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 September 30, 2001
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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For the transition period from to
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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 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
Shares Outstanding at a November 11, 2001: 1,030,312
NITTANY FINANCIAL CORP.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of 3
September 30, 2001 and December 31, 2000
Consolidated Statement of Income (Unaudited)
for the Three Months ended September 30, 2001 and 2000 4
Consolidated Statement of Income (Unaudited) 5
for the Nine Months ended September 30, 2001 and 2000
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 6
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended September 30, 2001 and 2000 7
Notes to Unaudited Consolidated Financial Statements 8 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Default Upon Senior Securities 17
Item 4. Submissions of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8 - K 17 - 18
SIGNATURES 19
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, December 31,
2001 2000
------------- -------------
ASSETS
Cash and due from banks $ 701,977 $ 411,553
Interest-bearing deposits with other banks 16,431,973 3,821,851
Investment securities available for sale 5,540,931 14,849,794
Investment securities held to maturity (market
value of $20,980,463 and $4,523,173) 20,903,116 4,536,734
Loans receivable (net of allowance for loan losses
of $507,565 and $343,673) 59,572,757 43,416,301
Premises and equipment 1,198,900 358,854
Federal Home Loan Bank stock 530,000 530,000
Intangible assets 811,187 846,707
Accrued interest and other assets 592,892 648,568
------------- -------------
TOTAL ASSETS $ 106,283,733 $ 69,420,362
============= =============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 3,949,060 $ 3,905,448
Interest-bearing demand 11,572,960 8,941,842
Money market 15,029,788 15,021,369
Savings 39,892,426 6,351,164
Time 18,168,712 19,655,028
------------- -------------
Total deposits 88,612,946 53,874,851
Loans Payable - -
Short-term borrowings 1,564,726 2,000,000
FHLB advances 5,861,418 6,600,000
Accrued interest payable and other liabilities 2,081,025 585,939
------------- -------------
TOTAL LIABILITIES 98,120,115 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; 960,249 and 780,312 issued and outstanding 96,025 78,031
Additional paid-in capital 9,255,123 7,652,275
Retained deficit (1,149,011) (1,221,659)
Accumulated other comprehensive loss (38,519) (149,075)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 8,163,618 6,359,572
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 106,283,733 $ 69,420,362
============= =============
See accompanying notes to the unaudited consolidated financial statements.
3
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended September 30,
2001 2000
---------- ----------
INTEREST AND DIVIDEND INCOME
Loans, including fees $1,129,794 $ 791,636
Investment securities 293,030 286,728
Interest-bearing deposits with other banks 115,255 3,447
---------- ----------
Total interest and dividend income 1,538,079 1,081,811
---------- ----------
INTEREST EXPENSE
Deposits 886,533 520,236
Borrowings 120,757 128,157
---------- ----------
Total interest expense 1,007,290 648,393
---------- ----------
NET INTEREST INCOME 530,789 433,418
Provision for loan losses 88,500 44,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 442,289 389,418
---------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 96,328 52,976
Investment securities gains 21,487 -
Other income 28,665 12,742
---------- ----------
Total noninterest income 146,480 65,718
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 266,744 181,254
Occupancy and equipment 88,322 74,956
Professional fees 21,287 17,683
Data processing 62,700 52,376
Goodwill amortization 11,970 11,970
Stationery, printing, supplies, and postage 35,437 24,279
Other 80,308 63,108
---------- ----------
Total noninterest expense 566,768 425,626
---------- ----------
Income before income taxes 22,001 29,510
Income taxes 500 --
---------- ----------
NET INCOME $ 21,501 $ 29,510
========== ==========
EARNINGS PER SHARE:
Basic $ 0.02 $ 0.04
Diuluted $ 0.02 $ 0.04
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 880,410 709,389
Diuluted 886,168 709,389
See accompanying notes to the unaudited consolidated financial statements.
