UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10 - QSB
- -----
X QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
- ----- OF 1934
For the quarterly period ended March 31, 2004
- -----
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- -----
For the transition period from ______ to ______
Commission File Number 0-32623
------------------------------
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)
2541 E. College Avenue, State College, Pennsylvania 16801
(Address of principal executive offices)
(814) 272 - 2265
(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 12, 2004: 1,924,621
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, 2004 and December 31, 2003
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 2004 and 2003 4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
for the Three Months ended March 31, 2004 5
Consolidated Statement of Cash Flows (Unaudited)
for the Three Months ended March 31, 2004 and 2003 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Controls and Procedures 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Small Business Issuer
Purchases of Equity Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8 - K 17
SIGNATURES 18
CERTIFICATIONS
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2004 2003
------------- -------------
(unaudited)
ASSETS
Cash and due from banks $ 5,548,013 $ 805,812
Interest-bearing deposits with other banks 9,857,190 14,147,474
------------- -------------
Cash and cash equivalents 15,405,203 14,953,286
Investment securities available for sale 3,251,097 4,074,095
Investment securities held to maturity (estimated
market value of $45,210,070 and $39,168,895) 44,769,578 39,246,289
Loans receivable (net of allowance for loan losses
of $1,817,751 and $1,737,475) 195,126,530 182,742,537
Premises and equipment 2,575,024 2,570,953
Federal Home Loan Bank stock 1,393,500 1,311,300
Intangible assets 1,763,231 1,763,231
Accrued interest and other assets 1,930,619 1,925,622
------------- -------------
TOTAL ASSETS $ 266,214,782 $ 248,587,313
============= =============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 9,365,603 $ 7,880,177
Interest-bearing demand 21,700,061 21,902,355
Money market 35,019,530 34,237,951
Savings 152,361,105 136,273,936
Time 19,219,220 20,598,238
------------- -------------
Total deposits 237,665,519 220,892,657
Short-term borrowings 2,509,686 2,363,887
Other borrowings 9,775,098 9,829,866
Accrued interest payable and other liabilities 927,362 673,159
------------- -------------
TOTAL LIABILITIES 250,877,665 233,759,569
------------- -------------
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, 1,924,621 and 1,603,960 issued and outstanding 192,462 160,396
Additional paid-in capital 14,287,483 14,323,021
Retained earnings 852,395 356,344
Accumulated other comprehensive income (loss) 4,777 (12,017)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 15,337,117 14,827,744
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 266,214,782 $ 248,587,313
============= =============
See accompanying notes to the unaudited consolidated financial statements
3
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
Three-months Ended March 31,
2004 2003
---------- ----------
(unaudited)
INTEREST AND DIVIDEND INCOME
Loans, including fees $2,757,840 $2,108,213
Interest-bearing deposits with other banks 15,366 26,868
Investment securities 391,059 369,311
---------- ----------
Total interest and dividend income 3,164,265 2,504,392
---------- ----------
INTEREST EXPENSE
Deposits 1,159,700 1,062,622
Short-term borrowings 5,981 12,110
Other borrowings 137,692 131,423
---------- ----------
Total interest expense 1,303,373 1,206,155
---------- ----------
NET INTEREST INCOME 1,860,892 1,298,237
Provision for loan losses 110,000 90,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,750,892 1,208,237
---------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 146,061 118,825
Investment security gain - 6,691
Asset management fees and commissions 566,745 339,144
Other 10,130 9,094
---------- ----------
Total noninterest income 722,936 473,754
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 692,765 518,726
Occupancy and equipment 176,336 144,976
Professional fees 43,449 48,024
Data processing fees 119,007 77,653
Supplies, printing, and postage 32,993 37,157
Advertising 40,405 37,350
ATM processing fees 34,871 32,300
Solicitor fees 377,506 217,825
Other 165,445 109,141
---------- ----------
Total noninterest expense 1,682,777 1,223,152
---------- ----------
Income before income taxes 791,051 458,839
Income taxes 295,000 159,610
---------- ----------
NET INCOME $ 496,051 $ 299,229
========== ==========
EARNINGS PER SHARE
Basic $ 0.26 $ 0.17
Diluted 0.24 0.16
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,924,621 1,723,486
Diluted 2,074,229 1,846,010
See accompanying notes to the unaudited consolidated financial statements
4
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income (Loss) Equity Income
--------------- ---------------- ------------- -------------- -------------- --------------
(unaudited)
