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, 2000
-----
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
-----
For the transition period from to
----------- ----------
Commission File Number 333-57277
--------------------------------
Nittany Financial Corp.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2925762
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
116 E. College Avenue, State College, Pennsylvania 16801
(Address of principal executive offices)
(814) 234 - 7320
(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 X No
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 10, 2000: 709,389
<PAGE>
NITTANY FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
Number
-----------------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of 3
June 30, 2000 and December 31, 1999
Consolidated Statement of Income (Unaudited)
for the Six Months ended June 30, 2000 and 1999 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended June 30, 2000 and 1999 5
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 6
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended June 30, 2000 and 1999 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8 - K 13 - 14
SIGNATURES 15
</TABLE>
<PAGE>
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 128,036 $ 826,181
Interest-bearing deposits with other banks 1,414,004 2,231,694
Investment securities available for sale 15,395,710 15,872,402
Investment securities held to maturity (market
value of $1,503,192 and $1,652,336) 1,584,531 1,674,729
Loans receivable (net of allowance for loan losses
of $257,673 and $186,647) 35,792,277 27,979,708
Premises and equipment 158,911 175,587
Intangible assets 870,647 894,392
Accrued interest and other assets 482,192 390,031
----------------- -----------------
TOTAL ASSETS $ 55,826,308 $ 50,044,724
================= =================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 2,377,035 $ 2,626,107
Interest-bearing demand 5,874,168 5,659,727
Money market 14,653,673 15,032,313
Savings 2,575,494 1,732,077
Time 15,592,720 10,733,000
----------------- -----------------
Total deposits 41,073,090 35,783,224
FHLB advances 8,600,000 8,600,000
Accrued interest payable and other liabilities 286,836 430,097
----------------- -----------------
TOTAL LIABILITIES 49,959,926 44,813,321
----------------- -----------------
STOCKHOLDER'S EQUITY
Serial perferred stock, no par value; 5,000,000 shares - -
authorized, none issued
Common stock, $.10 par value, 10,000,000 shares
authorized; 709,389 and 656,476 issued and outstanding 70,939 65,648
Additional paid-in capital 7,040,564 6,464,476
Retained deficit (670,338) (752,781)
Accumulated other comprehensive loss (574,783) (545,940)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 5,866,382 5,231,403
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 55,826,308 $ 50,044,724
================= =================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
----------------- -----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 1,270,580 $ 405,214
Investment securities 572,397 451,004
Interest-bearing deposits with other banks 64,877 60,392
----------------- -----------------
Total interest and dividend income 1,907,854 916,610
----------------- -----------------
INTEREST EXPENSE
Deposits 850,557 414,325
FHLB advances 269,105 125,074
----------------- -----------------
Total interest expense 1,119,662 539,399
----------------- -----------------
NET INTEREST INCOME 788,192 377,211
Provision for loan losses 71,000 -
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 717,192 377,211
----------------- -----------------
NONINTEREST INCOME
Service fees on deposit accounts 105,137 55,503
Realized gain on sale of securities - 1,342
Other income 21,119 12,244
----------------- -----------------
Total noninterest income 126,256 69,089
----------------- -----------------
NONINTEREST EXPENSE
Compensation and employee benefits 345,733 236,240
Occupancy and equipment 114,884 95,066
Data processing 83,971 33,630
Goodwill amortization 23,745 25,558
Professional fees 34,815 62,874
Printing and supplies 33,962 26,062
Other 123,895 119,896
----------------- -----------------
Total noninterest expense 761,005 599,326
----------------- -----------------
Income (loss) before income taxes 82,443 (153,026)
Income taxes - -
----------------- -----------------
NET INCOME (LOSS) $ 82,443 $ (153,026)
================= =================
EARNINGS (LOSS) PER SHARE:
Basic $ $0.12 $ ($0.27)
Diluted $0.12 ($0.27)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 696,252 577,436
Diluted 696,711 577,436
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
----------------- -----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 688,686 $ 254,869
Investment securities 287,973 246,272
Interest-bearing deposits with other banks 31,837 17,985
----------------- -----------------
Total interest and dividend income 1,008,496 519,126
----------------- -----------------
INTEREST EXPENSE
Deposits 453,105 234,480
FHLB advances 138,891 75,017
----------------- -----------------
Total interest expense 591,996 309,497
----------------- -----------------
NET INTEREST INCOME 416,500 209,629
Provision for loan losses 38,000 -
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 378,500 209,629
----------------- -----------------
NONINTEREST INCOME
Service fees on deposit accounts 50,977 28,252
Realized gain on sale of securities - 1,342
Other income 11,257 8,772
----------------- -----------------
Total noninterest income 62,234 38,366
----------------- -----------------
NONINTEREST EXPENSE
Compensation and employee benefits 177,275 126,316
