17-
<PAGE>
become, subject to the Bank's compliance with certain regulatory requirements
discussed below, a unitary savings and loan holding company. As such, the
company will be subject to examination and comprehensive regulation by the OTS.
Since the Company will own only one savings bank, it generally will not be
restricted in the types of business activities in which it may engage, provided
that the Bank retains a specified amount of its assets in housing-related
investments. See "Regulation - Holding Company Regulation."
The Company is currently located at 637 Kennard Road, State College,
Pennsylvania. The telephone number is (814) 466-6336. The Company expected, upon
the opening of the Bank, to relocate to the main office of the Bank at 116 East
College Avenue, State College, Pennsylvania. At the present time, the Company
does not intend to have any employees other than its officers. The Company may
utilize the support staff of the Bank from time to time. The Company initially
will engage in no business other than owning all of the outstanding shares of
capital stock of the Bank; therefore, the competitive conditions to be faced by
the Company will be the same as those faced by the Bank.
PROPOSED BUSINESS OF THE BANK
General
The proposed business of the Bank will primarily consist of accepting
deposits and originating mortgage, consumer, small business and other loans. The
Bank intends to supplement its portfolio of loans with investment securities
deemed prudent by the Board of Directors. Upon approval of the Application for
Branch Purchase filed on behalf of the Bank, the Bank will assume the deposits
of the Offices and seek to attract new deposits. The deposits are anticipated to
be comprised of traditional demand and time deposits. The Bank intends to
aggressively offer a checking account, a passbook savings account and a money
market account at a competitive interest rate. The Bank or Company may also
offer through affiliations with other companies, alternative non-deposit
investments, such as mutual funds and securities. The loans the Bank anticipates
originating will consist of adjustable and conventional fixed-rate residential
real estate mortgage loans and commercial real estate mortgage loans. The Bank
will also offer small business, home equity, and consumer loans.
The Organizers' assumptions as to the viability of the Bank, as represented
in their business plan, are based on projections of population growth, deposit
growth and housing development in the market area and adjacent communities, as
well as on assumed levels of interest rates and operating expenses. These
projections and assumptions are thus subject to the hazards of forecast and may
prove to be inaccurate. Furthermore, although the market area has experienced
significant growth in recent years, there can be no assurance this growth will
continue or that the Bank will benefit from any growth.
^ The Bank has prepared a strategic business plan to provide direction for
the Bank over the next several years. Although the Bank anticipates numerous
revisions as to tactics and possibly even to strategy, the basic objectives of
the Bank, though there is no assurance that such objectives will be attained,
are as follows:
^o The Company will pursue aggressive, but controlled balance sheet
growth with the Bank originating a broad array of lending products,
including secured one to four family residential, home equity,
consumer, small business and commercial real estate loans.
-18-
<PAGE>
^o On the liability side, the Bank anticipates attracting deposits
emphasizing core deposits and transaction accounts with competitive
rates and products, supported by high quality personal banking
service.
^o The Bank will seek to maintain earnings by emphasizing asset quality
and controlling expenses. The Bank will attempt to secure strategic
affiliations with other financial service providers. Fee income will
be positively impacted as these financial services assist customers.
o The Bank intends to outsource non-essential services in order to employ
a core group of banking professionals focused on customer needs.
Prospects
Although investment in its Common Stock involves significant risk, the
Organizers believe that the Company will be able to compete effectively.
Furthermore, as a stock-owned institution, the Bank will not be subject to the
limitations on raising capital that have constrained mutual institutions, and
will have the opportunity to raise capital from institutional and other private
investors, especially in the current strong stock market.
As a result of several mergers throughout the past decade, small local
financial institutions which were organized and headquartered in State College
have essentially been eliminated. The Company, through the Bank, intends to fill
what it perceives to be a significant market niche that exists in State College.
State College is currently served almost entirely by large, financial
institutions, most of which are based outside of State College. The Bank will
have local owners, directors and senior management and therefore should be able
to be more responsive to the banking needs of the local community.
However, there can be no assurance that the Bank will achieve this goal.
In the current environment of bank mergers, acquisitions, and
consolidations, there is a perceived need for banks focused on the needs of the
local community. This void of community focused banks is particularly evident in
the State College area. The organizers of the proposed Bank intend to provide a
community bank oriented toward the Pennsylvania State University, local
residents and small businesses in this rapidly developing area. The face of the
Centre Region is changing dramatically, with numerous business projects
currently under constructions and/or planned for the near future. As the
residents and the businesses in the region have changed so have the banks
servicing the area.
The Bank believes that the following attributes will make the Bank
attractive to the local business people and residents:
o Direct and easy access to the Bank's President, officers and directors by
members of the community, whether during or after business hours.
o Local conditions and needs will be taken into account by the Bank when
deciding loan applications and making other business decisions affecting
members of the community.
o A personalized relationship banking approach that is supported by decision
making that is local and responsive to customer needs.
o Offering competitive interest rates and fees on passbook and checking
accounts.
-19-
<PAGE>
o Prompt review and processing of loan applications.
o Depositors' funds will be invested back into the community.
o Positive involvement of the Bank in the community affairs of State College.
o Technology based services that enhance the convenience for customers to
conduct business at the Bank.
o Availability of a wide array of financial services coordinated by a team of
personal bankers dedicated to meeting customer needs.
On March 24, 1998, Nittany Financial Corp. signed the Branch Purchase
Agreement to acquire two offices and assume the deposits of an existing
commercial bank. As such, the Bank has acquired a "turnkey" operation which can
open immediately upon receipt of regulatory approval.
By acquiring these offices, the Bank will have fully-equipped offices, with
favorable rents, good locations and existing personnel and deposit customers.
The two offices will place the Bank downtown directly across from the Old Main
building of the Pennsylvania State University and in one of the primary
residential/business districts on North Atherton. The offices will provide the
Bank with ATMs, a drive-in facility and safety deposit boxes. Furthermore, the
fixed assets are being acquired at book value. Since these assets have already
been written down significantly, the Bank will be able to acquire these assets
at cost significantly below the cost to build and furnish a new office, which
will in part offset the premium paid for the deposits.
Market Area
The Bank's main office will be located at 116 East College Avenue, State
College, Pennsylvania. The Bank will have a branch office located at 1276 North
Atherton Street, State College, Pennsylvania. The Bank's primary market will be
the borough of State College and the surrounding townships of State College,
Ferguson, Halfmoon, Harris and Patton. To a much lesser degree, the Bank's
secondary market will consist of the adjacent townships of Centre County.
State College is best known for its location as the home of the
Pennsylvania State University. In addition to education, tourism, agriculture,
high tech and health care are important to the area's growing economy. Centre
County comprises 25 townships and 11 boroughs and is, area-wise, the State's
fifth largest county. State College and the five townships of College, Ferguson,
Halfmoon, Harris and Patton have a combined population of approximately 72,000.
In addition, Penn State houses more than 19,000 students. State College is 135
miles from Pittsburgh, 170 miles from Baltimore and 190 miles from Philadelphia.
Competition
Competition for deposits and loans is strong among savings institutions,
commercial banks, mortgage banks, mortgage brokers, credit unions and money
market funds. There is also increasing competition from securities firms and
other financial service corporations not traditionally engaged in the banking or
savings business. The primary factors with which institutions compete for
deposits and loans are interest rates, loan origination fees and range of
services offered.
-20-
<PAGE>
Centre County, which includes the Bank's primary market areas is served
almost entirely by large, regional financial institutions, almost all of which
are headquartered out of the area. These financial institutions include Mellon
Bank, NA (Greensburg, PA), First Union (formerly Core States) (Charlotte, North
Carolina); Northwest Savings Bank (Warren, PA), PNC Bank (Pittsburgh), First
Commonwealth Bank (Indiana, PA), Omega Bank (State College), and Mid-State Bank
(Harrisburg, PA). Reliance Bank (proposed Altoona, PA). The area also includes
Corning Employees Credit Union, Penn State Federal Credit Union, SPE Federal
Credit Union and State College Federal Credit Union. Omega Bank, with nine
branches, is the only banking institution headquartered in State College.
All of these institutions have been in existence for a longer period of
time than the Bank, are better established than the Bank and have financial
resources substantially greater than those of the Bank. The Bank will have an
existing deposit base when it commences operations, but will be competing for
deposits with these larger established institutions as well as with investment
bankers, money market mutual funds and other non-traditional financial
intermediaries. The Bank will have to attract its loan customer base from
existing financial institutions and from growth in the community.
Market Strategy
The Bank's objective will be to create a customer-driven financial
institution focused on providing value to clients by delivering products and
services matched to the clients' needs. It is believed that customers will be
drawn to a locally managed institution that demonstrates an active interest in
its customers and their business and personal financial needs.
The banking industry in the Bank's market area has experienced substantial
consolidation in recent years. Many of the area's locally owned or managed
financial institutions have either been acquired by large regional bank holding
companies or have been consolidated into branches. This consolidation has been
accomplished by increasing fees for bank services, the dissolution of local
boards of directors, management and personnel changes and, in the perception of
the Organizers, a decline in the level of customer service. With the
permissibility of interstate banking and the recent announcement of several
mergers by large financial institutions, this type of consolidation is expected
to continue. The Organizers believe that the present competitive and economic
environment is right for a new, independent, locally managed bank to service the
financial needs of residents of State College.
Lending Activities
General. The Bank ^ anticipates that its lending activities will be
primarily comprised of the origination of mortgage loans for the purpose of
financing and refinancing one-to-four family residential properties. To a lesser
extent, the Bank anticipates that it will originate home equity loans,
commercial real estate loans, multi-family real estate loans (five units or
more), construction loans (primarily for one- to four-family home construction
for the borrower), commercial business loans and consumer loans. The types of
loans the Bank will originate generally will be subject to federal and state law
and regulation.
The Bank's ability to originate loans will be dependent upon the relative
customer demand, which will be affected by the current and expected future level
of interest rates. Interest rates will be affected by the demand for loans and
the supply of money available for lending purposes and the rates offered by
competitors. Among other things, these factors are, in turn, affected by
economic conditions, monetary policies of the federal government and legislative
tax policies.