Balance, December 31, 2003 160,396 14,323,021 356,344 (12,017) 14,827,744
Net income 496,051 496,051 $ 496,051
Other comprehensive income:
Unrealized gain on available
for sale securities,
net of taxes of $8,651 16,794 16,794 16,794
--------------
Comprehensive income $ 512,845
==============
Twenty percent stock dividend
(including cash
paid for fractional shares) 32,066 (35,538) (3,472)
-------------- ------------ ------------- -------------- -----------------
Balance, March 31, 2004 $ 192,462 $14,287,483 $ 852,395 $ 4,777 $ 15,337,117
============== ============ ============= ============== =================
See accompanying notes to the unaudited consolidated financial statements
5
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three-months ended March 31,
2004 2003
------------ ------------
(unaudited)
OPERATING ACTIVITIES
Net income $ 496,051 $ 299,229
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for loan losses 110,000 90,000
Depreciation, amortization, and accretion, net 146,929 258,305
Investment security gain - 6,691
Increase in accrued interest receivable (67,586) (141,401)
Increase (decrease) in accrued interest payable 53,236 (170,320)
Other, net 279,904 (397,925)
------------ ------------
Net cash provided by (used for) operating activities 1,018,534 (55,421)
------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases - (28,069)
Proceeds from sale - 26,901
Proceeds from principal repayments and maturities 841,959 617,631
Investment securities held to maturity:
Purchases (10,855,899) (14,910,684)
Proceeds from principal repayments and maturities 5,247,765 8,049,792
Net increase in loans receivable (12,510,284) (6,676,627)
Purchase of FHLB stock (82,200) -
Acquisition of subsidiary - (370,014)
Purchase of premises and equipment (68,379) (44,637)
------------ ------------
Net cash used for investing activities (17,427,038) (13,335,707)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 16,772,862 18,792,923
Net increase in short-term borrowings 145,799 2,601,551
Proceeds from other borrowings -- 360,000
Repayment of other borrowings (54,768) (51,478)
Cash paid in lieu of fractional shares (3,472) -
------------ ------------
Net cash provided by financing activities 16,860,421 21,702,996
------------ ------------
Increase in cash and cash equivalents 451,917 8,311,868
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,953,286 5,852,073
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,405,203 $ 14,163,941
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the year for:
Interest on deposits and borrowings $ 1,250,137 $ 1,376,475
Income taxes 336,500 550,000
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"), Nittany Asset
Management, Inc, and Vantage Investment Advisors, LLC. The Bank includes its
wholly-owned subsidiary, FTF Investments 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, 2004 are not necessarily
indicative of the results to be expected for the fiscal year ended December 31,
2004 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, 2003, which are
incorporated by reference in the Company's Annual Report on Form 10-KSB.
Stock-Based Compensation - The Company maintains a stock option plan for key
officers, employees, and nonemployee directors. Had compensation expense for the
stock option plan been recognized in accordance with the fair value accounting
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, net income applicable to common stock, basic, and
diluted net income per common share would have been as follows:
7
Three Months Ended March 31,
2004 2003
----------- -----------
Net income, as reported: $ 496,051 $ 299,229
Less proforma expense related
to stock options 29,747 25,369
----------- -----------
Proforma net income $ 466,304 $ 273,860
=========== ===========
Basic net income per common share:
As reported $ 0.26 $ 0.17
Pro forma 0.24 0.16
Diluted net income per common share:
As reported $ 0.24 $ 0.16
Pro forma 0.22 0.15
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, 2004 and 2003, the diluted
number of shares outstanding from employee stock options was 149,608 and
122,524, 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, 2004, 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, 2003, comprehensive income totaled $298,521.
NOTE 4 - STOCK SPLIT
On February 24, 2004, the Board of Directors approved a six-for-five stock
split, effected in the form of a 20 percent stock dividend to stockholders of
record March 10, 2004, payable on March 31, 2004. As a result, 320,661
additional shares of the Company's stock were issued, common stock was increased
by $32,066, and surplus was decreased by $35,538.
8
Fractional shares were paid in cash. All average shares outstanding as of March
31, 2004, and all per share amounts as of March 31, 2004, included in the
financial statements are based on the increased number of shares after giving
retroactive effect to the stock split effected in the form of a stock dividend.
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, but are
not limited to, changes in interest rates, the ability to control costs and
expenses, and general economic conditions.
