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, 2002
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.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2925762
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2541 E. College Avenue, State College, Pennsylvania 16801
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(Address of principal executive offices)
(814) 272 - 2265
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes 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 9, 2002: 1,133,293
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
June 30, 2002 and December 31, 2001
Consolidated Statement of Income (Unaudited)
for the Six Months ended June 30, 2002 and 2001 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended June 30, 2002 and 2001 4
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited) 5
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended June 30, 2002 and 2001 6
Notes to Unaudited Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 -14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Default Upon Senior Securities 15
Item 4. Submissions of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8 - K 15 - 16
SIGNATURES 17
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, December 31,
2002 2001
------------- -------------
ASSETS
Cash and due from banks $ 495,214 $ 359,187
Interest-bearing deposits with other banks 9,845,312 5,753,971
Investment securities available for sale 10,782,982 13,188,065
Investment securities held to maturity (estimated
market value of $33,454,203 and $27,789,824) 33,242,200 27,796,205
Loans receivable (net of allowance for loan losses
of $916,649 and $649,565) 96,003,609 73,787,410
Premises and equipment 1,924,051 1,344,262
Federal Home Loan Bank stock 715,100 710,700
Intangible assets 775,407 799,217
Accrued interest and other assets 1,124,557 1,043,117
------------ ------------
TOTAL ASSETS $154,908,432 $124,782,134
============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 5,528,222 $ 4,094,714
Interest-bearing demand 17,189,657 14,802,415
Money market 16,978,899 13,827,084
Savings 70,003,439 46,864,234
Time 17,665,862 18,932,789
------------ ------------
Total deposits 127,366,079 98,521,236
Short-term borrowings 8,743,826 8,714,554
Other borrowings 8,716,249 7,813,775
Accrued interest payable and other liabilities 776,016 770,753
------------ ------------
TOTAL LIABILITIES 145,602,170 115,820,318
------------ ------------
STOCKHOLDERS' EQUITY
Serial preferred stock, no par value; 5,000,000 shares
authorized, none issued - -
Common stock, $.10 par value; 10,000,000 shares
authorized, 1,133,293 issued and outstanding 113,329 113,329
Additional paid-in capital 11,069,804 11,069,804
Retained deficit (1,805,696) (2,155,207)
Accumulated other comprehensive loss (71,175) (66,110)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,306,262 8,961,816
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $154,908,432 $124,782,134
============ ============
See accompanying notes to the consolidated financial statements.
3
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Six months ended June 30, Three months ended June 30,
------------------------- --------------------------
2002 2001 2002 2001
------------ ----------- ------------ -----------
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 3,088,854 $ 1,930,343 $ 1,639,586 $ 1,007,655
Interest-bearing deposits with other banks 64,563 521,253 43,072 225,221
Investment securities 902,983 146,471 448,495 97,505
----------- ----------- ----------- -----------
Total interest and dividend income 4,056,400 2,598,067 2,131,153 1,330,381
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,780,875 1,362,247 945,944 716,845
Short-term borrowings 100,293 35,803 48,222 20,564
Other borrowings 230,059 247,573 118,671 120,910
----------- ----------- ----------- -----------
Total interest expense 2,111,227 1,645,623 1,112,837 858,319
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,945,173 952,444 1,018,316 472,062
Provision for loan losses 268,000 90,000 118,000 49,500
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,677,173 862,444 900,316 422,562
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service fees on deposit accounts 213,319 153,915 116,525 84,292
Investment security gain 7,630 - - -
Other 57,078 41,485 34,375 22,030
----------- ----------- ----------- -----------
Total noninterest income 278,027 195,400 150,900 106,322
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 730,228 468,420 399,771 246,515
Occupancy and equipment 248,988 166,392 131,942 80,992
Other 524,473 371,885 273,522 187,517
----------- ----------- ----------- -----------
Total noninterest expense 1,503,689 1,006,697 805,235 515,024
----------- ----------- ----------- -----------
Income before income taxes 451,511 51,147 245,981 13,860
Income taxes 102,000 - 72,000 -
----------- ----------- ----------- -----------
NET INCOME $ 349,511 $ 51,147 $ 173,981 $ 13,860
=========== =========== =========== ===========
EARNINGS PER SHARE
Basic $ 0.31 $ 0.07 $ 0.15 $ 0.02
Diluted 0.29 0.06 0.14 0.02
See accompanying notes to the consolidated financial statements.
