As filed with the Securities and Exchange Commission on November 12, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Nittany Financial Corp.
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(Exact name of Small Business Issuer as specified in charter)
Pennsylvania 6035 23-2925762
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or organization) identification No.)
116 East College Avenue, State College, Pennsylvania 16801
(814) 234-7320
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(Address, including zip code, and telephone number, including area code,
of principal executive offices and principal place of business)
David Z. Richards, Jr., President
Nittany Financial Corp.
116 East College Avenue, State College, Pennsylvania 16801
(814) 234-7320
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Gregory J. Rubis, Esq.
Felicia C. Battista, Esq.
Malizia Spidi & Fisch, PC
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
(202) 434-4660
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration
statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ---------------------- ---------------------- ----------------------- --------------------------- --------------------
Title of Each Shares Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Aggregate Offering Registration
To Be Registered Registered(2) Per Unit Price(1) Fee(2)
- ---------------------- ---------------------- ----------------------- --------------------------- --------------------
Common Stock,
$.10 Par Value 162,438 $11.00 $1,786,816 $496.73
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(1) Estimated solely for purposes of calculating the registration fee.
(2) A registration statement on Form SB-2 (333-57277) was filed and declared
effective on July 31, 1998 which registered 615,000 common shares. Of such
shares, 67,562 common shares remain unsold. Pursuant to Rule 429 of
Regulation C, this offering also includes the 67,562 unsold shares which
registration fee was previously paid. A total registration fee of $1,814.24
was previously paid.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
LOGO
UP TO 200,000 SHARES OF COMMON STOCK
$__________ PER SHARE
Nittany Financial Corp. is offering to sell up to 200,000 shares of its
common stock at $__________ per share. Nittany intends to sell the shares
through its directors and officers, who will use their best efforts to sell the
shares. The offering is not underwritten and is not subject to the sale of any
minimum number or dollar amount of shares. Our directors and executive officers
plan to purchase approximately 45,000 shares in the offering.
The common stock is listed on the Electronic Bulletin Board under the
symbol "NTNY." Since Nittany's common stock began trading on the Electronic
Bulletin Board on October 23, 1999, the sales prices have range from $10.00 to
$11.75 per share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE __.
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS
OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE SAVINGS ASSOCIATION FUND OR ANY OTHER GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Proceeds, Before
Price to Public Expenses, To Nittany
Per Share: $__________ $_________
Total Maximum(1) $__________ $_________
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(1) Although we are offering 200,000 shares, we have filed a registration
statement covering 230,000 shares. If we find that demand for the shares at
the offering price is sufficient, we may sell some or all of the additional
30,000 shares. If we sold all of the additional shares, gross proceeds to
Nittany would increase by $________.
We plan to keep the offering open for 60 days, but we may terminate it
early or extend it for up to an additional 60 days at our discretion. The
offering will terminate no later than ________ __, 2000. We will conduct
sequential closings on approximately a bi-weekly basis. We intend to deliver
certificates representing shares for accepted subscriptions within 10 days after
each sequential closing.
THE DATE OF THIS PROSPECTUS IS ________ __, 1999.
TABLE OF CONTENTS
Page
Prospectus Summary.........................................................
Risk Factors...............................................................
Use of Proceeds............................................................
Dilution...................................................................
Capitalization.............................................................
Determination of Offering Price............................................
Trading History and Dividends..............................................
How to Subscribe...........................................................
Plan of Operations.........................................................
Business...................................................................
Regulation.................................................................
Description of Capital Stock...............................................
Legal Matters..............................................................
Experts....................................................................
Index to Financial Statements..............................................
Financial Statements.......................................................
Subscription Agreement.....................................................
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION NOR TO MAKE ANY
REPRESENTATIONS OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF THE COMMON STOCK OF NITTANY FINANCIAL CORP.
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF NITTANY FINANCIAL CORP. SINCE THE DATE AS
OF WHICH INFORMATION IS FURNISHED HEREIN.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Nittany Financial Corp. and the common stock being sold in
this offering and our financial statements and the notes to the financial
statements appearing elsewhere in this prospectus. References in this document
to "we", "us", and"our" refer to Nittany Bank. In certain instances where
appropriate, "we", "us", and "our" refer collectively to Nittany Financial Corp.
and Nittany Bank. References in this document to "Nittany" refers to Nittany
Financial Corp.
NITTANY FINANCIAL CORP.
Nittany Financial Corp. is a holding company organized in 1997 for the
purpose of establishing a de novo community bank in State College, Pennsylvania.
Nittany Bank commenced operations as a wholly-owned FDIC-insured federal savings
bank subsidiary of Nittany on October 26, 1998. Nittany has two operating
subsidiaries:
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 1296 North Atherton, State College, Pennsylvania.
o Nittany Asset Management, Inc. was formed in May 1999 primarily to
offer various types of investment products and services. This
subsidiary is headquartered at 1276 North Atherton, State College,
Pennsylvania and is expected to begin operations in December 1999.
Nittany Bank is a community-oriented federal savings bank, attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in real estate and other loans.
At September 30, 1999, we had consolidated total assets of $46,602,000, total
deposits of $33,261,000, total loans of $23,906,000, and total equity of
$4,475,000.
Our principal executive office is located at 116 East College Avenue,
State College, Pennsylvania 16801. Our telephone number is (814) 234-7320. We
maintain a website at Any information on our website is not part of the
offering.
THE OFFERING
Shares of common stock offered................... 200,000 shares(1)
Offering Price................................... $__________ per share
Shares of common stock outstanding at
September 30, 1999............................ 577,436 shares
Shares of common stock to be outstanding
after the offering............................ 777,436 (maximum) shares(1)
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(1) These figures do not include any of the additional 30,000 shares that we
have registered and may issue. See the footnote on the cover page of this
prospectus. These figures also do not include 82,500 shares issuable upon
exercise of outstanding stock options with an exercise price of $10 per
share and 4,115 shares available for options which have not been granted
under our stock option plan as of September 30, 1999.
1
Purchase guidelines..................... Shareholders as of the date of this
prospectus have first priority to purchase
shares in the offering. Remaining shares
will then be offered to deposit holders and
borrowers of Nittany Bank. Any remaining
shares will be offered to the general public,
with a preference to persons residing in the
State College area.
Use of proceeds......................... We intend to use the proceeds primarily to
capitalize Nittany Bank, which in turn will
use such proceeds to fund loans, to improve
profitability and for possible expansion of
an additional branch office. See "Use of
Proceeds."
Electronic bulletin board symbol........ NTNY
Minimum subscription.................... 200 shares (2)
Maximum subscription.................... 10,000 shares (2)
Minimum to be sold in the offering...... No minimum
Plan of Distribution.................... Nittany plans to offer shares of common
stock, through its officers and directors, to
shareholders, customers, persons and
businesses in the State College area and
elsewhere in the Commonwealth of
Pennsylvania. Nittany may, in its sole
discretion, accept or reject any
subscription, in whole or in part. Funds
received by Nittany from a subscriber will be
available to Nittany upon the acceptance of
the subscription. We intend to conduct
sequential closings on approximately a
bi-weekly basis. Between closings, all funds
will be placed in a deposit at Nittany Bank.
If Nittany elects not to accept a
subscription, all funds received from the
subscriber will be returned promptly to the
subscriber, without interest.
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(2) The minimum and maximum subscription may be waived on a case-by-case
basis by the Board of Directors. In addition, the total number of
shares that any person may purchase, when added to his existing
ownership, may not equal or exceed 10% of the shares outstanding at the
completion of this offering.
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SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and notes to those
financial statements elsewhere in this prospectus. Financial information for
1998 represents the consolidated financial operations and condition of Nittany
Financial Corp. Financial information for 1997 represents the financial
operations and condition of Nittany prior to the formation of Nittany Bank.
Nittany Bank commenced operations on October 26, 1998. The following tables for
the years 1997 through 1998 are calculated from our audited consolidated
financial statements, which are elsewhere in this prospectus.
At and for the Year
At And For The Ended December 31,
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One Month Ended Nine months ended
October 31, 1999 September 30, 1999 1998 1997
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(Unaudited)
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(Dollars in Thousands, Except per Share Amounts)
Income Statement Data:
Total interest and dividend
income ..................... $ 267 $ 1,625 $ 187 $ -
Total interest expense ......... 160 965 95 -
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Net interest income ............ 107 660 92 -
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Provision for loan losses ...... 12 60 100 -
Net interest income after
provision for loan losses ...... 95 600 (8) -
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Total non-interest income ...... 17 116 13 -
Total non-interest expenses .... 106 959 505 26
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Net income (loss) before
income taxes ................ 6 (243) (500) (26)
Income taxes ................... - - - -
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Net income (loss) .............. $ 6 $ (243) $ (500) $ (26)
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3
At And For The At or For the Year
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One Month Ended Nine months ended Ended December 31,
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October 31, 1999 September 30, 1999 1998 1997 (1)
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(Unaudited)
(Dollars in Thousands, Except per Share Amounts)
Balance Sheet Data:
Total assets....................... $47,150 $46,602 $24,791 $ 99
Total deposits..................... 33,854 33,261 13,992 -
Investment securities.............. 17,651 17,825 13,151 -
Loans receivable, net.............. 25,062 23,749 4,424 -
Intangible assets.................. 897 901 942 -
Borrowings......................... 8,610 8,600 5,000 -
Total stockholders' equity(2)...... 4,368 4,475 5,154 (26)
Per Share Data:
Net income (loss) - basic......... $ .01 $ (.42) $ (3.62) N/A
Net income (loss) - diluted...... .01 (.42) N/A N/A
Book value (end of period)........ 7.56 7.75 8.93 N/A
Weighted average number of
shares outstanding -- basic..... 577,436 577,436 138,049 N/A
Weighted average number of
shares outstanding -- diluted... 577,436 577,436 N/A N/A
Selected Performance Ratios:
Return on average assets(2)........ .15% (.93)% (2.55)% N/A
Return on average equity(2)........ 1.61 (6.73) (9.21) N/A
Net interest margin(3)............. 2.64 2.71 2.49 N/A
Average net loans as a
percentage of average
deposits........................ 73.02 64.73 13.45 N/A
Average total shareholders'
equity as a percentage of
average total assets............ 9.51 13.75 27.70 N/A
Selected Asset Quality Ratios:
Non-performing loans charge-
offs to average loans........... --% --% .06% N/A
Allowance for loan losses to
total loans.................... .64% .66% 2.18% N/A
Capital Ratios:
Tangible capital................... 8.60% 8.75% 18.72% N/A
Core capital....................... 11.94% 12.44% 31.58% N/A
Total risk-based capital........... 12.42% 12.93% 32.32% N/A
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N/A - Not Applicable
(1) At or for the three month period ended December 31, 1997.
(2) Ratios are computed using annualized income for the periods.
(3) Ratios are computed using annualized interest income and expense for the
periods.
4
RISK FACTORS
Before you invest in our common stock, you should be aware that there
are various risks, including those described below. You should carefully
consider these risk factors, together with all the other information included in
this prospectus, before you decide whether to purchase shares of our common
stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our financial condition; or (3) state other "forward-looking" information.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or over which we have no control. The risk factors listed in this
section, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this prospectus
could have a material adverse effect on our business, results of operations and
financial condition.
RISKS RELATED TO THE OFFERING
The Offering Price Does Not Necessarily Represent Current Market Value.
Since the issuance of the common stock by Nittany on October 23, 1998, trades
have generally occurred between $10.50 to $11.75 per share. The offering price
does not necessarily reflect the price at which the common stock currently
trades, nor does the offering price necessarily reflect the price at which
Nittany's common stock will trade following the offering. No underwriter
assisted us in determining the offering price.
You Will Suffer Immediate Dilution. The offering price per share
exceeds Nittany's book value per share, which is shareholders' equity divided by
the number of outstanding shares. Based upon the offering price and the book
value per share as of September 30, 1999, the sale of the common stock in the
offering will result in an immediate dilution of $____ per share for new
shareholders if we sell all of the 200,000 shares offered.
We Have Not Engaged an Underwriter And May Not Sell All of The Shares
Offered. The offering is not underwritten, so we can provide no assurance that
we will sell all or any of the shares offered. We may sell any number of shares
in the offering without any minimum. We may terminate the offering after
accepting subscriptions for any number of shares less than the maximum. Once you
submit a subscription, we can hold your subscription funds in an non-interest
bearing account and accept or reject your subscription for any reason or no
reason. Our directors and officers have only limited experience in conducting an
offering of common stock.
RISKS RELATED TO OUR BUSINESS
Our Lending Business Is Geographically Concentrated. Our loan portfolio
consists almost entirely of loans to persons and businesses located in
Pennsylvania and, in particular, Centre County. The collateral for many of our
loans consists of real and personal property located in the same county. This
lack of geographic diversification in the loan portfolios could have a material
adverse effect on our
5
financial condition and results of operation if a cyclical downturn or natural
disaster affected the local economy.
The Lending Business Has Inherent Risks. Nittany Bank is engaged
primarily in real estate mortgage lending and consumer lending. The risk of
nonpayment of loans is inherent in the lending business. The ability of
borrowers to repay their obligations can be adversely affected by factors beyond
our control, including local and general economic and market conditions. A
substantial portion of our loans are secured by real estate. These same factors
may adversely affect the value of real estate collateral. We maintain an
allowance for loan losses and periodically make additional provisions to the
allowance to reflect the level of losses determined by management to be inherent
in the loan portfolio. However, the level of the allowance and the amount of
these provisions are only estimates based on our judgment, and we can provide no
assurance that actual losses incurred will not exceed the amount of the
allowance or require substantial additional provisions to the allowance.
We Have a Short Operating History. At September 30, 1999, Nittany Bank
has been operating for less than a full year. We cannot assure you that we will
continue to increase in asset size at the rate we have grown since inception on
October 26, 1998, or that results of future operations can be predicted. New
banks typically operate at a loss for more than one year.
Future Changes in Interest Rates May Reduce Our Profits. Our ability to
make a profit largely depends on our net interest income, which could be
negatively affected by changes in interest rates. Net interest income is the
difference between (1) the interest income we earn on interest-earning assets,
such as mortgage loans and investment securities and (2) the interest expense we
pay on our interest-bearing liabilities, such as deposits and amounts we borrow.
If more interest-earning assets than interest-bearing liabilities
reprice or mature during a time when interest rates are declining, then our net
interest income may be reduced. If more interest-bearing liabilities than
interest-earning assets reprice or mature during a time when interest rates are
rising, then our net interest income may be reduced. At September 30, 1999, our
interest-bearing liabilities maturing or repricing within one year exceeded our
interest-earning assets maturing or repricing within one year by $21.4 million.
As a result, the yield on our interest-earning assets may adjust to changes in
interest rates at a slower rate than the cost of our interest-bearing
liabilities, thereby reducing our net income.
As a result of the increase in general market interest rates during the
past several months at September 30, 1999, the market value of our portfolio of
investment securities available for sale has decreased $435,000 from December
31, 1998, which for financial reporting purposes caused our stockholders' equity
to decrease by this amount, or approximately $.75 per share. This decrease in
market value is considered temporary in nature and does not affect our net
income or regulatory capital requirements.
Fluctuations in interest rates are not predictable or controllable. We
have attempted to structure our asset and liability management strategies to
mitigate the impact of changes in market interest rates on our net interest
income. However, there can be no assurance that we will be able to manage
interest rate risk so as to avoid significant adverse effects in our net
interest income.
We Do Not Currently Pay Cash Dividends. Our ability to pay cash
dividends in the future will depend on our profitability, growth, capital needs
and compliance with regulatory capital requirements. The Board of Directors
currently intends to retain earnings, if any, to support growth and has no
intention
6
of paying cash dividends in the foreseeable future. We cannot assure you as to
when or whether we will pay a cash dividend or the amount of the dividend.
We Face Strong Competition. Competition may have an adverse effect on
us. In Centre County, Pennsylvania, large regional financial institutions
headquartered outside of the area dominate the banking industry. These large
regional financial institutions have greater resources for marketing,
development of services and products than we have, and they may enjoy greater
economies of scale.
We Are Subject to Extensive Government Regulation Which Could Affect
Our Operations. Because Nittany Bank is a de novo bank, we must maintain a ratio
of Tier I capital to average assets of at least 8% for a period of three years.
If we do not maintain such a ratio, our operations could be significantly
curtailed by our regulators. At September 30, 1999, Nittany Bank's Tier I
capital to average assets was 8.75%.
Our operations are also subject to extensive state and federal
regulation, supervision and legislation. From time to time, legislators enact
laws which have the effect of increasing the cost of doing business, limiting or
expanding permissible activities or affecting the competitive balance between
banks and other financial institutions. These regulations are intended primarily
for the protection of depositors and consumers, rather than for the benefit of
shareholders. Congress has recently passed legislation to repeal the current
statutory restrictions on affiliations between commercial banks, insurance
companies and securities firms and to change other significant banking laws.
Should such legislation become law, we cannot predict the impact these changes
might have on us.
The Amount of Common Stock Held by Our Executive Officers and Directors
Gives Them Significant Influence over the Election of Our Board of Directors and
Other Matters That Require Stockholder Approval. A total of approximately
_________ shares of our common stock, or _____% of the common stock outstanding
(assuming 200,000 shares are sold in this offering resulting in 777,436 shares
outstanding), will be beneficially owned by our directors and executive officers
following this offering. Therefore, if they vote together, our directors and
executive officers have the ability to exert significant influence over the
election of our Board of Directors and other corporate actions requiring
stockholder approval, including the adoption of proposals made by stockholders.
Our Stock Price May Fluctuate Significantly. In recent years the stock
market in general and the market for shares of small capitalization stocks in
particular have experienced significant price fluctuations, which have often
been unrelated to the operating performance of affected companies. These
fluctuations could have a material adverse effect on the market price of our
common stock.
An underwriter is permitted to take certain steps to limit the
volatility of a stock's market price after completion of an offering. Without an
underwriter, we will have little or no control over the volatility of the market
price for our common stock after the offering.
The Year 2000 Problem Could Disrupt Our Business. The inability of
computers, software, and other equipment utilizing microprocessors to recognize
and properly process data fields containing a two-digit year is commonly
referred to as the year 2000 compliance issue. As the year 2000 approaches,
these systems may be unable to process accurately particular date-based
information.
7
Our vendors have provided appropriate assurances with regard to these
issues, and we are confident that Nittany has internally taken the steps
necessary to be year 2000 compliant. However, there can be no guarantee that
these assurances will prove to be accurate, or that the systems of other
companies on which our systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with our
systems, would not have a material adverse effect on us. We have assessed the
credit risk related to our borrowers' year 2000 compliance progress and have
integrated a year 2000 compliance element into our credit approval process.