Overview
Nittany Financial Corp. ("Nittany") is a unitary thrift holding company
organized in 1997 for the purpose of establishing a de novo community bank in
State College, Pennsylvania. Nittany Bank (the "Bank") commenced operations as a
wholly-owned FDIC-insured federal savings bank subsidiary of Nittany on October
26, 1998. At March 31, 2004, the business operations of Nittany included three
operating subsidiaries (collectively defined as the "Company", unless the
context indicates otherwise), as follows:
o Nittany Bank commenced banking operations in October 1998 as a
federally-insured federal savings bank with two offices at 116 East
College Avenue and 1276 North Atherton, State College, Pennsylvania.
On August 7, 2000, a third branch office was opened at 129 Rolling
Ridge Drive in State College and on January 14, 2002, a fourth State
College branch office opened at 2541 East College Avenue. On July 28,
2003, the 129 Rolling Ridge Drive office moved to a larger location at
1900 South Atherton Street. The Bank formed a Delaware investment
company during the quarter to aid in asset utilization.
o Nittany Asset Management, Inc. was formed in May 1999 primarily to
offer investment products and services to retail customers. The
subsidiary is headquartered at 2541 East College Avenue, State
College, Pennsylvania.
o On January 1, 2003, Nittany Financial Corp. acquired Vantage
Investment Advisors, LLC ("Vantage"). Vantage is a registered
investment advisor which currently manages investment assets in excess
of $240 million. This subsidiary is also headquartered at 2541 East
College Avenue in State College.
9
Our retail business is conducted principally through Nittany Bank. Nittany Bank
provides a wide range of banking services with an emphasis on residential and
commercial real estate lending, consumer lending, commercial lending and retail
deposits. At March 31, 2004, we had consolidated assets of $266 million, loans
receivable (net of allowance for loan losses) of $195 million, deposits of $238
million, and stockholders' equity of $15.3 million. Net income for the quarter
ended March 31, 2004 increased $197,000 to $496,000 or $.24 per diluted share
from $299,000 or $.16 per diluted share for the same period in 2003. This
included an income tax expense of $295,000 for the quarter compared to $160,000
for the 2003 quarter.
COMPARISON OF FINANCIAL CONDITION
Total assets increased $17,628,000 to $266,215,000 at March 31, 2004 from
$248,587,000 at December 31, 2003. Strong growth in residential and commercial
real estate loans resulted in an increase in net loans receivable of $12,384,000
which were primarily funded through increased balances in the savings deposit
products of $16,087,000 for the quarter. Total assets included $1.8 million of
intangible assets from the acquisition of Vantage and the Bank's original core
deposits. These intangibles are not currently being amortized.
Cash and cash equivalents increased $452,000 at March 31, 2004 as compared to
December 31, 2003. This increase resulted from growth in deposits which exceeded
loan demand during the quarter. 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 which 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 $3,251,000 at March 31,
2004 from $4,074,000 at December 31, 2003 and investment securities held to
maturity increased to $44,770,000 at March 31, 2004 from $39,246,000 at December
31, 2003. The increase in the investment securities held to maturity portfolio
resulted primarily from the investment of savings deposits not yet needed to
fund loan growth.
Net loans receivable increased to $195,127,000 at March 31, 2004 from
$182,743,000 at December 31, 2003. The increase in net loans receivable resulted
from the strong real estate market in the Company's market area, low market
interest rates, and the strategic, service-oriented marketing approach taken by
management to meet the lending needs of the area. At March 31, 2004, 1 - 4
family residential mortgage balances grew by $7,233,000 to $131,580,000 from
$124,347,000 at December 31, 2003. Management attributes the increases in
lending balances to continued customer referrals, the economic climate within
the market area, and competitive rates. As of March 31, 2004, the Company had
additional commitments to fund loan demand of $11,275,000, of which
approximately $5,029,000 relates to commercial customers.
10
At March 31, 2004, the Company's allowance for loan losses increased by $81,000
to $1,818,000 from $1,737,000 at December 31, 2003. The increase resulted from
an additional loan loss provision of $110,000 needed for the growth in loans
during the quarter which were partially offset by a few minor charge-offs and
one repossessed property now in other real estate owned property ("OREO").
The additions to the allowance for loan losses are based upon a careful analysis
by management of loan data. Because the Company lacks substantial historical
experience, management must base its determination upon such factors as the
Company's volume and the 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 at March 31, 2004, there can be no assurance
that additional losses will not be required in future periods.