The Bank intends to originate the following loans:
-21-
<PAGE>
Residential Real Estate Secured Loans. The Bank intends to offer fixed-rate
and adjustable -rate mortgage loans primarily secured by one- to four-family
residences, with maturities up to 30 years. It is anticipated that such loans
will be secured by properties located in the Bank's market areas. All one-to
four-family loans will be underwritten using generally accepted lending
standards such as, with Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Association ("FHLMC"). The Bank will originate loans for both owner occupied and
non-owner occupied (investor) residential properties. Non-owner occupied
residential mortgage loans generally carry a higher degree of credit risk than
owner-occupied residential mortgage loans.
The Bank intends to offer fixed-rate and adjustable-rate home equity loans,
primarily secured by one- to four-family, owner-occupied residences. It is
anticipated that the Bank will employ similar underwriting standards in making
home equity loans as those utilized in making residential mortgage loans.
Commercial and Multi-Family Real Estate Loans. The Bank intends to offer
commercial and multi-family real estate loans (five units or more) generally
secured by property located in the Bank's market areas. The Bank also intends,
in certain circumstances, to purchase or participate in commercial and
multi-family loans. In reaching a decision on whether to make a commercial real
estate or multi-family loan, it is anticipated that the Bank will consider a
number of factors, including market conditions, the net operating income of the
mortgaged premises before debt service and depreciation, the debt service ratio
(the ratio of net operating income to debt service) and the ratio of loan amount
to appraised value.
Commercial real estate and multi-family loans are generally larger and
present a greater degree of risk than loans secured by one- to four-family
residences. Because payments on loans secured by commercial real estate and
multi-family properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be subject to a grater
extent to adverse conditions in the real estate market or in the economy. It is
anticipated that the Bank will seek to minimize these risks through its
underwriting standards.
Construction Loans. It is anticipated that the bank will, on a case by case
basis, originate loans for the development of property to customers in its
market areas. It is anticipated that the Bank's construction loans primarily
will be made to finance the construction of one-to four-family, owner-occupied
residential properties.
Construction financing is generally considered to involve a higher degree
of credit risk than long-term financing on improved, owner-occupied real estate.
Risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development compared to the estimated cost (including interest) of construction.
If the estimate of value proves to be inaccurate, the Bank would be confronted
with a project, when completed, having a value which is insufficient to ensure
full repayment.
Commercial Business Loans. The Bank intends to pursue opportunities to
offer commercial business loans, primarily to businesses located in the Bank's
market areas. Federally chartered savings institutions such as the Bank are
authorized to make secured or unsecured loans and letters of credit for
commercial, corporate, business and agricultural purposes and to engage in
commercial leasing activities. However, federally chartered savings institutions
generally are limited in the amount of commercial business loans they may hold
in their portfolio to a maximum of 20% of total assets.
-22-
<PAGE>
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income, and which are secured by real estate property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
cash flow of the borrower's business. As a result, the availability of funds for
the repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value on
the success of the business.
Consumer Loans. The Bank intends to make a variety of consumer loans which
will primarily consist of fixed-rate installment loans secured by automobiles or
by deposits at the Bank.
Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or that are
secured by rapidly depreciable assets, such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loan.
Loan Approval. The Bank's lending activity will be conducted primarily
through advertising, customer calls and contacts by the Bank's employees,
officers and directors and solicitations to local real estate brokers, builders
and real estate developers. The Bank's lending will be subject to written
underwriting standards (including, as applicable, a Year 2000 compliance clause)
and loan origination procedures. Decisions on loan applications will be made on
the basis of detailed applications and property valuations. The loan
applications will be designed primarily to determine the borrower's ability to
repay and the more significant items on the applications will be verified
through the use of credit reports, financial statements, tax returns and/or
confirmations.
The Bank generally will require title insurance on its real estate secured
loans as well as fire and extended coverage casualty insurance in amounts at
least equal to the principal amount of the loan or the value of improvements on
the property, depending on the type of loan. The Bank also will require flood
insurance to protect the property securing its interest when the property is
located in a flood plain.
Loan Fees and Service Charges. In addition to interest earned on loans, the
Bank will generally recognize fees and service charges which consist primarily
of loan servicing fees and late charges. The Bank intends to have lower and
fewer fees and charges than most, if not all, of the other financial
institutions doing business in the primary market area.
Loans to One Borrower. Under applicable regulations, the Bank's maximum
loan to one borrower limit will initially be $500,000. However, the Bank may
originate larger loans and sell participation interests to other financial
institutions.
Delinquencies. The Bank's collection procedures are expected to provide
that when a loan is 15 ^ days past due, a late charge is added and the borrower
is contacted by mail and/or telephone and payment requested. If the delinquency
continues, subsequent efforts are made to contact the delinquent borrower.
Additional late charges may be added and, if the loan continues in a delinquent
status for 90 days or more, the Bank will likely initiate foreclosure
proceedings unless other repayment arrangements are made.
-23-
<PAGE>
Non-Performing Assets and Asset Classification. Loans will be reviewed on a
regular basis and classified in accordance with the requirements of the OTS and
the Bank. The Bank's internal classifications will be reviewed annually by an
independent, outside loan review.
Investment Activities
The Bank will be required under federal regulations to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and certain other investments. The Bank will maintain a liquidity portfolio in
excess of regulatory requirements. Until the Bank is able to originate
sufficient loans, it expects to leverage its capital by investing deposits and
borrowed money in securities and other investments at a positive interest rate
spread exceeding the cost of its deposits and borrowings. Liquidity levels may
be increased or decreased depending upon the yields on investment alternatives
and upon management's judgment as to the attractiveness of the yields then
available in relation to other opportunities and its expectation of the level of
yield that will be available in the future, as well as management's projections
as to the short term demand for funds to be used in the Company's loan
origination and other activities. The Company intends to invest primarily in
U.S. Government and agency obligations, federal funds sold and mortgage-backed
securities.
Sources of Funds
General. Deposits will be the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank will derive
funds from amortization and prepayment of loans and securities, sale or
maturities of investment securities, operations and, if needed, advances from
the Federal Home Loan Bank ("FHLB") of Pittsburgh. Scheduled loan principal
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources or on
a longer term basis for general business purposes.
Deposits. Consumer and commercial deposits will be attracted principally
from within the Bank's Primary Market Area through the offering of a broad
selection of deposit instruments including NOW, regular savings, money market
deposit, term certificate accounts (including negotiated jumbo certificates in
denominations of $100,000 or more) and individual retirement accounts and Keogh
accounts. The Bank also intends to offer a passbook account, which is generally
no longer available at other banks. Deposit account terms will vary according to
the minimum balance required, the time periods the funds must remain on dep osit
and the interest rate, among other factors. The Bank will regularly evaluate the
internal cost of funds, survey rates offered by competing institutions, review
the Bank's cash flow re quirements for lending and liquidity and execute rate
changes when deemed appropriate. The Bank does not anticipate obtaining funds
through brokers.
-24-
<PAGE>
Set forth below is a description of the accounts, by type and amount, for
the Offices to be acquired by the Branch Purchase Agreement at March 31, 1998.
^ NORTH ATHERTON OFFICE
Amount at
Type of Account March 31, 1998
- --------------- --------------
(In Thousands)
Checking $ 167
NOW 642
Savings 1,772
Certificates of Deposit ^ 2,155
Jumbo CDs 336
IRAs 161
-----
^ $ ^ 5,233
=====
COLLEGE AVENUE OFFICE
- ---------------------
Amount at
Type of Account March 31, 1998
- --------------- --------------
(In Thousands)
Checking $ 649
NOW 835
Savings 2,294
Certificates of Deposit ^ 1,882
Jumbo CDs 413
IRAs 71
-----
^ $ ^ 6,144
=====
Employees
The Bank anticipates having 14 full-time equivalent employees, including
two - three executive officers, when it commences operations. The executive
officers of the Company are expected to initially include the President and
Chief Executive Officer and a Senior Lending Officer. In addition, the Company
or the Bank may employ a Chief Financial Officer at or subsequent to the opening
of the Bank. The remaining employees will provide staff support in the teller,
new accounts, loan processing functions. The employees of the Bank will
concentrate on providing personal banking services to the customers of the Bank.
Non-banking services, such as accounting, data processing and maintenance will
be outsourced to companies specializing in those areas. The Company anticipates
having the same executive officers of the Bank act as executive officers of the
Company and in the same capacity. No other employees of
-25-
<PAGE>
the Company are anticipated at this time. See "Management of the Company" and
"Management of the Bank."
Total compensation for the Bank's employees for the first full year of
operations is projected to be $398,000. In addition, the Bank intends to provide
its employees with certain benefits programs, including medical insurance, paid
vacation time and sick leave. Directors will receive no cash compensation. A
stock option plan is expected to be adopted by the Board, subject to stockholder
approval. Other benefit programs such as a profit sharing plan may also be
adopted following commencement of operations of the Bank.
REGULATION
Set forth below is a brief description of certain laws which relate to the
Company and the Bank. The description is not complete and is qualified in its
entirety by references to applicable laws and regulation.
Holding Company Regulation
General. The Company will be required to register and file reports with the
OTS and will be subject to regulation and examination by the OTS. In addition,
the OTS will have enforcement authority over the Company and any non-savings
institution subsidiaries. This will permit the OTS to restrict or prohibit
activities that it determines to be a serious risk to the Company and the Bank.
This regulation is intended primarily for the protection of the Bank's
depositors and not for the benefit of the stockholders of the Company.
Qualified Thrift Lender ("QTL") Test. Since the Company will only own one
savings institution, it will be able to diversify its operations into activities
not related to banking, if the Bank satisfies the QTL test. If the Company
controls more than one savings institution, it would lose the ability to
diversify its operations into non-banking related activities, unless such other
savings institutions each also qualify as a QTL or were acquired in a supervised
acquisition. See "- Savings Institution Regulation -- Qualified Thrift Lender
Test."
Restrictions on Acquisitions. the Company must obtain approval from the OTS
before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution, the
Bank is subject to extensive regulation by the OTS and the FDIC. The Bank's
lending activities and other investments must comply with various federal and
state statutory and regulatory requirements.