The costs of, and the date on which we plan to complete the year 2000
modification and testing process, are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of particular resources, third-party modification plans,
and other factors. However, we can provide no assurance that our actual results
will be consistent with these estimates.
USE OF PROCEEDS
If we sell all of the shares offered, gross proceeds will be $________.
We estimate expenses of the offering at approximately $70,000, leaving maximum
net proceeds of $_________. If we sell less than all of the shares offered,
proceeds will be lower. The offering is not subject to the sale of any minimum
number or dollar amount of shares.
Nittany intends to retain all funds received in the offering and to
invest most of the capital in Nittany Bank. A small portion of the proceeds (up
to $100,000) may be invested in Nittany Asset Management, Inc., for marketing
and general operating expenses. The funds will be used to improve Nittany Bank's
profitability and to increase its total regulatory capital and equity to expand
lending in its primary market area. The funds may also be used to expand Nittany
Bank's current operations through the opening of additional branch offices in
the State College market area. At this time we have no definitive plans to open
any additional branch offices.
Proceeds retained by Nittany will initially be invested in government
securities or other permitted investments and ultimately used in the discretion
of the Board of Directors. If we sell any of the additional shares that we have
registered (see the footnote on the cover page of this prospectus), Nittany Bank
is also expected to receive most of those proceeds as well. We cannot assure you
that we will succeed in selling all or any portion of the shares being offered.
DILUTION
At September 30, 1999, the stockholders' equity, or net book value, of
Nittany was $4,475,000, or $7.75 per share. Net book value per share represents
Nittany's total assets less total liabilities divided by the total number of
shares of common stock outstanding, exclusive of currently exercisable options.
Net book value dilution per share represents the difference between the
amount per share paid by the purchasers of common stock in the offering and the
pro forma net book value per share of common stock immediately after the
completion of the offering. After giving effect to the sale by Nittany of the
200,000 shares of common stock offered in this prospectus at the public offering
price of $__________ per share and receipt by Nittany of the net proceeds, the
pro forma net book value of Nittany at September 30, 1999, would have been a
maximum of approximately $__________ ($_____ per share). This represents an
immediate decrease in book value per share of $_____ per share to purchasers of
shares in the offering, as illustrated by the following:
8
DILUTION IN NET BOOK VALUE PER SHARE TO NEW SHAREHOLDERS
Assuming 200,000 New
Shares in the Offering(1)
-------------------------
Public offering price per share................................................. $
Net book value per share at September 30, 1999.................................. 7.75
Increase per share attributable to new shareholders in the offering.............
____
Pro forma net book value per share after the offering........................... ____
Dilution in net book value per share to new shareholders........................ ____
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(1) The exercise of currently exercisable stock options of 24,249 at $10 per
share would result in a ________ in dilution to new shareholders of $___
per share.
CAPITALIZATION
The following table sets forth the capitalization and capital ratios of
Nittany at September 30, 1999, and as adjusted to give pro forma effect to the
offering assuming sale of the 200,000 shares offered hereby:
At September 30, 1999
---------------------
As Adjusted
for the
Actual Offering
------ --------
(Dollars in thousands)
Preferred stock, 5,000,000 shares authorized; none outstanding $ -- $ --
Common stock, $.10 par value, 10,000,000 shares authorized;
shares outstanding: 577,436 at September 30, 1999 and
777,436 as adjusted ....................................... 58
Additional paid-in capital ................................... 5,652
Retained earnings ............................................ (769)
Accumulated other comprehensive loss ......................... (466)
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Total stockholders' equity ................................... $ 4,475 $
======= =====
Capital Ratios:
Tangible capital .......................................... 8.75% %
Core capital .............................................. 12.44% %
Total risk-based control .................................. 12.93% %
The table above assumes that Nittany will immediately pay estimated
expenses of $70,000 and invest net proceeds in U.S. Treasury securities with a
0% risk factor for regulatory capital purposes. The table above does not reflect
shares of common stock that would be issued upon exercise of outstanding
9
stock options. The table also does not reflect the additional 30,000 shares that
we have registered and may sell as described in the footnote on the cover page
of this prospectus.
DETERMINATION OF OFFERING PRICE
The Board of Directors of Nittany determined the offering price for the
shares of common stock offered after considering several factors, including
recent trading prices of the common stock, book value per share, earnings per
share, historical results of operations, assessment of our management and
financial condition and market activity of stock for other financial
institutions. The offering price does not necessarily reflect the price at which
the common stock currently trades, nor does the offering price necessarily
reflect the price at which the common stock will trade following the offering.
Because the offering is expected to take place over a period of 60 days and as
long as 120 days, the market price for the common stock could vary during the
offering.
TRADING HISTORY AND DIVIDENDS
Trading History
Nittany's common stock is listed on the Electronic Bulletin Board under
the symbol "NTNY." E.E. Powell & Co., Inc., Ryan Beck & Co., and Hopper Soliday
& Co. have acted as market makers for the common stock. These market makers have
no obligation to make a market for Nittany's common stock, and they may
discontinue making a market at any time.
The information in the following table indicates the high and low
closing prices for the common stock, based upon information provided by the
market makers. These quotations reflect inter-dealer prices, without retail
mark-up, markdown, or commission, do not reflect actual transactions, and do not
include nominal amounts traded directly by shareholders or through other dealers
who are not market makers.
High Low
---- ---
1999
- ----
Third Quarter ..................................... 11.75 10.50
Second Quarter .................................... 11.75 10.38
First Quarter ..................................... 11.25 10.38
1998
- ----
Fourth Quarter .................................... 12.00 10.50
Third Quarter (October 23, 1999 - October 26, 1999) 10.00 10.00
On September ____, 1999, the last reported sale price of the common
stock on the Electronic Bulletin Board was $______ per share. As of September
30, 1999, Nittany had approximately ____ shareholders of record. This number
does not include the number of beneficial holders of Nittany common stock held
in street name; we believe this number is approximately ____.
10
Dividend Policy and History
Nittany currently has no intention of paying cash dividends in the
foreseeable future. Payment of cash dividends is conditioned on earnings,
financial condition, cash needs, the discretion of the Board of Directors and
compliance with regulatory requirements. Nittany's ability to pay dividends to
stockholders is dependent upon the dividends it receives from Nittany Bank.
Nittany Bank may not declare or pay a cash dividend on any of its stock if the
effect of such payment would cause its regulatory capital to be reduced below
the regulatory requirements imposed by the OTS. For discussion of regulatory
requirements, see "Regulation of Nittany Bank -- Regulatory Capital
Requirements" below.
HOW TO SUBSCRIBE
General
To invest, you must purchase at least 200 shares for a minimum
investment of $_____. Once you submit a completed subscription to us, you may
not withdraw it. We reserve the right to accept individual subscriptions for
fewer than 200 shares in our discretion. The offering is not underwritten and is
not conditioned on the sale of any minimum number of shares.
Only the directors and officers of Nittany and its subsidiaries have
the authority to solicit subscriptions for shares. Our directors and officers
intend to solicit by means of personal and telephone contact with prospective
subscribers and by direct mailing of the prospectus. We may reimburse our
directors and officers for their reasonable expenses, if any, incurred in
connection with the selling of shares.
Purchase Guidelines
In connection with this offering, Nittany has generally established the
following guidelines.
1. Stockholders of record as of the date of this prospectus will
be given the first opportunity to purchase stock. In the event
of an oversubscription by current stockholders, the stock will
be allocated pro-ratably in proportion to their current
ownership in Nittany.
2 Customers of Nittany as of the date of this Prospectus will be
given the second opportunity to purchase stock. In the event
of an oversubscription by customers, orders will be filled in
the order they are received.
3. Any remaining shares will be offered to the general public,
with a preference given to natural persons residing in the
State College area.
Notwithstanding the above guidelines, Nittany reserves the right to
reject any order in part or in whole.
Restrictions
Only persons who have received a copy of this prospectus may subscribe.
No investor may purchase, directly or indirectly, shares which together with any
shares previously held by the investor equal or exceed 10% of the Nittany common
stock to be outstanding immediately following completion
11
of the offering. In addition, except with our consent, no investor may purchase
in the offering, directly or indirectly, more than 10,000 shares of our common
stock in the offering.
Application for Common Stock
The prospectus includes Appendix A, the Stock Subscription Application,
and is accompanied by a Stock Subscription Application. You may subscribe to
purchase shares by mailing or delivering to us:
o a completed and signed application; and
o a check payable to "Nittany Financial Corp." in the amount of the
purchase price.
We can accept or reject applications in whole or in part for any
reason. We will notify you in writing whether we have accepted your application
within one month after we receive it. If we reject your application in whole or
in part, we will return your unaccepted funds.
We will deposit all subscription funds in a non-interest-bearing
impound account at Nittany Bank. Any funds in the impound account are insured by
the FDIC up to a maximum of $100,000 per purchaser; however, our common stock is
not insured by the FDIC or any other agency.
On approximately a bi-weekly basis we will conduct a closing at our
premises. At each closing, at our request Nittany Bank will release to us funds
in the impound account attributable to accepted applications. Within 10 business
days after each closing, we will mail to each of you whose application we have
accepted a stock certificate, registered in your name or as directed by you, for
the shares you have purchased.
We plan to keep the offering open for 60 days, but we may terminate it
early or extend it for up to an additional 60 days at our discretion. If for any
reason we terminate the offering without accepting any applications, we will
send to each of you who has submitted an application a written notice and a
refund of the amount you submitted on those funds while on deposit in the
impound account.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
General
Nittany `s wholly owned subsidiary, Nittany Bank, commenced operations
as of October 26, 1998, and its activities have primarily consisted of offering
deposits, originating loans and servicing the deposits and loans acquired from
First Commonwealth Bank (the "Branch Acquisitions"). Prior to October 26, 1998,
our primary activities centered on the formation of Nittany Bank.
On May 24, 1999, Nittany Asset Management, Inc. ("Asset Management
Company") was formed and incorporated as a Pennsylvania corporation. Asset
Management Company is a wholly owned subsidiary of Nittany and was formed for
the purpose of offering alternative investment products and investment
management services to prospective customers. On August 3, 1999, $10,000 in
capital was raised through the issuance of common stock to Nittany, its sole
shareholder. Asset Management Company intends to begin service operations in the
fourth quarter of 1999.
12
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, risks associated with the a de novo bank, the ability to
control costs and expenses, and general economic conditions. We undertake no
obligation to publicly release the results of any revisions to those forward
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Asset/Liability Management
Our earnings are primarily dependent on our net interest income. Net
interest income is affected by (1) the amount of interest-earning assets and
interest-bearing liabilities, (2) rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities, and (3) the difference
("interest rate spread") between rates of interest earned on interest-earning
assets and rates paid on interest-bearing liabilities. To measure the
relationship of interest-earning assets and interest-bearing liabilities and
their impact on our net interest income, we maintain an asset/liability
management program.
One of the principal functions of our asset/liability management
program is to monitor the level to which the balance sheet is subject to
interest rate risk. The goal of this program is to manage the relationship
between interest-earning assets and interest-bearing liabilities to minimize the
fluctuations in the net interest spread and achieve consistent growth in net
interest income during periods of changing interest rates. We evaluate various
interest rate analysis scenarios based upon various assumptions.
Interest rate sensitivity is the relationship of differences in the
amounts and repricing dates of interest-earning assets and interest-bearing
liabilities. These differences, or interest rate repricing "gap," provide an
indication to the extent to which net interest income could be affected by
changes in interest rates. During a period of rising interest rates, a positive
gap (when interest-earning assets are greater than interest-bearing liabilities)
is desirable. A falling interest rate environment would favor a negative gap
position (when interest-earning assets are less than interest-bearing
liabilities). However, not all assets and liabilities with similar maturities
and repricing opportunities will reprice at the same time or to the same degree.
As a result, our gap position is an indicator of our interest rate risk position
but does not necessarily predict the impact on our net interest income given a
change in interest rate levels.
13
The following table sets forth our gap position for September 30, 1999,
based upon contractual repricing opportunities or maturities, with variable rate
products measured to the date of the next repricing opportunity as opposed to
contractual maturities.
Less than
1 Year 1-5 Years Over 5 Years Total
-------- --------- ------------ --------
Interest-earning assets: (Dollars In Thousands)
Loans receivable $ 3,374 $ 1,365 $ 19,166 $ 23,905
Investment securities 6,979 2,051 8,825 17,855
Interest bearing deposits with other 3,279 - - 3,279
-------- -------- -------- --------
banks
Total interest-earning assets $ 13,632 $ 3,416 $ 27,991 $ 45,039
-------- -------- -------- --------
Interest-bearing liabilities
NOW accounts $ 4,819 $ - $ - $ 4,819
Money market accounts 14,036 - - 14,036
Savings accounts 1,451 - - 1,451
Certificates of deposit 5,953 3,869 565 10,387
FHLB advances 8,000 600 - 8,600
-------- -------- -------- --------
Total interest-bearing liabilities $ 34,259 $ 4,469 $ 565 $ 39,293
-------- -------- -------- --------
Excess interest-earning
assets (liabilities) $(20,627) $ (1,053) $ 27,426
======== ======== ========
Cumulative interest-earning assets $ 13,632 $ 17,048 $ 45,039
Cumulative interest-bearing liabilities 34,259 38,728 39,293
-------- -------- --------
Cumulative gap $(20,627) $(21,680) $ 5,746
======== ======== ========
Cumulative interest rate
sensitivity ratio (1) (.40) (.44) 1.15
======== ======== ========
- ---------------
(1) Cumulative interest-earning assets divided by cumulative interest-bearing
liabilities.
14
Average balances are derived from daily averages calculated for the
nine months ended September 30, 1999 and for the period of October 26, 1998 to
December 31, 1998.
For the Nine Months Ended September 30, For the Period Ended December 31,
--------------------------------------- ---------------------------------
1999 1998
--------------------------------------- ---------------------------------
Average Average Average Average
Balance Interest(1) Yield/Cost(4) Balance Interest(1) Yield/Cost(4)
------- ----------- ------------- ------- ----------- -------------
(Dollars in thousands)
Interest-earning assets:
Loans receivable............................... $14,068 $ 816 7.73% $ 1,676 $ 25 9.03%
Investments securities......................... 16,436 729 5.91% 6,734 61 5.42%
Interest-bearing deposits with other banks..... 2,760 80 3.91% 10,408 100 4.98%
----- ----- ------ ---
Total interest-earning assets.................... 33,264 1,625 6.52% 18,818 186 5.50%
----- ---
Noninterest-earning assets....................... 1,859 874
Allowance for loan losses........................ (107) (97)
------ ------
Total assets..................................... $35,016 $19,595
======= =======
Interest-bearing liabilities:
Interest-bearing demand deposits............... $2,975 44 1.96% $2,064 6 1.64%
Money market deposits.......................... 10,738 393 4.88% 3,395 28 4.96%
Savings deposits............................... 1,297 32 3.31% 1,521 9 3.47%
Certificates of deposit........................ 6,560 255 5.19% 4,763 46 5.77%
Advances from FHLB............................. 6,835 241 4.69% 832 6 4.39%
------ --- ------ ---
Total interest-bearing liabilities............... $28,405 965 4.53% $12,575 95 4.50%
------- --- ------- ---
Noninterest-bearing liabilities
Demand deposits................................ $1,577 $ 779
Other liabilities.............................. 219 814
Stockholders' equity............................. 4,815 5,427
------ -----
Total liabilities and stockholders' liability.... $35,016 $19,595
======= =======
Net interest income.............................. $ 660 $ 91
====== ====
Interest rate spread (2)......................... 1.99% 1.00%
Net yield on interest-earning assets(3).......... 2.65% 2.49%
Ratio of average interest-earning assets to
average interest-bearing liabilities............ 117.11% 149.65%
- ---------------
(1) Interest income and expense are for the period that banking operations were
in effect.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(4) Average yields are computed using annualized interest income and expense
for the periods.
15
Comparison of Financial Condition
We continued to experience strong growth during the nine-month period
ended September 30, 1999 with total assets increasing 88.0% to $46,602,000 from
$24,791,000 at December 31, 1998. This growth was stimulated primarily by an
increase in loans, net of allowance for loan losses, of $19,325,000, and was
funded through growth in various deposit products totaling $19,268,000 and
additional Advances from the Federal Home Loan Bank of $3,600,000.
At the period ended September 30, 1999, total cash and cash equivalents
totaled $3,619,000 as compared to $5,929,000 at December 31, 1998. Management
maintains a level of cash equivalents which is desirable for meeting the normal
cash flow requirements of its customers for the funding of loans and repayment
of deposits.
Investment securities increased $4,704,000 or 35.8% to $17,855,000 at
September 30, 1999 from $13,151,000 at December 31, 1998. The growth within the
investment portfolio was primarily structured toward mortgage-backed securities
with varying maturities between six and twenty-four years. Of the $4,678,000 in
mortgage-backed securities growth, management has classified $1,711,000 as held
to maturity securities.
Net loan receivables increased from $4,424,000 at December 31, 1998 to
$23,749,000 at September 30, 1999. Of this increase, approximately 93.2% or
$18,064,000 was comprised of loans secured by various forms of real estate. The
real estate lending growth included $11,174,000 in one-to-four family mortgages
and $4,475,000 in commercial real estate. Additionally, $2,415,000 was added
during the period in home equity and construction mortgages. Such increases
primarily reflected 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, 1999, we had outstanding loan funding
commitments of approximately $2.9 million.
At September 30, 1999, our allowance for loan losses increased
approximately $59,000, to $158,000 from $99,000 at December 31, 1998, due to the
overall increase in the loan portfolio. Management continually evaluates the
adequacy of the allowance for loan losses, which encompasses the overall risk
characteristics of the various portfolio segments, past experience with losses
of other financial institutions in our market area, the impact of economic
conditions on borrowers and other relevant factors that may come to the
attention of management. 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 future losses will not be
required in future periods.
Deposits increased $19,269,000 or 137.7% to $33,261,000 at September
30, 1999 compared to $13,992,000 at December 31, 1998. The growth was spread
among three primary sources: money market accounts of $8,626,000, time deposits
of $5,998,000 and demand deposits $4,462,000. Such growth resulted primarily
from the marketing efforts of promoting the opening of a new community bank in
the State College Area.
Advances from the Federal Home Loan Bank increased $3,600,000 to
$8,600,000 at September 30, 1999 compared to $5,000,000 at December 31, 1998.
Management applied approximately $3,000,000 of this increase in borrowed funds
to purchase investment securities. The positive spreads between the earnings on
investments purchased and the related expenses incurred on borrowed funds will
provide an additional source of income. Of the $8,600,000 of advances from the
Federal Home Loan Bank, approximately $8,000,000 is due to mature or reprice
within the next year and are comprised of LIBOR-
16
based floating rate credit arrangements. During the third quarter of 1999,
$517,000 of the deposit growth was used to pay down borrowed funds comprised
almost exclusively of Federal Home Loan Bank advances.
