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 March 31, 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 May 5, 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
March 31, 2000 and December 31, 1999
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 2000 and 1999 4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 5
Consolidated Statement of Cash Flows (Unaudited)
for the Three Months ended March 31, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Default Upon Senior Securities 11
Item 4. Submissions of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8 - K 11
SIGNATURES 12
</TABLE>
<PAGE>
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 489,411 $ 826,181
Interest-bearing deposits with other banks 5,319,425 2,231,694
Investment securities available for sale 15,717,536 15,872,402
Investment securities held to maturity (market
value of $1,541,887 and $1,652,336) 1,624,632 1,674,729
Loans receivable (net of allowance for loan losses
of $219,673 and $186,647) 31,608,335 27,979,708
Premises and equipment 169,468 175,587
Intangible assets 882,520 894,392
Accrued interest and other assets 379,410 390,031
----------------- -----------------
TOTAL ASSETS $ 56,190,737 $ 50,044,724
================= =================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 3,601,066 $ 2,626,107
Interest-bearing demand 5,482,514 5,659,727
Money market 16,279,543 15,032,313
Savings 1,818,328 1,732,077
Time 13,953,652 10,733,000
----------------- -----------------
Total deposits 41,135,103 35,783,224
FHLB advances 8,600,000 8,600,000
Accrued interest payable and other liabilities 605,391 430,097
----------------- -----------------
TOTAL LIABILITIES 50,340,494 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 (715,877) (752,781)
Accumulated other comprehensive loss (545,383) (545,940)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 5,850,243 5,231,403
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 56,190,737 $ 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>
Three Months Ended March 31,
2000 1999
----------------- -----------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 581,894 $ 150,345
Investment securities 284,424 204,732
Interest-bearing deposits with other banks 33,040 42,407
----------------- -----------------
Total interest and dividend income 899,358 397,484
----------------- -----------------
INTEREST EXPENSE
Deposits 397,452 179,845
FHLB advances 130,214 50,057
----------------- -----------------
Total interest expense 527,666 229,902
----------------- -----------------
NET INTEREST INCOME 371,692 167,582
Provision for loan losses 33,000 -
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 338,692 167,582
----------------- -----------------
NONINTEREST INCOME
Service fees on deposit accounts 54,160 27,251
Other income 9,862 3,472
----------------- -----------------
Total noninterest income 64,022 30,723
----------------- -----------------
NONINTEREST EXPENSE
Compensation and employee benefits 168,458 109,924
Occupancy and equipment 56,614 49,180
Data processing 42,626 15,778
Goodwill amortization 11,872 13,690
Professional fees 13,948 24,757
Printing and supplies 16,481 16,908
Other 55,811 51,568
----------------- -----------------
Total noninterest expense 365,810 281,805
----------------- -----------------
Income (loss) before income taxes 36,904 (83,500)
Income taxes - -
----------------- -----------------
NET INCOME (LOSS) $ 36,904 $ (83,500)
================= =================
EARNINGS (LOSS) PER SHARE:
Basic $ $0.05 $ ($0.14)
Diuluted $0.05 ($0.14)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 683,114 577,436
Diuluted 684,941 577,436
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAIDITED)
<TABLE>
<CAPTION>
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 36,904 36,904 $ 36,904
Other comprehensive income:
Unrealized income on available for
sale securities 557 557 557
--------
Comprehensive income $ 37,461
------- ------------ ---------- ---------- ------------- ========
Balance, March 31, 2000 $70,939 $ 7,040,564 $ (715,877) $ (545,383) $ 5,850,243
======= ============ ========== ========== =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 36,904 $ (83,500)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Provision for loan losses 33,000 -
Depreciation, amortization, and accretion, net 27,138 30,689
Increase in accrued interest receivable (6,823) (31,376)
Increase in accrued interest payable 183,179 7,893
Other, net 9,559 (11,435)
----------------- -----------------
Net cash provided by (used for) operating activities 282,957 (87,729)
----------------- -----------------
INVESTING ACTIVITIES
Funding of purchase commitment for investment security - (500,000)
Investment securities available for sale:
Purchases - (3,523,012)
Maturities and repayments 152,294 1,665,249
Investment securities held to maturity:
Purchases - (1,945,065)
Maturities and repayments 49,851 -
Net increase in loans receivable (4,962,164) (5,951,471)
Proceeds from sales of loans 1,300,500 -
Purchase of premises and equipment (5,735) (51,559)
----------------- -----------------
Net cash used for investing activities (3,465,254) (10,305,858)
----------------- -----------------
FINANCING ACTIVITIES
Net increase in deposits 5,351,879 6,582,242
Proceeds from long-term FHLB advances - 600,000
Net proceeds from the sale of common stock 581,379 -
----------------- -----------------
Net cash provided by financing activities 5,933,258 7,182,242
----------------- -----------------
Increase (decrease) in cash and cash equivalents 2,750,961 (3,211,345)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 3,057,875 5,929,243
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 5,808,836 $ 2,717,898
================= =================
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the period for:
Interest on deposits and borrowings $ 344,487 $ 222,009
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<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 months ended March 31, 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 three months ended March 31, 2000, the diluted number of
shares outstanding from employee and director stock options was 1,826. There
were no dilutive shares of common stock for the three months ended March 31,
1999.
7
<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 March 31, 2000, Nittany completed its additional common stock
offering and sold approximately 131,953 common shares, at $11.00 per share, or
$1,451,483. Of the total shares sold, the Company completed the sale of 79,040
shares on December 31, 1999. The proceeds of the offering are expected to be
used to fund loans, improve profitability and possible expansion of an
additional branch office. In connection with the possible expansion of an
additional branch office, 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. The Company currently estimates that costs in connection with
renovations to this new branch location to be approximately $140,000. The new
branch is subject to the non-objection of the Office of Thrift Supervision and
is expected to open during the third quarter 2000.