4
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Nine Months Ended September 30,
2001 2000
---------- ----------
INTEREST AND DIVIDEND INCOME
Loans, including fees $3,060,137 $2,062,216
Investment securities 814,283 859,125
Interest-bearing deposits with other banks 261,726 68,324
---------- ----------
Total interest and dividend income 4,136,146 2,989,665
---------- ----------
INTEREST EXPENSE
Deposits 2,248,780 1,370,793
Borrowings 404,133 397,262
---------- ----------
Total interest expense 2,652,913 1,768,055
---------- ----------
NET INTEREST INCOME 1,483,233 1,221,610
Provision for loan losses 178,500 115,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,304,733 1,106,610
---------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 250,243 158,113
Investment securities gains 21,487 --
Other income 70,150 33,861
---------- ----------
Total noninterest income 341,880 191,974
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 735,164 526,987
Occupancy and equipment 254,714 189,840
Professional fees 66,628 52,498
Data processing 172,027 136,347
Goodwill amortization 35,621 35,715
Stationery, printing, supplies, and postage 82,744 58,241
Other 226,567 187,003
---------- ----------
Total noninterest expense 1,573,465 1,186,631
---------- ----------
Income before income taxes 73,148 111,953
Income taxes 500 -
---------- ----------
NET INCOME $ 72,648 $ 111,953
========== ==========
EARNINGS PER SHARE:
Basic $ 0.09 $ 0.16
Diuluted $ 0.09 $ 0.16
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 814,131 700,663
Diuluted 820,633 700,663
See accompanying notes to the unaudited consolidated financial statements.
5
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 72,648 72,648 $ 72,648
Other comprehensive income:
Unrealized gain on available for
sale securities 110,556 110,556 110,556
--------
Comprehensive income $183,204
========
Common stock issued, net 17,994 1,602,848 1,620,842
-------- ---------- ----------- --------- -----------
Balance, September 30, 2001 $ 96,025 $ 9,255,123 $ (1,149,011) $ (38,519) $ 8,163,618
======== ========== =========== ========= ===========
Components of comprehensive income:
Change in net unrealized gain on
investment securities available for sale $132,043
Realized gains included in net income, (21,487)
--------
Total $110,556
========
See accompanying notes to the unaudited consolidated financial statements.
6
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net income $ 72,648 $ 111,953
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 178,500 115,000
Depreciation, amortization, and accretion, net 152,542 90,225
Investment securities gains (21,487) -
Decrease (increase) in accrued interest receivable 3,272 (46,205)
Increase (decrease) in accrued interest payable (55,535) 9,042
Other, net 1,603,025 525
------------ ------------
Net cash provided by operating activities 1,932,965 280,540
------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceed from sales 2,388,750 -
Maturities and repayments 7,050,151 744,778
Investment securities held to maturity:
Purchases (18,704,991) -
Maturities and repayments 2,317,805 122,914
Net increase in loans receivable (16,341,344) (11,439,615)
Purchase of premises and equipment (927,871) (228,271)
------------ ------------
Net cash used for investing activities (24,217,500) (10,800,194)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 34,738,095 10,233,975
Decrease in short-term borrowings (435,274) -
Proceeds from loans payable - -
Repayments of long-term FHLB advances (738,582) (3,000,000)
Net proceeds from the sale of common stock 1,620,842 581,379
------------ ------------
Net cash provided by financing activities 35,185,081 7,815,354
------------ ------------
Increase (decrease) in cash and cash equivalents 12,900,546 (2,704,300)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,233,404 3,057,875
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 17,133,950 $ 353,575
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period for:
Interest on deposits and borrowings $ 2,708,448 $ 1,759,013
Income taxes 500 -
See accompanying notes to the unaudited consolidated financial statements.
7
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 nine months ended September 30, 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 nine-months and three- months ended September 30, 2001, the
diluted number of shares outstanding from employee stock options was 6,502 and
5,758, respectively. For the nine-months and three-months ended September 30,
2000, there were no dilutive shares of common stock..
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income consist exclusively of unrealized gains
and losses on available for sale securities. For the nine months ended September
30, 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 September 30, 2001, comprehensive income totaled $21,709.
For the three and nine-months ended September 30, 2000, comprehensive income
totaled $150,039 and $203,639.