At September 30, 1999, accumulated other comprehensive loss increased
$435,000, to a loss of $466,000 from a loss of $31,000 at December 31, 1998. The
increase in loss resulted from the fluctuation in market value of our investment
in available for sale securities. See Note 3 to the consolidated financial
statements. Because of interest rate volatility, accumulated other comprehensive
loss and stockholders' equity could materially fluctuate for each interim period
and year-end period. The decrease in market value of the investment securities
available for sale is considered temporary in nature and will not affect our net
income until the securities are sold. We plan to hold these securities until
maturity or until the market values of these securities increase. Accordingly,
we do not expect, though there is no assurance, that our investment in these
securities will affect net income in future periods.
Results of Operations
Net interest income for the three and nine months ended September 30,
1999 was $283,000 and $660,000, respectively. The interest rate spread for the
three and nine month periods ended September 30, 1999 was 2.07% and 1.99%,
respectively. Despite a slight increase in general interest rate levels during
the period, both interest income and expense were driven by increases in average
balances of interest-earning assets and interest-bearing liabilities. Of the
$22,966,000 and $23,545,000 increase in average interest-earning assets and
interest-bearing liabilities, respectively, during the three month period ended
September 30, 1999, $19,357,000 and $15,745,000, were primarily the result of
loan and deposit growth, respectively. In comparison, loan and deposit growth
during the nine month period ended September 30, 1999 of $12,392,000 and
$9,826,000, respectively, were the primary factors accounting for the
$14,446,000 and $15,829,000 increase in average interest-earnings assets and
interest-bearing liabilities, respectively. As noted previously, this growth is
a response to the overall economic health of our market area, and the strategic,
service-oriented marketing approach taken by management to meet the both the
lending and deposit needs of the area.
Non-interest income the three and nine month periods ending September
30, 1999 was $46,000 and $115,000, respectively. Non-interest income items are
primarily comprised of normal service charges and fees on deposits, along with
fee income derived from ATM surcharges. Such amounts have progressively
increased during each quarter of 1999 as the number of deposit accounts and
volume of related transactions have increased.
Non-interest expense for the three and nine month periods ending
September 30, 1999 was $359,000 and $959,000, respectively. Non-interest
expenses are comprised primarily of employee compensation and benefits,
occupancy and equipment, data processing, and other non-interest expenses. These
costs are the result of operating a larger organization, including the necessary
investments in skilled employees, facilities and technology; as well as
contracting the services of a third party processor for check and deposit
activity and transaction processing costs related to the two ATM's. Included in
other non-interest expense for the three and nine months ended September 30,
1999, is a non-recurring charge of $41,000. This expense was incurred in
connection with settlement activities of accounts subsequent to the purchase of
deposits in the Branch Acquisitions.
17
Liquidity and Capital Resources
Management monitors both Nittany'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, 1999, we exceeded our
minimum risk-based and leverage capital ratio requirements. Nittany and Nittany
Bank's Total risk-based, Tier I risk-based and Tier I leverage ratios were
12.9%, 12.4%, 8.7% at September 30, 1999.
Year 2000 Readiness
The year 2000 problem is associated with the inability of some computer
programs to distinguish between the year 1900 and the year 2000 because of
software programs that were written with a two digit year field instead of a
four digit field. If not correctly programmed or rewritten, some computer
applications could fail to operate or may create erroneous results when the year
changes to 2000 or other key dates in the first quarter of the year 2000. This
could cause entire system failures, miscalculations and disruptions of normal
business operations. As the banking industry is heavily dependent on computer
systems, the effect of this problem could be the temporary inability to process
transactions, generate statements and billings or engage in normal day to day
business activities. The extent of the potential impact of this problem is not
known and if not corrected in a timely manner, could affect the global economy.
Management and the Board of Directors has viewed the year 2000
initiative as a high priority of the Company and considers itself adequately
prepared for the date change. We continue to aggressively pursue appropriate
solutions and assurances with regard to compliance of all potentially affected
applications by the year 2000. The five phases of awareness, assessment,
renovation, validation and implementation have been completed by September 30,
1999.
Late in 1998, we organized a Y2K Readiness Committee comprised of
senior managers of the bank along with various key personnel in all departments.
Working through the various stages of Y2K compliance did not adversely affect
our business plan for 1999 or delay any planned technology projects. It has not
been necessary for us to hire any external consultants.
During the awareness phase, we provided the Board of Directors with
monthly updates and received input from our board members. The process of
gathering and sharing information included customers, employees and management.
The process was directed by an internal employee assigned the responsibility for
coordination in conjunction with a year 2000 team comprised of employees at all
levels of Nittany Bank. Brochures, mailings and statements stuffers were used to
keep customers abreast of the issues related to the year 2000. During the fourth
quarter, we will continue to work with customers to prepare and inform them of
the various risk issues associated with the date change.
The process of assessment was completed in the fourth quarter of 1998
and included the inventorying of all hardware and software and the
identification of all systems, vendors and other services which could be
affected by the date change. Our year 2000 committee then determined which items
were "mission critical" and ranked them with our highest priority. All outside
vendors and commercial loan customers were asked to provide written
documentation of their compliance and complete a survey prepared by the bank.
Additionally, testing of internal equipment and services, such as fax machines,
computers and security equipment was completed.
18
The core processing system of Nittany Bank was determined to be the
most critical item that could affect us. A third party service bureau (the
"service bureau") provides Nittany Bank with all of the material data processing
that could be affected by this problem. The third party service bureau has
provided Nittany Bank with information and testing opportunities that management
deems to be adequate in supporting their claim of year 2000 readiness.
Additionally, the service bureau has provided us with a detailed contingency
plan for Nittany Bank, in case problems arise after the first day of January
2000. The core application software vendor, whose products are used by the
service bureau, has obtained ITAA*2000 certification, which indicates that the
software has the core capabilities needed to handle the Year 2000 challenge.
As a new operation opened during the awareness of the year 2000 issue,
Nittany Bank was cognizant of the issues as new equipment and vendors were
implemented. As such, the estimated costs associated with addressing the year
2000 issue were estimated not to exceed $10,000. To date, less than $5,000 has
been expended.
The validation phase included extensive testing of all hardware,
software and systems provided by third party vendors. As of September 30, 1999,
all "mission critical" core applications have been sufficiently upgraded and/or
replaced.
All commercial borrowers of Nittany Bank with aggregate balances
exceeding $100,000 have completed a risk assessment questionnaire and management
determined the risk associated with such borrowers to be low.
A Contingency and Business Resumption Plan was adopted by the Board of
Directors in August 1999. The most realistic risk posed to us is the possible
liquidity risk associated with large year-end customer withdrawals. We have
addressed the contingency plan for such risk and are prepared to meet expected
cash demands that may occur. Various agreements and sources of liquidity are in
place, if needed. However, year 2000 issues could affect our liquidity if
customer withdrawals in anticipation of the year 2000 are greater than expected.
Customer awareness continues to be a priority and we expect to provide
additional communication to our customers leading up to the year 2000 date
change.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with us, such as customers, vendors, payment system providers, utility
companies, and other financial institutions, makes it impossible to assure that
a failure to achieve compliance by one or more of these entities would not have
a material impact on our financial statements.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." ("Statement No. 133"). This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. Statement No. 133 supersedes the
disclosure requirements in Statements No. 80, 105 and 119. Statement of
Financial Accounting Standards No. 137 deferred the effective date of this
statement to fiscal years beginning after June 15, 2000. The adoption of
Statement No. 133 is not expected to have a material impact on the financial
position or results of Nittany.
19
In October 1998, the FASB issued Statement of Financial Accounting
Standards No. 134 "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
("Statement No. 134"). This statement amends FASB Statement No. 65 "Accounting
for Certain Mortgage Banking Activities," to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. Statement No. 134 is effective January 1, 1999. The adoption of
this statement is not expected to have a material impact on the financial
position or results of operations of Nittany.
20
THE HISTORY OF NITTANY FINANCIAL CORP. AND NITTANY BANK
July 1997 Chairman Samuel J. Malizia and President David Z. Richards meet to form Nittany Bank and Nittany
Financial Corp.
Fall 1997 Original Board of Directors is assembled and organizers
create business plan for the Company.
December 10, 1997 Nittany Financial Corp. is incorporated as a Pennsylvania corporation.
January 1998 Organizers meet federal regulators to discuss formation of Nittany Bank
as a wholly owned subsidiary of Nittany Financial Corp.
January-March 1998 Regulatory applications, business plans and the strategy of Nittany Bank is formed.
March 1998 Nittany Financial Corp. board of directors move forward with the formation
and filings to organize Nittany Bank. Original board of directors include
Samuel J. Malizia, Chairman; David Z. Richards, President/Chief Executive
Officer; William A. Jaffe, Secretary; D. Michael Taylor and Donald J. Musso.
March 24, 1998 Agreement is signed with First Commonwealth Bank to assume the deposits and
acquire certain assets of two Central Bank locations in State College.
April 7, 1998 Regulatory applications are filed for a federal charter, FDIC Insurance of
Accounts and Holding Company application.
May 1998 Preliminary stock prospectus is filed with the Securities and
Exchange Commission (the "SEC").
July 30, 1998 SEC declares effective the final prospectus and the initial public stock offering
of Nittany Financial Corp. begins.
August 1998 Richard C. Barrickman and John E. Arrington join the Nittany Bank
executive management team.
September 14, 1998 Conditional regulatory approvals are received for approval of the holding company,
FDIC insurance and a federal banking charter.
October 23, 1998 Final closing of stock offering. Nittany Financial Corp. is capitalized with
$5.7 million in capital.
October 23, 1998 Organizers close the purchase of both Central Bank offices.
October 26, 1998 Nittany Bank opens its doors as State College's hometown bank.
The slogan of "The Right Bank, The Right Time" is adopted.
21
November 1998 Nittany Bank issues its first digitally imaged bank statement.
Customers can conveniently store all statements for a year in a Nittany Bank binder.
November 1998 24 Hour Telephone Banking, "The Nittany Line" is introduced for customers to
access account information at any time.
December 31, 1998 Nittany Bank closes its first nine weeks of operation with assets in
excess of $24 million.
January 1999 Remodeling is completed of both offices.
April/May, 1999 New ATM at College Avenue office; addition of drive-up ATM at North Atherton office.
May 1999 Nittany Asset Management, Inc. chartered as a subsidiary of Nittany to offer
alternative securities investments to community.
June 1999 Nittany holds first meeting of Community Advisory Board of Directors to
evaluate needs of the community and solicit comments.
August 1999 Nittany exceeds $40 million in assets.
October 1999 Nittany Asset Management, Inc. commences business operations.
22
BUSINESS
Nittany Financial Corp. We were incorporated under the laws of the
Commonwealth of Pennsylvania on December 8, 1997, primarily to own all of the
outstanding shares of capital stock of Nittany Bank. On September 14, 1998, the
Office of Thrift Supervision, referred to as the "OTS", granted us the necessary
approvals to acquire the capital stock of Nittany Bank and to become a savings
and loan holding company of Nittany Bank. Nittany Bank opened for business on
October 26, 1998, and currently has two branches in State College, Pennsylvania.
We initially issued 29,998 shares of Common Stock at $10.00 per share
in a private offering in order to pay our pre-opening costs and offering
expenses of our initial public offering in August 1998. The initial public
offering was primarily for the purpose of raising the funds necessary to
capitalize Nittany Bank. We sold a total of 537,438 shares of common stock in
the initial public offering and issued 10,000 shares to First Commonwealth Bank
in connection with the branch acquisitions, as described below. Effective as of
October 23, 1998, we purchased with all of the proceeds received in the initial
public offering all of the capital stock of Nittany Bank.
We are a unitary savings and loan holding company which, under existing
laws, generally is not restricted in the types of business activities in which
it may engage provided that Nittany Bank retains a specified amount of its
assets in housing-related investments. We currently conduct no significant
business or operations of our own other than owning all of the outstanding
shares of capital stock of Nittany Bank and Nittany Asset Management, Inc.
("Asset Management Company").
Asset Management Company. On May 24, 1999, Asset Management Company was
formed and incorporated as a Pennsylvania corporation. Asset Management Company
is a wholly-owned subsidiary of Nittany and was formed to engage in the offering
of various types of investment services. Asset Management Company is expected to
begin operations in December 1999 to provide investment advisory services to
high net worth or emerging affluent clients, with an emphasis on establishing
fee based asset management accounts.
While significant competition for investment business exists in
Nittany's market area, Asset Management Company differentiates itself by
focusing on fee-based management and placing the investment objectives of the
client as the forefront of every client meeting. The clients will work with an
investment professional of Asset Management Company to develop a written
investment policy statement, including a target return, based upon their risk
profile. During the process of opening an account, a schedule of quarterly
meetings will be established to monitor the progress of the client's investment
goal.
Nittany Bank. On April 7, 1998, the organizers of Nittany filed an
application with the OTS to organize us as a federal stock savings bank. On
September 14, 1998, the OTS conditionally approved the application, and we
obtained all necessary regulatory approvals to commence banking operations.
Effective as of October 23, 1998, we sold our capital stock to Nittany and
commenced banking operations on October 26, 1998. Our deposit accounts are
insured by the Federal Deposit Insurance Corporation and we are a member of the
Federal Home Loan Bank System.
Effective as of October 23, 1998, we also acquired from First
Commonwealth Bank two branch offices, certain assets and the assumption of
certain deposit liabilities primarily related to First Commonwealth's branch
offices, located at 116 East College Avenue and 1276 North Atherton Street,
State College, Pennsylvania.
23
We are a community-oriented financial institution. Our business is to
attract retail deposits and to invest those deposits, together with funds
generated from operations and borrowings, primarily in one- to four-family
mortgage loans and small business real estate loans. To a lesser extent, we
invest in home equity loans, construction loans, commercial business loans and
consumer loans. Our deposit base is comprised of traditional deposit products
including checking accounts, statement savings accounts, money market accounts,
certificates of deposit and individual retirement accounts.
Market Strategy
Our objective is to create a customer-driven financial institution
focused on providing value to customers by delivering products and services
matched to the customers' needs. We believe that customers are drawn to a
locally owned and managed institution that demonstrates an active interest in
its customers and their business and personal financial needs.
The banking industry in our market area has experienced substantial
consolidation in recent years. Many of the area's locally owned or managed
financial institutions have either been acquired by large regional bank holding
companies or have been consolidated into branches. This consolidation has been
accompanied by increasing fees for bank services, the dissolution of local
boards of directors, management and personnel changes and, in the perception of
management, a decline in the level of customer service. With recent changes in
regulations and the banking industry, this type of consolidation is expected to
continue.
Operating Strategy
We believe that the following attributes make us attractive to the
local business people and residents:
o Direct and easy access to our President, officers and directors, by members
of the community, whether during or after business hours.
o Local conditions and needs are taken into account by us when deciding loan
applications and making other business decisions affecting members of the
community.
o A personalized relationship banking approach that is supported by decision
making that is local and responsive to customer needs.
o Offering competitive interest rates and fees on passbook and checking
accounts
o Prompt review and processing of loan applications.
o Depositors' funds are invested back into the community.
o Our positive involvement in the community affairs of State College.
o Technology based services that enhance the convenience for our customers to
conduct business.
o Availability of a wide array of financial services coordinated by a team of
personal bankers dedicated to meeting customer needs.
24
Competition
Our market area of Centre County (which includes the borough of State
College and the surrounding townships of State College, Ferguson, Halfmoon,
Harris and Patton) is highly competitive market for financial services and we
face intense competition both in making loans and in attracting deposits. We
face direct competition from a significant number of financial institutions
operating in our market area, many with a state-wide or regional presence and in
some cases a national presence. Many of these financial institutions have been
in business for many years, have established customer bases, are significantly
larger and have greater financial resources than we will have and are able to
offer certain services that we are not able to offer. In particular, Centre
County, is served almost entirely by large, regional financial institutions,
almost all of which are headquartered out of the area. These financial
institutions include Mellon Bank, NA (Pittsburgh, PA), Sovereign Bank (formerly
Core States, Reading, PA), Northwest Savings Bank (Warren, PA), PNC Bank
(Pittsburgh, PA), First Commonwealth Bank (Indiana, PA), Omega Bank (State
College, PA), Keystone Financial Bank (Harrisburg, PA) and Reliance Bank
(Altoona, PA). The area also includes Corning Employees Credit Union, Penn State
Federal Credit Union, SPE Federal Credit Union and State College Federal Credit
Union. Nittany Bank is the only FDIC-insured financial institution headquartered
and operated only in State College.
All of these institutions have been in existence for a longer period of
time than us, are better established and have financial resources substantially
greater than us. We will be competing for deposits with these larger established
institutions as well as with investment bankers, money market mutual funds and
other non-traditional financial intermediaries. We have to attract our loan
customer base from existing financial institutions and from growth in the
community. In addition, we face competition for deposits and loans from non-bank
institutions such as brokerage firms, credit unions, insurance companies, money
market mutual funds and private lenders.
Lending Activities
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of our loan portfolio by type of loan and in percentage of
the respective portfolio.
At At
September 30, 1999 December 31, 1998
------------------ -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
Real Estate Loans:
One- to four-family.................... $12,827 53.66% $1,653 36.47%
Home equity............................ 2,276 9.52 998 22.02
Construction........................... 1,137 4.76 -- --
Commercial............................. 5,333 22.31 858 18.93
Consumer................................. 1,699 7.10 860 18.98
Commercial............................... 633 2.65 163 3.60
------ ------ ----- ------
Total............................... 23,905 100.00% 4,532 100.00%
====== ======
Less:
Deferred loan (costs) fees, net.......... (2) 9
Allowance for possible loan losses....... 158 99
------ -----
Total loans, net.................... $23,749 $4,424
====== =====
25
Loan Maturity Tables
The following table sets forth the contractual maturity of our loan
portfolio at September 30, 1999. The table does not include prepayments or
scheduled principal repayments. Prepayments and scheduled principal repayments
on loans totaled approximately $4.7 million for the nine months ended September
30, 1999.