The OTS, in conjunction with the FDIC, will regularly examine the Bank and
prepare reports for the consideration of the Board of Directors on any
deficiencies that the OTS finds in the Bank's operations. The Bank's
relationship with the depositors and borrowers also will be regulated to a great
extent by federal and state law, especially in such matters as the ownership of
savings accounts and the form and content of its mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such
-26-
<PAGE>
as mergers with or acquisitions of other financial institutions. This regulation
and supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the SAIF
and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in regulations, whether by the OTS, the FDIC
or any other government agency, could have a material adverse impact on the
Bank's operations.
Insurance of Deposit Accounts. The FDIC is authorized to establish separate
annual assessment rates for deposit insurance for members of the BIF and the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease such assessment rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments are set within a
range, based on the risk the institution poses to its deposit insurance fund.
This risk level is determined based on the institution's capital level and the
FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits which are insured by the
SAIF. Legislation to capitalize the SAIF and to eliminate the significant
premium disparity between the BIF and the SAIF became effective September 30,
1996. The recapitalization plan provided for a special assessment equal to $.657
per $100 of SAIF deposits held at ^ March 31, 1995, in order to increase SAIF
reserves to the level required by law. Certain BIF institutions holding
SAIF-insured deposits were required to pay a lower special assessment.
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This will increase BIF assessments for healthy
banks to approximately $.0125 per $100 of deposits in 1998. SAIF assessments for
healthy savings institutions in 1998 will be approximately $.0628 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and widened
the spread of those rates. The FDIC's action established a base assessment
schedule for the SAIF with rates ranging from 4 to 31 basis points, and an
adjusted assessment schedule that reduces these rates by 4 basis points. As a
result, the effective SAIF rates range from 0 to 27 basis points as of October
1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
-27-
<PAGE>
The recapitalization plan also provides for the merger of the SAIF and BIF
effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, the Bank may have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. The Bank cannot predict the impact of the proposed
legislation unless and until the legislation requiring such change is enacted.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. The Bank's capital ratios, which are set forth under "Historical and
ProForma Capital Compliance," will be well in excess of these requirements.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio value
based on data submitted by the institution in a schedule to its quarterly Thrift
Financial Report and using the interest rate risk measurement model adopted by
the OTS. The amount of the interest rate risk component, if any, to be deducted
from an institution's total capital will be based on the institution's Thrift
Financial Report filed two quarters earlier. Savings institutions with less than
$300 million in assets and a risk-based capital
-28-
<PAGE>
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS may require any exempt
institution that it determines may have a high level of interest rate risk
exposure to file such schedule on a quarterly basis and may be subject to an
additional capital requirement based upon its level of interest rate risk as
compared to its peers. However, due to the Bank's net size and risk-based
capital level, it is exempt from the interest rate risk component.
In accordance with the requirements of the Federal Deposit Insurance
Corporation with respect to the Application for Insurance of Deposits of Nittany
Bank, the Organizers agreed to maintain a Tier 1 Capital ratio to total
estimated assets of at least 8% and an adequate allowance for loan and lease
losses for the first three years of operation of the Bank from the date the FDIC
deposit insurance is effective.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends by the Bank to the
Company.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. The Bank
expects to qualify as a Tier 1 institution, but there can be no assurance that
it will achieve this goal.
In the event the Bank's capital falls below the fully phased-in requirement
or the OTS notifies the Bank that it needs more than normal supervision, the
Bank would become a Tier 2 or Tier 3 institution and as a result, its ability to
make capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75%
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose to make any capital distribution, and Tier 2 institutions that propose
to make a capital distribution in excess of the noted safe harbor level, must
obtain OTS approval prior to making such distribution. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. The OTS has
proposed rules relaxing certain approval and notice requirements for
well-capitalized institutions.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file a notice or application for capital
distributions (such as cash dividends) declared below specified amounts. Under
the proposed regulation, savings associations which are eligible for expedited
treatment under current OTS regulations are not required to file a notice or an
application with the OTS if (i) the savings association would remain at least
adequately capitalized following the capital distribution and (ii) the amount of
capital distribution does not exceed an amount
-29-
<PAGE>
equal to the savings association's net income for that year to date, plus the
savings association's retained net income for the previous two years. Thus,
under the proposed regulation, only undistributed net income for the prior two
years may be distributed in addition to the current year's undistributed net
income without the filing of an application with the OTS. Savings associations
which do not qualify for expedited treatment or which desire to make a capital
distribution in excess of the specified amount, must file an application with,
and obtain the approval of, the OTS prior to making the capital distribution.
Under certain other circumstances, savings associations will be required to file
a notice with OTS prior to making the capital distribution. The OTS proposed
limitations on capital distributions are similar to the limitations imposed upon
national banks. The Company is unable to predict whether or when the proposed
regulation will become effective.
A savings institution is prohibited from making a capital distribution if,
after making the distribution, the savings institution would be undercapitalized
(i.e., not meet any one of its minimum regulatory capital requirements).
Further, a savings institution cannot distribute regulatory capital that is
needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a qualified
thrift lender ("QTL") test. If the Bank maintains an appropriate level of
qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, the Bank will continue to enjoy full borrowing
privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65%
of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings institutions may include shares of
stock of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months.
Transactions With Affiliates. Generally, restrictions on transactions with
affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. The Bank's
affiliates include the Company and any company which would be under common
control with the Bank. In addition, a savings institution may not extend credit
to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of any affiliate that is not a subsidiary. The
OTS has the discretion to treat subsidiaries of savings institution as
affiliates on a case-by-case basis.
Liquidity Requirements. All savings institutions are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. Monetary penalties may be imposed upon
institutions for violations of liquidity requirements.
Federal Home Loan Savings Bank System. The Bank will be a member of the
FHLB of Pittsburgh, which is one of 12 regional FHLBs. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is funded
primarily from funds deposited by savings institutions and proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB.
-30-
<PAGE>
As a member, the Bank will be required to purchase and maintain stock in
the FHLB of Pittsburgh in an amount equal to at least 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. The FHLB imposes various limitations on advances
such as limiting the amount of certain types of real estate related collateral
to 30% of a member's capital and limiting total advances to a member.
The FHLBs 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 FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. Savings
institutions have authority to borrow from the Federal Reserve System "discount
window," but Federal Reserve System policy generally requires savings
institutions to exhaust all other sources before borrowing from the Federal
Reserve System.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company currently consists of the same
individuals who will serve as directors of the Bank. The Company's articles of
incorporation and bylaws require that directors be divided into four classes, as
nearly equal in number as possible. Each class of directors serves for a
four-year period, with approximately one-fourth of the directors elected each
year. The Bank's officers will be elected by the Board and serve at the Board's
discretion.
MANAGEMENT OF THE BANK
Directors
The Board of Directors of the Bank is currently composed of five members.
The Bank expects to add additional directors after opening for business. The
Bank may also establish an Advisory Board of Directors. The proposed stock
charter and bylaws for the Bank require that directors be divided into three
classes, as nearly equal in number as possible. The officers are elected
annually by the Board and serve at the Board's discretion.
-31-
<PAGE>
The following table sets forth information with respect to the directors,
executive officers, and significant employees, all of whom will continue to
serve in the same capacities after the Offering. The Bank is currently
negotiating with two individuals, one to become Vice President and Senior
Lending Officer and the other to become Vice President and Chief Financial
Officer.
<TABLE>
<CAPTION>
^ Proposed % of
^ Stock Proposed
Organization Subscription Total Ownership
^ Directors Age ^(1) Position Shares Shares Shares (2)(3)
- ----------- -------- -------- ------------ ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Malizia 43 Chairman of ^ 10,000 ^ 22,000 ^32,000 ^ 5.00 ^
the Board
David Z. Richards, Jr. 37 President, ^ 750 ^ 4,250 5,000 -- (4)
CEO and
Director
Donald L. Musso 38 Director ^ 10,000 ^ 5,000 15,000 2.34
William A. Jaffe 59 Director and ^ 4,125 ^ 875 5,000 --(4)
Secretary
D. Michael Taylor 56 Director ^ 5,125 ^ 5,000 10,125 1.58
------- ----- ------
^30,000 ^ 37,125 ^67,125 ^10.49
====== ====== ====== =====
</TABLE>
- -----------------
(1) At March 8, 1998.
(2) Includes shares purchased in the Private Offering.
(3) Based upon ^ 640,000 shares (outstanding after the issuance of Common Stock
in the Private Placement, the Offering, and the Branch Purchase.)
(4) Less than 1%
There is no family relationship between any director or executive officer.
No director or executive officer has filed a petition in bankruptcy in the past
five years, nor been convicted in a criminal proceeding. The business experience
for the past five years of each of the directors and executive officers is as
follows:
^ David Z. ^ Richards, Jr. was President and Chief Executive Officer of
Mifflinburg Bank and Trust Company of Mifflinburg, Pennsylvania from 1991 until
1997. While under his direction, Mifflinburg Bank and Trust became one of the
first financial institutions in Pennsylvania to implement digital image
technology. He also developed a unique asset management program through a
strategic affiliation with an asset management firm, supervised the construction
and opening of a new retail banking center and opened three additional offices
in new markets. From 1978 until 1990, he served in various capacities, including
Vice President and Financial Officer of The First National Bank of Danville,
Pennsylvania. While at FNB Danville, he helped pioneer many services, including
the introduction of the biweekly mortgage in the United States, and implemented
one of the first discount brokerage operations at a community bank. In 1997 he
was appointed to the Executive Committee of the Pennsylvania Bankers
Association, for which he has chaired and served on several committees. He
formerly served as President of LUN Data Inc., a multi-owned data processing
consortium. Mr.
-32-
<PAGE>
Richards is a native of central Pennsylvania who has worked as a community
banker since beginning as an intern during high school and college. He is a
graduate of Susquehanna University in Finance and The Stonier Graduate School of
Banking.
^ Samuel J. ^ Malizia is the managing partner of the law firm of Malizia,
Spidi, Sloane & Fisch, P.C.^, a law firm headquartered in Washington, DC with a
State College, Pennsylvania office. For over 18 years, Mr. Malizia has
specialized in transactional, securities and regulatory matters for financial
institutions and related entities. He has represented hundreds of institutions
nationally in connection with securities offerings, mergers and acquisitions,
corporate reorganizations, stockholder and regulatory matters. He received a
Bachelor of Science Degree with Distinction in accounting from the Pennsylvania
State University and a Juris Doctor Degree from the George Washington
University. He served as Attorney Advisor to Special Trial Judge Francis Cantrel
at the United States Tax Court and attended the Masters of Law in Taxation
program at the Georgetown University. He was associate editor of the Tax Lawyer.