8
NOTE 4 - LOANS PAYABLE
In June 2001, the Company entered into short-term loan agreements of $1,075,000
with certain members of the Board of Directors. The agreements stipulated an
annual interest rate of 6.50% which was accrued and, along with principal, was
not payable until the completion of the sale of common stock in the offering. As
of September 30, 2001, all short-term loan agreements have been satisfied.
NOTE 5 - COMMON STOCK OFFERING
On June 12, 2001, the Company commenced an additional common stock offering to
sell up to 210,000 shares of its common stock at $9.50 per share. A registration
statement was filed covering 250,000 shares, if the demand for the shares was
sufficient. The offering was not underwritten and was not subject to the sale of
any minimum number or dollar amount of shares. As of September 30, 2001, 179,937
shares were issued with net proceeds from the issuance amounting to
approximately $1,621,000. On October 24, 2001, the Company terminated the
offering and realized additional net proceeds of $657,032 from the issuance of
70,063 shares.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, Business Combinations, effective for
all business combinations initiated after June 30, 2001, as well as all business
combinations accounted for by the purchase method that are completed after June
30, 2001. The new statement requires that the purchase method of accounting be
used for all business combinations and prohibits the use of the
pooling-of-interests method. The adoption of Statement No. 141 is not expected
to have a material affect on the Company's financial position or results of
operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. The new statement changes the accounting for goodwill
from an amortization method to an impairment-only approach. Thus, amortization
of goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this Statement. Management in currently reviewing the
effect this Statement will have on the Company's financial position and results
of operations. At September 30, 2001, the Company had approximately $811,000 of
intangible assets from branch acquisitions.
9
NOTE 7 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities are
summarized as follows:
2001
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for sale Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
U.S. Government agency
securities $ 499,629 $ 5,176 $ - $ 504,805
Corporate securities 678,213 - (51,859) 626,354
Collateralized mortgage
obligations issued by
U.S. Government agencies 3,151,164 17,860 (24,569) 3,144,455
Mortgage-backed securities 1,230,718 14,380 (1,991) 1,243,107
----------------- ----------------- ----------------- -----------------
Total debt securities 5,559,724 37,416 (78,419) 5,518,721
Mutual funds 19,725 2,485 - 22,210
----------------- ----------------- ----------------- -----------------
Total $ 5,579,449 $ 39,901 $ (78,419) $ 5,540,931
================= ================= ================= =================
2001
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Held to maturity Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
U.S. Government agency
securities $ 3,351,250 $ 15,038 $ - $ 3,366,288
Collateralized mortgage
obligations issued by
U.S. Government agencies 6,478,334 22,841 (8,573) 6,492,602
Mortgage-backed securities 11,073,532 54,571 (6,530) 11,121,573
----------------- ----------------- ----------------- -----------------
Total $ 20,903,116 $ 92,450 $ (15,103) $ 20,980,463
================= ================= ================= =================
10
7. INVESTMENT SECURITIES (Continued)
2000
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for sale Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
U.S. Government agency
securities $ 5,792,836 $ - $ (66,068) $ 5,726,768
Corporate securities 3,542,293 15,013 (2,938) 3,554,368
Collateralized mortgage
obligations issued by
U.S. Government agencies 4,041,934 - (74,832) 3,967,102
Mortgage-backed securities 1,621,806 - (20,250) 1,601,556
----------------- ----------------- ----------------- -----------------
Total $ 14,998,869 $ 15,013 $ (164,088) $ 14,849,794
================= ================= ================= =================
2000
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
Held to maturity
Mortgage-backed securities $ 4,536,734 $ - $ (13,561) $ 4,523,173
================= ================= ================= =================
The amortized cost and estimated market value of investments in debt securities
available for sale at December 31, 2000, by contractual maturity, are shown
below. The Company's mortgage-backed securities and collateralized mortgage
obligations have contractual maturities ranging from 3 to 28 years. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
Available for Sale Held to Maturity
------------------------------------ ------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------------- ----------------- ----------------- -----------------
Due after one year through
five years $ 864,346 $ 874,816 $ 2,837,888 $ 2,857,605
Due after five years through