Due after
Due within 1 through Due after
1 year 5 years 5 years Total
------ ------- ------- -------
(In thousands)
One- to four-family real estate.. $ 169 $ 158 $12,500 $12,827
Construction real estate ........ 1,137 - - 1,137
Home equity real estate ......... 351 478 1,447 2,276
Commercial real estate .......... - 24 5,309 5,333
Commercial ...................... 294 317 22 633
Consumer ........................ 609 861 229 1,699
------- ------- ------- -------
Total amount due .................. $ 2,560 $ 1,838 $19,507 $23,905
======= ======= ======= =======
The following table sets forth the dollar amount of all loans at
September 30, 1999 due after September 30, 2000, which have predetermined
interest rates and which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One- to four-family real estate.. $12,658 $ - $12,658
Home equity real estate ......... 1,444 481 1,925
Commercial real estate .......... 5,333 - 5,333
Commercial ...................... 277 62 339
Consumer ........................ 816 274 1,090
------- ------- -------
Total ........................... $20,528 $ 817 $21,345
======= ======= =======
One- to Four-Family Lending. Our one- to four-family residential
mortgage loans are secured by property located in our market area. We generally
originate one- to four-family residential mortgage loans in amounts up to 90% of
the lesser of the appraised value or selling price of the mortgaged property
without requiring mortgage insurance. We also generally originate and retain
fixed rate and adjustable rate loans for retention in our portfolio. A mortgage
loan originated by us, for owner occupied property, whether fixed rate or
adjustable rate, can have a term of up to 30 years. Non-owner occupied property,
whether fixed rate or adjustable rate, can have a term of up to 25 years. Most
mortgage products are held in portfolio and are serviced by us. We offer
adjustable rate loans with fixed rate periods of up to 7 years, with principal
and interest calculated using a maximum 30 year (owner occupied) or 25 year
(non-owner occupied) amortization period. We offer these loans with a fixed rate
for the first seven years (three years for non-owner occupied) with repricing
following every year after that initial fixed period. Adjustable rate loans
limit the periodic interest rate adjustment and the minimum and maximum rates
that may be charged over the term of the loan based on the type of loan.
26
All of our residential mortgages include "due on sale" clauses, which
are provisions giving us the right to declare a loan immediately payable if the
borrower sells or otherwise transfers an interest in the property to a third
party.
Property appraisals on real estate securing our single-family
residential loans are made by state certified and licensed independent
appraisers approved by the Board of Directors. Appraisals are performed in
accordance with applicable regulations and policies. At our discretion, we
obtain either title insurance policies or attorney's certificates of title, on
all first mortgage real estate loans originated. In some instances, we charge a
fee equal to a percentage of the loan amount commonly referred to as points.
Construction Loans. We originate loans to finance the construction of
one- to four-family dwellings. Generally, we only make interim construction
loans to individuals if we also make the permanent mortgage loan on the
property. Interim construction loans to builders generally have terms of up to
one year and interest rates which are slightly higher than normal residential
mortgage loans. These loans generally are adjustable rate loans.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction and development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, we may be required to advance funds beyond the amount originally
committed to permit completion of the development. Additionally, if the estimate
of value proves to be inaccurate, we may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment.
Commercial Real Estate Loans. Our commercial real estate loans are
loans secured by commercial real estate (e.g., shopping centers, medical
buildings, retail offices) in our market area. Permanent loans on commercial
properties are generally originated in amounts up to 80% of the appraised value
of the property. Our permanent commercial real estate loans are secured by
improved property such as office buildings, retail stores, warehouse, church
buildings and other non-residential buildings, most of which are located in our
primary market area. Commercial real estate loans are generally made at rates
which adjust above the treasury interest rate or are balloon loans with fixed
interest rates which generally mature in three to five years with principal
amortization for a period of up to 25 years.
Loans secured by commercial real estate are generally larger and
involve a greater degree of risk than one- to four-family residential mortgage
loans. Of primary concern, in commercial and multi-family real estate lending,
is the borrower's creditworthiness and the feasibility and cash flow potential
of the project. Loans secured by income properties are generally larger and
involve greater risks than residential mortgage loans because payments on loans
secured by income properties are often dependent on successful operation or
management of the properties. As a result, repayment of such loans may be
subject to a greater extent than residential real estate loans to adverse
conditions in the real estate market or the economy.
Commercial Business Loans. Our commercial business loans are
underwritten on the basis of the borrower's ability to service such debt from
income. Commercial business loans are generally made to small and mid-sized
companies located within our primary lending area. In most cases, we require
additional collateral of equipment, accounts receivable, inventory, chattel or
other assets before making a commercial business loan.
27
Consumer. Regulations permit federally chartered thrift institutions to
make secured and unsecured consumer loans up to 35% of the institution's assets.
We make various types of secured and unsecured consumer loans including home
equity lines of credit and automobile loans (new and used). Consumer loans
generally have terms of three years to ten years, some of which are at fixed
rates and some of which have rates that adjust periodically.
Consumer loans are advantageous to us because of their interest rate
sensitivity, but they also involve more credit risk than residential mortgage
loans because of the higher potential of defaults and the difficulties involved
in disposing of the collateral.
Loan Approval Authority and Underwriting. We establish various lending
limits for our officer and also maintain a loan committee. The loan committee is
comprised of the Chairman of the Board, the President, the Executive Loan
Officer and two non-employee members of the Board of Directors. The President
has authority to approve applications for mortgage loans up to $300,000, secured
loans up to $200,000 and unsecured loans up to $125,000. The executive lending
officer has authority to approve loans up to $250,000, depending upon the loan
collateral. Additionally, the President, together with the executive loan
officer have authority to approve applications for real estate loans up to
$400,000, secured loans up to $300,000 and unsecured loans up to $150,000.
Personal banking officers generally have authority to approve loan applications
between $5,000 and $75,000, depending upon the loan collateral and type of loan.
The loan committee considers all applications in excess of the above lending
limits and the entire board of directors ratifies all such loans.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers.
An attorney's certificate of title is required on all real estate
mortgage loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property that is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on primarily all approved real estate loans. Generally, we honor
commitment for up to 45 days of the date of issuance. At September 30, 1999,
commitments to cover outstanding loan commitments totaled $2,878,000.
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 15 days past due, a
notice of nonpayment is sent to the borrower. If such payment is not received by
month end, an additional notice of nonpayment is sent to the borrower. After 60
days, if payment is still delinquent, a notice of right to cure default is sent
to the borrower giving 30 additional days to bring the loan current before
foreclosure is commenced. If the loan continues in a delinquent status for 90
days past due and no repayment plan is in effect, foreclosure proceedings will
be initiated.
Loans are reviewed and are placed on a non-accrual status when the loan
becomes more than 90 days delinquent or when, in our opinion, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on nonaccrual status is charged against interest income. Subsequent
interest payments, if any, are either applied to the outstanding principal
balance or recorded as interest
28
income, depending on the assessment of the ultimate collectibility of the loan.
At September 30, 1999, we had no nonperforming loans or problem assets.
A loan is considered impaired when it is probable the borrower will not
repay the loan according to the original contractual terms of the loan
agreement. We have determined that first mortgage loans on one-to-four family
properties and all consumer loans represent large groups of smaller-balance
homogeneous loans that are collectively evaluated. Additionally, we have
determined that an insignificant delay (less than 90 days), will not cause a
loan to be classified as impaired and a loan is not impaired during a period of
delay in payment, if we expect to collect all amounts due including interest
accrued at the contractual interest rate for the period of delay. All loans
identified as impaired are evaluated independently by us. We estimate credit
losses on impaired loans based on the present value of expected cash flows or
the fair value of the underlying collateral if the loan repayment is derived
from the sale or operation of such collateral. Impaired loans, or portions of
such loans, are charged off when we determine that a realized loss has occurred.
Until such time, an allowance for loan losses is maintained for estimated
losses. Cash receipts on impaired loans are applied first to accrued interest
receivable unless otherwise required by the loan terms, except when an impaired
loan is also a nonaccrual loan, in which case the portion of the receipts
related to interest is recognized as income. At September 30, 1999, we had no
impaired loans.
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings banks which covers all problem assets. Under this
classification system, problem assets of savings banks are classified as
"substandard," "doubtful," or "loss." An asset is considered substandard if it
is inadequately protected by the current net worth and paying capacity of the
borrower or of the collateral pledged, if any. Substandard assets include those
characterized by the "distinct possibility" that the savings bank will sustain
"some loss" if the deficiencies are not corrected. Assets classified as doubtful
have all of the weaknesses inherent in those classified substandard, with the
added characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable." Assets classified as loss are those
considered "uncollectible" and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted.
Assets may be designated "special mention" because of potential weaknesses that
do not currently warrant classification in one of the aforementioned categories.
When a savings bank classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When a savings bank classifies problem assets as
loss, it is required either to establish a specific allowance for losses equal
to 100% of that portion of the asset so classified or to charge off such amount.
A savings bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS, which may
order the establishment of additional general or specific loss allowances. A
portion of general loss allowances established to cover possible losses related
to assets classified as substandard or doubtful may be included in determining a
savings bank's regulatory capital. Specific valuation allowances for loan losses
generally do not qualify as regulatory capital. At September 30, 1999, we had no
classified assets.
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in our loan portfolio. The evaluation, including a review of all loans on which
full collectibility of interest and principal may not be reasonably assured,
considers: (i) known and inherent risks in our portfolio, (ii) adverse
situations that may affect the
29
borrower's ability to repay, (iii) the estimated value of any underlying
collateral, and (iv) current economic conditions.
We monitor our allowance for loan losses and makes additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
determination of the amount of the allowance for loan losses is subject to
review by the OTS, as part of its examination process. After a review of the
information available, the OTS might require the establishment of an additional
allowance. Any increase in the loan loss allowance required by the OTS would
have a negative impact on our earnings.
The following table illustrates the allocation of the allowance for
loan losses for each category of loan. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other loan
categories.
At At
September 30, 1999 December 31, 1998
---------------------------- ----------------------------
Percent of Percent of
Loans in Loans in
Each Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars In Thousands)
Type of Loans:
Real Estate Loans:
One- to four-family...... $49 47.93% $30 36.47%
Construction............. 8 4.76 -- --
Commercial real estate... 55 28.04 36 18.93
Home equity.............. 11 9.52 10 22.02
Commercial.................... 6 2.65 5 3.60
Consumer...................... 29 7.10 18 18.98
--- ---- --- -----
Total.............. $158 100.00% $99 100.00%
=== ====== === ======
30
The following table sets forth information with respect to our allowance for
loan losses:
At At
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars In Thousands)
Total loans outstanding ......................... $ 23,905 $ 4,532
======== ========
Average loans outstanding ....................... $ 14,068 $ 1,676
======== ========
Allowance balance at beginning of period ........ $ 99 $ -
Provision:
Real estate loans ............................... 60 80
Consumer ........................................ - 20
Charge-offs:
Real estate loans ............................... - -
Consumer ........................................ (1) (1)
Recoveries:
Real estate ..................................... - -
Consumer ........................................ - -
-------- --------
Allowance balances at end of period ............. $ 158 $ 99
======== ========
Allowance for loan losses as a percent of total
loans outstanding ............................... .66% 2.18%
======== ========
Net loans charged off as percent of average loans
outstanding ..................................... .01% .06%
======== ========
Investment Activities
Investment Securities. We are required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. The level of liquid assets
varies depending upon several factors, including: (i) the yields on investment
alternatives, (ii) our judgment as to the attractiveness of the yields then
available in relation to other opportunities, (iii) expectation of future yield
levels, and (iv) our projections as to the short-term demand for funds to be
used in loan origination and other activities. Investment securities, including
mortgage-backed securities, are classified at the time of purchase, based upon
management's intentions and abilities, as securities held to maturity or
securities available for sale. Debt securities acquired with the intent and
ability to hold to maturity are classified as held to maturity and are stated at
cost and adjusted for amortization of premium and accretion of discount, which
are computed using a method which approximates a level yield and recognized as
adjustments of interest income. All other debt securities are classified as
available for sale to serve principally as a source of liquidity.
Current regulatory and accounting guidelines regarding investment
securities require Nittany to categorize securities as "held to maturity,"
"available for sale" or "trading." As of September 30, 1999, Nittany Bank had
securities classified as "held to maturity" and "available for sale" in the
amount of $1,711,000 and $16,144,000, respectively. At September 30, 1999,
Nittany Bank had no securities classified as "trading." Securities classified as
"available for sale" are reported for financial reporting purposes at the fair
market value with net changes in the market value from period to period included
as a separate component of stockholders' equity, net of income taxes. At
September 30, 1999, Nittany had securities available for sale with an amortized
cost of $16,610,000 and market value of $16,144,000 (unrealized loss of
$466,000). Changes in the market value of securities available for sale do not
affect
31
Nittany's income. In addition, changes in the market value of securities
available for sale do not affect Nittany Bank's regulatory capital requirements
or its loan-to-one borrower limit.
At September 30, 1999, our investment portfolio policy allowed
investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S.
federal agency or federally sponsored agency obligations, (iii) local municipal
obligations, (iv) mortgage-backed securities, (v) banker's acceptances, (vi)
certificates of deposit, and (vii) investment grade corporate bonds, commercial
paper and mortgage derivative products. The board of directors may authorize
additional investments.
As a source of liquidity and to supplement our lending activities, we
have invested in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. Mortgage-backed securities represent a participation
interest in a pool of single-family or other type of mortgages. Principal and
interest payments are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors, like us.
The quasi-governmental agencies guarantee the payment of principal and interest
to investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"),
Government National Mortgage Association ("GNMA"), and Federal National Mortgage
Association ("FNMA").
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities issued by FHLMC and GNMA make up a majority of the
pass-through certificates market.
Securities Portfolio. The following table sets forth the carrying value
of our securities portfolio at the dates indicated.
At At
September 30, 1999 December 31, 1998
------------------- ------------------
(In Thousands)
Securities available for sale:
U.S. government agency securities....... $ 5,594 $ 5,719
Corporate securities.................... 3,524 3,521
Mortgage-backed securities.............. 6,571 3,604
FHLB stock.............................. 455 307
Securities held to maturity:
Mortgage-backed securities.............. 1,711 -
----- ------
Total investment securities............... $17,855 $13,151
====== ======
32
The following table sets forth information regarding the scheduled
maturities, carrying values, estimated market values, and weighted average
yields for the Bank's investments securities portfolio at September 30, 1999 by
contractual maturity. The following table does not take into consideration the
effects of scheduled repayments or the effects of possible prepayments.
As of September 30, 1999
-----------------------------------------------------------------------------------------------------
Within More than More than Total Investment
One Year One to Five Years Five to Ten Years More than Ten Years Securities
---------------- ------------------ ----------------- ------------------- ------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
U.S. government agency
securities.................. $ - -% $1,555 5.64% $4,039 6.12% $ - -% $5,594 5.99% $5,594
Corporate securities........ - - 496 5.85 - - 3,028 6.01 3,524 5.99 3,524
Mortgage-backed securities.. - - - - 814 5.80 7,468 6.12 8,282 5.85 8,223
FHLB stock.................. 455 6.75 - - - - - - 455 6.75 455
--- ---- ----- ------ ----- ------
Total investment......... $455 6.75% $2,051 5.69% $4,853 6.07% $10,496 6.09% $17,855 5.94% $17,796
==== ==== ===== ==== ===== ==== ====== ==== ====== ==== ======
33
Sources of Funds
Our major external source of funds for lending and other investment
purposes are deposits. Funds are also derived from the receipt of payments on
loans and prepayment of loans and maturities of investment securities and
mortgage-backed securities and borrowings. Scheduled loan principal repayments
are a relatively stable source of funds, while deposit inflows and outflows and
loan prepayments are significantly influenced by general interest rates and
market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including checking and savings accounts, money market
accounts, and term certificate accounts. Deposit account terms vary according to
the minimum balance required, the time period the funds must remain on deposit,
and the interest rate.
The interest rates paid by us on deposits are set at the direction of
our senior management. Interest rates are determined based on our liquidity
requirements, interest rates paid by its competitors, and our growth goals and
applicable regulatory restrictions and requirements. At September 30, 1999, we
had no brokered deposits.
The following table indicates the amount of our certificates of deposit
of $100,000 or more by time remaining until maturity.
At
September 30, 1999
------------------
(Dollars In Thousands)
Maturity Period
Within three months ............. $ 202
Three through six months......... 991
Six through twelve months........ 400
Over twelve months .............. 1,174
------
$2,767
======
Borrowings. We may obtain advances from the FHLB of Pittsburgh to
supplement our supply of lendable funds. Advances from the FHLB of Pittsburgh
are typically secured by a pledge of our stock in the FHLB of Pittsburgh, a
portion of our first mortgage loans and other assets. Each FHLB credit program
has its own interest rate, which may be fixed or adjustable, and range of
maturities. If the need arises, we may also access the Federal Reserve Bank
discount window to supplement our supply of lendable funds and to meet deposit
withdrawal requirements. At September 30, 1999, Nittany's maximum borrowing
capacity with the FHLB of Pittsburgh was approximately $14.1 million.
34
The following table sets forth information concerning borrowings during the
periods indicated.
For the Nine For the
Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars in Thousands)
FHLB advances:
Ending balance................................ $8,600 $5,000
Average balance during the period............. 6,835 832
Maximum month-end balance during the period... 9,100 5,000
Average interest rate during the period....... 4.69% 4.39%
Weighted average rate at period end........... 5.39% 4.32%
Property
We operate from our main office and one branch office. Both properties
are leased. See "Business of Nittany Bank."
Legal Proceedings
From time to time, Nittany or Nittany Bank may become involved in
litigation as an incident to its business. Nittany is presently not included in
any litigation.
Employees
At September 30, 1999, we had 12 full-time and 4 part-time employees.
None of our employees are represented by a collective bargaining group. We
believe that our relationship with our employees is good.
Regulation
Set forth below is a brief description of certain laws which related to
the regulation of Nittany and Nittany Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Regulation of Nittany
General. We are a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, we are required to register and file
reports with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over us and our non-savings
association subsidiaries, should such subsidiaries be formed, which also permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary savings association. This regulation and oversight is
intended primarily for the protection of the depositors of Nittany Bank and not
for the benefit of stockholders of Nittany.
35
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, we generally are not subject to activity restrictions, provided Nittany
Bank satisfies the Qualified Thrift Lender, referred to as the "QTL" test. If we
acquire control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
Nittany and any of our subsidiaries (other than Nittany Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "-
Regulation of Nittany Bank - Qualified Thrift Lender Test."
Regulation of Nittany Bank
General. As a federally chartered, SAIF-insured savings association, we
are subject to extensive regulation by the OTS and the FDIC. Lending activities
and other investments must comply with various federal statutory and regulatory
requirements. We are also subject to certain reserve requirements promulgated by
the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines us and
prepares reports for the consideration of our Board of Directors on any
deficiencies that are found in our operations. Our relationship with our
depositors and borrowers are also regulated to a great extent by federal and
state law, especially in such matters as the ownership of savings accounts and
the form and content of our mortgage documents.