He is a member of the Pennsylvania and District of Columbia bars, the U.S. Tax
Court, U.S. Claims Court, U.S. Court of Appeals for the District of Columbia and
a member of the Federal Bar Association and American Bar Association. He is a
member of the Conference on Consumer Finance Law, several committees for
industry trade groups, and a frequent speaker at state and national league
meetings. He is the author of several articles pertaining to mutual- to-stock
conversions, mutual holding companies, mergers and acquisitions, the Community
Reinvestment Act, charter conversions, and securities offerings. He is a native
of Pennsylvania, a resident of State College and an alumnus of several
Pennsylvania State Universities organizations, including Lions Paw, Skull and
Bones Honor Society, Beta Alpha Psi and Omicron Delta Kappa.
^ Donald J. ^ Musso is the founder of FinPro, Inc., a consulting and
investment banking firm which specializes in providing advisory services
nationally to the financial institutions industry. Mr. Musso has a Bachelor of
Science in Finance from Villanova University and an MBA in Finance from
Fairleigh Dickinson University. Mr. Musso's corporation has represented dozens
of financial institutions nationally in connection with business plans,
appraisals, asset liability management, strategic planning, branch acquisitions
and de novo financial institutions. Prior to establishing FinPro, he had direct
industry experience, having managed the Corporate Planning and Mergers and
Acquisitions departments for Meritor Financial Group, a $20 billion dollar
institution in Philadelphia. Prior to that, he was responsible for the banking,
thrift and real estate consulting practice in New Jersey for DeLoitte, Haskins
and Sells.
^ William A. ^ Jaffe is the President and owner of The Jaffe Group, a Human
Resource Consultancy, headquartered in State College, Pennsylvania, which he
established in January 1996. Previously, he was Compensation and Human Resource
Practice Leader for the Mid-Atlantic Region and/or Alexander Consulting Group.
His resume includes 21 years with Towers Perrin as a Vice President and Unit
Head. His expertise includes salary management, incentive pay, executive
compensation, human resource and related organizational effective issues. He
received his Bachelor of Arts degree in journalism from The Pennsylvania State
University and Masters of Science degree in Management from the University of
Illinois. He is an active member of several public and non-profit organizations.
He is President of The Mount Nittany Conservancy and on the Executive Committee
for the Nittany Lion Club, The Penn State College of Communications Alumni
Society, and the Penn State Hillel Foundation. He is an alumnus of several
Pennsylvania State University organizations, including Lions Paw, Skull and
Bones Honor Society and The Daily Collegian. He is a member of the American
Compensation Association and the Society for Human Resource Management. He was a
board member of Acme and Chairman of its Government Relations Committee and an
adjunct associate professor at The George Washington University from 1991 to
1995. He was an Executive Committee and Board member of several not-for-profits
in the Washington, DC area. In 1996, he was named a Penn State Alumni Fellow.
-33-
<PAGE>
D. ^ Michael Taylor is an architect, real estate developer and
entrepreneur, who has resided in the State College area for more than 20 years.
Mr. Taylor has a Masters of Architecture degree from Kansas State University.
Upon graduation, he spent several years in commercial architecture for Phillips
Petroleum and other firms, specializing in retail construction for national
companies. In addition to his architecture practice, Mr. Taylor is part owner of
G-Wald-Taylor, a firm specializing in industrial pump sales to the paper and
pulp industry. Mr. Taylor resides in State College and is active in many
community organizations.
Remuneration of Directors and Officers
Director Compensation. The Organizers do not intend for the Company to pay
directors' fees ^ initially upon the opening of the Bank. The Company will
consider the payment of board fees in the future based upon several factors,
including, but not limited to, the contribution of board members and the
financial condition of the Company
Employment Agreement. The Company entered into an employment agreement with
David Richards to serve as President and Chief Executive Officer of the Company
and the Bank for a three-year term. Mr. Richards has received compensation since
October 31, 1997 during the Bank's organizational period at an annual rate of
$72,000. Upon the opening of the Bank, he will receive an annual compensation of
$100,000.
Pension Plan. The Bank will not initially sponsor a tax-qualified pension
plan. Initially, the Bank may implement a 401(k) plan, which initially will have
contributions only by the employee. In the future, the Bank will consider making
contributions by the Bank.
Stock Option Plan. The boards of directors expects to consider a stock
option plan or plans (the Option Plan) following the Offering^. The exercise
price is expected to be the fair market value of the Common Stock on the date of
grant, but not less than $10.00 per share. Options are expected to vest over
three years. The Board considers the adoption of the Option Plan to be in the
best interests of the Company and its shareholders by assisting the Company and
the Bank in attracting and retaining highly qualified individuals to serve as
members of management and the Board.
Transactions with Related Parties
After the Company commences operations, it may engage in transactions with
its Organizers, officers, employees, directors or other affiliated persons only
to the extent that such activities are permitted by, and consistent with, all
applicable state and federal regulations. OTS and FDIC regulations impose a
number of restrictions on transactions and dealings between the Company and
affiliated persons. The definition of "affiliated person" includes the Company's
directors and officers and their spouses and certain members of their immediate
families. Also included as affiliated persons are certain persons, corporations
and other organizations that have a close relationship with the Company as set
out in the regulations. All dealings between the Company and its affiliated
persons will have to comply with those regulations. The Company plans to adopt
policies designed to assure compliance with those regulations. Such
transactions, should they occur, are expected to be primarily in the nature of
loans made in the ordinary course of business such as home loans, educational
loans or consumer loans.
Malizia, Spidi, Sloane & Fisch, P.C., attorneys at law, are and will
continue providing legal services as special regulatory and securities to the
Company and the Bank. An organizer of both entities is a principal of Malizia,
Spidi, Sloane & Fisch, P.C. The agreed upon fees for services rendered in
connection with this transaction are approximately $50,000, plus reimbursable
expenses. Part of the
-34-
<PAGE>
payment for services rendered has been deferred until the closing of the
Offering. Reimbursable expenses are paid by the Company as incurred, and billed.
FinPro, Inc. has provided consulting services and assistance to management
of the Company and Bank regarding the development of financial proforma
projections, a market feasibility study, and the application process with the
appropriate regulatory agencies and Governmental bodies. A principal of FinPro,
Inc. is also an organizer for each of the entities. The agreed upon fees for
services to be rendered approximate $20,000, plus reimbursable expenses. Part of
the payment for services rendered will be deferred until regulatory approvals
have been obtained regarding the applications for formation and the initiation
of operations by the Bank.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of the Common Stock,
$0.10 par value, ^ of which 300,000 shares (the "Private Placement Shares") were
issued or subscribed for at March 31, 1998 and authorized 5,000,000 shares of
serial preferred stock. The Company does not intend to issue any shares of
serial preferred stock in the Offering, nor are there any present plans to issue
such preferred stock following the Offering. The following is a summary of
certain terms of the Common Stock and is subject to and qualified in its
entirety by reference to the articles of incorporation and bylaws of the Company
which are filed as exhibits to the registration statement of which this
prospectus forms a part. Common Stock
Voting Rights. Each share of the Common Stock will have the same relative
rights and will be identical in all respects with every other share of the
Common Stock. The holders of the Common Stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of the
Common Stock will be entitled to only one vote for each share held of record on
all matters submitted to a vote of holders of the Common Stock and will not be
permitted to cumulate their votes in the election of the Company's directors.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all savings accounts and accrued interest thereon); (ii) any
accrued dividend claims; (iii) liquidation preferences of any serial preferred
stock which may be issued in the future; and (iv) any interests in the
liquidation account.
Restrictions on Acquisition of the Common Stock. See "Certain Anti-Takeover
Provisions" for a discussion of the limitations on acquisition of shares of the
Common Stock.
Other Characteristics. Holders of the Common Stock will not have preemptive
rights with respect to any additional shares of the Common Stock which may be
issued. Therefore, the Board of Directors may sell shares of capital stock of
the Company without first offering such shares to existing stockholders of the
Company. The Common Stock is not subject to call for redemption, and the
outstanding shares of Common Stock when issued and upon receipt by the Company
of the full purchase price therefor will be fully paid and non-assessable.
Issuance of Additional Shares. Other than shares to be issued pursuant to
the Stock Option Plan, the Company has no present plans, proposals, arrangements
or understandings to issue additional
-35-
<PAGE>
authorized shares of the Common Stock. In the future, the authorized but
unissued and unreserved shares of the Common Stock will be available for general
corporate purposes, including, but not limited to, possible issuance as stock
dividends, in connection with mergers or acquisitions, under a cash dividend
reinvestment or stock purchase plan, in a public or private offering, or under
employee benefit plans. Normally no stockholder approval would be required for
the issuance of these shares, except as described herein or as otherwise
required to approve a transaction in which additional authorized shares of the
Common Stock are to be issued.
Serial Preferred Stock
None of the 5,000,000 authorized shares of serial preferred stock of the
Company will be issued in the Offering. After the Offering is completed, the
Board of Directors of the Company will be authorized to issue serial preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and res
trictions thereof, subject to regulatory approval but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the Common Stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The Board of Directors, without stockh
older approval, can issue serial preferred stock with voting and conversion
rights which could adversely affect the voting power of the holders of the
Common Stock. The Board of Directors has no present intention to issue any of
the serial preferred stock.
Certain Anti-Takeover Provisions
The following discussion is a general summary of the material provisions of
the articles of incorporation, bylaws, and certain other regulatory provisions
of the Company, which may be deemed to have such an anti-takeover effect.
Provisions of the Company's Articles of Incorporation and Bylaws
Election of Directors. Certain provisions of the Company's articles of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. the Company's articles of incorporation provide that the Board of
Directors of the Company will be divided into four staggered classes, with
directors in each class elected for four-year terms. Thus, it would take three
annual elections to replace a majority of the Company's board. the Company's
articles of incorporation provide that the size of the Board of Directors may be
increased or decreased only if two-thirds of the directors then in office concur
in such action. The articles of incorporation also provide that any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. Finally, the articles
of incorporation and the bylaws impose certain notice and information
requirements in connection with the nomination by stockholders of candidates for
election to the Board of Directors or the proposal by stockholders of business
to be acted upon at an annual meeting of stockholders.