ten years 459,184 464,672 5,955,662 5,969,142
Due after ten years 4,236,194 4,179,233 12,109,566 12,153,716
----------------- ----------------- ----------------- -----------------
Total $ 5,559,724 $ 5,518,721 $ 20,903,116 $ 20,980,463
================= ================= ================= =================
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Overview
Our business is conducted principally through Nittany Bank. Nittany
Bank provides a full range of banking services with an emphasis on residential,
commercial real estate lending, consumer lending and retail deposits. At
September 30, 2001, we had consolidated assets of $106.3 million, loans
receivable, net of $59.6 million, deposits of $88.6 million, and stockholders'
equity of $8.2 million. Due primarily to an increase in non-interest expenses
which more than offset the increase in net interest income, net income declined
for the three and nine months ended September 30, 2001 as compared to the same
2000 periods. Net income for the three months ended September 30, 2001 declined
$8,000 to $22,000 from $30,000 for the same 2000 period. Net income for the nine
months ended September 30, 2001 declined $39,000 to $73,000 from $112,000 for
the same 2000 period. Although Nittany Bank experienced dramatic growth during
this period, net interest income for the current three and nine month periods
rose moderately due to a decrease in the net interest rate spread (the
difference between the interest rate earned on assets and the interest rate paid
on liabilities) as a result of a business strategy implemented by Nittany Bank
which is designed to focus on asset growth, as discussed below. For the three
and nine months ended September 30, 2001, net interest rate spreads declined to
1.83% and 1.98%, respectively, from 2.41% and 2.25%, respectively, for the same
2000 periods.
During the last six months of fiscal 2000, management and the Board of
Directors of Nittany Bank introduced a 5% savings account and 3% checking
account. As a result of a general decrease in market interest rates and several
decreases in interest rates by the Federal Reserve Board during the past several
months, the rates paid by Nittany Bank on its deposits were significantly higher
than the market rates paid by other financial institutions and investment
companies. The introduction and marketing of the high-yielding savings and
checking accounts have resulted in a significant increase in asset size by our
obtaining new customers, core deposit accounts and banking relationships.
However, the decrease in the market yields on loans and investments during this
same period, has resulted in a decrease in our interest margin or yield, which
is the difference in the interest rates received on the bank's assets and the
net interest rates paid on the bank's liabilities. We have intentionally
accepted a decrease in current net income in order to take advantage of the low
market interest rates to expand Nittany Bank's asset size and core business.
Nittany Bank has the ability to quickly increase net interest income by lowering
the interest rates on its savings and checking accounts. Because of the
continuation by the Federal Reserve Board of decreasing interest rates during
September 2001, we decreased our savings account rate to 3.75% and checking
account rate to 2.25%.
We completed our stock offering on October 24, 2001 and sold 250,000
shares of common stock. At September 30, 2001, we issued a total of 179,937
shares increasing our outstanding common shares to 960,249 shares. Additionally,
at September 30, 2001, we received total net proceeds of approximately $1.6
million.
12
Comparison of Financial Condition
Asset growth for the period continued to remain strong. Total assets
increased $36.9 million to $106.3 million at September 30, 2001 from $69.4
million at December 31, 2000. Additionally, the growth in assets for the quarter
ended September 30, 2001 represented an increase of $19.5 million from June 30,
2001.
Cash and cash equivalents increased $12.9 million to $17.1 million at
September 30, 2001 from $4.2 million at December 31, 2000. For the quarter ended
September 30, 2001, cash and cash equivalents represented an increase of $3.6
million from June 30, 2001. The increase in cash and cash equivalents resulted
from temporary fluctuations with interest-bearing deposits with other banks due
to the timing of customer activity.
Investment securities available for sale at September 30, 2001
decreased $9.3 million to $5.5 million from $14.8 million at December 31, 2000.
The decrease in such securities primarily reflected proceeds from sales and
principal repayments and maturities. These funds were used primarily to fund
loans and invest in mortgage-backed securities held to maturity.
Investment securities held to maturity increased $16.4 million to $20.9
million at September 30, 2001 from $4.5 million at December 31, 2000. At
September 30, 2001, we purchased $18.7 million of mortgage-backed securities
which were partially funded by $2.3 million of proceeds received from principal
repayments and maturities.
