<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
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Commission File Number 333-57277
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Nittany Financial Corp.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2925762
- ------------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
637 Kennard Road, State College, Pennsylvania 16801
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(Address of principal executive offices)
(814) 466 - 6336
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class: Common Stock, par value $.10 per share
Outstanding at August 31, 1998: 30,000 shares
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NITTANY FINANCIAL CORP.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet (Unaudited) as of
June 30, 1998 and December 31, 1997 3
Statement of Operations (Unaudited) for the
Three Months and Six Months ended June 30,1998
and for the period from October 9, 1997 (Inception)
to June 30, 1998 4
Statement of Cash Flows (Unaudited)
for the Six Months ended June 30,1998
and for the period from October 9, 1997 (Inception)
to June 30, 1998 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Recent Developments 7 - 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10 & 11
SIGNATURES 12
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NITTANY FINANCIAL CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
ASSETS
Cash and interest-bearing deposits in banks $ 157,687 $ 29,449
Furniture and equipment 2,649 --
Deferred organization costs 70,000 70,000
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TOTAL ASSETS $ 230,336 $ 99,449
========= =========
LIABILITIES
Accounts payable and accrued expenses $ 70,190 $ 75,226
Advances from organizers -- 50,000
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TOTAL LIABILITIES 70,190 125,226
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STOCKHOLDERS' EQUITY
Preferred stock, no par value; 15,000,000 shares
authorized; none outstanding -- --
Common Stock, par value $.10; 10,000,000
shares authorized; 25,000 and 0 issued
and outstanding 2,500 --
Common stock subscribed (5,000 and 0 shares) 500 --
Additional paid-in capital 297,000 --
Retained deficit (89,854) (25,777)
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210,146 (25,777)
Common stock subscriptions receivable (50,000) --
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TOTAL STOCKHOLDERS' EQUITY 160,146 (25,777)
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 230,336 $ 99,449
========= ========
</TABLE>
See accompanying notes to the financial statements.
3
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NITTANY FINANCIAL CORP.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Three Months Six Months October 9, 1997
Ended Ended (Inception)
June 30, 1998 June 30, 1998 to June 30, 1998
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<S> <C> <C> <C>
INTEREST INCOME $ 744 $ 1,208 $ 1,503
EXPENSES
Officer salary and benefits 20,886 41,713 61,462
Occupancy and equipment - 439 439
Professional services 1,484 3,722 9,630
Other 18,398 19,411 19,826
------------------ -------------- ------------
Total expenses 40,768 65,285 91,357
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Loss before income taxes (40,024) (64,077) (89,854)
Income taxes - - -
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NET LOSS $ (40,024) $ (64,077) $ (89,854)
=================== ============== ==============
LOSS PER SHARE $ (1.97) $ (3.74) $ (5.25)
AVERAGE SHARES OUTSTANDING 20,269 17,130 17,130
</TABLE>
See accompanying notes to the financial statements.
4
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NITTANY FINANCIAL CORP
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Six Months October 9, 1997
Ended (Inception)
June 30, 1998 to June 30, 1998
------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (64,077) $ (89,854)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in accrued expenses -- 5,226
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Net cash used for operating activities (64,077) (84,628)
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INVESTING ACTIVITIES
Purchase of one year bank certificate of deposit (10,548) (10,548)
Cash paid for organizational costs (5,036) (5,036)
Purchase of equipment (2,649) (2,649)
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Net cash used for investing activities (18,233) (18,233)
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FINANCING ACTIVITIES
Advances from organizers -- 50,000
Proceeds from sale of common stock 200,000 200,000
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Net cash provided by financing activities 200,000 250,000
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Increase in cash and cash equivalents 117,690 147,139
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 29,449 -
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 147,139 $ 147,139
========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Noncash financing activities:
Conversion of advances from organizers
to common stock $ 50,000 $ 50,000
Stock subscriptions receivable $ 50,000 $ 50,000
</TABLE>
See accompanying notes to the financial statements.
5
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NITTANY FINANCIAL CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not necessarily include
all information that would be included in audited financial statements. The
information furnished reflects all adjustments, which are, in the opinion of
management, necessary for a fair statement of the results of operations. All
such adjustments are of a normal recurring nature. As of the date of these
financial statements, Nittany Financial Corp.'s (Company) 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. The results of
operations for the interim periods are not indicative of the results that may be
expected for a full year and could be materially different if the Company was
not an "in-formation" entity and operation.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement provides accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring the recognition of those items as
assets or liabilities in the balance sheet, recorded at fair value. Statement
No. 133, precludes a held-to-maturity security from being designated as a hedged
item, however, at the date of initial application of this statement, an entity
is permitted to transfer any held-to-maturity security into the
available-for-sale or trading categories. The unrealized holding gain or loss on
such transferred securities shall be reported consistent with the requirements
of Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Such transfers do not raise an issue regarding an entity's intent
to hold other debt securities to maturity in the future. This statement applies
prospectively for all fiscal quarters of all years beginning after June 15,
1999. Earlier adoption is permitted for any fiscal quarter that begins after the
issue date of this statement.
6
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CAUTIONARY STATEMENT - FORWARD-LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to; economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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 ("Bank"). The Company
must receive regulatory approval to open the Bank from the Federal Deposit
Insurance Corporation and from the Office of Thrift Supervision . Regulatory
approval will be subject to the Company raising sufficient capital to meet
regulatory capital requirements, and to satisfy any additional anticipated cash
requirements of the Company and Bank for their respective first full year of
operations. The Company is offering for sale in an 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. Should subscriptions for the minimum offering not be
obtained, amounts paid by subscribers with their subscriptions will be returned,
and the formation of the Bank will be delayed or not materialize. In addition to
the shares issued pursuant to this Offering, 30,000 shares at a price of $10.00
per share, have been issued to Organizers pursuant to a Private Placement, and
an estimated 10,000 shares of common stock will be issued to a bank holding
company as partial payment of a premium on deposits to be assumed by the Bank.