The articles of incorporation provide that a director may only be removed
for cause by the affirmative vote of at least a majority of the shares of the
Company entitled to vote generally in an election of directors cast at a meeting
of stockholders called for that purpose.
Restrictions on Call of Special Meetings. The articles of incorporation of
the Company provide that a special meeting of stockholders may be called only
pursuant to a resolution adopted by a majority of the Board of Directors.
-36-
<PAGE>
Absence of Cumulative Voting. the Company's articles of incorporation
provide that stockholders may not cumulate their votes in the election of
directors.
Authorized Shares. The articles of incorporation authorizes the issuance of
10,000,000 shares of common stock and 5,000,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in an amount greater
than that to be issued in the Offering to provide the Company's Board of
Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of stock options. However, these additional authorized shares may also
be used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Procedures for Business Combinations. The articles of incorporation require
the affirmative vote of at least 80% of the outstanding shares of the Company
for any merger, consolidation, liquidation, or dissolution of the Company or any
action that would result in the sale or other disposition of at least 50% of the
tangible assets of the Company, unless the transaction has been approved by
two-thirds of the Board of Directors. Any amendment to this provision requires
the affirmative vote of at least 80% of the outstanding shares of the Company.
Amendment to Articles of Incorporation and Bylaws. Amendments to the
Company's articles of incorporation must be approved by the Company's Board of
Directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
number, classification, election and removal of directors; amendment of bylaws;
call of special stockholder meetings; director liability; business combinations;
power of indemnification; and amendments to provisions relating to the foregoing
in the articles of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors or
the affirmative vote of the holders of at least 80% of the outstanding shares of
the Company entitled to vote in the election of directors cast at a meeting
called for that purpose.
Regulatory Restrictions. Federal regulations require that, prior to
obtaining control of an insured institution, a person, other than a company,
must give 60 days notice to the OTS and have received no OTS objection to such
acquisition of control, and a company must apply for and receive OTS approval of
the acquisition. Control, involves a 25% voting stock test, control in any
manner of the election of a majority of the institution's directors, or a
determination by the OTS that the acquiror has the power to direct, or directly
or indirectly to exercise a controlling influence over, the management or
policies of the institution. Acquisition of more than 10% of an institution's
voting stock, if the acquiror also is subject to any one of either "control
factors," constitutes a rebuttable determination of control under the
regulations. The determination of control may be rebutted by submission to the
OTS, prior to the acquisition of stock or the occurrence of any other
circumstances giving rise to such determination, of a statement setting forth
facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings association's stock after the effective
date of the regulations must file with the OTS a certification that
-37-
<PAGE>
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
^ SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a minimum of ^
540,000 and a maximum of ^ 640,000 shares of Common Stock outstanding. All
shares of Common Stock issued in the Offering will be available for resale in
the public market without restriction or further registration under the
Securities Act, except for shares purchased by affiliates of the Company (in
general, any person who has a control relationship with the Company) which
shares will be subject to the resale limitations of Rule 144 under the
Securities Act. After the Offering, shares of Common Stock held by affiliates
will be considered "control shares", and are eligible for sale in the public
market in compliance with Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three month period, a number of restricted shares
as to which at least one year has elapsed from the later of the acquisition of
such shares from the Company or an affiliate of the Company in an amount that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock, or (ii) if the Common Shares are quoted on the Nasdaq National
Market or a stock exchange, the average weekly trading volume of the Common
Shares during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice, and
the availability of current public information about the Company. However, a
person who is not deemed to have been an affiliate of the Company during the 90
days preceding a sale by such person and who has beneficially owned shares as to
which at least two years have elapsed from the later of the acquisition of such
shares from the Company or an affiliate of the Company is entitled to sell them
without regard to the volume, manner of sale, or notice requirements of Rule
144.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Malizia, Spidi, Sloane & Fisch, P.C., Washington D.C., counsel to the
Company.
EXPERTS
The financial statements of the Company included herein and elsewhere in
this Prospectus from inception to December 31, 1997, have been included in
reliance upon the report of S.R. Snodgrass A.C., Wexford, Pennsylvania,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. There have
been no changes in or disagreements with the accountants.
-38-
<PAGE>
^ NITTANY FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors........................................ F-1
Balance Sheet......................................................... F-2
Statement of Operations .............................................. F-3
Statement of Changes in Stockholders' Equity.......................... F-4
Statement of Cash Flows............................................... F-5
Notes to Financial Statements......................................... F-6
All schedules are omitted because they are not required or applicable
or the required information is shown in the financial statements or the notes
thereto.
-39-
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants
[LOGO]
REPORT OF INDEPENDENT AUDITORS
------------------------------
Organizers
Nittany Financial Corp.
We have audited the accompanying balance sheet of Nittany Financial Corp. as of
December 31, 1997, and the related statements of operations, and cash flows for
the period from October 9, 1997 (inception) to December 31, 1997. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nittany Financial Corp. as of
December 31, 1997 and the results of its operations and its cash flows for the
period from October 9, 1997 (inception) to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
- -----------------------
Wexford, PA
May 5, 1998
F-1
<TABLE>
<CAPTION>
<S> <C> <C>
S.R. Snodgrass, A.C.,
101 Bradford Road Wexford, PA 15090-6909 Phone: 724-934-0344 Facsimile: 724-934-0345
</TABLE>
<PAGE>
NITTANY FINANCIAL CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
---------------- ------------------
(Audited) (Unaudited)
<S> <C> <C>
ASSETS
Cash and interest-bearing deposits in banks $ 29,449 $ 146,448
Furniture and equipment - 2,649
Deferred organization costs 70,000 70,000
---------------- ------------------
TOTAL ASSETS $ 99,449 $ 219,097
================ ==================
LIABILITIES
Accounts payable and accrued expenses $ 75,226 $ 70,180
Advances from organizers 50,000 -
---------------- ------------------
TOTAL LIABILITIES 125,226 70,180
---------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized;
none outstanding - -
Common stock, par value $ .10; 10,000,000 shares authorized,
0 and 26,500 issued and outstanding - ^ 1,988
Common stock subscribed (0 and 13,500 shares) - ^ 1,012
Additional paid-in capital - ^ 297,000
Retained deficit (25,777) (49,830)
---------------- ------------------
(25,777) 250,170
Common stock subscriptions receivable - (101,253)
---------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (25,777) 148,917
---------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 99,449 $ 219,097
================ ==================
</TABLE>
See accompanying notes to the financial statements.
F-2
<PAGE>
NITTANY FINANCIAL CORP.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period From
October 9, 1997 Three Months
(Inception) to Ended
December 31, 1997 March 31, 1998
----------------- --------------
(Audited) (Unaudited)
<S> <C> <C>
INTEREST INCOME $ 295 $ 464
EXPENSES
Officer salary and benefits 19,749 20,827
Occupancy and equipment - 439
Professional services 5,908 2,238
Other 415 1,013
---------------- ------------------
Total expenses 26,072 24,517
---------------- ------------------
Loss before income taxes (25,777) (24,053)
Income taxes - -
---------------- ------------------
NET LOSS $ (25,777) $ (24,053)
================ ==================
LOSS PER SHARE - ^ ($2.33)
AVERAGE SHARES OUTSTANDING - ^ 10,328
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
NITTANY FINANCIAL CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Common Additional Stock
Common Stock Paid-In Subscriptions Retained
Stock Subscribed Capital Receivable Deficit Total
------ ---------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net loss for period of October 9, 1997
(Inception) to December 31, 1997 $ - $ - $ - $ - $ (25,777) $ (25,777)
----- ------ ------- ------------- -------- --------
Balance, December 31, 1997 (Audited) - - - - (25,777) (25,777)
Sale of common stock for
cash ($7.50 per share) ^1,988 ^1,012 ^297,000 (101,253) 198,747
Net loss for three months
ended March 31, 1998 (24,053) (24,053)
----- ------ ------- ------------ -------- --------
Balance, March 31, 1998 (Unaudited) $^1,988 $ ^1,012 $^297,000 $ (101,253) $ (49,830) $ 148,917
===== ====== ======= ============ ======== ========
</TABLE>
F-4
<PAGE>
NITTANY FINANCIAL CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
October 9, 1997 Three Months
(Inception) to Ended
December 31, 1997 March 31, 1998
----------------- --------------
(Audited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (25,777) $ (24,053)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Increase in accrued expenses 5,226 -
---------------- ------------------
Net cash used for operating activities (20,551) (24,053)
---------------- ------------------
INVESTING ACTIVITIES
Purchase of one year bank certificate of deposit - (10,548)
Cash paid for organizational costs - (5,046)
Purchase of equipment - (2,649)
----------------
------------------
Net cash used for investing activities - (18,243)
---------------- ------------------
FINANCING ACTIVITIES
Advances from organizers 50,000 -
Proceeds from sale of common stock - 148,747
---------------- ------------------
Net cash provided by financing activities 50,000 148,747
---------------- ------------------
Increase in cash and cash equivalents 29,449 106,451
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - 29,449
---------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,449 $ 135,900
================ ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities
Conversion of advances from organizers to common stock $ $ 50,000
Stock subscriptions receivable $ $ 101,253
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
NITTANY FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (AUDITED) AND MARCH 31, 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
--------------------------------------
Nittany Financial Corp. (the Company) was incorporated under the laws of
the State of Pennsylvania on December 8, 1997, for the purpose of becoming
a holding company, which will own all of the outstanding shares of capital
stock of a proposed federal stock savings bank with the name Nittany Bank
(Proposed Bank). The Company will be a unitary savings and loan holding
company and will own only the Proposed Bank. As of March 31, 1998, the
Company is capitalized to the extent currently considered necessary to
provide adequate funding of the ongoing organization efforts of management
in the formation of the Proposed Bank. The funds necessary to adequately
capitalize the Proposed Bank will be raised through a contemplated initial
public offering (IPO), which is discussed in greater detail in these notes.
Upon satisfaction of the conditions of the IPO and appropriate regulatory
approval is obtained, the Proposed Bank will purchase certain assets from
and will assume certain deposit liabilities related to two State College,
Pennsylvania branch offices of First Commonwealth Bank (Commonwealth).