The table below outlines the Company's past due loans as of March 31, 2004:
- ----------------------- -------------------- ---------------------- -------------------- --------------------
> 90 Days Past Due > 90 Days Past Due
# of Loans Balance - Number of Loans - Balance of Loans
- ----------------------- ------------- ---------------------- -------------------- --------------------
Personal Loans 352 $7,389,000 1 $15,400
- ----------------------- ------------- ---------------------- -------------------- --------------------
Credit
Line Loans 401 4,389,000 0 0
- ----------------------- ------------- ---------------------- -------------------- --------------------
Business Loans 153 11,351,000 0 0
- ----------------------- ------------- ---------------------- -------------------- --------------------
Real
Estate Loans 1,058 173,816,000 0 0
- ----------------------- ------------- ---------------------- -------------------- --------------------
Total 1,964 $196,945,000 1 $15,400
- ----------------------- ------------- ---------------------- -------------------- --------------------
Total deposits increased by $16,773,000 to $237,666,000 at March 31, 2004 as
compared to $220,893,000 at December 31, 2003. Of such increase, the Nittany
Savings deposit account accounted for approximately $16,087,000 to the amount.
The Nittany Savings deposit is a competitive deposit account with a tiered
annual interest rate of 2.05% for balances over $2,500 for the current period.
Due to the continuation of historically low short-term interest rates during the
quarter, the Nittany Savings deposit has remained popular with local depositors
and has helped to increase our deposit base.
Stockholder's equity increased to $15,337,000 at March 31, 2004 from $14,828,000
at December 31, 2003 as a result of net income of $496,000 and an increase of
$17,000 in net unrealized gain on investment securities available for sale.
Because of interest rate volatility and an illiquid market for sales of the
investment securities, accumulated other comprehensive income (loss) could
materially fluctuate for each interim period and year-end period depending on
economic and interest rate conditions. Additionally, a twenty-percent (20%)
stock dividend was completed during the quarter which resulted in an additional
320,661 shares being issued.
11
Nittany Average Balance Sheet and Supplemental Information:
-----------------------------------------------------------
For the period ended
------------------------------------------------------------------------------------------
03/31/2004 03/31/2003
----------------------------------------- ---------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ------------ ---------- ------- ------------ ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $188,661 $2,758 5.85% $128,024 $2,108 6.59%
Investments securities 49,072 391 3.70% 44,995 369 3.28%
Interest-bearing deposits 8,090 15 0.75% 11,488 27 0.93%
----------- ------------ -------------- -------------- ------------ --------------
Total interest-earning assets 245,824 3,164 5.25% 184,507 2,504 5.43%
------------ ------------
Noninterest-earning assets 8,782 7,484
Allowance for loan losses (1,751) (1,208)
----------- --------------
Total assets $252,854 $190,783
=========== ==============
Interest-bearing liabilities:
Interest - bearing demand
deposits $19,139 39 0.83% $16,402 49 1.18%
Money market deposits $34,466 184 2.13% 30,577 210 2.75%
Savings deposits 144,343 771 2.14% 92,325 610 2.65%
Certificates of deposit 21,637 165 3.05% 20,952 193 3.68%
Advances from FHLB 9,829 144 5.85% 10,970 144 5.23%
----------- ------------ -------------- -------------- ------------ --------------
Total interest-bearing liabilities 229,414 1,303 2.27% 171,225 1,206 2.82%
----------- ------------ -------------- ------------ --------------
Noninterest-bearing liabilities
Demand deposits 8,298 9,207
Stockholders' equity 15,143 10,351
----------- --------------
Total liabilities and
stockholders' equity 252,854 190,783
=========== ==============
Net interest income $1,861 $1,298
============ ============
Interest rate spread 2.98% 2.61%
Net yield on interest-earning assets 3.13% 2.81%
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.15% 107.76%
- -----------------------
12
RESULTS OF OPERATIONS
Net income was $496,000 for the period ended March 31, 2004, an increase of
$197,000 as compared to the same period ended 2003, as increases in net interest
income and noninterest income of $563,000 and $249,000, respectively, more than
offset increases in noninterest expense and taxes. Basic and diluted earnings
per share increased to $.26 and $.24 per share, respectively for the three month
period ended March 31, 2004 compared to $.17 and $.16 per share, respectively,
for the three month period ended March 31, 2003. All "per share" data has been
adjusted for the 20% stock dividend issued during the quarter.