Occupancy and equipment 58,270 45,886
Data processing 41,345 17,852
Goodwill amortization 11,873 11,868
Professional fees 20,867 38,117
Printing and supplies 17,481 9,154
Other 68,084 68,328
----------------- -----------------
Total noninterest expense 395,195 317,521
----------------- -----------------
Income (loss) before income taxes 45,539 (69,526)
Income taxes - -
----------------- -----------------
NET INCOME (LOSS) $ 45,539 $ (69,526)
================= =================
EARNINGS (LOSS) PER SHARE:
Basic $ $0.06 $ ($0.12)
Diluted $0.06 ($0.12)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 709,389 577,436
Diluted 709,389 577,436
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAIDITED)
Accumulated
Other
Additional Compre- Total Compre-
Common Paid-in Retained hensive Stockholders' hensive
Stock Capital Deficit Loss Equity Income
---------- ----------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 65,648 $ 6,464,476 $(752,781) $ (545,940) $ 5,231,403
Common stock issued, net 5,291 576,088 581,379
Net income 82,443 82,443 $ 82,443
Other comprehensive income:
Unrealized loss on available for
sale securities (28,843) (28,843) (28,843)
--------
Comprehensive income $ 53,600
---------- ----------- --------- ---------- ------------ ========
Balance, June 30, 2000 $ 70,939 $ 7,040,564 $(670,338) $ (574,783) $ 5,866,382
========== =========== ========= ========== ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 82,443 $ (153,026)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Provision for loan losses 71,000 --
Depreciation, amortization, and accretion, net 53,821 81,931
Decrease (increase) in accrued interest receivable (72,617) (101,882)
Increase (decrease) in accrued interest payable (165,972) 4,760
Other, net 3,167 (91,143)
------------ ------------
Net cash used for operating activities (28,158) (259,360)
------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases -- (6,851,792)
Maturities and repayments 442,237 2,596,201
Investment securities held to maturity:
Purchases -- (1,945,065)
Maturities and repayments 89,906 128,444
Net increase in loans receivable (9,978,990) (13,372,124)
Proceeds from sales of loans 2,095,500 --
Purchase of premises and equipment (7,575) (78,541)
------------ ------------
Net cash used for investing activities (7,358,922) (19,522,877)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 5,289,866 11,454,503
Proceeds from long-term FHLB advances -- 4,100,000
Net proceeds from the sale of common stock 581,379 --
------------ ------------
Net cash provided by financing activities 5,871,245 15,554,503
------------ ------------
Decrease in cash and cash equivalents (1,515,835) (4,227,734)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 3,057,875 5,929,243
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,542,040 $ 1,701,509
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period for:
Interest on deposits and borrowings $ 1,285,634 $ 544,159
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
7
<PAGE>
NITTANY FINANCIAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Nittany Financial Corp. (the "Company")
includes its wholly-owned subsidiaries, Nittany Bank (the "Bank") and Nittany
Asset Management, Inc. All significant intercompany items have been eliminated.
The accompanying unaudited consolidated 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 that 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. The results
of operations for the three and six-months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the fiscal year ended
December 31, 2000 or any other interim period.
These statements should be read in conjunction with the consolidated financial
statements and related notes for the year ended December 31,1999 and 1998, which
are incorporated by reference in the Company's Annual Report on Form 10-KSB.
NOTE 2 - EARNINGS PER SHARE
The Company provides dual presentation of Basic and Diluted earnings per share.
Basic earnings per share utilizes net income as reported as the numerator and
the actual average shares outstanding as the denominator. Diluted earnings per
share includes any dilutive effects of options, warrants, and convertible
securities. For the six months ended June 30, 2000, the diluted number of shares
outstanding from employee and director stock options was 459. There were no
dilutive shares of common stock for the three months ended June 30, 2000 or for
the three and six-months ended June 30, 1999.
8
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
GENERAL
The Private Securities Litigation Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes," "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, the ability to control costs and expenses, the
opening of additional branch locations, general economic conditions, government
policies and actions of regulatory authorities. The Company undertakes no
obligation to publicly release the results of any revisions to those forward
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
Nittany Financial Corp. ("Nittany") is a holding company organized in
1997 for the purpose of establishing a de novo community bank in State College,
Pennsylvania. The business operations of Nittany include two operating
subsidiaries, Nittany Bank and Nittany Asset Management, Inc. (collectively, the
"Company").
On April 24, 2000, the Company entered into a lease agreement for a new
branch office to be located in State College at 129 Rolling Ridge Drive, which
began operations on August 7, 2000. The Company currently estimates that costs
in connection with renovations to this new branch location to be approximately
$140,000.