Qualifying customer bank deposit accounts will be insured by the Federal
Deposit Insurance Corporation. The Proposed Bank will operate from these
branch offices, as a community oriented bank concentrating on consumer
residential and installment loan products and deposit services, from its
headquarters in State College, Pennsylvania. The anticipated opening of the
Proposed Bank is scheduled for the third quarter of 1998.
As of the date of these financial statements, the Company's operations have
been limited to in-formation procedures; raising capital, recruiting
officers and staff, obtaining a banking facility and working towards
obtainment of regulatory approval. Since the Company's planned principal
operations have not yet commenced, no significant revenue has been derived
therefrom. There is no assurance that the Company will be able to raise
sufficient capital to satisfy minimum regulatory capital requirements.
Further, if such capital requirements are not met, the formation of the
Proposed Bank will be delayed or not materialize, and as such, the pending
transactions with Commonwealth will not occur.
The accounting and reporting policies of the Company conform with generally
accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
as of the balance sheet date and income and expenses during the reported
period. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited financial
statements of the Company contain all adjustments necessary for the fair
presentation of the Company's balance sheet, results of operations and cash
flows for the three month period ending March 31, 1998. The results of
operations for this interim period are not indicative of the results than
may be expected for a full year and could be materially different if the
Company was not an "in-formation" entity and operation.
F-6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
Deferred Organization Costs
---------------------------
For the periods presented, the deferred organization costs represent
contractually agreed upon fees to be paid by the Company for legal and
consulting services upon receiving approval from the appropriate regulatory
authorities regarding the formation and operation of the Proposed Bank, and
the successful completion of the IPO. Such costs are for organization work
being completed as well as the IPO. Offering expenses will be charged to
stockholders' equity upon completion of the IPO. Organizational services
relating to the preparation of regulatory applications, feasibility
studies, and financial projections are considered costs of start-up
activities and will be charged to expense once paid.
Advances From Organizers
------------------------
One of the organizers of the Company loaned money to the Company to cover
organizational costs incurred during the months leading up to the Company
formally organizing and authorizing the issuance of common stock to meet
anticipated funding needs. This organizer received common stock in lieu of
reimbursement for funds advanced during the three month period ending March
31, 1998.
Income Taxes
------------
The Company has not provided for a federal income tax provision for the
period ending December 31, 1997, or for the three month period ending March
31, 1998, as the Company represents an entity in-formation and has incurred
operating losses for each period. Further, the Company is anticipating a
loss for the remainder of the start-up period to be incurred during 1998.
As such, a 100% valuation allowance for the deferred tax assets, comprised
of the tax benefits generated from the operating losses, has been recorded.
Earnings Per Share
------------------
Effective February 18, 1998, the Company formally had the ability to issue
common stock and did so with its organizers from that date through March
31, 1998. For the interim period ending March 31, 1998, earnings per share
is calculated using the weighted average number of shares outstanding from
February 18, 1998. For 1998, the Company has maintained a simple capital
structure, therefore, there are no dilutive effects on loss per share
computations.
Cash Flow Information
---------------------
Cash equivalents include amounts due from banks, and interest-bearing
deposits with banks that have original maturities of 90 days or less.
2. STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING
Initial capitalization of the Company has occurred through the subscription
and issuance of common stock, in a private placement which has been
exclusively offered to the organizers of the Company during the first
quarter of 1998. As of March 31, 1998, a total of 30,000 shares, at an
offering price of $10.00 per share, have been subscribed to or issued.
F-7
<PAGE>
2. STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING (Continued)
The Company intends to issue between 500,000 and 600,000 shares of common
stock at $10 per share in an initial public offering (IPO). Current shares
of common stock owned by the organizers as of March 31, 1998, and any
additional shares issued prior to the IPO, will remain issued and
outstanding. The Company anticipates purchasing all of the common stock to
be issued by the Proposed Bank with the net proceeds received from the IPO.
3. RELATED PARTY TRANSACTIONS
Malizia, Spidi, Sloane & Fisch, P.C., attorneys at law, are and will
continue providing legal and consulting services to the Company and the
Proposed Bank. An organizer of both entities is a principal of Malizia,
Spidi, Sloane & Fisch, P.C. The agreed upon fees for services to be
rendered approximate $50,000, plus reimbursable expenses. The payment for
services rendered has been deferred until the closing of the IPO.
Reimbursable expenses are paid by the Company as incurred, and billed.
FinPro, Inc. will provide consulting services and assistance to management
of the Company and Proposed Bank regarding the development of financial pro
forma projections, a market feasibility study, and the application process
with the appropriate regulatory agencies and Governmental bodies. A
principal of FinPro, Inc. is also an organizer for each of the entities.
The agreed upon fees for services to be rendered approximate $20,000, plus
reimbursable expenses. The payment for services rendered will also be
deferred until regulatory approvals have been obtained regarding the
applications for formation and the initiation of operations by the Proposed
Bank.
4. BRANCH PURCHASE AND ASSUMPTION AGREEMENT
On March 24, 1998, the Company, through its organizers, entered into a
Branch Purchase and Deposit Assumption Agreement (the Agreement), with
Commonwealth, for the acquisition of certain assets and the assumption of
certain deposit liabilities related to Commonwealth's branch offices
located at 116 East College Avenue and 1276 North Atherton Street, State
College, Pennsylvania. The effective closing date of the transactions is to
occur only after receipt of all necessary approvals from the appropriate
regulatory authorities regarding such transactions have been obtained.
Further, regulatory approval regarding the formation of the Proposed Bank,
which will operate the branch offices, must also be obtained prior to the
consummation of the Agreement. In general, the Agreement can be terminated
by Commonwealth or the Company if the effective closing date has not
occurred by the earlier of September 30, 1998 or within 30 days of the
receipt of all required regulatory approvals, unless mutually extended.
Pursuant to the Agreement, the Company, through is anticipated subsidiary,
the Proposed Bank, has agreed to: (i) assume approximately $11.4 million of
deposit liabilities; (ii) purchase, at book value, any loans from these
offices that are secured by deposit accounts and unsecured loans created by
overdraft line arrangements with a customer; (iii) purchase, at book value,
furniture, fixtures, equipment, and leasehold improvements owned by
Commonwealth and located at each branch office; (iv) purchase the safe
deposit box business conducted at the branches; (v) assume the lease
contracts for each office; and (vi) purchase all cash funds on hand at each
office.
In consideration for the assumption of the deposit liabilities, the Company
has agreed to pay Commonwealth a deposit premium of 10%. The premium will
be paid using cash (9%) and common stock of the Company (1%). As of March
31, 1998, the estimated premium due to Commonwealth at closing is valued at
$ 1.04 million.
F-8
<PAGE>
APPENDIX A
NITTANY FINANCIAL CORP.
A proposed
Holding Company for Nittany Bank
(In Organization)
State College, Pennsylvania
SUBSCRIPTION AGREEMENT
THE OFFER OF THE SECURITIES IS MADE ONLY
BY THE ACCOMPANYING PROSPECTUS
Subject to the terms and conditions of sale contained in the Prospectus
dated ______, 1998, (the "Prospectus"), the undersigned hereby subscribes for
the purchase of the number of shares shown below of the common stock ($0.10 par
value), of Nittany Financial Corp. (the "Company"), a proposed holding company
for Nittany Bank (In Organization) (the "Bank"). The purchase price is $10.00
per share and full payment is enclosed with this Subscription Agreement.
Enclosed as payment for the shares subscribed to herein is a check, bank draft
or money order payable to Roxborough-Manayunk Bank, Escrow Agent for Nittany
Financial Corp.," in the amount shown below.
Terms not otherwise defined herein shall have the same meaning as in
the Prospectus.
All subscriptions for the Offering are subject to a 100 share purchase
minimum and a 30,000 share maximum purchase limitation per subscriber. For
purposes of determining the maximum purchase limitation, the term subscriber
includes all persons who are affiliates of the person submitting this
Subscription Agreement (an affiliate is a person that directly, or indirectly,
controls, is controlled by or is under common control with, the subscriber).
Method of Subscription
All subscriptions must be made on this Subscription Agreement.
Subscriptions are not binding until accepted by the Company. The Company
reserves the right to reject any subscription, with or without cause. The
Company will refuse any subscription by sending written notice to the subscriber
by first-class mail within ten calendar days after receipt of the subscription,
and the subscriber's Subscription Agreement and refund of payment will accompany
such notice. Any Subscription Agreement which is completely and correctly filled
out, which is accompanied by proper and full payment and which is physically
received at the office of the Company by an employee or agent of the Company by
the date set forth in the Prospectus, shall be deemed to have been accepted if
it is not refused as hereinbefore provided within ten calendar days after such
receipt.
^
A-1
<PAGE>
A completed Subscription Agreement and payment in full (made in the
manner specified below) of the total subscription price for the number of shares
subscribed should be mailed directly to the Company at the following address:
Nittany Financial Corp.
Calder Square
P.O. Box 10283
State College, Pennsylvania 16805
Subscriptions also may be delivered in person to the office of the Company at
637 Kennard Road, State College, Pennsylvania between 10:00 a.m. and 5:00 p.m.
Monday through Friday.
IMPORTANT: PAYMENTS MUST BE MADE IN UNITED STATES FUNDS BY CHECK, BANK DRAFT OR
MONEY ORDER PAYABLE TO "ROXBOROUGH-MANAYUNK BANK, ESCROW AGENT FOR NITTANY
FINANCIAL CORP.," CHECKS MAY NOT BE MADE PAYABLE TO THE ORGANIZERS OF THE
COMPANY. FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE SUBSCRIPTION
AGREEMENT WILL RESULT IN THE SUBSCRIPTION BEING RETURNED BY THE ESCROW AGENT.
Terms of the Offering
The Company is offering a minimum of 500,000 shares and a maximum of
600,000 shares at $10.00 per share pursuant to the Prospectus. The Offering will
terminate at 5:00 p.m., State College, Pennsylvania Time, on ^ September 15,
1998, unless extended by the Company ^ without further notice to subscribers. If
the Offering extends beyond ^ November 30, 1998, subscribers will have the right
to increase, decrease or rescind subscriptions for stock previously submitted. ^
If an extension to the Offering is obtained, subscribers would be
provided a supplemental offering prospectus, declared effective by the SEC and
an opportunity to increase (dependent upon the availability of shares), decrease
or rescind their subscriptions. The Company will deliver an effective prospectus
to all persons to whom the securities offered hereby are to be sold at least 48
hours prior to the acceptance or confirmation of sale to such persons or to send
such a prospectus to such persons under circumstances that it would normally be
received by them 48 hours prior to acceptance or confirmation of the sale.