Loans receivable, net increased $16.2 million to $59.6 million at
September 30, 2001 from $43.4 million at December 31, 2000. For the quarter
ended September 30, 2001, loans receivable, net increased $7.7 million from June
30, 2001. Of such increase in loans receivable, net for the quarter ended
September 30, 2001, residential loans increased approximately $6.8 million. The
growth in commercial real estate and commercial loans represented an aggregate
increase of $3.8 million from December 31, 2000. The increase in loans
receivable, net resulted from the economic health of our market area and the
strategic, service-oriented marketing approach taken by management to meet the
lending needs of the area. As of September 30, 2001, we had additional
commitments to fund loan demand of $11.6 million of which approximately $3.4
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 September 30, 2001, our allowance for loan losses increased
$164,000 to $508,000 from $344,000 at December 31, 2000. This increase was
primarily due to the growth of the loan portfolio. The increased allowance
resulted from a loan loss provision for the nine months ended September 30, 2001
of $179,000, offset by loan chargeoffs of $15,000. For the quarter ended
September 30, 2001, we added $89,000 to the allowance due primarily to the $3.8
million increase in the commercial real estate and commercial loan portfolios.
We experienced no chargeoffs for the three months ended September 30, 2001.
The additions to the allowance for loan losses are based upon a
determination by
13
management that it believes is appropriate. Due to our lack of historical
experience since we were formed in 1998, management bases its determination upon
such factors as the volume and type of loans that we originate, the amount and
trends relating to our delinquent and non-performing loans, regulatory policies,
general economic conditions and other factors relating to the collectibility of
loans in our portfolio. Although we maintain our allowance for loan losses at a
level that we consider to be adequate to provide for the inherent risk of loss
in our loan portfolio, there can be no assurance that additional losses will not
be required in future periods.
Premises and equipment increased $840,000 to $1.2 million from $354,000
at December 31, 2001. The increase is primarily related to the renovations of
the new East College Avenue branch which is expected to be opened during the
first quarter of 2002. We currently estimate that we will spend approximately
$500,000 to complete the renovation of this new branch location.
Total deposits increased $34.7 million to $88.6 million at September
30, 2001 from $53.9 million at December 31, 2000. For the quarter ended
September 30, 2001, deposits increased $19.0 million from June 30, 2001. Of such
increase, interest bearing demand accounts increased $1.8 million, money market
accounts increased $1.0 million, savings accounts increased $16.7 million from
June 30, 2001. Offsetting deposit increases for the current 2001 quarter period
was a $1.2 million decline in time deposits.
Stockholder's equity increased $1.8 million to $8.2 million at
September 30, 2001 from $6.4 million at December 31, 2000, as a result of net
income of $73,000, net proceeds from the stock offering of $1.6 million and a
decline in accumulative other comprehensive loss of $110,000. 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 materially fluctuate for each interim period and year-end period depending
on economic and interest rate conditions.
Results of Operations
Net income for the three months ended September 30, 2001 decreased
$8,000 to $22,000 from $30,000 for the same 2000 period. Net income for the nine
months ended September 30, 2001 decreased $39,000 to $73,000 from $112,000 for
the same 2000 period.
Net interest income for the three months ended September 30, 2001
increased $97,000 to $531,000 from $433,000 for the same 2000 period. Interest
and dividend income increased $400,000 to $1.5 million for the three months
ended September 30, 2001 from $1.1 million for the same 2000 year period.
Increased interest and dividend income for the current three months ended
September 30, 2001 was influenced primarily by increases in interest earned on
loans receivable of $338,000 and $112,000 on interest bearing deposits with
other banks. The average yield on interest earning assets declined to 6.56% for
the three-months ended September 30, 2001 from 7.79% for the same period ended
2000. The average yield on loans receivable net declined to 8.07% for the three
months ended September 30, 2001 from 8.39% for the same 2000 period.