The Company, through its organizers, entered into a Branch Purchase Agreement
("Agreement") on March 24, 1998 with First Commonwealth Bank, a Pennsylvania
state chartered commercial bank. Pursuant to the Agreement, the Company will
assume the deposit liabilities and purchase certain assets of two offices
located in State College, Pennsylvania. The Company has agreed to pay First
Commonwealth a premium in the form of cash equal to nine percent and in the form
of stock equal to one percent times the deposit liabilities. The total deposit
premium is estimated to be $ 935,000 in cash and $104,000 (10,400 shares) in
common stock of the Company. The Company will purchase furniture, fixtures and
equipment in an amount approximating $34,000. The Company will also assume the
branch facilities leases. Minor renovations to the facilities will be necessary
prior to opening the offices. In general, the building structures are in good
physical condition. The Agreement is subject to several conditions, including
the required approval of government regulatory authorities, the consent of the
landlords regarding the Company's assumption of the leases and the completion of
the stock offering The Agreement may be terminated by mutual consent of the
parties, inability to obtain regulatory approval, or failure to close the
transaction by the earlier of September 30,1998 or within 30 days after receipt
of the required regulatory approvals.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (Continued)
The proposed business of the Bank will consist of offering a full range of
banking services to individuals, professional and business customers in its
primary service area. These services will include providing personal and
business demand, savings and time certificates of deposit, and the origination
of residential and commercial mortgages, home equity loans, consumer loans,
small business and other loans. Customer deposits with the Bank will be at rates
competitive with those offered in the Bank's primary service area, and will be
insured to the maximum extent provided by law through the FDIC. The Bank does
not anticipate offering brokered deposits. The loans the Bank anticipates
originating will consist of both adjustable and fixed rate instruments. The Bank
or Company may also offer through affiliations with other companies, alternative
non-deposit investments, such as mutual funds and securities. The Bank intends
to also offer night depository, telephone banking, bank-by-mail, and safe
depository services. The Bank does not anticipate offering trust and fiduciary
services, but may rely on trust and fiduciary services offered by correspondent
banks, if customers request such services.
Effective July 1, 1998, the Company entered into a data processing and services
agreement with LUN Data Inc. and the Kirchman Corporation. The Bank will incur
monthly data processing fees of approximately $3,000 to $5,000, once operations
begin. A one-time software liscensing and conversion fee of approximately
$14,000 was paid in July 1998.
Initially, the Bank anticipates deriving its income principally from interest
charged on loans and interest earned on its investment portfolio. Income will
also be derived, to a lesser extent; from fees received in connection with
deposit services offered and loan originations. The Bank's principal expenses
will be interest expense incurred on customer deposits, and noninterest
operating expenses such as salaries and employee benefits, data processing
charges and occupancy costs.
For additional information regarding the Company, the Bank, and their proposed
operations, please refer to the Registration Statement filed on Form SB-2 with
the Securities and Exchange Commission, dated July 31, 1998.
8
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YEAR 2000
A great deal of information has been disseminated about the global computer year
2000. Many computer programs that can only distinguish the final two digits of
the year entered (a common programming practice in earlier years) are expected
to read entries for the year 2000 as the year 1900 and compute payment, interest
or delinquency based on the wrong date or are expected to be unable to compute
payment, interest or delinquency. Rapid and accurate data processing is
essential to our Bank's operation. Data processing is also essential to most
other financial institutions and many other companies. A third party service
bureau will be providing all of the material data processing that could be
affected by this problem. Our prospective service bureau has advised us that it
is substantially compliant and it expects to resolve this potential problem
before the year 2000. In this vein, the core application software vendor, whose
products are used by our prospective service bureau, has recently obtained
ITAA*2000 certification, which indicates that the software has the core
capabilities needed to handle the Year 2000 challenge. However, if our service
bureau is unable to resolve all facets of this potential problem in time, we
could likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on our financial condition and our results of operation. In order to
determine the service bureau is year 2000 compliant, management must develop a
test plan, which it intends to implement during the first half of 1999.
Management expects to incur additional operating expenses during 1999, relating
to designing and performing tests of the Bank's computer systems. Management has
determined the total costs that will be incurred to become year 2000 compliant
are not material to the Company and its proposed banking subsidiary.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
N/A
Item 4 - Submission of matters to a vote of security holders
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this report:
<TABLE>
<CAPTION>
The exhibits filed as part of this Registration Statement are as follows:
<S> <C>
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. *
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)*
27 Financial Data Schedule** As of June 30,1998, neither the Company
nor the Bank had commenced their respective operations as a bank
holding company or as a federal savings bank, and neither will do
so unless final regulatory approvals are obtained and the
required capitalization of the Bank by the Company is obtained from the
proceeds of the Company's stock offering, which is presently still pending.
</TABLE>
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* Incorporated by reference to the registration statement
on Form SB-2 (333-57277).
** Electronic filing only
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the second quarter of the
year ending December 31, 1998.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Nittany Financial Corp.
Date: September 11, 1998 By:\s\ David Z. Richards, Jr.
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David Z. Richards, Jr.
President ,Chief Executive Officer
And Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 158
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 230
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 70
<LONG-TERM> 0
0
0
<COMMON> 3
<OTHER-SE> 157
<TOTAL-LIABILITIES-AND-EQUITY> 230
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 1
<INTEREST-TOTAL> 1
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 65
<INCOME-PRETAX> (64)
<INCOME-PRE-EXTRAORDINARY> (64)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64)
<EPS-PRIMARY> (3.74)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