CHANGES IN FINANCIAL CONDITION
During the first six months of 2000, the Company has experienced strong
growth with total assets increasing $5,782,000 or 11.6% to $55,826,000 at June
30, 2000. This growth was fueled by a steady increase in net loans of $7,813,000
that was funded primarily through increases in time and savings deposits
totaling $5,703,000, as well as the receipt of aggregate net proceeds of
$1,402,000 from the common stock offering.
The decrease in cash and cash equivalents was primarily used to meet
daily operating needs, as well as provided funding for loan originations.
Management maintains a
9
<PAGE>
level of cash equivalents which is desirable for meeting the normal cash flow
requirements of its customers for the funding of loans and repayment of
deposits.
The increase in net loans resulted from the economic health of the
Company's market area and the strategic, service-oriented marketing approach
taken by management to meet the lending needs of the area. Of this increase,
approximately 94.6%, or $7,453,000 was comprised of loans secured by various
forms of real estate. The real estate lending growth included $3,864,000 and
$1,366,000 in owner occupied and non-owner occupied one-to-four family
mortgages, respectively, and $1,868,000 in commercial real estate.
At June 30, 2000, the Company's allowance for loan losses approximated
$258,000 as compared to $187,000 at December 31, 1999. Management continually
evaluates the adequacy of the allowance for loan losses, which encompasses the
overall risk characteristics of the various portfolio segments, past experience
with losses, the impact of economic conditions on borrowers, industry standards
since the Bank is a denovo bank and other relevant factors that may come to the
attention of management. Although the Company maintains its allowance for loan
losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its loan portfolio, there can be no assurance that future losses
will not be required in future periods. Management may increase the allowance
for loan losses based upon its quarterly internal risk analysis. At June 30,
2000, loans past due thirty days or more totaled $4,000.
Due to the continued marketing efforts of promoting the opening of a
new community bank in the State College area, deposits increased $5,290,000 or
14.8% to $41,073,000 at June 30, 2000. This increase was primarily the result of
increases in time and savings deposits of $4,860,000 and $843,000, respectively.
The Company completed a successful effort to lengthen the maturities of its
deposit base by growing one to three year certificates of deposit by $5,333,000
for the period while partially being offset by a decline in short-term
certificates of $1,695,000.
Stockholder's equity increased $635,000 to $5,866,000 at June 30, 2000
from $5,231,000 at December 31, 1999 primarily as a result of net income of
$82,000 and the sale of 52,913 shares of common stock resulting in net proceeds
of $581,000.
RESULTS OF OPERATIONS
The Company recorded net income of $46,000 and $82,000 for the three
and six months ended June 30, 2000, respectively, as compared to a net loss of
$70,000 and $153,000, respectively, for the same periods in 1999.
.
The $115,000 increase in net income for the three months ended June 30,
2000, as compared to the three months ended June 30, 1999, was attributable to
an increase in net interest income of $207,000 and an increase in noninterest
income of $24,000. Partially offsetting these favorable variances between
quarters were increases in noninterest expense and the provision for loan
losses, of $78,000 and $38,000, respectively.
10
<PAGE>
The $235,000 increase in net income for the six months ended June 30,
2000, as compared to the six months ended June 30, 1999, was attributable to an
increase in net interest income of $411,000 and an increase in noninterest
income of $57,000. Partially offsetting these favorable variances between
quarters were increases in noninterest expense and the provision for loan
losses, of $162,000 and $71,000, respectively.
Net interest income for the three and six-months ended June 30, 2000
was $416,000 and $788,000 as compared to $210,000 and $377,000 for the same
periods ended 1999. Interest income increased $489,000 and $991,000 for the
three and six-months ended June 30, 2000 as compared to the prior year. These
increases can be attributed primarily to increases in interest earned on loans
receivable and investment securities of $434,000 and $42,000, for the three
months ended June 30, 2000 and 1999, respectively, and $865,000 and $121,000,
for the six-months ended June 30, 2000 and 1999, respectively. Although there
was an increase in general interest rate levels during these periods, interest
income was primarily driven by increases in average balances of interest-earning
assets. The average balance of loans outstanding increased $20.3 million to
$33.6 million and $20.9 million to $31.1 million for the three and six-months
ended June 30, 2000, respectively, compared to $13.3 million and $10.5 million,
respectively, for the same periods in the prior year. The average balance of
investment securities increased $419,000 to $17.2 million and $2.0 million to
$17.3 million for the three and six-months ended June 30, 2000, respectively,
compared to $16.7 million and $15.3 million, for the same periods in the prior
year. The yield on interest earning assets increased from 6.18% and 6.32% for
the three and six-months ended June 30, 1999, respectively, to 7.57% and 7.40%
for the same periods ended in 2000, primarily due to an increasing interest rate
environment.