We must file reports with the OTS and the FDIC concerning our
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes.
Insurance of Deposit Accounts. Our deposit accounts are insured by the
SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). Insurance of deposits may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the institution's
primary regulator.
As a member of the SAIF, we pay an insurance premium to the FDIC. The
FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"),
which primarily insures commercial bank deposits. The deposit insurance
assessment for most SAIF members is .064% of deposits on an annual basis through
the end of 1999. During this same period, BIF members will be assessed
approximately .013% of deposits. After 1999, assessments for BIF and SAIF
members should be the same. It is expected that these continuing assessments for
both SAIF and BIF members will be used to repay outstanding Financing
Corporation bond obligations.
Loans to One Borrower. The maximum amount of loans which we are able to
make to any one borrower may not exceed the greater of $500,000 or 15% of the
bank's unimpaired capital and surplus. As of September 30, 1999, Nittany Bank's
lending limit to any one borrower was $691,000. Based upon net stock proceeds of
$2,000,000 invested in Nittany Bank, the limit would increase to approximately
36
$991,000. We may lend an additional 10% of its unimpaired capital and surplus if
the loan is fully secured by readily marketable collateral. Nittany Bank
commonly originates loans in excess of this limit by selling a participation
interest in the loan to other financial institutions.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets, and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets. In addition, the OTS prompt
corrective action regulation provides that a savings institution that has a
leverage capital ratio of less than 4% (3% for institutions receiving the
highest examination rating) will be deemed to be "undercapitalized" and may be
subject to certain restrictions. We significantly exceed all minimum regulatory
capital requirements. Additionally, in accordance with the FDIC approval order
for Federal Deposit Insurance, we must maintain a ratio of Tier 1 capital to
average assets of at least 8% for a period of three years, from the opening of
Nittany Bank on October 26, 1998. At September 30, 1999, we exceeded our minimum
risk-based and leverage capital ratios requirements. Our total risk-based, tier
I risk-based and tier I leverage ratios were 12.86%, 12.37%, and 8.70%,
respectively.
Dividend and Other Capital Distribution Limitations. OTS regulations
requires us to give the OTS 30 days advance notice of any proposed declaration
of dividends to Nittany, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends to us.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. The OTS
has recently revised this rule to allow certain institutions to make capital
distributions without filing an application or notice with the OTS. As of
September 30, 1999, we were a Tier 1 institution. In the event that our capital
fell below its fully phased-in requirement or the OTS notified us that we were
in need of more than normal supervision, our ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Qualified Thrift Lender Test. Savings institutions must meet a QTL
test. If we maintain an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) ("QTIs") and otherwise qualifies as a QTL, we will
continue to enjoy full borrowing privileges from the FHLB of Pittsburgh. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus goodwill and other intangible assets, property used by the institution in
conducting its business and liquid assets in an amount not exceeding 20% of
total assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings associations may include shares of stock
of the FHLBs, FNMA and FHLMC as qualifying QTIs. An association must be in
compliance with the QTL test on a monthly basis in nine out of every twelve
months.
37
Federal Home Loan Bank System. We are a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB
of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations or 5%
of its outstanding borrowings to the FHLB of Pittsburgh, at the beginning of
each year.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. At
September 30, 1999, we were in compliance with these Federal Reserve Board
requirements through its accounts at the FHLB.
MANAGEMENT
The following sets forth information with respect to Nittany and
Nittany Bank's directors and executive officers.
Board of Directors
David K. Goodman, Jr., 45, is the President and Chief Executive Officer
of D. C. Goodman & Sons, Inc., a Huntingdon based contracting firm, which
specializes in specialty construction for industry, institutions, and commercial
customers in the fields of fire protection sprinkler systems, mechanical, and
electrical contracting. Mr. Goodman is a member of the board of directors of
Huntingdon County United Way, J. C. Blair Memorial Hospital, and Huntingdon
County Business and Industry. He is also a member of the Trustee's Council of
Juniata College. Mr. Goodman received his education at Juniata College and holds
numerous professional memberships in fire protection and contracting
organizations.
William A. Jaffe, 61, the President and owner of The Jaffe Group, a
Human Resource Consultancy, headquartered in State College, Pennsylvania, which
he established in January 1996. Previously, he was Compensation and Human
Resource Practice Leader for the Mid-Atlantic Region of Alexander & Alexander
Consulting Group. Mr. Jaffe received his Bachelor of Arts degree in journalism
from Penn State University and Masters of Science degree in Management from the
University of Illinois. He is President of The Mount Nittany Conservancy and on
the Executive Committee for the Nittany Lion Club, the Penn State College of
Communications Alumni Society, and is chair of the Penn State Hillel Foundation.
For two years, he served as the chair of the Chamber of Business & Industry of
Center County's Human Resource Committee. He served as an adjunct associate
professor at The George Washington University from 1991 to 1995. In 1996, Mr.
Jaffe was named a Penn State Alumni Fellow.
38
Samuel J. Malizia, 45, is the Chairman of the Board of the Company and
the Bank. Mr. Malizia is the managing partner of the law firm of Malizia Spidi &
Fisch, PC, a law firm headquartered in Washington, DC with a State College,
Pennsylvania office. For over 19 years, Mr. Malizia has specialized in
transactional, securities and regulatory matters for financial institutions and
related entities. He received a Bachelor of Science Degree with Distinction in
accounting from the Pennsylvania State University and a Juris Doctor Degree from
the George Washington University. He served as Attorney Advisor to Special Trial
Judge Francis Cantrel at the United States Tax Court and attended the Masters of
Law in Taxation program at the Georgetown University where he was associate
editor of the Tax Lawyer. He is a member of the Pennsylvania and District of
Columbia bars, the U.S. Tax Court, U.S. Claims Court, U.S. Court of Appeals for
the District of Columbia and a member of the Federal Bar Association and
American Bar Association. He is an alumnus of several Penn State University's
organizations, including Lions Paw, Skull and Bones Honor Society, Beta Alpha
Psi and Omicron Delta Kappa. He serves on the Board of Directors of the Lions
Paw Alumni Society and the Mount Nittany Conservancy.
J. Garry McShea , 44, has been owner and founder of the J.G. McShea
Construction Company, Boalsburg, Pennsylvania since 1978. McShea Construction
specializes in custom home construction, remodeling projects,
commercial/residential rental properties and land development. Prior to this,
Mr. McShea was employed by Certain Teed Corporation, Valley Forge, Pennsylvania,
as a Residential Building Material Specialist. Mr. McShea is a past President
and 22 year member of the Builders Association of Central Pennsylvania. He is a
Director of the Tussey Mountain Ski Corporation and serves on the Harris
Township Planning Commission. Mr. McShea received a Bachelor of Science Degree
in Marketing from the Pennsylvania State University College of Business.
Donald J. Musso, 39, is the founder of FinPro, Inc., a consulting and
investment banking firm which specializes in providing advisory services
nationally to the financial institutions industry. Mr. Musso has a Bachelor of
Science in Finance from Villanova University and an MBA in Finance from
Fairleigh Dickinson University. Mr. Musso's corporation has represented dozens
of financial institutions nationally in connection with business plans,
appraisals, asset liability management, strategic planning, branch acquisitions
and de novo financial institutions. Prior to establishing FinPro, he had direct
industry experience, having managed the Corporate Planning and Mergers and
Acquisitions departments for Meritor Financial Group, a $20 billion dollar
institution in Philadelphia. Prior to that, he was responsible for the banking,
thrift and real estate consulting practice in New Jersey for DeLoitte, Haskins
and Sells. He is also an instructor of strategic planning for the Stonier
Graduate School of Banking.
David Z. Richards, Jr., 39, is President and CEO of Nittany and the
bank. Mr. Richards was President and Chief Executive Officer of Mifflinburg Bank
and Trust Company of Mifflinburg, Pennsylvania from 1991 until 1997. From 1978
until 1990, he served in various capacities, including Vice President and
Financial Officer of The First National Bank of Danville, Pennsylvania. In 1997
he was appointed to the Executive Committee of the Pennsylvania Bankers
Association, for which he has chaired and served on several committees. He
formerly served as President of LUN Data Inc., a multi-owned data processing
consortium. Mr. Richards is a graduate of Susquehanna University in Finance and
The Stonier Graduate School of Banking.
D. Michael Taylor, 57, is an architect, real estate developer and
entrepreneur, who has resided in the State College area for 28 years. Mr. Taylor
has a Bachelor of Architecture degree from Kansas State University. Upon
graduation, he spent several years in commercial architecture for Phillips
Petroleum and other firms, specializing in retail construction for national
companies. In addition to his
39
architecture practice, Mr. Taylor is part owner of gwald/Taylor, a firm
specializing in industrial process equipment sales to the paper and pulp
industry.
Community Advisory Board of Directors
Nittany Bank has created a Community Advisory Board of Directors to
help evaluate the needs of the community and to solicit ideas and comments from
the business community and general populous. The members of the Community
Advisory Board are selected on a yearly basis and meet at least every calendar
quarter. The Community Advisory Board serves at the pleasure of the Board of
Directors of the Bank. Set forth below are the names of the members of the
Community Advisory Board along with a brief description of their occupation.
Craig Avedesian is the President and part-owner of Federal Carbide Co.
located in Tyrone, Pennsylvania. Mr. Avedesian is a resident of State College,
Pennsylvania.
Dr. Richard Doerfler is in private practice as an orthodontist in State
College, Pennsylvania. Dr. Doerfler is a resident of State College,
Pennsylvania.
Kelly Grimes is the President and owner of the Wendy's franchise stores
located in State College, Pennsylvania. Ms. Grimes is a resident of State
College, Pennsylvania.
James Meister is a Special Assistant to the Athletic Director of the
Pennsylvania State University, State College, Pennsylvania. He is a retired vice
president of ALCOA. Mr. Meister is a resident of State College, Pennsylvania.
Lori Pacchioli is the Marketing Director of WPSX, Pennsylvania State
College's public broadcasting radio station, State College, Pennsylvania. Ms.
Pacchioli is a resident of State College, Pennsylvania.
Ann Riley is a member of the Pennsylvania State Board of Trustees and
is past president of the Pennsylvania State University Alumni Association, State
College, Pennsylvania. Ms. Riley is also a member of the Renaissance Board of
Directors and the Mt. Nittany Conservatory Board of Directors, State College,
Pennsylvania. She is a resident of State College, Pennsylvania.
Richard Shore is vice president of Corporate Development and Tax
Affairs for Tele-Media, Inc., Pleasant Gap, Pennsylvania. Mr. Shore is a
resident of State College, Pennsylvania.
Donn Wagner is president of Alleghencies Analysis, Boalsburg,
Pennsylvania. Mr. Wagner is a resident of Boalsburg, Pennsylvania.
Executive Officers Who Are Not Directors
Richard C. Barrickman, 48, was appointed Senior Vice President upon
completion of the formation of Nittany Bank on October 23, 1998. Mr. Barrickman
was employed by PNC Bank, N.A. ("PNC") and its predecessors through mergers.
Prior to merger with PNC and its predecessors in 1982, Mr. Barrickman was the
President of Mt. Nittany Savings and Loan Association. Mr. Barrickman is a
native of State College, Pennsylvania.
40
John E. Arrington, 35, was appointed Vice President of Retail Banking
upon completion of the formation of Nittany Bank on October 23, 1998. He is also
President of Nittany Asset Management, Inc. Previous to his appointment with
Nittany Bank, Mr. Arrington was employed by PNC and its predecessors, serving in
a variety of capacities, most recently as Vice President. Mr. Arrington is
past President of the Board of the Nittany Valley Symphony.
Director Compensation
Directors and advisory directors have received no compensation for
their services, since the incorporation of Nittany, and they will not receive
any compensation in 1999.
Stock Option Plan
A stock option plan was approved by stockholders on May 24, 1999 (the
"effective date of grant"). Pursuant to the Plan, each director and executive
officer was previously granted options on October 23, 1998 to purchase shares of
Nittany common stock at an exercise price of $10.00 per share pursuant to a
stock option plan which was subject to subsequent stockholder approval. Messrs.
Malizia and Richards were each granted options to purchase 20,000 shares of
common stock and Mr. Musso was granted options to purchase 10,000 shares of
common stock. Messrs. Jaffe and Taylor were each granted options to purchase
5,000 shares of common stock and Messrs. Goodman and McShea were each granted
options to purchase 4,000 shares of common stock. Of the options granted to each
of the directors, except for Mr. Richards, 33 1/3% of the options were
exercisable on the effective date of grant and the remaining options are
exercisable at the rate of 33 1/3% per year from the effective date of grant.
For Mr. Richards, 25% of the options were exercisable on the effective date of
grant and the remaining options are exercisable at the rate of 25% per year from
the effective date of grant. All directors and full-time employees were granted
stock options under the option plan approved by stockholders on May 24, 1999.
See "Security Ownership of Certain Beneficial Owners and Management."
Executive Officer Compensation
Nittany has no full time employees, but relies on the employees of
Nittany Bank for the limited services required by us. All compensation paid to
officers and employees is paid by Nittany Bank.
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the chief executive officer. No
other executive officer of either Nittany Bank or Nittany had a salary and bonus
during the years ended December 31, 1998 that exceeded $100,000 for services
rendered. Mr. Richards employment with Nittany Bank commenced on October 23,
1998. Prior to that date, he was compensated by us during the formation of
Nittany Bank.
41
Annual Compensation
-----------------------------------------------
All
Name and Fiscal Other Annual Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) Compensation ($)
- ------------------- ---- ---------- --------- ---------------- ----------------
David Z. Richards
President and
Chief Executive Officer 1998 $ 76,666 -- -- --
Employment Agreement. Nittany entered into an employment agreement with
David Z. Richards, President and Chief Executive Officer in December 1997. Mr.
Richards's base salary under the agreement is $100,000. Under the terms of the
agreement, Mr. Richards salary was 72% of the $100,000 base salary prior to the
time Nittany Bank opened for business. The agreement has a term of three years
and may be terminated by Nittany for "just cause" as defined in the agreement.
If we terminate Mr. Richards without just cause, Mr. Richards will be entitled
to a continuation of his salary from the date of termination through the
remaining term of the agreement. The agreement contains a provision stating that
in the event of the termination of employment in connection with a change in
control of Nittany, Mr. Richards will be paid a lump sum amount equal to 2.99
times his five year average annual taxable compensation. If such payments had
been made under the agreement as of December 31, 1998, such payments would have
equaled approximately $229,000. The agreement may be renewed annually by
Nittany's Board of Directors upon a determination of satisfactory performance
within the Board's sole discretion. The agreement was renewed for an additional
year (i.e., until December 31, 2001) by the Board of Directors in January 1999.
If Mr. Richards shall become disabled during the term of the agreement, he shall
continue to receive payment of 80% of the base salary for a period of 3 months
and 50% of such base salary for a period of 12 months, but not exceeding the
remaining term of the agreement. Such payments shall be reduced by any other
benefit payments made under other disability programs in effect for the bank's
employees.
Security Ownership of Certain Beneficial Owners and Management
The following table set forth, as of September 30, 1999, the amount and
percentage of common stock owned by each person who is known to the Company to
own more than five percent (5%) of the common stock, each director, each named
executive officer and all directors and executive officers of Nittany as a
group.
42
Before Offering After Offering
------------------------------------- ---------------------------------------
Percent of Percent of
Amount and Nature Shares of Amount and Nature Shares of
of Beneficial Common Stock of Beneficial Common Stock
Name of Beneficial Owner Ownership(1) Outstanding(%) Ownership(1) Outstanding(%)
- ------------------------ ------------ -------------- ------------ --------------
David K. Goodman, Jr. 32,937 5.7
Samuel J. Malizia 53,503 9.5
Donald J. Musso 31,736 5.4
All directors and executive officers of
Nittany as a group (9 persons)(2) 186,204 29.7
- -------------
(1) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which shares
the individuals effectively exercise sole voting and investment power,
unless otherwise indicated. Also, includes shares of common stock that the
named persons have a right to purchase pursuant to exercisable stock
options within 60 days of September 30, 1999, as follows: David K. Goodman,
Jr. - 2,666 shares, Samuel J. Malizia - 13,332 shares, and Donald J. Musso
- 6,666 shares.
(2) Includes 48,498 shares of common stock that the nine individuals have a
right to purchase pursuant to stock options that are exercisable within 60
days of September 30, 1999.
Certain Relationships and Related Transactions
Nittany Bank, like many financial institutions, has followed a policy
of granting various types of loans to officers, directors, and employees. The
loans have been made in the ordinary course of business and on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with Nittany Bank's other customers, and do not
involve more than the normal risk of collectibility, or present other
unfavorable features.
DESCRIPTION OF CAPITAL STOCK
Nittany is authorized to issue 10,000,000 shares of the Common Stock,
$0.10 par value, of which 577,436 shares were issued and outstanding as of
September 30, 1999. Along with the common stock, the authorized capital of
Nittany includes 5,000,000 shares of serial preferred stock, of which none were
issued and outstanding as of September 30, 1999. The following is a summary of
certain terms of the Common Stock and is subject to and qualified in its
entirety by reference to our articles of incorporation and bylaws which are
filed as exhibits to the registration statement of which this prospectus forms a
part. Common Stock
Voting Rights. Each share of the Common Stock will have the same
relative rights and will be identical in all respects with every other share of
the Common Stock. The holders of our Common Stock will possess exclusive voting
rights, except to the extent that shares of serial preferred stock issued in the
future may have voting rights, if any. Each holder of the Common Stock will be
entitled to only one vote for each share held of record on all matters submitted
to a vote of holders of the Common Stock and will not be permitted to cumulate
their votes in the election of our directors.
Dividend Rights. Each share of Nittany's common stock participates
equally in dividends on common stock, which are payable when, as, and if
declared by the Board of Directors out of funds legally available for that
purpose. See "Trading History and Dividends - Dividend Policy and History."
43
Liquidation. In the unlikely event of the complete liquidation or
dissolution of us, the holders of the Common Stock will be entitled to receive
all our assets available for distribution in cash or in kind, after payment or
provision for payment of (i) all our debts and liabilities (including all
savings accounts and accrued interest thereon); (ii) any accrued dividend
claims; (iii) liquidation preferences of any serial preferred stock which may be
issued in the future; and (iv) any interests in the liquidation account.
Restrictions on Acquisition of the Common Stock. See "Certain
Anti-Takeover Provisions" for a discussion of the limitations on acquisition of
shares of the Common Stock.
Other Characteristics. Holders of the Common Stock will not have
preemptive rights with respect to any additional shares of the Common Stock
which may be issued. Therefore, the Board of Directors may sell shares of our
capital stock without first offering such shares to our existing stockholders.
