UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10 - QSB
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X QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
- ----- OF 1934
For the quarterly period ended March 31, 2001
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- -----
For the transition period from ___ to ___
Commission File Number 0-32623
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Nittany Financial Corp.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2925762
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation 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 10, 2001: 780,312
NITTANY FINANCIAL CORP.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of 3
March 31, 2001 and December 31, 2000
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 2001 and 2000 4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 5
Consolidated Statement of Cash Flows (Unaudited)
for the Three Months ended March 31, 2001 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8 - K 12
SIGNATURES 13
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31,
2001 2000
------------ ------------
ASSETS
Cash and due from banks $ 516,609 $ 411,553
Interest-bearing deposits with other banks 5,824,255 3,821,851
Investment securities available for sale 11,906,809 14,849,794
Investment securities held to maturity (market
value of $3,858,327 and $4,523,173) 3,843,717 4,536,734
Loans receivable (net of allowance for loan losses
of $374,381 and $343,673) 46,344,292 43,416,301
Premises and equipment 1,115,459 358,854
Federal Home Loan Bank stock 530,000 530,000
Intangible assets 834,997 846,707
Accrued interest and other assets 518,887 648,568
------------ ------------
TOTAL ASSETS $ 71,435,025 $ 69,420,362
============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 3,652,875 $ 3,905,448
Interest-bearing demand 7,951,197 8,941,842
Money market 12,421,942 15,021,369
Savings 9,893,663 6,351,164
Time 19,749,905 19,655,028
------------ ------------
Total deposits 53,669,582 53,874,851
Short-term borrowings 4,611,110 2,000,000
FHLB advances 5,936,419 6,600,000
Accrued interest payable and other liabilities 719,966 585,939
------------ ------------
TOTAL LIABILITIES 64,937,077 63,060,790
------------ ------------
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; 780,312 issued and outstanding 78,031 78,031
Additional paid-in capital 7,652,275 7,652,275
Retained deficit (1,184,372) (1,221,659)
Accumulated other comprehensive loss (47,986) (149,075)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,497,948 6,359,572
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 71,435,025 $ 69,420,362
============ ============
See accompanying notes to the unaudited consolidated financial statements.
3
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended March 31,
2001 2000
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INTEREST AND DIVIDEND INCOME
Loans, including fees $ 922,688 $ 581,894
Investment securities 296,032 284,424
Interest-bearing deposits with other banks 48,966 33,040
---------- ----------
Total interest and dividend income 1,267,686 899,358
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INTEREST EXPENSE
Deposits 645,402 397,452
Borrowings 141,902 130,214
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Total interest expense 787,304 527,666
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NET INTEREST INCOME 480,382 371,692
Provision for loan losses 40,500 33,000
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 439,882 338,692
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NONINTEREST INCOME
Service fees on deposit accounts 69,623 54,160
Other income 19,455 9,862
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Total noninterest income 89,078 64,022
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NONINTEREST EXPENSE
Compensation and employee benefits 221,905 168,458
Occupancy and equipment 85,400 56,614
Professional fees 21,484 13,948
Data processing 53,049 42,626
Goodwill amortization 11,710 11,872
Stationery, printing, supplies, and postage 23,865 16,481
Other 74,260 55,811
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Total noninterest expense 491,673 365,810
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Income before income taxes 37,287 36,904
Income taxes - -
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NET INCOME $ 37,287 $ 36,904
========== ==========
EARNINGS PER SHARE:
Basic $ 0.05 $ 0.05
Diuluted $ 0.05 $ 0.05
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 780,312 683,114
Diuluted 787,101 684,941
See accompanying notes to the unaudited consolidated financial statements.
4
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated
Other
Additional Compre- Total Compre-
Common Paid-in Retained hensive Stockholders' hensive
Stock Capital Deficit Loss Equity Income
------- --------- ------------ --------- ----------- ----------
Balance, December 31, 2000 $78,031 $7,652,275 $(1,221,659) $ (149,075) $ 6,359,572
Net income 37,287 37,287 $ 37,287
Other comprehensive income:
Unrealized gain on available for
sale securities 101,089 101,089 101,089
---------
Comprehensive income $ 138,376
------- ---------- ----------- ---------- ------------ =========
Balance, March 31, 2001 $78,031 $7,652,275 $(1,184,372) $ (47,986) $ 6,497,948
======= ========== ============ ========== ============
See accompanying notes to the unaudited consolidated financial statements.