4
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Deficit Loss Equity Income
--------- ----------- ----------- ------------- ------------- -------------
Balance, December 31, 2001 $ 113,329 $11,069,804 $(2,155,207) $ (66,110) $ 8,961,816
Net income 349,511 349,511 $ 349,511
Other comprehensive income:
Unrealized loss on available for sale
securities, net of tax benefit of $2,609 (5,065) (5,065) (5,065)
---------
Comprehensive income $ 344,446
=========
-------- ----------- ----------- --------- -----------
Balance, June 30, 2002 $ 113,329 $11,069,804 $(1,805,696) $ (71,175) $ 9,306,262
======== =========== =========== ========= ===========
2002
---------
Components of other comprehensive loss:
Change in net unrealized loss on investment securities available for sale $ (29)
Realized gains included in net income, net of taxes of $2,594 (5,036)
---------
Total $ (5,065)
=========
See accompanying notes to the consolidated financial statements.
5
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
--------------------------
2002 2001
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OPERATING ACTIVITIES
Net income $ 349,511 $ 51,147
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 268,000 90,000
Depreciation, amortization, and accretion, net 206,558 98,421
Investment security gain (7,630) -
Decrease (increase) in accrued interest receivable (137,411) 68,885
Increase (decrease) in accrued interest payable (59,720) (89,158)
Other, net 123,563 133,137
------------ ------------
Net cash provided by operating activities 742,871 352,432
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INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sale 37,630 -
Proceeds from principal repayments and maturities 2,324,347 4,351,291
Investment securities held to maturity:
Purchases (10,737,445) (4,563,109)
Proceeds from principal repayments and maturities 5,251,778 1,297,921
Net increase in loans receivable (22,482,045) (8,616,466)
Purchase of FHLB stock (4,400) -
Purchase of premises and equipment (681,957) (820,852)
------------ ------------
Net cash used for investing activities (26,292,092) (8,351,215)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 28,844,843 15,743,587
Net increase in short-term borrowings 29,272 919,672
Proceeds from other borrowings 2,000,000 1,075,000
Repayment of other borrowings (1,097,526) (691,671)
Net proceeds from sale of common stock - 173,999
------------ ------------
Net cash provided by financing activities 29,776,589 17,220,587
------------ ------------
Increase in cash and cash equivalents 4,227,368 9,221,804
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,113,158 4,233,404
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,340,526 $ 13,455,208
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the year for:
Interest on deposits and borrowings $ 3,004,271 $ 1,734,781
Income taxes 119,000 650
See accompanying notes to the 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 June 30, 2002 are not necessarily
indicative of the results to be expected for the fiscal year ended December 31,
2002 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, 2001, 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, 2002 and 2001, the diluted number
of shares outstanding from employee stock options was 58,602 and 6,874,
respectively. For the three months ended June 30, 2002 and 2001, the diluted
number of shares outstanding from employee stock options was 73,797 and 6,584,
respectively.
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income consist exclusively of unrealized gains
and losses on available for sale securities. For the six months ended June 30,
2002, 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 June 30, 2002, comprehensive income totaled $210,971. For the three
and six-months ended June 30, 2001, comprehensive income totaled $23,119 and
$161,495.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 141, Business Combinations,
effective for all business
7
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.
FAS No. 141 also specifies criteria which must be met for intangible assets
acquired in a purchase method business combination to be recognized and reported
apart from goodwill. The adoption of FAS No. 141 did not have a material effect
on the Company's financial position or results of operations.