The Company ^ will mail to all subscribers who have theretofore
received a Prospectus written notice of any such determination to terminate the
Offering at least seven days prior to such termination. During this seven day
period, the Company will continue to accept subscriptions for up to 600,000
shares. There will be only one closing.
Subscription Escrow Agreement
^ The Escrow Agent will maintain the records of the Escrow Account so
that each subscriber's funds will be insured up to $100,000 by the ^ FDIC so
long as such funds are held in the escrow account.
Subscribers may not receive interest on their subscription funds, if
the Offering expenses are in excess of the amounts to be covered by the proceeds
of the Private Placement. However, if such funds are held by the Company in
excess of 90 days, such funds will be returned promptly to the subscriber with
any interest earned thereon. Subscribers will not be entitled to any return of
funds during the Offering period.
A-2
<PAGE>
Receipts
Not sooner than forty-eight hours after receipt of the subscriber's
Subscription Agreement and payment in full for the shares subscribed the Company
will deliver a receipt to the subscriber by first-class mail or by personal
delivery.
Stock Certificates
Within approximately seven business days after receipt of final
regulatory approval and authorization to do business, the Company will cause to
be mailed by first-class mail or deliver to each subscriber a certificate
representing the shares of common stock purchased by such subscriber.
Acknowledgements
The undersigned hereby acknowledges receipt of a copy of the
Prospectus, and represents that this Subscription Agreement is made solely on
the basis of the information contained in the Prospectus and is not made in
reliance on any inducement, representation or statement not contained in the
Prospectus. The undersigned understands that no person (including any Organizer)
has authority to give any information or to make any representation not
contained in the Prospectus, and if given or made, such information or
representation must not be relied upon as having been authorized. The
undersigned represents that this subscription is made for the benefit of the
undersigned and not for the benefit of any other person who is not identified on
this Subscription Agreement. The undersigned also acknowledges that there is in
the Offering a minimum purchase requirement of 100 shares and a maximum purchase
limitation of 30,000 shares. The undersigned is aware that ownership of 5% or
more of the outstanding Common Stock could obligate the undersigned to comply
with certain reporting and other requirements of federal and state banking and
securities laws. The undersigned understands that the shares of the Common Stock
offered by the Company are not savings accounts or deposits and are not insured
by the Federal Deposit Insurance Corporation, the Savings Association Insurance
Fund or any other governmental or private agency.
A-3
<PAGE>
This Subscription Agreement is made in consideration of the premises
set forth in the Prospectus and the subscriptions of others, and the undersigned
acknowledges that this Subscription Agreement creates a legally binding
obligation unless refused by the Company.
Number of shares __________ at $10.00 per share (100 share minimum) equals
$___________________ (Total Purchase Price)
___________________________________________________________
(Name(s) in which stock certificates should be registered*)
___________________________________________________________
(Street Address)
___________________________________________________________
(City/State/Zip Code)
( )
___________________________________________________________
(Social Security or Tax I.D. No.) (Telephone No.)
__________________________________________ ___________________________________
(Date) (Signature)
__________________________________________ ___________________________________
(Date) (Signature)
*Stock certificates for shares to be issued in the names of two or more
persons will be registered in the names of such persons as joint tenants with
right of survivorship, and not as tenants in common.
If shares are to be held in joint ownership, all joint owners should
sign this Agreement. Information on the Agreement will be treated confidentially
by the Company, to the extent permitted by applicable laws and regulations.
If purchaser is a corporation or partnership, list the names of the
principals of the corporation or partnership as well as the name of the
corporation or partnership.
A-4
<PAGE>
NITTANY FINANCIAL CORP.
^ 515,000 to 615,000 Shares
Common Stock
----------------------
PROSPECTUS
----------------------
Dated July __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 26. Recent Sales of Unregistered Securities.
Set forth below is certain information concerning all sales of
securities by the Company since inception that were not registered under the
Securities Act of 1933 (the "Securities Act").
The Company offered and sold to the Organizers 30,000 common shares at
$10.00 per share for a total aggregate consideration of $300,000. The sales were
exempt from the registration requirements of the Securities Act pursuant to
Section 3(b) and the provisions of Rule 504 of Regulation D.
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are as
follows:
3(i) Amended Articles of Incorporation of Nittany Financial
Corp.*
3(ii) Bylaws of Nittany Financial Corp.*
4 Specimen Stock Certificate of Nittany Financial Corp. *
4.1 Form of Subscription Agreement (included as Appendix A to
the Prospectus)
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
10 Employment Agreement with David Z. Richards*
10.1 Branch Purchase and Deposit Assumption Agreement (including
Amendment No. 1 to Agreement)* (Form of Amendment No.2 to
Agreement)
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included in
Exhibit 5)
23.2 Consent of S.R. Snodgrass, A.C.
27 Financial Data Schedule**
99.1 Marketing Materials
---------------------
* Previously filed
** Electronic filing only
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in State College,
Pennsylvania, on July 27, 1998.
NITTANY FINANCIAL CORP.
By: /s/David Z. Richards, Jr.
------------------------------------
David Z. Richards, Jr.
President, Chief Executive Officer and Director
(Duly Authorized Representative)
We the undersigned directors and officers of Nittany Financial Corp. do
hereby severally constitute and appoint David Z. Richards, Jr. our true and
lawful attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said David Z. Richards, Jr. may
deem necessary or advisable to enable Nittany Financial Corp. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of Nittany Financial Corp.'s
common stock, including specifically but not limited to, power and authority to
sign for us or any of us, in our names in the capacities indicated below, the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that David Z.
Richards, Jr. shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of July 27, 1998.
/s/Samuel J. Malizia /s/David Z. Richards, Jr.
- ------------------------------- -----------------------------------------------
Samuel J. Malizia David Z. Richards, Jr.
Chairman of the Board, Director President, Chief Executive Officer and Director
and Assistant Secretary (Principal Executive, Financial and Accounting
Officer)
/s/Donald L. Musso /s/William A. Jaffe
- ------------------------------- -----------------------------------------------
Donald L. Musso William A. Jaffe
Director Director and Secretary
/s/D. Michael Taylor
- -------------------------------
D. Michael Taylor
Director
EXHIBIT 5
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
July 27, 1998
Board of Directors
Nittany Financial Corp.
637 Kennard Road
State College, Pennsylvania 16801
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
on Form SB-2 (Commission File No. 333-57277) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, (the "Act")
relating to the offer and sale (the "Offering") of up to 615,000 shares of
common stock, par value $.10 per share (the "Common Stock"), of Nittany
Financial Corp. (the "Company"). As special counsel to the Company, we have
reviewed such legal matters as we have deemed appropriate for the purpose of
rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Offering against full payment
therefor, be validly issued, fully paid, and non-assessable shares of Common
Stock of the Company.
We assume no obligation to advise you of changes that may hereafter be
brought to our attention.
We hereby consent to the use of this opinion and to the reference to
our firm appearing in the Company's Prospectus under the heading "Legal
Matters." In giving this consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Securities and Exchange Commission adopted under
the Act.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
-----------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 10.1
<PAGE>
BRANCH PURCHASE AND DEPOSIT ASSUMPTION AGREEMENT
AMENDMENT NO. 2
This shall constitute an Amendment dated June __, 1998 to the Branch
Purchase and Deposit Assumption Agreement (the "Agreement") entered into the
24th day of March 1998, as amended, between First Commonwealth Bank, a state
chartered commercial bank having its principal office at Philadelphia and Sixth
Streets, Indiana Pennsylvania 15701 (the "Seller"), and Nittany Financial Corp.,
a Pennsylvania holding company organized for the purpose of forming and owning
100% of the stock of Nittany Bank, a federally chartered stock savings bank (in
formation), having its principal office at 637 Kennard Road, State College,
Pennsylvania 16801 (the "Purchaser"). The Seller and the Purchaser are
hereinafter sometimes collectively referred to as the "Parties".
WHEREAS, pursuant to Section 10.03 of the Agreement, the Parties, by
mutual consent of their respective duly authorized officers, wish to amend,
modify and supplement the Agreement,
NOW, THEREFORE, in consideration of and in accordance with the
provisions of the Agreement, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the Parties hereby amend the
"Definitions" section and Sections 1.03(a) and 1.05(a)(iii) of the Agreement as
follows:
DEFINITIONS
"Premium" has the meaning set forth in Section 1.03(a) of this
Agreement.
ARTICLE I
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
1.03 Payment of Premium.
- ------------------------
(a) The Purchaser further agrees that on the Effective Date, subject to
the terms and conditions of this Agreement, it shall pay to the Seller a premium
in the form of cash equal to nine percent (9%)and it shall pay to
______________, the holding company of the Seller owning ___% of the voting
stock of the Seller, a premium in the form of stock equal to one percent (1%)
times (X) the Deposit Liabilities less Excluded Deposits as defined herein at
the Branches (the "Premium")....
<PAGE>
1.05 Additional Obligations of the Parties.
- -------------------------------------------
(a) Actions by Seller at Closing. On the Effective Date, the Seller will:
----------------------------
. . . . . . . . . . . . . .
(iii) make available to the Purchaser cash equal to the sum of the
Deposits Liabilities plus accrued interest assumed by the Purchaser plus the
Deposit and the accrued interest thereon LESS the sum of: (i) the purchase price
for the Loans to be assumed pursuant to Section 1.04(c); (ii) the payment for
the assets set forth at Section 1.02(b)(i); and (iii) the nine percent (9%) cash
portion of the Premium set forth in Section 1.03(a);...
EXHIBIT 23.2
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants
[LOGO]
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Nittany Financial Corp.
on Form SB-2 of our report dated May 5, 1998 appearing in the Prospectus, which
is part of such Registration Statement, and to the reference to us under the
heading "Experts" in the Prospectus.
/s/ S. R. Snodgrass, A.C.