5
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net income $ 37,287 $ 36,904
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 40,500 33,000
Depreciation, amortization, and accretion, net 49,979 27,138
Increase in accrued interest receivable 89,858 (6,823)
Increase in accrued interest payable 112,115 183,179
Other, net 61,735 9,559
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Net cash provided by operating activities 391,474 282,957
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INVESTING ACTIVITIES
Investment securities available for sale:
Maturities and repayments 3,041,364 152,294
Investment securities held to maturity:
Maturities and repayments 687,468 49,851
Net increase in loans receivable (3,215,610) (4,962,164)
Proceeds from sales of loans 245,000 1,300,500
Purchase of premises and equipment (784,496) (5,735)
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Net cash used for investing activities (26,274) (3,465,254)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits (205,269) 5,351,879
Increase in short-term borrowings 2,611,110 -
Repayments of long-term FHLB advances (663,581) -
Net proceeds from the sale of common stock - 581,379
----------- -----------
Net cash provided by financing activities 1,742,260 5,933,258
----------- -----------
Increase in cash and cash equivalents 2,107,460 2,750,961
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,233,404 3,057,875
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 6,340,864 $ 5,808,836
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the period for:
Interest on deposits and borrowings $ 675,189 $ 344,487
See accompanying notes to the unaudited consolidated financial statements.
6
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, 2001 are not necessarily
indicative of the results to be expected for the fiscal year ended December 31,
2001 or any other future interim period.
These statements should be read in conjunction with the consolidated financial
statements and related notes for the year ended December 31, 2000, 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, 2001 and 2000, the diluted
number of shares outstanding from employee stock options was 6,789 and 1,827,
respectively.
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income consist exclusively of unrealized gains
and losses on available for sale securities. For the three months ended March
31, 2001, this activity is shown under the heading Comprehensive Income as
presented in the Consolidated Statement of Changes in Stockholders' Equity. For
the three months ended March 31, 2000, comprehensive income totaled $37,461.
7
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, and general
economic conditions. 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.
COMPARISON OF FINANCIAL CONDITION
Total assets increased $2,015,000 to $71,435,000 at March 31, 2001 from
$69,420,000 at December 31, 2000. Strong growth in commercial and commercial
real estate loans resulted in an increase in net loans receivable of $2,928,000
that was primarily funded through additional short-term borrowings of
$2,611,000.
Cash and cash equivalents increased $2,107,000 at March 31, 2001 as compared to
December 31, 2000. This increase resulted from temporary fluctuations with
interest-bearing deposits with other banks due to the timing of customer
activity. Management believes that the liquidity needs of the Company are
satisfied by the current balance of cash and cash equivalents, readily available
access to traditional funding sources, FHLB advances, and the portion of the
investment and loan portfolios that mature within one year. These sources of
funds will enable the Company to meet cash obligations and off-balance sheet
commitments as they come due.
Investment securities available for sale decreased to $11,907,000 at March 31,
2001 from $14,850,000 at December 31, 2000. Investment securities held to
maturity decreased to $3,844,000 at March 31, 2001 from $4,537,000 at December
31, 2000. The decreases in the investment securities portfolios resulted from
$3,728,000 of proceeds received from principal repayments and maturities.
Offsetting the decrease in the investment securities available for sale
portfolio was an increase in the portfolio market value of $98,000. Management
elected not to reinvest these funds into similar securities at this time as
higher yielding opportunities are being evaluated in response to an increased
loan demand. Due to the structure of the investment portfolio, management does
not anticipate a significant amount of investments to be called during the
remainder of the year.
Net loans receivable increased to $46,344,000 at March 31, 2001 from $43,416,000
at December 31, 2000. The increase in net loans receivable resulted from the
economic
8
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.
During 2001, commercial real estate and commercial loans grew to $14,623,000
million from $12,048,000 at December 31, 2000. Management attributes the
increases in commercial and commercial real estate to continued customer
referrals and the Company's overall relationship with its customers. As of March
31, 2001, the Company had additional commitments to fund loan demand of $4.5
million of which approximately $1.8 million relates to commercial and commercial
real estate.
The allowance for loans is increased by provisions for loan losses, which is
charged against earnings, and is reduced by charge-offs and increased by
recoveries. At March 31,2001, the Company's allowance for loan losses increased
$31,000 to $374,000 from $344,000 at December 31, 2000. This increase was
primarily due to the growth of commercial real estate loans and the commercial
loan portfolios. The increased allowance resulted from a loan loss provision of
$41,000 and charge-offs of $11,000 during the period..
The additions to the allowance for loan losses is based upon a determination by
management that it believes is appropriate. Due to the Company's lack of
historical experience since it is newly formed, management bases its
determination upon such factors as the Company's volume and type of loans that
it originates, the amount and trends relating to its delinquent and
non-performing loans, regulatory policies, general economic conditions and other
factors relating to the collectibility of loans in its portfolio. 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 additional losses will not be required in future
periods.
Premises and equipment increased $757,000 as of March 31, 2001 as the Company
purchased a commercial building and land for the purpose of renovating the
building and establishing a third branch office.