On January 1, 2002, the Company adopted FAS No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
This 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. However, this new statement did not amend FAS No. 72, Accounting
for Certain Acquisitions of Banking or Thrift Institutions, which requires
recognition and amortization of unidentified intangible assets relating to the
acquisition of financial institutions or branches thereof. The FASB has
undertaken a limited scope project to reconsider the provisions of FAS No. 72 in
2002 and has issued an exposure draft of a proposed statement, Acquisitions of
Certain Financial Institutions, that would remove acquisitions of financial
institutions from the scope of FAS No. 72. The adoption of this proposed
statement would require all goodwill originating from acquisitions that meet the
definition of a business combination as defined in Emerging Issues Task Force
Issue ("EITF") No. 98-3 to be discontinued. The adoption of FAS No. 142 did not
have a material effect on the Company's financial position or results of
operations. However, the Company continues to amortize intangible assets of
$775.4 million that meet the requirements of FAS No. 72.
In August 2001, the FASB issued FAS No. 143, Accounting for Asset Retirement
Obligations, which requires that the fair value of a liability be recognized
when incurred for the retirement of a long-lived asset and the value of the
asset be increased by that amount. The statement also requires that the
liability be maintained at its present value in subsequent periods and outlines
certain disclosures for such obligations. The new statement takes effect for
fiscal years beginning after June 15, 2002. The adoption of this statement,
which is effective January 1, 2003, is not expected to have a material effect on
the Company `s financial statements.
On January 1, 2002, the Company adopted FAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. FAS 144 supercedes FAS 121 and
applies to all long-lived assets (including discontinued operations) and
consequently amends APB Opinion No. 30, Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business. FAS 144
requires that long-lived assets that are to be disposed of by sale be measured
at the lower of book value or fair value less costs to sell. The adoption of FAS
No. 144 did not have a material effect on the Company's financial statements.
In April 2002, the FASB issued FAS No. 145, "Recission of FASB Statement No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". FAS
No. 145 rescinds FAS No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Opinion 30 will now be used to classify those gains and losses. This
statement also amends FASB FAS No. 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback
8
transactions. This statement also makes technical corrections to existing
pronouncements, which are not substantive but in some cases may change
accounting practice. FAS No. 145 is effective for transactions occurring after
May 15, 2002. The adoption of FAS No. 145 did not have a material effect on the
Company's financial position or results of operations.
In July 2002, the FASB issued FAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. This statement replaces
EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred
in a Restructuring). The new statement will be effective for exit or disposal
activities initiated after December 31, 2002, the adoption of which is not
expected to have a material effect on the Company's financial statements.
MANAGEMENT'S 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.
Overview
Our business is conducted principally through Nittany Bank. Nittany Bank
provides a full range of banking services with an emphasis on residential and
commercial real estate lending, consumer lending, commercial lending and retail
deposits. At June 30, 2002, we had consolidated assets of $155 million, loans
receivable (net of reserve) of $96 million, deposits of $127 million, and
stockholders' equity of $9 million. Net income for the three months ended June
30, 2002 increased $160,000 to $174,000 from $14,000 for the same 2001 period.
Net income for the six months ended June 30, 2002 increased $299,000 to $350,000
from $51,000 for the same 2001 period.
On July 30, 2002 the President signed into law the Sarbanes-Oxley Act of
2002 (the "Act"), following an investigative order proposed by the SEC on chief
financial officers and chief executive officers of 947 large public companies on
June 27, 2002. Additional regulations are expected to be promulgated by the SEC.
As a result of the accounting
9
restatements by large public companies, the passage of the Act and regulations
expected to be implemented by the SEC, publicly-registered companies, such as
the Company, will be subject to additional reporting regulations and disclosure.
These new regulations, which are intended to curtail corporate fraud, will
require certain officers to personally certify certain SEC filings and financial
statements and may require additional measures to be taken by our outside
auditors, officers and directors. The loss of investor confidence in the stock
market and the new laws and regulations will increase our non-interest expenses
and could adversely affect the prices of publicly-traded stocks, such as us.
Comparison of Financial Condition
Asset growth for the period continued to remain strong. Total assets
increased $30,126,000 to $154,908,000 at June 30, 2002 from $124,782,000 at
December 31, 2001. Additionally, the growth in assets for the quarter ended June
30, 2002 represented an increase of $13,819,000 from March 31, 2002.