The Common Stock is not subject to call for redemption, and the outstanding
shares of Common Stock when issued and upon receipt by us of the full purchase
price therefor will be fully paid and non-assessable.
Serial Preferred Stock
Nittany is authorized to issue 10,000,000 shares of preferred stock. The
Board of Directors may create one or more classes or series of preferred stock
and may determine the rights, preferences, privileges and restrictions of any
class or series without any further approval or action by the shareholders.
The effects of issuing preferred stock on the holders of common stock
could include, among other things:
o reducing the amount otherwise available for payments of dividends
on common stock if dividends are payable on the series of
preferred stock;
o restricting dividends on common stock if dividends on the series
of preferred stock are in arrears;
o diluting the voting power of common stock if the series of
preferred stock has voting rights, including a possible "veto"
power if the series of preferred stock has class voting rights;
o diluting the equity interest of holders of common stock if the
series of preferred stock is convertible, and is converted, into
common stock; and
o restricting the rights of holders of common stock to share in
Nittany's assets upon liquidation until satisfaction of any
liquidation preference granted to the holder of the series of
preferred stock.
Certain Anti-Takeover Provisions
The following discussion is a general summary of our material
provisions of the articles of incorporation, bylaws, and certain other
regulatory provisions, which may be deemed to have such an anti-takeover effect.
44
Articles of Incorporation and Bylaws of Nittany Financial Corp.
Election of Directors. Certain provisions of our articles of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. Our articles of incorporation provides that the Board of Directors
will be divided into four staggered classes, with directors in each class
elected for four-year terms. Thus, it would take three annual elections to
replace a majority of our board. Our articles of incorporation provide that the
size of the Board of Directors may be increased or decreased only if two-thirds
of the directors then in office concur in such action. The articles of
incorporation also provide that any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, shall be
filled for the remainder of the unexpired term by a majority vote of the
directors then in office. Finally, the articles of incorporation and the bylaws
impose certain notice and information requirements in connection with the
nomination by stockholders of candidates for election to the Board of Directors
or the proposal by stockholders of business to be acted upon at an annual
meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of at least a majority of our shares
entitled to vote generally in an election of directors cast at a meeting of
stockholders called for that purpose.
Restrictions on Call of Special Meetings. Our articles of incorporation
provide that a special meeting of stockholders may be called only pursuant to a
resolution adopted by a majority of the Board of Directors.
Absence of Cumulative Voting. Our articles of incorporation provide
that stockholders may not cumulate their votes in the election of directors.
Procedures for Business Combinations. Our articles of incorporation
require the affirmative vote of at least 80% of our outstanding shares for any
merger, consolidation, liquidation, or dissolution or any action that would
result in the sale or other disposition of at least 50% of our tangible assets,
unless the transaction has been approved by two-thirds of the Board of
Directors. Any amendment to this provision requires the affirmative vote of at
least 80% of our outstanding shares.
Amendment to Articles of Incorporation and Bylaws. Amendments to our
articles of incorporation must be approved by our Board of Directors and also by
a majority of the outstanding shares of our voting stock, provided, however,
that approval by at least 80% of the outstanding voting stock is generally
required for certain provisions (i.e., number, classification, election and
removal of directors; amendment of bylaws; call of special stockholder meetings;
director liability; business combinations; power of indemnification; and
amendments to provisions relating to the foregoing in the articles of
incorporation).
Our bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of the holders of at least 80% of our outstanding shares
entitled to vote in the election of directors cast at a meeting called for that
purpose.
Acquisition of Control. Federal regulations prohibit a person, other
than a company from acquiring 10% or more of the outstanding equity securities
of a bank holding company without prior notice to and approval of the OTS. No
corporation may acquire 25% or more of the outstanding shares of a bank holding
company without obtaining the prior approval of the OTS.
45
LEGAL MATTERS
Our counsel Malizia Spidi & Fisch, PC, headquartered in Washington,
D.C. with a State College, Pennsylvania office, will give an opinion that the
shares of common stock covered by this prospectus are valid.
EXPERTS
We have included Nittany Financial Corp.'s audited statements at
December 31, 1998 and 1997 in this prospectus upon reliance on the report by
S.R. Snodgrass, A.C., independent certified public accountants, given on the
authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We are not registered under the Securities Exchange Act of 1934, as
amended, but we do file periodic reports and other information with the SEC. You
may inspect or copy these materials at the Public Reference Room at the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at 7 World Trade Center, 13th Floor, Suite 1300, New
York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West
Madison Street, Chicago, Illinois 60661. For a fee, you may also obtain copies
of these materials by writing to the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the public reference rooms by calling the SEC at
1-800-SEC-0330. Our SEC filings are also available to the public on the SEC's
website at http://www.sec.gov.
We have filed with the SEC a registration statement on Form SB-2
(together with all amendments and exhibits thereto, the "Registration
Statement") with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information included in
the Registration Statement. For further information about us and the shares of
common stock offered by this prospectus, please refer to the Registration
Statement and its exhibits and to the documents incorporated by reference into
the Registration Statement. The statements contained in this prospectus as to
the contents of any contract or other document filed as an exhibit on Form SB-2
are, of necessity, brief descriptions and are not necessarily complete; each
statement is qualified by reference to such contract or document. You may obtain
a copy of the Registration Statement through the public reference facilities of
the SEC described above. You may also access a copy of the Registration
Statement by means of the SEC's website at http://www.sec.gov.
46
NITTANY FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors......................................... F-
Consolidated Balance Sheet............................................. F-
Consolidated Statement of Operations .................................. F-
Consolidated Statement of Changes in Stockholders' Equity.............. F-
Consolidated Statement of Cash Flows................................... F-
Notes to the Consolidated Financial Statements......................... F-
Consolidated Financial Statements for the Nine Months
Ended September 30, 1999............................................ F-
All schedules are omitted because they are not required or applicable
or the required information is shown in the financial statements or the notes
thereto.
47
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
Nittany Financial Corp.
We have audited the accompanying consolidated balance sheet of Nittany Financial
Corp. and subsidiary, as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year ended December 31, 1998 and for the period from October 9,
1997, the date of inception, to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nittany Financial
Corp. and subsidiary as of December 31, 1998 and 1997, the results of their
operations and their cash flows for the year ended December 31, 1998 and for the
period from October 9, 1997, the date of inception, to December 31, 1997, in
conformity with generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
Wexford, PA
April 12, 1999
F-1
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
December 31,
1998 1997
------------------ -----------------
ASSETS
Cash and due from banks $ 307,443 $ 660
Interest-bearing deposits with other banks 5,621,800 28,789
Investment securities available for sale 13,150,768 -
Loans receivable (net of allowance for loan losses
of $98,988) 4,424,132 -
Premises and equipment 126,160 -
Intangible assets 941,886 -
Accrued interest and other assets 218,394 70,000
------------------ -----------------
TOTAL ASSETS $ 24,790,583 $ 99,449
================== =================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 777,400 $ -
Interest-bearing demand 2,146,171 -
Money market 5,409,434 -
Savings 1,269,834 -
Time 4,389,545 -
------------------ -----------------
Total deposits 13,992,384 -
FHLB advance 5,000,000 -
Commitment to purchase investment security 500,000 -
Accrued interest payable and other liabilities 144,546 125,226
------------------ -----------------
TOTAL LIABILITIES 19,636,930 125,226
------------------ -----------------
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; 577,436 issued and outstanding 57,744 -
Additional paid-in capital 5,652,145 -
Retained deficit (525,650) (25,777)
Net unrealized loss on securities (30,586) -
------------------ -----------------
TOTAL STOCKHOLDERS' EQUITY 5,153,653 (25,777)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,790,583 $ 99,449
================== =================
See accompanying notes to the consolidated financial statements.
F-2
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
Period From
October 9, 1997,
the Date of
Year Ended Inception, to
December 31, December 31,
1998 1997
------------------ -------------------
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 25,301 $ -
Interest-bearing deposits with other banks 100,474 295
Investment securities 61,029 -
------------------ -------------------
Total interest and dividend income 186,804 295
------------------ -------------------
INTEREST EXPENSE
Deposits 88,535 -
FHLB advance 6,105 -
------------------ -------------------
Total interest expense 94,640 -
------------------ -------------------
NET INTEREST INCOME 92,164 295
Provision for loan losses 100,000 -
------------------ -------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES (7,836) 295
------------------ -------------------
NONINTEREST INCOME
Service fees on deposit accounts 13,120 -
------------------ -------------------
Total noninterest income 13,120 -
------------------ -------------------
NONINTEREST EXPENSE
Compensation and employee benefits 194,129 19,749
Occupancy and equipment 46,961 -
Data processing 17,178 -
Other 246,889 6,323
------------------ -------------------
Total noninterest expense 505,157 26,072
------------------ -------------------
Loss before income taxes (499,873) (25,777)
Income taxes - -
------------------ -------------------
NET LOSS $ (499,873) $ (25,777)
================== ===================
LOSS PER SHARE $ (3.62) $ -
WEIGHTED-AVERAGE SHARES OUTSTANDING 138,049 -
See accompanying notes to the consolidated financial statements.
F-3
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Net
Additional Unrealized Total
Common Paid-in Retained Loss on Stockholders' Comprehensive
Stock Capital Deficit Securities Equity Loss
------- ----------- ----------- ----------- ------------- ------------
Balance, October 9, 1997, date of inception $ - $ - $ - $ - $ -
Net loss (25,777) (25,777) $ (25,777)
------- ----------- ----------- --------- ------------ ==========
Balance, December 31, 1997 - - (25,777) - (25,777)
Net loss (499,873) (499,873) (499,873)
Other comprehensive loss:
Unrealized loss on available for sale securities (30,586) (30,586) (30,586)
----------
Comprehensive loss $ (530,459)
==========
Sale of 29,998 shares of common stock to
company organizers 3,000 296,980 299,980
Sale of 537,438 shares of common stock, issued
October 26, 1998, net of offering costs 53,744 5,256,165 5,309,909
Issuance of 10,000 shares of common stock in
settlement of branch office acquisitions 1,000 99,000 100,000
------- ----------- ----------- --------- ------------
Balance, December 31, 1998 $ 57,744 $ 5,652,145 $ (525,650) $ (30,586) $ 5,153,653
======= =========== =========== ========= ============
See accompanying notes to the consolidated financial statements.
F-4
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
Period From
October 9, 1997,
the Date of
Year Ended Inception, to
December 31, December 31,
1998 1997
----------------- -----------------
OPERATING ACTIVITIES
Net loss $ (499,873) $ (25,777)
Adjustments to reconcile net loss to
net cash used for operating activities:
Provision for loan losses 100,000 -
Depreciation, amortization, and accretion, net 15,567 -
Increase in accrued interest receivable (165,446) -
Increase in accrued interest payable 94,345 -
Other, net (57,973) 5,226
----------------- -----------------
Net cash used for operating activities (513,380) (20,551)
----------------- -----------------
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (12,740,623) -
Repayments 55,616 -
Net increase in loans receivable (3,829,403) -
Branch office acquisitions:
Purchase of loans (694,729) -
Purchase of premises and equipment (28,862) -
Net deposit proceeds 9,326,707 -
Purchase of premises and equipment (101,304) -
----------------- -----------------
Net cash used for investing activities (8,012,598) -
----------------- -----------------
FINANCING ACTIVITIES
Net increase in deposits 3,815,883 -
Proceeds from FHLB advance 5,000,000 -
Advances from organizers - 50,000
Net proceeds from sale of common stock 5,609,889 -
----------------- -----------------
Net cash provided by financing activities 14,425,772 50,000
----------------- -----------------
Increase in cash and cash equivalents 5,899,794 29,449
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,449 -
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,929,243 $ 29,449
================= =================
SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid during the year for:
Interest on deposits and borrowings $ 61,827 $ -
See accompanying notes to the consolidated financial statements.
F-5
NITTANY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
Nature of Operations and Basis of Presentation
- ----------------------------------------------
Nittany Financial Corp. (the "Company") began the formation process on October
9, 1997, and was incorporated under the laws of the State of Pennsylvania on
December 8, 1997, for the purpose of becoming a unitary savings and loan holding
company that would own all of the outstanding shares of common stock of Nittany
Bank (the "Bank") a federal stock savings bank. The Company's business is
conducted by its wholly-owned subsidiary, the Bank, which is located in State
College, Pennsylvania. The Bank's principal sources of revenue emanate from
interest earnings on its investment securities and loan portfolios. The Company
and the Bank are subject to regulation and supervision by the Office of Thrift
Supervision.
Prior to October 26, 1998, the date the Company commenced its banking
operations, the Company's operations were limited to in-formation procedures;
raising capital, recruiting officers and staff, obtaining a banking facility,
and working towards obtainment of regulatory approval. Since the Company's
planned principal operations had not yet commenced, no significant revenue was
derived therefrom.
The consolidated financial statements of the Company include the accounts of its
wholly-owned subsidiary, the Bank. All intercompany transactions have been
eliminated in consolidation. The investment in subsidiary on the parent
company's financial statements is carried at the parent company's equity in the
underlying net assets.
The accounting principles followed by the Company and the methods of applying
these principles conform with generally accepted accounting principles and with
general practice within the banking industry. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the balance
sheet date and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Investment Securities
- ---------------------
Investment securities, including mortgage-backed securities, are classified at
the time of purchase, based upon management's intentions and abilities, as
securities held to maturity or securities available for sale. Debt securities
acquired with the intent and ability to hold to maturity are classified as held
to maturity and are stated at cost and adjusted for amortization of premium and
accretion of discount, which are computed using a method which approximates a
level yield and recognized as adjustments of interest income. All other debt
securities are classified as available for sale to serve principally as a source
of liquidity. Unrealized holding gains and losses on available for sale
securities are reported as a separate component of stockholders' equity, net of
tax, until realized. Realized securities gains and losses are computed using the
specific identification method. Interest and dividends on investment securities
are recognized as income when earned.
Common stock of the Federal Home Loan Bank (the "FHLB") represents ownership in
an institution which is wholly-owned by other financial institutions. This
equity security is accounted for at cost.
F-6
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Receivable
- ----------------
Loans receivable are stated at their unpaid principal amounts, net of the
allowance for loan losses. Interest on loans is recognized as income when earned
on the accrual method. Interest accrued on loans more than 90 days delinquent is
generally offset by a reserve for uncollected interest and is not recognized as
income.
The accrual of interest is generally discontinued when management has serious
doubts about further collectibility of principal or interest, even though the
loan is currently performing. A loan may remain on accrual status if it is in
the process of collection and is either guaranteed or well secured. When a loan
is placed on nonaccrual status, unpaid interest is charged against income.
Interest received on nonaccrual loans is either applied to principal or reported
as interest income, according to management's judgment as to the collectibility
of principal.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as adjustment of the related loan's yield.
The Company is amortizing these amounts over the contractual life of the related
loans.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance, and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses which is
charged to operations. The provision is based on management's evaluation of the
adequacy of the allowance for loan losses which encompasses the overall risk
characteristics of the various portfolio segments, past experience with losses,
the impact of economic conditions on borrowers, and other relevant factors. The
estimates used in determining the adequacy of the allowance for loan losses,
including the amounts and timing of future cash flows expected on impaired
loans, are particularly susceptible to significant changes in the near term.
A loan is considered impaired when it is probable the borrower will not repay
the loan according to the original contractual terms of the loan agreement.
Management has determined that first mortgage loans on one-to-four family
properties and all consumer loans represent large groups of smaller-balance
homogeneous loans that are to be collectively evaluated. Management considers an
insignificant delay, which is defined as less than 90 days by the Company, will
not cause a loan to be classified as impaired. A loan is not impaired during a
period of delay in payment if the Company expects to collect all amounts due
including interest accrued at the contractual interest rate for the period of
delay. All commercial and commercial real estate loans identified as impaired
are evaluated independently by management. The Company estimates credit losses
on impaired loans based on the present value of expected cash flows or the fair
value of the underlying collateral if the loan repayment is expected to come
from the sale or operation of such collateral. Impaired loans, or portions
thereof, are charged off when it is determined that a realized loss has
occurred. Until such time, an allowance for loan losses is maintained for
estimated losses. Cash receipts on impaired loans are applied first to accrued
interest receivable unless otherwise required by the loan terms, except when an
impaired loan is also a nonaccrual loan, in which case the portion of the
receipts related to interest is recognized as income.
Premises and Equipment
- ----------------------
Premises, leasehold improvements, and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method over the useful lives of the related
assets. Expenditures for maintenance and repairs are charged to operations as
incurred. Costs of major additions and improvements are capitalized.
F-7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Federal Income Taxes
- --------------------
Income tax expense consists of current and deferred taxes. Current income tax
provisions approximate taxes to be paid or refunded for the applicable year.
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax basis of assets and liabilities using the
enacted marginal tax rates. Deferred income tax expenses or benefits are based
on the changes in the deferred tax asset or liability from period to period.
Recognition of deferred tax assets is based on management's belief that it is
more likely than not that the tax benefit associated with these temporary
differences such as the tax operating loss carryforward, will be realized. A
valuation allowance is recorded for those deferred tax assets for which it is
more likely than not that realization will not occur in the near term.
Comprehensive Income (Loss)
- ---------------------------
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." In adopting Statement No.
130, the Company is required to present comprehensive income and its components
in a full set of general purpose financial statements for all periods presented.
The Company has elected to report the effects of Statement No. 130 as part of
the Statement of Changes in Stockholders' Equity.
Loss Per Share
- --------------
The Company currently maintains a simple capital structure; therefore, there are
no dilutive effects on the loss per share. As such, loss per share computations
are based upon the weighted number of shares outstanding for the period since
the initial issuance of common stock began on February 18, 1998, to December 31,
1998.
Intangible Assets
- -----------------
Intangible assets are comprised exclusively of goodwill resulting from the
branch office acquisitions in 1998. Goodwill is amortized using the
straight-line method over a 20-year period. Annual assessments of the carrying
values and remaining amortization periods of the goodwill are made to determine
possible carrying value impairment and appropriate adjustments as deemed
necessary.
Organizational and Start-up Activity Costs
- ------------------------------------------
Effective for fiscal years beginning after December 15, 1998, AICPA Statement of
Position No. 98-5, "Reporting on the Costs of Start-up Activities" ("SOP")
requires entities to expense costs of such start-up and organizational
activities as incurred. The Company has elected early adoption of this SOP and
implemented it, effective January 1, 1998. Accordingly, only those costs of
organization associated with the initial stock offering ("IPO"), which were net
against the IPO proceeds, were not expensed.