13
Net interest income for the three months ended March 31, 2004 was $1,861,000 as
compared to $1,298,000 for the same period ended 2003. Interest income increased
$660,000 for 2004 as compared to the prior year period and was influenced mainly
by increases in interest earned on loans receivable of $650,000. The increase in
interest income was the result of an increase of $61,317,000 in average balances
of interest-earning assets that primarily resulted from a $60,637,000 increase
in the average balance of loans receivable. The yield on interest earning assets
decreased to 5.25% for the three months ended March 31, 2004 from 5.43% for the
same period ended 2003 as interest rates continued to drop for the quarter.
Although there were significant increases in residential real estate lending,
the yield on the loans receivable decreased 74 basis points in 2004 as compared
to 2003.
Interest expense increased $97,000 for 2004 as compared to the prior year period
and was influenced mainly by an increase in interest expense on deposits as
increases in deposit balances were essentially offset by lower rates. This
increase was primarily attributable to an increase in the average balance of
interest-bearing deposits of $59,330,000. The average balances of savings
deposit accounts increased $52,018,000 as a result of customer service,
referrals, and marketing efforts and competitive rates of the Nittany Savings
product. The cost of funds decreased to 2.27% for the three month period ended
March 31, 2004 from 2.82% for the same period ended 2003 as a result of a
general reduction in market interest rate levels and a decrease in the rates
paid on deposits.
Management's attention to loan rates, deposit rates, and the liquidity position
of the Bank has been successful as the Bank's net interest margin increased by
32 basis points to 3.13% from 2.81% at March 31, 2003, a period of interest rate
volatility.
Total noninterest income for the three months ended March 31, 2004 increased
$249,000 as compared to the same period ended 2003. 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 $27,000 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, 2004, commissions and management fees from Vantage and Nittany Asset
Management increased by $228,000 over the same period of 2003.
Total noninterest expenses increased $460,000 for the three months ended March
31, 2004, as compared to the same period ended 2003. The increase in total
noninterest expenses for the current period was primarily related to an increase
in compensation and employee benefits from the acquisition of Vantage as well as
the related marketing efforts to increase visibility within the Company's market
area, annual merit increases and bonuses given to employees, and data processing
expenses. Vantage paid $378,000 of solicitors' fees for the quarter as compared
to $218,000 for the same period in 2003 due to the growth in assets under
management.
14
Income tax expense of $295,000 was recognized in the first quarter of 2004,
compared to $160,000 for the same period of 2003. All of the Company's operating
loss carry-forwards were fully utilized during the 2003 tax year.
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 tangible capital ratios in order to assess compliance with
regulatory guidelines. At March 31, 2004, both the Company and the Bank exceeded
the minimum risk-based and tangible capital ratio requirements. The Company's
and the Bank's risk-based, Tier I risk-based, and tangible capital ratios are
10.9%, 9.6%, 5.2% and 12.4%, 11.1%, 5.9%, respectively, at March 31, 2004.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
-------------------------------------------------
as of a date within 90 days of the filing date of this Quarterly Report on Form
10-QSB, the Registrant's principal executive officer and principal financial
officer have concluded that the Registrant's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934 (the "Exchange Act")) are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in the
-------------------------------
Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities and Small Business Issuer Purchases of Equity
Securities
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 **
10.3 Supplemental Executive Retirement Plan ***
31.1 Certification Pursuant to Section 302 of the Securities
Exchange Act of 1934 - David Z. Richards
31.2 Certification Pursuant to Section 302 of the Securities
Exchange Act of 1934 - Gary M. Bradley
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002.
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.
*** Incorporated by reference to the identically numbered exhibit to the
December 31, 2003 Form 10-KSB filed with the SEC on March 30, 2004.
16
(b) Reports on Form 8-K.
(1) A Report on Form 8-K was filed on February 23, 2004 pursuant to
Items 7 and 12 in accordance with Release No. 34-47583 to report
earnings for the quarter ended December 31, 2003.
(2) A Report on Form 8-K was filed on February 24, 2004, pursuant to
items 5, 7 and 9 announcing that that the Registrant's Board of
Directors declared a six-for-five stock split payable in the form
of a 20% stock dividend on the Company's outstanding common
stock.
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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: May 13, 2004 By: /s/David Z. Richards
-------------------------------------------
David Z. Richards
President and Chief Executive Officer
Date: May 13, 2004 By: /s/Gary M. Bradley
-------------------------------------------
Gary M. Bradley
Vice President and Chief Accounting Officer
18