CHANGES IN FINANCIAL CONDITION
The Company experienced strong growth at March 31, 2000 with total
assets increasing $6,146,000 or 12.3% to $56,191,000 from $50,045,000 at
December 31, 1999. This growth was stimulated primarily by an increase in net
loans of $3,629,000 and an increase in interest-bearing deposits with other
banks of $3,088,000. Funding for this growth was provided primarily through
increases in various deposit products totaling $5,352,000, as well as the
receipt of aggregate net proceeds of $1,402,000 from the common stock offering.
8
<PAGE>
The increase in interest bearing deposits in other banks primarily
reflects the purchase certificates of deposit totaling $2,500,000. Management
maintains a 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 93.4%, or $3,418,000 was comprised of loans secured by various
forms of real estate. The real estate lending growth included $2,378,000 in
one-to-four family mortgages and $890,000 in commercial real estate.
At March 31, 2000, the Company's allowance for loan losses approximated
$220,000 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.
Due to the continued marketing efforts of promoting the opening of a
new community bank in the State College area, deposits increased $5,352,000 or
15.0% to $41,135,000 at March 31, 2000 compared to $35,783,000 at December 31,
1999. This growth was spread among three primary sources: time deposits of
$3,221,000, money market accounts of $1,247,000, and demand deposits $798,000.
The growth in time deposits include approximately $2,500,000 of short term
certificate of deposits, which the Company does not believe will be retained in
the long term.
Stockholder's equity increased $619,000 to $5,850,000 at March 31, 2000
from $5,231,000 at December 31, 1999 as a result of net income of $37,000 and
the sale of 52,913 shares of common stock resulting in net proceeds of $581,000.
RESULTS OF OPERATIONS
Net income increased $120,000 to $37,000 for the three-month period
ended March 31, 2000 from a net loss of $84,000 for the same period ended 1999.
Higher net income for the current three month period was primarily the result of
higher net interest and non-interest income partially offset by an increase in
non-interest expenses .
9
<PAGE>
Net interest income for the three months ended March 31, 2000 was
$372,000 as compared to $168,000 for the same period ended 1999. The interest
yield margin for the current year three month period increased 35 basis points
to 2.93% from 2.63% for same period in 1999. Additionally, the interest rate
spread for the current three month period increased 41 basis points to 2.33%
from 1.92% for the same the period in 1999. Despite the increase in general
interest rate levels during the period, both interest income and expense were
driven by increases in average balances of interest-earning assets and
interest-bearing liabilities. Of the $24,353,000 and $21,935,000 increases in
average interest-earning assets and interest-bearing liabilities, respectively,
$21,533,000 and $18,422,000 were primarily the result of loan and deposit
growth, respectively.
Total non-interest income for the three-month period ending March 31,
2000 increased $33,000 to $64,000 from $31,000 for the same period 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. Also
included in non-interest income for the current three month period was
approximately $9,900 of income from Nittany Asset Management.
Total non-interest expenses increased $84,000 to $366,000 for the
three-month period ended March 31, 2000 from $282,000 for the same period ended
1999. In the prior year three month period, Nittany Bank was in operation for
approximately five months. The increase in total non-interest expenses for the
current year three month period is primarily related to operating a larger
organization. Higher professional fees for the prior year three month period
were the result of the Company's new operations.
LIQUIDITY AND 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 March 31, 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%, 16.1%, 9.9% and 16.0%, 15.4%, 9.5%,
respectively, at March 31, 2000.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In connection with the common stock offering, the Company sold stock
on December 31, 1999 and February 3, 2000. Information regarding these
sales is included in Item 5(b) of the Form 10KSB filed with the
Commission on March 28, 2000. The Company terminated the stock
offering on March 31, 2000 and sold an additional 10,385 shares for
net proceeds of $114,000. There were no direct or indirect payments to
affiliates.
Item 3. Defaults by the Company on its senior securities
None
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) 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.
11
<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: By: /s/David Z. Richards
-------------------------------------
David Z. Richards
President and Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 489
<INT-BEARING-DEPOSITS> 5,319
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,718
<INVESTMENTS-CARRYING> 1,625
<INVESTMENTS-MARKET> 1,542
<LOANS> 31,608
<ALLOWANCE> 186
<TOTAL-ASSETS> 56,191
<DEPOSITS> 41,135
<SHORT-TERM> 0
<LIABILITIES-OTHER> 605
<LONG-TERM> 8,600
0
0
<COMMON> 71
<OTHER-SE> 5,779
<TOTAL-LIABILITIES-AND-EQUITY> 56,191
<INTEREST-LOAN> 582
<INTEREST-INVEST> 284
<INTEREST-OTHER> 33
<INTEREST-TOTAL> 899
<INTEREST-DEPOSIT> 397
<INTEREST-EXPENSE> 528
<INTEREST-INCOME-NET> 372
<LOAN-LOSSES> 33
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 366
<INCOME-PRETAX> 37
<INCOME-PRE-EXTRAORDINARY> 37
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-BASIC> .05
<EPS-DILUTED> .05
<YIELD-ACTUAL> 2.98
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 187
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 220
<ALLOWANCE-DOMESTIC> 220
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Nittany Financial Corp.
We have reviewed the accompanying consolidated balance sheet of Nittany
Financial Corp. and subsidiaries as of March 31, 2000, and the related
consolidated statements of income and cash flows for the three-month period
ended March 31, 2000 and 1999, and the consolidated statement of changes in
stockholders' equity for the three-month period ended March 31, 2000. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated February 25, 2000 we expressed an unqualified opinion on those
consolidated financial statements
/s/ S.R.Snodgrass, A.C.
Wexford, PA
May 5, 2000