Advances From Organizers
- ------------------------
In 1997, one of the organizers of the Company advanced $50,000 to the Company to
cover organizational costs incurred during the months leading up to the Company
formally organizing and authorizing the issuance of common stock to meet
anticipated funding needs. During 1998, this organizer received common stock
amounting to 5,000 shares, at $10.00 per share, in lieu of reimbursement for
funds advanced. The funds advanced earned no interest.
F-8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Flow Information
- ---------------------
Cash equivalents include amounts due from banks and interest-bearing deposits
with banks that have original maturities of 90 days or less.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement provides accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring the recognition of those items as
assets or liabilities in the statement of financial position, recorded at fair
value. Statement No. 133 precludes a held to maturity security from being
designated as a hedged item; however, at the date of initial application of this
Statement, an entity is permitted to transfer any held to maturity security into
the available for sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Such transfers do not raise an issue regarding an
entity's intent to hold other debt securities to maturity in the future. This
Statement applies prospectively for all fiscal quarters of all years beginning
after June 15, 1999. Earlier adoption is permitted for any fiscal quarter that
begins after the issue date of this Statement.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This SOP, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on accounting for the costs
of computer software developed or obtained for internal use and provides
guidance for determining whether computer software is for internal use. The
Company will adopt SOP 98-1 in the first quarter of 1999 and does not believe
the effect of adoption will be material.
2. INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities
available for sale are summarized as follows:
1998
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
U.S. Government agency
securities $ 5,716,790 $ 4,048 $ (1,654) $ 5,719,184
Corporate securities 3,533,210 1,322 (13,295) 3,521,237
Mortgage-backed securities 3,624,154 - (21,007) 3,603,147
----------------- ----------------- ----------------- -----------------
Total debt securities 12,874,154 5,370 (35,956) 12,843,568
Equity securities 307,200 - - 307,200
----------------- ----------------- ----------------- -----------------
Total $ 13,181,354 $ 5,370 $ (35,956) $ 13,150,768
================= ================= ================= =================
F-9
2. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investments in debt securities
available for sale by contractual maturity are shown below.
Estimated
Amortized Market
Cost Value
----------------- -----------------
Due after one year through five years $ 2,506,934 $ 2,508,650
Due after five years through ten years 4,228,985 4,229,802
Due after ten years 6,138,235 6,105,116
----------------- -----------------
Total $ 12,874,154 $ 12,843,568
================= =================
Investment securities available for sale with a carrying value of $7,554,427 at
December 31, 1998, were pledged to secure public deposits and other purposes as
required by law.
3. LOANS RECEIVABLE
Loans receivable consists of the following at December 31:
1998
-----------------
Real estate loans:
Residential $ 1,653,004
Home equity 997,740
Commercial 858,000
Commercial 163,122
Consumer loans 860,406
-----------------
4,532,272
Less:
Deferred loan fees, net 9,152
Allowance for loan losses 98,988
-----------------
Total $ 4,424,132
=================
Aggregate loans of $60,000 or more extended to executive officers,
directors, and corporations in which they are beneficially interested as
stockholders, executive officers, or directors were $239,470 at December
31, 1998. An analysis of these related party loans follows:
1997 Additions Repayments 1998
----------------- ----------------- ----------------- -----------------
$ - $ 239,470 $ - $ 239,470
The Company's primary business activity is with customers located within its
local trade area. Residential, consumer, and commercial loans are granted. At
year end 1998, a single commercial real estate loan for approximately $743,000
or 16.4 percent of the Company's total loan portfolio represented the only
concentration exceeding ten percent. Although the Company has a diversified loan
portfolio at December 31, 1998, the repayment of these loans is dependent upon
the local economic conditions in its immediate trade area.
F-10
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the year ended December 31, 1998,
is as follows:
Balance, January 1 $ -
Add provisions charged to operations 100,000
Less loans charged off 1,012
-----------------
Balance, December 31 $ 98,988
=================
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
1998
-----------------
Leasehold improvements $ 34,863
Furniture and equipment 95,303
-----------------
130,166
Less accumulated depreciation and amortization 4,006
-----------------
Total $ 126,160
=================
Depreciation and amortization expense for the year ended December 31, 1998, was
$4,006.
6. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the FHLB System. As a member, the Bank maintains an
investment in the capital stock of the FHLB of Pittsburgh, at cost, in an amount
not less than the greater of one percent of its outstanding home loans or five
percent of its outstanding notes payable to the FHLB of Pittsburgh as calculated
at December 31, of each year.
7. DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $773,786 at December 31, 1998. Deposits in excess
of $100,000 are not federally insured.
The scheduled maturities of time certificates of deposit as of December 31,
1998, are as follows:
Within one year $ 3,286,958
Beyond one year but within two years 811,685
Beyond two years but within three years 226,676
Beyond three years but within five years 64,226
-----------------
Total $ 4,389,545
=================
In the normal course of business, deposit relationships have been established
with directors, executive officers, and their associates. Deposits of related
parties amounted to $1,810,000 or 12.9 percent of the Company's total deposits
as of December 31, 1998. Management believes liquidity is adequate to compensate
for these deposit levels.
F-11
8. FHLB ADVANCE
On December 22, 1998, the Bank entered into a five-year "Convertible Select"
fixed commitment advance arrangement for $5,000,000 with the Federal Home Loan
Bank of Pittsburgh at an interest rate of 4.32 percent. The rate may be reset at
the FHLB's discretion on a quarterly basis, after June 22, 1999, based on the
three-month LIBOR rate. At each rate change, the Bank may exercise a put option
and satisfy the obligation without penalty.
The Bank has the capability to borrow additional funds through a multi-line
credit arrangement with the FHLB. The FHLB credit arrangements typically are
subject to annual renewal and are secured by a blanket security agreement on
certain investment securities, qualifying residential mortgages, and the Bank's
investment in FHLB stock. As of December 31, 1998, the Bank's maximum borrowing
capacity with the FHLB was $7.0 million.
9. OTHER EXPENSES
The following is an analysis of other expenses:
1998 1997
----------------- -----------------
Professional fees $ 115,675 $ -
Stationery, printing, supplies, and postage 59,413 -
Amortization of intangible assets 7,908 -
Other 63,893 6,323
----------------- -----------------
Total $ 246,889 $ 6,323
================= =================
Malizia, Spidi, Sloane & Fisch, P.C., attorneys at law, are and will continue
providing legal and consulting services to the Company and the Bank. An
individual that is an organizer, Board member, and shareholder of the Company is
a principal of Malizia, Spidi, Sloane & Fisch, P.C. For the year ended December
31, 1998, the Company paid approximately $38,000 in legal fees to this firm.
10. INCOME TAXES
The components of income taxes for the years ended December 31, are summarized
as follows:
1998 1997
----------------- -----------------
Current payable:
Federal $ - $ -
State - -
----------------- -----------------
- -
Deferred taxes 229,071 8,764
Adjustment to valuation allowance for deferred tax assets (229,071) (8,764)
----------------- -----------------
Total $ - $ -
================= =================
F-12
INCOME TAXES (Continued)
The following temporary differences gave rise to the net deferred tax assets:
1998 1997
----------------- -----------------
Deferred tax assets:
Net unrealized loss on securities $ 10,400 $ -
Allowance for loan losses 31,574 -
Organization costs 66,063 8,764
Net operating loss carryforward 140,800 -
----------------- -----------------
Total gross deferred tax assets 248,837 8,764
Less valuation allowance 248,235 8,764
----------------- -----------------
Deferred tax assets after allowance 602 -
----------------- -----------------
Deferred tax liabilities:
Premises and equipment 378 -
Loan origination costs 224 -
----------------- -----------------
Total gross deferred tax liabilities 602 -
----------------- -----------------
Net deferred tax assets $ - $ -
================= =================
The Company represents an entity that has been in existence for less than two
years and has accumulated a net operating loss since its inception. As such,
management has established a valuation allowance for its deferred tax assets,
primarily the accumulated future tax benefits attributed to the operating loss
carryforward and loan loss provisions since it is more likely than not that
realization of these deferred assets cannot be fully supported at December 31,
1998 and 1997.
The reconciliation of the federal statutory rate and the Company's effective
income tax rate is as follows:
1998 1997
------------------------------------- ------------------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
----------------- ------------------ ----------------- -----------------
Provision at statutory rate $ (169,957) 34.0% $ (8,764) 34.0%
State income tax benefit,
net of federal tax (39,722) 7.9 - -
Adjustment of valuation
allowance for deferred
tax assets 229,071 (45.8) 8,764 (34.0)
Other, net (19,392) 3.9 - -
----------------- ------------------ ----------------- -----------------
Actual tax expense
and effective rate $ - -% $ - -%
================= ================== ================= =================
The Bank is subject to the Pennsylvania Mutual Thrift Institution's tax which is
calculated at 11.5 percent of earnings based on generally accepted accounting
principles with certain adjustments. At December 31, 1998, the Bank has
available a net operating loss carryforward of $466,000 for state tax purposes.
If unused, the carry-forward will expire 2001.
At December 31, 1998, the Company has available a net operating loss
carryforward of $297,000 for federal income tax purposes. If unused, the
carryforwards will expire 2018. The Company also has available a net operating
loss carryforward of $66,000 for state income tax purposes which will expire
2008.
F-13
11. COMMITMENTS
In the normal course of business, the Company makes various commitments which
are not reflected in the accompanying consolidated financial statements. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheet. The
Company's exposure to credit loss in the event of nonperformance by the other
parties to the financial instruments is represented by the contractual amounts
as disclosed. The Company minimizes its exposure to credit loss under these
commitments by subjecting them to credit approval and review procedures and
collateral requirements as deemed necessary. Commitments generally have fixed
expiration dates within one year of their origination.
The off-balance sheet commitments were comprised of the following:
1998
-----------------
Commitments to extend credit:
Fixed rate $ 611,700
Variable rate 2,326,000
-----------------
Total $ 2,937,700
=================
The range of interest rates on fixed rate loan commitments was 7.00 percent to
9.74 percent at December 31, 1998.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of available personal lines of credit and
loans approved but not yet funded. Fees from the issuance of the credit lines
are generally recognized over the period of maturity.
The Company is committed under two noncancellable operating leases for both of
the Bank's office facilities with remaining terms through 2007. At December 31,
1998, the minimum rental commitments under these leases are as follows:
1999 $ 127,962
2000 127,962
2001 127,962
2002 127,962
2003 127,962
Thereafter 372,571
-----------------
Total $ 1,012,381
=================
Occupancy and equipment expenses include rental expenditures of $34,701 for
1998.
12. REGULATORY MATTERS
Dividend Restrictions
- ---------------------
The Bank is subject to a dividend restriction which generally limits the amount
of dividends that can be paid by an OTS-chartered bank. OTS regulations require
the Bank to give the OTS 30 days notice of any proposed declaration of dividends
to the Company, and the OTS has the authority under its supervisory powers to
prohibit the payment of dividends by the Bank to the Company.
F-14
12. REGULATORY MATTERS (Continued)
Regulatory Capital Requirements
- -------------------------------
The Company, on a consolidated basis, is subject to various regulatory capital
requirements administered by the federal banking agencies. The Office of Thrift
Supervision sets forth capital standards applicable to the Company. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by the regulators that, if undertaken, could
have a direct material effect on the Company's and the Bank's financial
statements. Capital adequacy guidelines involve quantitative measures of the
Company's and the Bank's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, Risk-weightings, and other
factors.
Quantitative measures established by the regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Total
and Tier I Capital (as defined in the regulations) to Risk-weighted Assets, and
of Tangible and Core Capital (as defined in the regulations) to Adjusted Assets
(as defined). Management believes, as of December 31, 1998, the Company and the
Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the appropriate
regulatory authorities categorized the Company and the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Company and the Bank must maintain minimum Tangible,
Core, and Risk-based ratios. There have been no conditions or events since that
notification that management believes have changed the Company's or the Bank's
category.
The following table reconciles the Company's capital under generally accepted
accounting principles to OTS regulatory capital:
1998
-----------------
Total stockholder's equity $ 5,153,653
Unrealized loss on securities 30,586
Intangible asset (941,886)
-----------------
Tier I, core, and tangible capital 4,242,353
Allowance for loan losses 98,988
-----------------
Total risk-based capital $ 4,341,341
=================
F-15
12. CAPITAL MATTERS (Continued)
The consolidated capital position of the Company does not materially differ from
the Bank's; therefore, the following table sets forth the Company's capital
position and minimum requirements as of December 31, 1998:
Amount Ratio
------------------ -----------------
Total Capital (to Risk-weighted Assets)
- ---------------------------------------
Actual $ 4,341,341 32.3 %
For Capital Adequacy Purposes 1,074,640 8.0
To Be Well Capitalized 1,343,300 10.0
Tier I Capital (to Risk-weighted Assets)
- ----------------------------------------
Actual $ 4,242,353 31.6 %
For Capital Adequacy Purposes 537,320 4.0
To Be Well Capitalized 805,980 6.0
Core Capital (to Adjusted Assets)
- ---------------------------------
Actual $ 4,242,353 18.7 %
FDIC Denovo Capital Required 1,812,517 8.0
For Capital Adequacy Purposes 679,694 3.0
To Be Well Capitalized 1,132,823 5.0
Tangible Capital (to Adjusted Assets)
- -------------------------------------
Actual $ 4,242,353 18.7 %
For Capital Adequacy Purposes 339,847 1.5
To Be Well Capitalized N/A N/A
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December 31,
1998, are as follows:
Carrying Fair
Value Value
----------------- -----------------
Financial assets:
Cash and due from banks and interest-bearing
deposits with other banks $ 5,929,243 $ 5,929,243
Investment securities available for sale 13,150,768 13,150,768
Loans receivable 4,424,132 4,496,056
Accrued interest receivable 165,446 165,446
----------------- -----------------
Total $ 23,669,589 $ 23,741,513
================= =================
Financial liabilities:
Deposits $ 13,992,384 $ 14,020,930
FHLB advance 5,000,000 5,000,000
Accrued interest payable 94,345 94,345
----------------- -----------------
Total $ 19,086,729 $ 19,115,275
================= =================
F-16
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Financial instruments are defined as cash, evidence of an ownership interest in
an entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments are based upon management's judgment regarding current economic
conditions, interest rate risk, expected cash flows, future estimated losses,
and other factors as determined through various option pricing formulas. As many
of these assumptions result from judgments made by management based upon
estimates which are inherently uncertain, the resulting estimated fair values
may not be indicative of the amount realizable in the sale of a particular
financial instrument. In addition, changes in the assumptions on which the
estimated fair values are based may have a significant impact on the resulting
estimated fair values.
As certain assets, such as deferred tax assets and premises and equipment, are
not considered financial instruments, the estimated fair value of financial
instruments would not represent the full value of the Company.
The Company employed estimates using discounted cash flows in determining the
estimated fair value of financial instruments for which quoted market prices
were not available based upon the following assumptions:
Cash and Due from Banks, Interest-bearing Deposits with Other Banks, Accrued
- --------------------------------------------------------------------------------
Interest Receivable, and Accrued Interest Payable
- -------------------------------------------------
The fair value is equal to the current carrying value.
Investment Securities Available for Sale
- ----------------------------------------
The fair value of investment securities available for sale is equal to the
available quoted market price. If no quoted market price is available, fair
value is estimated using the quoted market price for similar securities.
Loans Receivable, Deposits, and FHLB Advance
- --------------------------------------------
The fair value of loans is estimated using discounted contractual cash flows
generated using prepayment estimates. Discount rates are based upon current
market rates generally being offered for new loan originations with similar
credit and payment characteristics. Savings, checking, and money market deposit
accounts are valued at the amount payable on demand as of year end. Fair values
for time deposits and the FHLB advance are estimated using a discounted cash
flow calculation that applies contractual costs currently being offered in the
existing portfolio to current market rates being offered for deposits and
borrowings of similar remaining maturities.
Commitments to Extend Credit
- ----------------------------
These financial instruments are generally not subject to sale, and estimated
fair values are not readily available. The carrying value, represented by the
net deferred fee arising from the unrecognized commitment, and the fair value,
determined by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements with
similar credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments are presented in Note 11.
F-17
14. FORMATION CAPITALIZATION AND INITIAL PUBLIC OFFERING
Initial capitalization of the Company occurred through the subscription and
issuance of common stock in a private placement which was exclusively offered to
the organizers of the Company during the first quarter of 1998. A total of
29,998 shares, at an offering price of $10.00 per share, were issued and remain
outstanding.
The Company issued 537,438 shares of common stock at $10.00 per share in the IPO
completed in October 1998. The Company purchased all of the common stock issued
by the Bank using proceeds received from the IPO. Total initial Bank
capitalization was $5,425,000.
15. BRANCH PURCHASE AND ASSUMPTION AGREEMENT
On March 24, 1998, the Company, through its organizers, entered into a Branch
Purchase and Deposit Assumption Agreement (the "Agreement"), with First
Commonwealth Financial Corp. ("FCFC"), for the acquisition of certain assets and
the assumption of certain deposit liabilities related to FCFC's branch offices
located at 116 East College Avenue and 1276 North Atherton Street, State
College, Pennsylvania. The effective closing date of the transactions occurred
on October 23, 1998, in conjunction with the initiation of banking operations.
Pursuant to the Agreement, the Company, through its subsidiary, the Bank: (i)
assumed approximately $10.2 million of deposit liabilities; (ii) purchased, at
book value, loans from these offices that are secured by deposit accounts and
unsecured loans created by overdraft line arrangements with the customer; (iii)
purchased, at book value, furniture, fixtures, equipment, and leasehold
improvements owned by Commonwealth and located at each branch office; (iv)
purchased the safe deposit box business conducted at the branches; (v) assumed
the lease contracts for each office; and (vi) purchased all cash funds on hand
at each office.
In consideration for the assumption of the deposit liabilities, the Company paid
FCFC a deposit premium of ten percent. The premium was paid using cash (nine
percent) and common stock of the Company (one percent).
16. STOCK OPTION PLAN
The Company's Board of Directors adopted a Stock Option Plan (the "Plan"),
subject to stockholder approval of the Plan. Pursuant to the Plan, up to 86,615
shares of common stock are to be reserved under the Company's authorized but
unissued shares for issuance upon exercise of granted stock options by officers,
directors, key employees, and other persons from time to time. On October 23,
1998, the Board authorized the granting of 82,500 stock options to officers,
directors, and certain employees. The per share exercise price of a stock option
shall be $10 per share which represents the fair market value of the stock at
the completion of the initial public offering on October 23, 1998. The purpose
of the Plan is to attract and retain qualified personnel for positions of
substantial responsibility and to provide additional incentive to certain
officers, directors, key employees, and other persons in promoting the success
of the business of the Company and the Bank. Options awarded to employees and
officers become first exercisable at a rate of 25 percent and for non-employee
directors at a rate of 33 1/3 percent annually, commencing on the date of grant.