Total deposits of $53,670,000 at March 31, 2001 remained relatively unchanged as
compared to $53,875,000 at December 31, 2000. This resulted primarily from
certain large depositors temporarily withdrawing balances of approximately $3.5
million just prior to March 31, 2001. While the Company continues to
aggressively market its deposit products, management implemented a cash
management sweep account program primarily aimed at commercial customers in
2001. This program, which offers the Company an alternative funding vehicle to
higher fixed term deposit products, resulted in an overall increase in
short-term borrowings of $2,611,000.
Stockholder's equity increased to $138,000 at March 31, 2001 as a result of net
income of $37,000, and a decline in accumulative other comprehensive loss of
$101,000. Accumulated other comprehensive loss decreased as a result of changes
in the net unrealized loss on investment securities available for sale due to
fluctuations in interest rates. Because of interest rate volatility, accumulated
other comprehensive loss could
9
materially fluctuate for each interim period and year-end period depending on
economic and interest rate conditions.
RESULTS OF OPERATIONS
Net income of $37,000 remained unchanged for the three-month period ended March
31, 2001 as compared to the same period ended 2000 as increases in net interest
income and noninterest income of $109,000 and $25,000 were offset by increases
in noninterest expense. Basic and diluted earnings per share remained at $.05
per share for both three-month periods ended.
Net interest income for the three months ended March 31, 2001 was $480,000 as
compared to $372,000 for the same period ended 2000. Interest income increased
$368,000 for 2001 as compared to the prior year period and was influenced mainly
by increases in interest earned on loans receivable of $341,000. Interest income
was primarily driven by an increase of $18.6 million in average balances of
interest-earning assets that primarily resulted from a $15.4 million increase in
the average balance of loans receivable. The yield on interest earning assets
also increased to 7.41% for the three-months ended March 31, 2001 from 7.21% for
the same period ended 2000. With a significant increase in commercial and
commercial real estate lending, the yield on loans receivable increased 31 basis
points in 2001 as compared to 2000.
Interest expense increased $260,000 for 2001 as compared to the prior year
period and was influenced mainly by an increase in interest expense on deposits
of $248,000. This increase was primarily attributable to an increase in the
average balance of interest-bearing deposits of $16.3 million. The average
balances of certificates of deposit and savings deposit accounts increased $7.8
million and $6.1 million, respectively, and resulted from increased marketing
efforts and higher yielding promotional products. The Company's competitively
priced deposit products also contributed to the overall increase in the cost of
funds to 5.21% for the three-month period ended March 31, 2001 from 4.88% for
the same period ended 2000.
Total noninterest income for the three-months ended March 31, 2001 increased
$25,000 as compared to the same period ended 2000. Noninterest income items are
primarily comprised of service charges and fees on deposit account activity,
along with fee income derived from asset management services and related
commissions. Service fees on deposit accounts increased $15,000 and have
progressively increased during each quarter as the number of accounts and volume
of related transactions have increased. Additionally, for the three-months ended
March 31, 2001, Nittany Asset Management contributed approximately $14,000 in
commission and management fees, an increase of $4,000 over 2000.
Total noninterest expenses increased $126,000 for the three-months ended March
31, 2001 as compared to the same period ended 2000. The increase in total
noninterest expenses for the current period was primarily related to operating a
larger organization
10
that resulted from the opening of an additional branch during the third quarter
of 2000, as well as the related marketing efforts to increase visibility within
the Company's market. On April 24, 2000, the Company entered into a lease
agreement for a new branch office located in State College, which began
operations on August 7, 2000. Salary and benefits costs increased in connection
with the new branch office, as three full-time staff were hired. In addition,
occupancy and equipment expenses increased as well due to the new branch
operations. Additionally, for the three-months ended March 31, 2001, Nittany
Asset Management operations contributed approximately $17,000 of other operating
expense, an increase of $5,000 over 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, interest-bearing deposits
with other banks and funds provided from operations. While scheduled repayments
of loans and mortgage-backed securities and maturities of investment securities
are predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions, and
competition. We use our liquid resources principally to fund loan commitments,
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, adverse publicity relating to the savings
and loan industry and similar matters. Management monitors projected liquidity
needs and determines the level desirable based in part on the Bank's commitments
to make loans and management's assessment of the Bank's ability to generate
funds.
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, 2001, 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
14.7%, 13.8%, 8.1% and 14.6%, 13.7%, 8.0%, respectively, at March 31, 2001.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in rights of the Company's security holders
None
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 included in this Report or 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 **
99.1 Independent Accountants 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
December 31, 1999 Form 10-KSB filed with the SEC on March 28, 2000.
(b) Reports on Form 8-K.
On February 22, 2001, a Form 8-K (Items 7 and 9) was filed with the
Securities and Exchange Commission to disclose the Company's letter to
its shareholders.
12
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: May 14, 2001 By: /s/David Z. Richards
-------------------------------------
David Z. Richards
President and Chief Executive Officer
13