- --------------------------
Wexford, PA
July 24, 1998
<TABLE>
<CAPTION>
<S> <C>
S. R. Snodgrass, A.C.
101 Bradford Road Wexford, PA 15090-6909 Phone: 724-934-0344 Facsimile: 724-934-0345
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
FINANCIAL STATEMENTS IN THE PROSPECTUS WHICH FORMS PART OF FORM SB-2/A AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> OTHER 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 29,449 146,448
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 0 0
<ALLOWANCE> 0 0
<TOTAL-ASSETS> 99,449 219,097
<DEPOSITS> 0 0
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 125,226 70,180
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 2,650
<OTHER-SE> (25,777) 146,267
<TOTAL-LIABILITIES-AND-EQUITY> 99,449 219,097
<INTEREST-LOAN> 0 0
<INTEREST-INVEST> 0 0
<INTEREST-OTHER> 295 464
<INTEREST-TOTAL> 295 464
<INTEREST-DEPOSIT> 0 0
<INTEREST-EXPENSE> 0 0
<INTEREST-INCOME-NET> 0 0
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 26,072 24,517
<INCOME-PRETAX> (25,777) (24,053)
<INCOME-PRE-EXTRAORDINARY> (25,777) (24,053)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (25,777) (24,053)
<EPS-PRIMARY> 0 (2.33)
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 0 0
<LOANS-NON> 0 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 0 0
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 0 0
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
EXHIBIT 99.1
<PAGE>
Share in the Future
of Community Banking
--------------------
Questions and Answers
About Our Stock Offering
--------------------
NITTANY FINANCIAL CORP.
a Proposed Holding Company
for
Nittany Bank
(In Organization)
<PAGE>
Q & A
INTRODUCTION
Nittany Financial Corp. (the "Company") was incorporated in December 1997 to
acquire and hold all of the authorized capital stock to be issued and
outstanding of Nittany Bank, a federal stock savings bank in organization (the
"Bank").
The Company is seeking to raise approximately $5.0 to $6.0 million of capital by
offering a minimum 500,000 shares and a maximum of 600,000 shares of common
stock ("Common Stock") at $10.00 per share.
Some of the most frequently asked questions about the Company and the Offering
are outlined below.
INFORMATION ABOUT NITTANY FINANCIAL CORP.
Q. What is the background of the Company?
A. The Company was incorporated in December 1997 to acquire and hold all
of the authorized capital stock to be issued and outstanding of Nittany
Bank, a federal stock savings bank in organization (the "Bank"). The
Company and the Bank have not yet conducted active business operations,
and the authority to commence such operations is dependent upon, among
other things, the receipt of various regulatory approvals and the sale
of the minimum number of shares in the offering. The organizers and
initial board of directors of the Company and the Bank are David Z.
Richards Jr., Samuel J. Malizia, William A. Jaffe, D. Michael Taylor,
and Donald J. Musso (the "Organizers"). The Organizers previously
purchased for long-term investment $300,000 of Common Stock in a
private placement to fund organizational, preoperating and offering
expenses.
The Company entered into a Branch Purchase and Deposit Assumption
Agreement on March 24, 1998 (the "Branch Purchase Agreement") with
First Commonwealth Bank, a state chartered commercial bank having its
principal office in Indiana, Pennsylvania. Pursuant to the Agreement,
the Company will assume the deposit liabilities and purchase certain
assets of two offices located at 116 East College Avenue and 1276 North
Atherton Street, State College, Pennsylvania. The principal business of
the Bank will be to accept various types of transaction and savings
deposits from the general public and to make mortgage, consumer, small
business and other loans.
<PAGE>
THE OFFERING
Q. How will the net proceeds of the Offerings be used?
A. The net proceeds to the Company from the Offering are estimated to be
between $5.0 million and $6.0 million from the sale of 500,000 to
600,000 shares of Common Stock.
The Offering consists of a minimum 500,000 shares and a maximum of
600,000 shares of Common Stock at $10.00 per share. In the Offering,
there is a minimum purchase requirement of 100 shares and a maximum
purchase limitation of 30,000 shares per subscriber including all
affiliates of such subscriber. The Offering will terminate on September
15, 1998, unless extended by the Organizers for an additional period
ending November 30, 1998, without additional notice to subscribers.
All of the proceeds of the Offering are expected to be invested by the
Company in the Common Stock of the Bank. The Bank will use the proceeds
from the sale of its Stock to the Company for (i) investment in
mortgage, consumer, small business loans, and other loans, (ii) payment
of operating expenses or (iii) working capital purposes. Until utilized
for operations, investments or lending purposes, proceeds of this
Offering will be invested in interest-bearing investments and
securities.
Q. How many shares are being offered, and is there a minimum number of
shares that must be subscribed for by investors in order for the
Company to complete the Offering and receive proceeds?
A. The offering consists of a minimum of 500,000 shares and a maximum of
600,000 shares of common stock.
A minimum of 500,000 shares must be subscribed for in order for the
Offering to close and proceeds to be distributed to the Company. All
subscriptions are irrevocable upon receipt by the Company.
PRICING
Q. What is the Offering Price per share of the Common Stock in the
Offering and how was the Offering Price determined?
A. The Offering Price per share is $10.00. The Offering Price of the
Common Stock has been arbitrarily determined by the Organizers as the
Company is a new enterprise. Accordingly, there can be no assurance
that the shares of Common Stock can be resold at the Offering Price or
any other amount.
<PAGE>
Q. Must I pay a commission when buying the shares?
A. No brokerage commission or fee will be charged to subscribers for the
purchase of Common Stock in the Offering. The Company is responsible
for paying all of the expenses of the Offering.
ORDERING
Q. How do I pay for the Common Stock?
A. Subscribers must complete and submit to the Company the Stock
Subscription Agreement. Subscribers should make payment in the amount
of the aggregate purchase price, by check, bank draft or money order
payable to "Roxborough-Manayunk Bank, Escrow Agent for Nittany
Financial Corp." An executed Stock Subscription Agreement, once
received by the Company, may not be modified, amended or rescinded.
Subscriptions will be deemed accepted if notice of rejection is not
mailed to the subscriber within ten business days of receipt of the
subscription. Any payments collected from subscribers will be held in
an interest-bearing escrow account. If certain conditions are not
satisfied by the Company on or before September 15, 1998, (unless the
Offering is extended to November 30, 1998), funds held in the escrow
account, including any interest earned thereon, will be refunded
promptly. Subscribers may not receive any interest on their
subscription funds, if the Offering expenses are in excess of amounts
to be covered by the proceeds of the Private Placement. However, if
such funds are held by the Company in excess of 90 days, such funds
will be returned to the subscriber with any interest earned thereon.
Subscribers will not be entitled to any return of funds during the
Offering Period. Failure to include the full subscription price with
the subscription agreement will result in the subscription being
returned to you by the Company.
Q. What are the purchase limitations?
A. Each investor in the Offering is required to subscribe for a minimum of
100 shares. The maximum subscription for each investor in the Offering
is 30,000 shares. The Company reserves the right to accept or reject,
in whole or in part, any subscription in the Offering.
TIMING
Q. When is the Offering expected to conclude?
A. The Offering will terminate at 5:00 p.m., State College, Pennsylvania
Time, on September 15, 1998, unless extended by the Company without
further notice to the subscriber. The Company reserves the right to
terminate the Offering at any time. However, if the Offering is not
completed by November 30, 1998, subscribers will have the right to
increase, decrease or rescind subscriptions for stock previously
submitted. If an extension to the Offering is obtained, subscribers
would be provided a supplemental
<PAGE>
offering prospectus, declared effective by the Securities and Exchange
Commission, and an opportunity to increase (dependent upon the
availability of shares), decrease or rescind their subscriptions. The
Company will deliver an effective prospectus to all persons to whom the
securities offered hereby are to be sold at least 48 hours prior to the
acceptance or confirmation of sale to such persons or to send such a
prospectus to such persons under circumstances that it would normally
be received by them 48 hours prior to acceptance or confirmation of the
sale.
The Company will mail to all subscribers and other persons who have
received a Prospectus written notice of any such determination to
terminate the Offering at least seven days prior to such terminations.
During this seven day period, the Company may continue to accept
subscriptions for up to 600,000 shares. There will be only one closing.
Q. When will I receive my stock certificate?
A. Stock Certificates for shares subscribed for and accepted by the
Closing Date, are expected to be issued within 15 days after such date.
AFTERMARKET
Q. How is the Company's stock traded?
A. Prior to the Offering, there has been no public market for the Common
Stock of the Company. Although there can be no assurance, the Company
expects that, following the Offering, the Common Stock will be traded
in the over-the-counter market ("OTC") through the OTC "Electronic
Bulletin Board." There can be no assurance, however, that an active
trading market will develop or, if developed,, will be sustained
following the Offering.
Q. Will dividends be paid on the Common Stock?
A. The Company is a legal entity separate and distinct from the Bank.
Because the Company initially will engage in no business other than
owning all of the outstanding shares of capital stock of the Bank, the
Company's payment of dividends on the Common Stock will generally be
funded only from dividends received by the Company from the Bank, which
dividends are dependent on, among other things, the Bank's
profitability. In addition, the payment of dividends may be made only
if the Bank and the Company are in compliance with certain applicable
regulatory requirements governing the payment of dividends by each of
them. No assurance can be given that dividends on the Common Stock will
ever be paid. The Company expects that earnings, if any, will be used
initially for operating capital and the Company does not foresee
payment of any dividends in the near future. The Common Stock should
not be purchased by persons who need or desire dividend income from
this investment.
<PAGE>
Q. In the future, how can I purchase additional shares or sell shares?
A. Shares may be traded through any stockbroker. A commission may be
charged for trades through a stockbroker.
FURTHER INFORMATION
Q. How can I get additional information about the Offering?
A. You may obtain additional information about the Offering by contacting
David Z. Richards at (412) 466-6336.
This Questions and Answers Pamphlet is neither an offer to sell nor a
solicitation of an offer to buy securities. The Offering is made only by the
Prospectus. The shares of Common Stock are not bank deposits, are not
obligations of, or guaranteed by the Company or Bank, are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, and involve investment risk, including the possible loss of principal.
Copies of the Prospectus may be obtained by calling (412) 466- 6336. See the
"Risk Factors" section of the Prospectus beginning on page 1 for a discussion of
certain matters that should be considered carefully by prospective purchasers of
the Common Stock.