The Plan, which shall become effective upon the date of approval by the
stockholders of the Company, provides for option terms of ten years, after which
time no awards may be made.
F-18
17. PARENT COMPANY
Following are condensed financial statements for Nittany Financial Corp.:
CONDENSED BALANCE SHEET
1998 1997
-------------------- --------------------
ASSETS
Cash $ 9,327 $ 29,449
Investment in subsidiary bank 4,930,945 -
Other assets 361,666 70,000
-------------------- --------------------
TOTAL ASSETS $ 5,301,938 $ 99,449
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 148,285 $ 125,226
Stockholders' equity 5,153,653 (25,777)
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,301,938 $ 99,449
==================== ====================
CONDENSED STATEMENT OF INCOME
Period From
October 9, 1997,
the Date of
Year Ended Inception, to
December 31, December 31,
1998 1997
-------------------- --------------------
INCOME $ 16,538 $ 295
EXPENSES 251,064 26,072
-------------------- --------------------
Loss before equity in undistributed net loss of subsidiary (234,526) (25,777)
Equity in undistributed net loss of subsidiary (287,174) -
-------------------- --------------------
NET LOSS $ (521,700) $ (25,777)
==================== ====================
F-19
17. PARENT COMPANY (Continued)
CONDENSED STATEMENT OF CASH FLOWS
Period From
October 9, 1997,
the Date of
Year Ended Inception, to
December 31, December 31,
1998 1997
-------------------- --------------------
OPERATING ACTIVITIES
Net loss $ (521,700) $ (25,777)
Adjustments to reconcile net loss to
net cash used for operating activities:
Equity in undistributed net loss of subsidiary 463,468 -
Other, net (146,779) 5,226
-------------------- --------------------
Net cash used for operating activities (205,011) (20,551)
-------------------- --------------------
INVESTING ACTIVITIES
Initial capitalization of subsidiary bank (5,425,000) -
-------------------- --------------------
Net cash used for investing activities (5,425,000) -
-------------------- --------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,609,889 -
Advances from organizers - 50,000
-------------------- --------------------
Net cash provided by financing activities 5,609,889 50,000
-------------------- --------------------
Decrease in cash (20,122) 29,449
CASH AT BEGINNING OF PERIOD 29,449 -
-------------------- --------------------
CASH AT END OF PERIOD $ 9,327 $ 29,449
==================== ====================
F-20
NITTANY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30,
1999
-----------------
ASSETS
Cash and due from banks $ 339,986
Interest-bearing deposits with other banks 3,279,267
Investment securities available for sale 16,144,042
Investment securities held to maturity (market value of $1,652,336) 1,710,672
Loans receivable (net of allowance for loan losses of $157,764) 23,748,711
Premises and equipment 182,693
Intangible assets 900,504
Accrued interest and other assets 296,606
------------
TOTAL ASSETS $ 46,602,481
============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 2,567,289
Interest-bearing demand 4,818,718
Money market 14,035,933
Savings 1,451,485
Time 10,387,375
------------
Total deposits 33,260,800
FHLB advances 8,600,000
Accrued interest payable and other liabilities 266,551
------------
TOTAL LIABILITIES 42,127,351
------------
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; 577,436 issued and outstanding 57,744
Additional paid-in capital 5,652,145
Retained deficit (768,729)
Accumulated other comprehensive loss (466,030)
------------
TOTAL STOCKHOLDERS' EQUITY 4,475,130
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,602,481
============
See accompanying notes to the consolidated financial statements.
F-21
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Nine Months Ended
------------------------------------
September 30, September 30,
1999 1998
----------------- -----------------
INTEREST AND DIVIDEND
INCOME
Loans, including fees $ 815,577 $ -
Interest-bearing deposits with
other banks 81,000 1,996
Investment securities 728,894 -
----------------- -----------------
Total interest and
dividend income 1,625,481 1,996
----------------- -----------------
INTEREST EXPENSE
Deposits 724,560 -
FHLB advances 240,548 -
----------------- -----------------
Total interest expense 965,108 -
----------------- -----------------
NET INTEREST INCOME 660,373 1,996
Provision for loan losses 60,000 -
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 600,373 1,996
----------------- -----------------
NONINTEREST INCOME
Service fees on deposit accounts 88,319 -
Investment securities
gains, net 1,342 -
Other income 25,606 -
----------------- -----------------
Total noninterest income 115,267 -
----------------- -----------------
NONINTEREST EXPENSE
Compensation and employee
benefits 394,428 79,730
Occupancy and equipment 144,625 439
Data processing 94,452 -
Goodwill amortization 37,427 -
Professional fees 77,664 104,175
Printing and supplies 43,828 118
Other 166,295 51,066
----------------- -----------------
Total noninterest expense 958,719 235,528
----------------- -----------------
Loss before income taxes (243,079) (233,532)
Income taxes
- -
----------------- -----------------
NET LOSS $ (243,079) $ (233,532)
================= =================
LOSS PER SHARE:
Basic $ (0.42) $ (10.99)(1)
Diluted (0.42 N/A
WEIGHTED-AVERAGE SHARES
OUTSTANDING:
Basic 577,439 21,259
Diluted 577,439 N/A
(1) Loss per share is calculated using the weighted average number of shares
outstanding from February 18, 1998, the first date that stock was issued.
See accompanying notes to the consolidated financial statements
F-22
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 Losses Equity Loss
------- ---------- -------------- ---------------- ------------- ------------
Balance, December 31, 1998 $57,744 $ 5,652,145 $(525,650) $ (30,586) $ 5,153,653
Net loss (243,079) (243,079) $ (243,079)
Other comprehensive loss:
Unrealized loss on available
for sale securities (435,444) (435,444) (435,444)
------------
Comprehensive loss $ (678,523)
------- ---------- ------------ ---------------- ------------- ============
Balance, September 30, 1999 $57,744 $ 5,652,145 $(768,729) $ (466,030) $ 4,475,130
======= ========== ============ ================ =============
1999
----------
Components of comprehensive loss:
Change in net unrealized loss on
investment securities available
for sale $(434,558)
Realized gains included in
net income, net of tax (886)
---------
Total $(435,444)
=========
See accompanying notes to the consolidated financial statements.
F-23
NITTANY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
------------------------------------
September 30, September 30,
1999 1998
----------------- -----------------
OPERATING ACTIVITIES
Net loss $ (243,079) $ (233,532)
Adjustments to reconcile net loss to net cash used for operating
activities:
Provision for loan losses 60,000 --
Depreciation, amortization, and accretion, net 115,049 --
Investment securities gains, net (1,342) --
Increase in accrued interest receivable (102,554) --
Increase in accrued interest payable 132,237 --
Other, net 14,110 63,936
------------ ------------
Net cash used for operating activities (25,579) (169,596)
------------ ------------
INVESTING ACTIVITIES
Purchase of one year certificate of deposit -- (10,548)
Investment securities available for sale:
Purchases (6,851,792) --
Proceeds from sales 428,554 --
Principal Repayments 2,462,572 --
Investment securities held to maturity:
Purchases (1,945,065) --
Principal Repayments 234,768 --
Net increase in loans receivable (19,395,256) --
Purchase of premises and equipment (86,608) (2,649)
------------ ------------
Net cash used for investing activities (25,152,827) (13,197)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 19,268,416 --
Proceeds from long-term FHLB advances 3,600,000 --
Net proceeds from the sale of common stock -- 250,000
------------ ------------
Net cash provided by financing activities 22,868,416 250,000
------------ ------------
Increase (decrease) in cash and cash equivalents (2,309,990) 67,207
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,929,243 29,449
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,619,253 $ 96,656
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the year for:
Interest on deposits and borrowings $ 832,871 $ --
See accompanying notes to the consolidated financial statements.
F-24
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 and nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the fiscal year ended
December 31, 1999 or any other interim period.
These statements should be read in conjunction with the consolidated financial
statements and related notes for the year ended December 31,1998, which are
incorporated by reference in the Company's Annual Report on Form 10-KSB.
Note 2 - EARNINGS PER SHARE
The Company provides dual presentation of Basic and Diluted earnings per share.
Basic earnings per share utilizes net income as reported as the numerator and
the actual average shares outstanding as the denominator. Diluted earnings per
share includes any dilutive effects of options, warrants, and convertible
securities. At September 30, 1999 there was no dilutive effect on common shares
of stock outstanding.
Note 3 - STOCK OPTION PLAN
On October 23, 1998, the Board of Directors adopted a stock option plan for the
directors, officers, and employees which was approved by the stockholders on May
24, 1999. An aggregate of 86,615 shares of authorized but unissued common stock
of the Company were reserved for future issuance under this plan. The stock
options have expiration terms of ten years subject to certain extensions and
terminations. The per share exercise price of a stock option shall be equal to
the fair value of a share of common stock on the date the option is granted.
Nonqualified and qualified stock options were granted for the purchase of
$82,500 shares, exercisable at the market price of $10.00. Of this amount,
48,000 and 34,500 stock options were granted to nonemployee directors and
officers and employees, respectively. Options awarded to employees and officers
become first exercisable at a rate of 25 percent and for non-employee directors
at a rate of 33 1/3 percent annually, commencing on the date of grant.
F-25
The following table presents share data related to the outstanding options:
Weighted-
average
Stock Options Exercise
1999 Price
----------------- ------------
Outstanding, January 1, 1999 - $ -
Granted 82,500 10.00
Exercised - -
Forfeited - -
-----------------
Outstanding, September 30, 1999 82,500 $ 10.00
=================
As permitted under Statement of Financial Accounting Standards No. 123
"Accounting for Stock-based Compensation," the Company has elected to continue
following Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations, in accounting for
stock-based awards to employees. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized in the Company's
financial statements. Had compensation expense included stock option plan costs
determined based on the fair value at the grant dates for options granted under
these plans consistent with Statement No. 123, pro forma net income and earnings
per share would not have been materially different than that presented on the
consolidated statements of income.
F-26
Note 4 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities are
summarized as follows:
At September 30, 1999
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
Available for Sale:
U.S. Government agency
securities $ 5,794,706 $ - $ (200,911) $ 5,593,795
Corporate securities 3,537,025 2,178 (14,725) 3,524,478
Mortgage-backed securities 6,823,341 - (252,572) 6,570,769
----------------- ----------------- ----------------- -----------------
Total debt securities 16,155,072 2,178 (468,208) 15,689,042
Equity securities 455,000 - - 455,000
----------------- ----------------- ----------------- -----------------
Total $ 16,610,072 $ 2,178 (468,208) 16,144,042
================= ================= ================= =================
At September 30, 1999
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
Held to Maturity:
Mortgage-backed securities $ 1,710,672 $ - $ (58,336) $ 1,652,336
----------------- ----------------- ----------------- -----------------
Total $ 1,710,672 $ - $ (58,336) $ 1,652,336
================= ================= ================= =================
Note 5 - LOANS
Loans receivable consists of the following:
September 30,
1999
-----------------
Real estate loans:
Residential $ 12,826,546
Home equity 2,275,782
Construction 1,136,733
Commercial 5,333,254
Commercial 633,309
Consumer loans 1,698,449
-----------------
23,904,073
Less:
Deferred loan costs (2,402)
Allowance for loan losses 157,764
-----------------
Total $ 23,748,711
=================
F-27
APPENDIX A
APPENDIX A
STOCK SUBSCRIPTION APPLICATION
NITTANY FINANCIAL CORP.
BY EXECUTING THIS STOCK SUBSCRIPTION APPLICATION,
I ACKNOWLEDGE RECEIPT OF A COPY OF THE PROSPECTUS.
I hereby subscribe for and offer to purchase the number of shares of common
stock, $.10 par value, of Nittany Financial Corp. ("Common Stock") shown below,
upon the terms and conditions specified in the Prospectus at a purchase price of
$__________ per share. All subscriptions must be for a minimum of 200 shares,
unless waived by Nittany. No fractional shares will be issued.
I acknowledge and agree that this Application constitutes an irrevocable offer
and may not be withdrawn without the consent of Nittany Financial Corp. If
Nittany accepts any subscription only in part, I understand that Nittany will
return any portion of funds not required for the partial subscription, with no
interest earned on this portion. If Nittany declines any subscription, I
understand that Nittany will return my subscription funds at that time, with no
interest earned on the funds.
If Nittany Financial Corp. cancels the offering in its entirety or rejects the
Application, this offer to purchase and subscribe shall become void, and Nittany
will return any payments received from me in full with no interest earned on the
amount returned. I understand that Nittany will mail my funds immediately upon
termination of the offering or rejection of my Application.
Subscriptions may be made by completing and signing this stock subscription
application in triplicate and delivering all three copies to: Nittany Bank, 116
East College Avenue, State College, Pennsylvania, 5:00 p.m., Eastern Standard
Time, within 60 days of the date of the offering, unless this date is extended
by 60 days or shortened by Nittany Financial Corp., in its discretion. The Stock
Subscription Application must be delivered together with the full amount of the
purchase price for the shares subscribed, in United States dollars, by check,
bank draft, or money order, made payable to "Nittany Bank."
Upon each closing, all funds received for subscriptions that are accepted by
Nittany Financial Corp. shall become capital of Nittany Financial Corp. together
with interest thereon. These shares of common stock being offered are not
deposits and are not insured by the FDIC.
A-1
NITTANY FINANCIAL CORP.
STOCK SUBSCRIPTION APPLICATION
Name(s) of Subscribers: ________________ Date of Subscription __________________
Number of Shares ________________ Amount of Subscription $ _____________________
Social Security Number or Tax ID Number
Address of Subscriber
Telephone Number: Day: ___________________ Evening: ____________________________
SHARE REGISTRATION: IF SHARES ARE NOT TO BE PURCHASED WITH AN IRA, SEP, KEOGH OR
UNDER THE UNIFORM GIFTS TO MINORS ACT, PLEASE CHECK AS APPROPRIATE AND WRITE OUT
THE WAY IN WHICH SHARES ARE TO BE REGISTERED:
[ ] INDIVIDUAL
[ ] JT TEN -- as joint tenants with right of survivorship and not as _________ tenants in common
[ ] TEN COM -- as tenants in common
[ ] OTHER ____________________
Registration Name ______________________________________________________________
CHECK AS APPROPRIATE AND, IF CHECKED, COMPLETE AS INDICATED:
[ ] Uniform Gifts to Minors Act
(custodian)
Custodian for ____________ under Uniform Gifts to Minors Act, State of _________
(minor) (state)
[ ] IRA, SEP or Keogh Account #
Note: If the Subscription Application is on behalf of an IRA, SEP or KEOGH,
the registration name above must read exactly as does the name of the
IRA, SEP or KEOGH account.
Brokerage Firm ______________________________________ Broker ___________________
Broker's Phone No. ________________ Custodian Firm _____________________________
Mailing Address of Broker or Custodian _________________________________________
I HAVE READ AND HEREBY AGREE TO THE TERMS OF THIS APPLICATION.
Signature of Subscriber
A-2
NITTANY FINANCIAL CORP.
200,000 Shares
Common Stock
-------------
PROSPECTUS
-------------
Dated ___________ ____, 1999
THESE SECURITIES ARE NOT DEPOSITS OR
ACCOUNTS AND ARE NOT FEDERALLY
INSURED OR GUARANTEED.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Sections 1741 through 1747 of the Pennsylvania Business Corporation Act
sets forth circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur in their
capacities as such.
Provisions regarding indemnification of directors, officers, employees
or agents of Nittany are contained in Article 10 of Nittany's Articles of
Incorporation.
Under a directors' and officers' liability insurance policy, directors
and officers of Nittany are insured against certain liabilities, including
certain liabilities under the Securities Act, as amended.
Item 25. Other Expenses of Issuance and Distribution
* Legal services.........................................$25,000
* Accounting fees..........................................8,000
* Registration fees .......................................2,000
* Postage and Transfer Agent...............................5,000
* Advertizing and Marketing................................3,000
* Printing and engraving...................................6,000
* Blue Sky expenses........................................5,000
* EDGAR expenses...........................................6,000
* Miscellaneous...........................................10,000
-------
TOTAL $70,000
=======
- ---------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
During the first quarter of 1998, the Company issued to the organizers
of the Nittany Financial Corp. 29,998 common shares at $10.00 per share for a
total aggregate consideration of $299,980. These shares were issued without
registration under the Securities Act of 1933, as amended (the "Securities Act")
in reliance on the exemption from registration provided by Rule 504 of
Regulation D.
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Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are as
follows:
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.*
5 Opinion of Malizia Spidi & Fisch, PC
10 Employment Agreement with David Z. Richards*
10.1 1998 Stock Option Plan**
23.1 Consent of Malizia Spidi & Fisch, PC (included in Exhibit 5)
23.2 Consent of S.R. Snodgrass, A.C.***
27 Financial Data Schedule (electronic filing only)
99 Form of Subscription Agreement (included as Appendix A to the Prospectus)
- ------------
* Incorporated by reference to the identically numbered exhibit to the
registration statement on Form SB-2 (File No. 333-57277) declared effective
by the Securities and Exchange Commission on July 31, 1998.
** Incorporated by reference to the identically number exhibit to the
September 30, 1999 Form 10QSB filed on November 10, 1999.
*** To be filed by amendment.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
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(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in State College,
Pennsylvania, on November 12, 1999.
NITTANY FINANCIAL CORP.
By: /s/David Z. Richards, Jr.
-----------------------------------------------
David Z. Richards, Jr.
President, Chief Executive Officer and Director
(Duly Authorized Representative)
We the undersigned directors and officers of Nittany Financial Corp. do
hereby severally constitute and appoint David Z. Richards, Jr. our true and
lawful attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said David Z. Richards, Jr. may
deem necessary or advisable to enable Nittany Financial Corp. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of Nittany Financial Corp.
common stock, including specifically but not limited to, power and authority to
sign for us or any of us, in our names in the capacities indicated below, the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that David Z.
Richards, Jr. shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of November 12, 1999.
/s/Samuel J. Malizia /s/David Z. Richards, Jr.
- ------------------------------- -----------------------------------------------
Samuel J. Malizia David Z. Richards, Jr.
Chairman of the Board, Director President, Chief Executive Officer and Director
and Assistant Secretary (Principal Executive, Financial and Accounting
Officer)
/s/Donald J. Musso /s/William A. Jaffe
- ------------------------------- -----------------------------------------------
Donald J. Musso William A. Jaffe
Director Director and Secretary
/s/D. Michael Taylor /s/J. Gary McShea
- ------------------------------- -----------------------------------------------
D. Michael Taylor J. Gary McShea
Director Director
/s/David K. Goodman, Jr.
- -------------------------------
David K. Goodman, Jr.
Director