Cash and cash equivalents increased $4,227,000 to $10,340,000 at June 30,
2002 as compared to $6,113,000 December 31, 2001. For the quarter ended June 30,
2002, cash and cash equivalents decreased by $3,667,000 from March 31, 2002. The
changes in cash and cash equivalents resulted from temporary fluctuations with
interest-bearing deposits with other banks due to the timing of customer
activity and investments purchased.
Investment securities available for sale decreased $2,405,000 to
$10,783,000 at June 30, 2002 as compared to $13,188,000 at December 31, 2001.
Additionally, investment securities held to maturity increased $5,446,000 to
$33,242,000 at June 30, 2002 from $27,796,000 at December 31, 2001. During the
current period, we purchased $10,737,000 of held to maturity securities which
were partially funded by $7,576,000 of proceeds received from principal
repayments and maturities of held to maturity and available for sale securities.
For the quarter ended June 30, 2002, investment securities available for sale
decreased $1,459,000 as compared to March 31, 2002. Additionally, investment
securities held to maturity at June 30, 2002 increased $8,839,000 as compared to
March 31, 2002.
Loans receivable, net of allowance for loan losses, increased $22,217,000
to $96,004,000 at June 30, 2002 from $73,787,000 at December 31, 2001. For the
quarter ended June 30, 2002, loans receivable, net increased $9,972,000 from
March 31, 2002. Of such increase in loans receivable, net for the quarter ended
June 30, 2002, residential loans increased approximately $8,034,000. At June 30,
2002, commercial real estate loans increased $4,410,000 and 1 to 4 family
residential loans increased $14,591,000. The increase in loans receivable
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 June 30, 2002, we had
10
additional commitments to fund loan demand of $18,808,000 of which approximately
$5,417,000 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 June 30, 2002, our allowance for loan losses increased $267,000
to $917,000 from $650,000 at December 31, 2001. This increase was primarily due
to the growth of residential and commercial real estate loans. The increased
allowance resulted from a loan loss provision for the six months ended June 30,
2002 of $268,000, offset by loan chargeoffs of $1,000. For the quarter ended
June 30, 2002, we added $118,000 to the allowance.
The additions to the allowance for loan losses are based upon a
determination by management that it believes is appropriate. Due to our lack of
historical experience since we are newly formed, 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.
Total deposits increased $28,845,000 to $127,366,000 at June 30, 2002 from
$98,521,000 at December 31, 2001. At June 30, 2002, the nittany savings deposit
account added to our deposit base approximately $23,100,000. For the quarter
ended June 30, 2002, interest bearing demand deposits increased $2,914,000 and
nittany savings deposits increased $11,268,000 from March 31, 2002. The nittany
savings deposit product is a competitive deposit account with a tiered annual
interest rate of 3.25% for balances over $2,500 for the current period. Due to
the continued decreases of short term interest rates over the past year, the
nittany savings deposit has helped to increase our deposit base.
Stockholder's equity increased $344,000 to $9,306,000 at June 30, 2002 from
$8,962,000 at December 31, 2001, as a
11
result of net income of $350,000 and a decline in accumulative other
comprehensive loss of $6,000. 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
from period to period depending on economic and interest rate conditions.
Results of Operations
Net income for the three months ended June 30, 2002 increased $160,000 to
$174,000 from $14,000 for the same 2001 period. Net income for the six months
ended June 30, 2002 increased $299,000 to $350,000 from $51,000 for the same
2001 period. During both time periods, increases in net interest income were
offset by increases in noninterest expense. Basic and diluted earnings per share
increased to $.31 and $.29 per share for the six months ended June 30, 2002 as
compared to $.07 and $.06 for the same period of year 2001.
Net interest income for the three months ended June 30, 2002 increased
$546,000 to $1,018,000 as compared to $472,000 for the same 2001 period.
Interest and dividend income increased $801,000 to $2,131,000 for the three
months ended June 30, 2002 from $1,330,000 for the same 2001 year period.