14
Net interest income for nine months ended September 30, 2001 increased
$300,000 to $1.5 million from $1.2 million for the same 2000 period. Interest
and dividend income increased $1.2 million to $4.1 million for the nine months
ended September 30, 2001 from $2.9 million for the same 2000 period. As in the
current three month period, increased interest and dividend income was
influenced primarily by increases in interest earned on loans receivable of
$998,000 and $193,000 on interest bearing deposits with other banks. The average
yield on interest earning assets declined to 6.94% for the nine months ended
September 30, 2001 from 7.54% for the same period ended 2000. For the nine month
period ended September 30, 2001, the average yield on loans receivable, net was
8.16%, which remained relatively constant compared to the same 2000 period.
Interest expense for the three months ended September 30, 2001
increased $359,000 to $1.0 million from $648,000 for the same 2000 period and
was influenced primarily by an increase in interest expense on deposits of
$366,000. However, average cost of fund for interest bearing liabilities
decreased to 4.73% for the three months ended September 30, 2001 from 5.37% for
the same period ended 2000.
Interest expense for the nine months ended September 30, 2001 increased
$885,000 to $2.7 million from $1.8 million for the same 2000 period and was
influenced mainly by an increase in interest expense on deposits of $878,000.
However, average cost of fund for interest bearing liabilities decreased to
4.96% for the nine months ended September 30, 2001 from 5.28% for the same
period ended 2000.
Total noninterest income increased $81,000 and $150,000, respectively
for the current three and nine months ended September 30, 2001. 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. For the three and nine months ended September 30, 2001,
service fees on deposit accounts increased $43,000 and $92,000, respectively,
and have progressively increased during each quarter as the number of accounts
and volume of related transactions have increased. Additionally, for the three
and nine months ended September 30, 2001, Nittany Asset Management contributed
approximately $15,000 and $48,000, respectively in commission and management
fees, an increase of $4,000 and $17,000, respectively over the same periods in
2000.
Total noninterest expenses increased $141,000 and $387,000 for the
three and nine months ended September 30, 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 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 Nittany Bank's market.
On April 24, 2000, Nittany Bank 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. In March 2001, Nittany Bank
purchased the building and property for the Nittany Financial Corp. Financial
Center, which is expected to open in early 2002. During the past six months
Nittany Bank has
15
incurred additional amortization expenses, compensation expenses and other
expenses for the new building. For the three and nine months ended September 30,
2001, Nittany Asset Management operations added approximately $14,000 and
$46,000, respectively of other operating expense, an increase of $5,000 and
$10,000, respectively, over the same periods in 2000.
Liquidity and Capital Resources
Our primary sources of funds are customer deposits, proceeds from
principal and interest payments on loans, proceeds from maturities, sales and
repayments of investment securities and FHLB advances. While maturities and
scheduled amortization of loans are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. Management monitors liquidity daily, and on
a monthly basis incorporates liquidity management into its asset/liability
management program.
Management monitors both the Company's and Nittany Bank's total
risk-based, tier I risk- based and tier I leverage capital ratios in order to
assess compliance with regulatory guidelines. At September 30, 2001, the Company
and Nittany Bank's total risk-based, tier I risk-based and tier I leverage
ratios were 14.80%, 13.85%, 7.00% and 14.68%, 13.73%,6.94%, respectively.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities and use of proceeds
(b) Use of Proceeds from Registered Securities
(1) The effective date of the Form SB-2 was May 31, 2001,
and the Commission file number was 333-60252.
(2) The offering commenced on June 12, 2001.
(3) Not applicable.
(4) (i) The offering terminated on October 24, 2001
(ii) The name of the managing underwriter: None
(iii) Common stock, par value $.10 per share was
registered;
(iv) Amount registered - 250,000 shares
Aggregate price of offering amount
registered - $2,375,000; Amount sold -
$2,375,000 as of October 24, 2001;
(v) Expenses of the offering which were direct
or indirect payments to others;
Expense paid to and for underwriters: None
Other expenses - $97,126
Total expenses - $97,126
(vi) Net offering proceeds - $2,278,000;
(vii) Direct or indirect payments to affiliates:
Purchase outstanding stock of subsidiary
bank - $994,000
(viii) Not applicable
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:
17
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 October 2, 2001, an 8-K was filed to disclose that the Registrant
would close the common stock offering on October 24, 2001.
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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: November 14, 2001 By: /s/David Z. Richards
-------------------------------------
David Z. Richards
President and Chief Executive Officer
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