Interest expense increased $282,000 and $580,000 for the three and
six-months ended June 30, 2000 as compared to the prior year. Interest incurred
on deposits increased $219,000 and $436,000 to $453,000 and $851,000 for the
three and six-months ended June 30, 2000, compared to $234,000 and $414,000 for
the same periods in the prior year. This increase was primarily attributable to
an increase in the average balance of interest-bearing deposits of $16.7 million
and $17.5 million to $37.6 million and $36.1 million for the three and
six-months ended June 30, 2000, respectively, compared to $20.9 million and
$18.6 million, respectively, for the same periods in the prior year. Interest
incurred on borrowed funds increased $64,000 and $144,000 to $139,000 and
$269,000 for the three and six-months ended June 30, 2000, respectively,
compared to $75,000 and $125,000 for the same periods in the prior year. This
increase was primarily attributable to an increase in the average balance of
borrowed funds of $3.3 million and $3.4 million to $8.4 million and $8.5 million
for the three and six-months ended June 30, 2000, compared to $5.1 million for
the both periods in the prior year. This increase in borrowed funds is a
reflection of the increase in loans receivables, as such funds were utilized to
provide for loan growth. The cost of funds increased from 4.75% and 4.56% for
the three and six-months ended June 30, 1999, respectively, to 5.15% and 5.02%
for the same periods ended in 2000, primarily due to an increasing interest rate
environment.
11
<PAGE>
Total noninterest income for the three and six-months ending June 30,
2000 increased $24,000 and $57,000 to $62,000 and $126,000, respectively, as
compared to $38,000 and $69,000 for the same periods ended 1999. Non-interest
income items are primarily comprised of normal service charges and fees on
deposits, along with fee income derived from ATM surcharges. Such amounts have
progressively increased during each quarter as the number of deposit accounts
and volume of related transactions have increased.
Total noninterest expenses increased $78,000 and $162,000 to $395,000
and $761,000 for the three and six-months ended June 30, 2000, respectively,
from $318,000 and $599,000, respectively, for the same periods ended 1999. In
the prior year periods, Nittany Bank had been in operation for less than a year.
The increase in total noninterest expenses for the current year three and
six-month periods is primarily related to operating a larger organization.
Higher professional fees for the prior year three and six-month periods were the
result of the Company's new operations.
CAPITAL RESOURCES
Management monitors both the Company's and the Bank's Total risk-based,
Tier I risk-based and Tier I leverage capital ratios in order to assess
compliance with regulatory guidelines. At June 30, 2000, both the Company and
the Bank exceeded the Minimum risk-based and leverage capital ratio
requirements. The Company's and Bank's Total risk-based, Tier I risk-based and
Tier I leverage ratios are 16.7%, 16.0%, 10.0% and 16.0%, 15.3%, 9.6%,
respectively, at June 30, 2000.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults by the Company on its senior securities
None
Item 4. Submission of matters to a vote of security holders
The following represents the results of matters submitted to a vote
of the stockholders at the annual meeting held on May 18, 2000:
Election of a Director for term to expire in 2004:
David K. Goodman, Jr. was elected by the following vote:
For: 485,345
Votes Withheld: 2,700
Election of a Director for term to expire in 2004:
William A. Jaffe was elected by the following vote::
For: 485,345
Votes Withheld: 2,700
S.R. Snodgrass A.C.was selected as the Company's independent auditors
for the fiscal year 2000 by the following vote:
For: 482,145
Against: 2,900
Votes Abstaining: 3,000
Item 5. Other information
None
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are incorporated herein by reference:
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. *
10.1 Employment Agreement between the Bank and David Z. Richards *
10.2 Nittany Financial Corp. 1998 Stock Option Plan**
27 Financial Data Schedule (electronic filing only)
99 Independent Accountants Review Report
-----------
* Incorporated by reference to the identically numbered exhibit to the
registration statement on Form SB-2 (File No. 333-57277) declared effective
by the SEC on July 31, 1998.
** Incorporated by reference to the identically numbered exhibit to the Form
10-KSB filed with the Commission on March 28, 2000.
(b) Reports on Form 8-K.
On April 6, 2000, an Item 5 Form 8-K was filed to disclose the
completion of the common stock offering.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned and hereunto duly authorized.
Nittany Financial Corp.
Date: August 11, 2000 By: /s/David Z. Richards
-------------------------------------
David Z. Richards
President and Chief Executive Officer