Increased interest and dividend income for the current three months ended June
30, 2002 was influenced primarily by increases in interest earned on loans
receivable of $632,000. The average yield on interest earning assets decreased
to 6.02% for the three-months ended June 30, 2002 from 7.03% for the same period
ended 2001. The average yield on loans receivable decreased for the three months
ended June 30, 2002 by 99 basis points as compared to the same 2001 period.
Net interest income for six months ended June 30, 2002 increased $993,000
to $1,945,000 from $952,000 for the same 2001 period. Interest and dividend
income increased $1,458,000 to $4,056,000 for the six months ended June 30, 2002
from $2,598,000 for the same 2001 period. The increased interest and dividend
income was primarily a result of increases in interest earned on loans
receivable of $1,159,000. The average yield on interest earning assets declined
to 6.05% for the six months ended June 30, 2002
12
from 7.20% for the same period ended 2001. The significant increase in
residential real estate lending was partially offset but the reduction in yield
on loans receivable of 100 basis points in 2002 as compared to 2001.
Interest expense for the three months ended June 30, 2002 increased
$255,000 to $1,113,000 from $858,000 for the same 2001 period and was influenced
primarily by an increase in average balance of interest bearing deposits of $56
million. However, average cost of fund for interest bearing liabilities
decreased 163 basis points to 3.42% from 5.05% for the three months ended June
30, 2002 as compared to the same 2001 period. Additionally, average cost of
funds for deposits decreased 162 basis points for the current three month period
as compared to the same 2001 period.
Interest expense for the six months ended June 30, 2002 increased $465,000
to $2,111,000 from $1,646,000 for the same 2001 period and was influenced mainly
by an increase in interest expense on deposits of $418,000. However, average
cost of fund for interest bearing liabilities decreased 170 basis points to
3.43% for the six months ended June 30, 2002 from 5.13% for the same period
ended 2001. Additionally, average cost of funds for deposits decreased 168 basis
points for the current six -month period as compared to the same 2001 period.
Total noninterest income increased $45,000 and $83,000, respectively for
the current three and six months ended June 30, 2002. 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 six months ended June 30, 2002, service fees on
deposit accounts increased $32,000 and $60,000 , 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 six
months ended June 30, 2002, Nittany Asset Management contributed approximately
$29,000 and $50,000, respectively in commission and management fees, an increase
of $10,000 and $17,000, respectively over the same periods in 2001.
Total noninterest expenses increased $290,000 and $497,000 for the three
and six months ended June 30, 2002 as compared to the same periods ended 2001.
The increase in total noninterest expenses for both periods was
13
primarily related to operating a larger organization that resulted from the
opening of an additional office during the first quarter of 2002, as well as the
related marketing efforts to increase visibility within the Company's market.
Salary and benefits costs increased in connection with the new office, as five
full-time staff were hired. In addition, occupancy and equipment expenses
increased as well due to the new branch operations. For the three and six months
ended June 30, 2002, Nittany Asset Management operations contributed
approximately $10,000 and $21,000 , respectively of other operating expense, an
increase of $5,000 and $11,000, respectively, over the same periods in 2001.
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.
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 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 June 30, 2002, the Company and Nittany
Bank's total risk-based, tier I risk-based and tier I leverage ratios were
12.4%, 11.2%, 5.6% and 11.8%, 10.6 %, 5.4%, respectively.
14
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 17, 2002:
Election of a Director for term to expire in 2006:
Samuel J. Malizia was elected by the following vote:
For: 835,586
Votes Withheld: 3,641
David Z. Richards, Jr. was elected by the following vote:
For: 835,586
Votes Withheld: 3,641
S.R. Snodgrass A.C. was selected as the Company's independent auditors
for the fiscal year 2002 by the following vote:
For: 836,565
Against: 2,900
Votes Withheld: 572
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 **
15
99.0 Independent Accountants Report
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002.
* 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.
None
16
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 14, 2002 By: /s/ David Z. Richards
-------------------------------------
David Z. Richards
President and Chief Executive Officer
(and Chief Accounting Officer)
17