UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 000-25287
TOWER FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its
charter)
INDIANA 35-2051170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
116 East Berry Street, Fort Wayne, Indiana 46802
(Address of principal executive offices)
(219) 427-7000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [
]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 2,530,000 shares of common stock outstanding as of April
30, 1999
Transitional Small Business Disclosure Format
Yes [ ] No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31,
1998
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash $468,801 $ 5,704
Interest bearing deposits 13,091,566 208,216
Federal funds sold 6,786,238
Total cash and cash equivalents 20,346,605 213,920
Securities available for sale, at fair value 5,441,500
Loans 11,392,481
Allowance for loan losses (90,000)
Net loans 11,302,481
Premises and equipment, net 543,086 57,696
Other assets 62,028 124,960
Total assets $37,695,700 $396,576
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Noninterest bearing $3,831,491 $
Interest bearing 11,168,365
Total deposits 14,999,856
Accrued expenses and other liabilities 314,704 110,000
Related party notes payable 760,000
Total liabilities 15,314,560 870,000
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, no par value, 4,000,000
shares authorized; no shares issued and
outstanding
Common stock, no par value, 6,000,000 shares 2,530,000 10
authorized;
2,530,000 shares issued and
outstanding at March 31, 1999, and
1 share issued and outstanding at
December 31, 1998
Additional paid-in capital 20,943,770
Accumulated deficit (1,092,544) (473,434)
Accumulated other comprehensive income (86)
Total stockholders' equity 22,381,140 (473,424)
(deficit)
Total liabilities and $37,695,700 $396,576
stockholders' equity (deficit)
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Months
ended
March 31, 1999
(unaudited)
Interest income:
Loans, including fees $ 40,083
Securities 36,706
Interest bearing deposits with banks 156,878
Total interest income 233,667
Interest expense on deposits 33,709
Net interest income 199,958
Provision for loan losses 90,000
Net interest income after provision for loan losses 109,958
Noninterest income 6,170
Noninterest expense
Salaries and benefits 426,324
Occupancy and equipment 59,595
Office supply expense 40,541
Legal and professional expense 118,231
Other expense 90,547
Total noninterest expense 735,238
Loss before provision for income taxes (619,110)
Provision for income taxes
Net loss $ (619,110)
Basic and diluted loss per share $ (0.35)
Weighted average shares outstanding 1,775,889
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Three Months
ended
March 31, 1999
(unaudited)
Net loss, as reported $ (619,110)
Unrealized depreciation on securities, net of taxes (86)
Comprehensive income $ (619,196)
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Preferred Common Addi- Accumu- Net Unrea- Total
tional lated lized
Stock Stock Paid in Deficit Deprecia-
Capital tion on
Securities
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ $ 10 $ $ (473,434) $ $ (473,424)
Issuance of common 2,530,000 20,943,770 23,473,770
stock, net of
underwriters' fee and
offering costs
Retirement of common stock (10) (10)
Net unrealized (86) (86)
depreciation on
securities
Net loss (619,110) (619,110)
Balance, March 31, 1999 $ $2,530,000 $20,943,770 $(1,092,544) $(86) $22,381,140
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
TOWER FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
ended
March 31, 1999
(unaudited)
<S> <C>
Cash flows from operating activities:
Net loss $ (619,110)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 13,649
Provision for loan losses 90,000
Decrease in accrued interest receivable and other assets 62,933
Increase in accrued interest payable and other liabilities 204,703
Net cash used in operating activities (247,825)
Cash flows from investing activities:
Net increase in loans (11,392,481)
Purchase of securities available for sale (5,441,586)
Purchase of equipment and leasehold expenditures (499,039)
Net cash used in investing activities (17,333,106)
Cash flows from financing activities:
Net increase in deposits 14,999,856
Gross proceeds from issuance of common stock 25,300,000
Payment of underwriters' fee and offering costs (1,826,230)
Retirement of common stock (10)
Repayment of related party notes payable (760,000)
Net cash provided from financing activities 37,713,616
Net increase in cash and cash equivalents 20,132,685
Cash and cash equivalents, beginning of period 213,920
Cash and cash equivalents, end of period $20,346,605
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
TOWER FINANCIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. ORGANIZATION: Tower Financial Corporation ("Tower
Financial") was incorporated on July 8, 1998. Tower
Financial's wholly owned subsidiary, Tower Bank & Trust
Company ("Tower Bank") opened on February 19, 1999, after
receiving federal and state bank regulatory approvals to
commence banking operations. Until February 19, 1999,
Tower Financial was in the development stage and its
activities were limited to the organization of Tower Bank
as well as the completion of its initial public stock
offering.
B. BASIS OF PRESENTATION: The accompanying unaudited
consolidated condensed financial statements were prepared
in accordance with generally accepted accounting
principles for interim periods and with instructions for
Form 10-QSB and, therefore, do not include all
disclosures required by generally accepted accounting
principles for complete presentation of the financial
statements. In the opinion of management, Tower
Financial's consolidated condensed financial statements
contain all adjustments necessary to present fairly its
consolidated financial position at March 31, 1999 and
December 31, 1998, and consolidated statements of
operations, stockholders' equity, and cash flows for the
three months ended March 31, 1999. Operating results
for the three-month period ended March 31, 1999, are not
necessarily indicative of the results that may be
expected for future interim periods or the full year
ended December 31, 1999. These consolidated condensed
financial statements should be read in conjunction with
the audited financial statements for the period from July
8, 1998 (date of inception) through December 31, 1998,
and related notes included in Tower Financial's Annual
Report on Form 10-KSB for the period ended December 31,
1998.
C. PRINCIPALS OF CONSOLIDATION: The accompanying
consolidated condensed financial statements include the
accounts of Tower Financial and Tower Bank. All
significant intercompany accounts and transactions have
been eliminated in consolidation.
D. COMPARATIVE DATA: Comparable statements of income,
stockholders' equity and cash flows for the three months
ended March 31, 1998 have not been presented since Tower
Financial had not been incorporated and did not have
operations during that period.
2. INITIAL PUBLIC OFFERING:
On January 29, 1999, Tower Financial completed an initial
public offering of its common stock during which 2,200,000
shares were sold at $10.00 per share. On February 12, 1999,
Tower Financial completed the sale of 330,000 common shares
included in the underwriters' over-allotment option at $10.00
per share. Total proceeds from the offering were $25,300,000
less underwriters' fees and offering expenses of $1,826,230,
for net proceeds of $23,473,770. Tower Financial used
$15,000,000 of the net proceeds from the stock offering to
provide the initial capitalization of Tower Bank in February
1999.
3. NOTES PAYABLE TO RELATED PARTIES:
Noninterest bearing notes payable in the amount of $760,000
were outstanding to current and former members of the Board of
Directors of Tower Financial at December 31, 1998. The notes
were paid during the first quarter of 1999 from proceeds
received from the public offering.
4. EARNINGS PER SHARE:
Earnings per share is computed based on the weighted average
number of shares outstanding during the entire quarter of
1,775,889. If the weighted average number of shares
outstanding subsequent to the closing of the initial public
offering of common stock and commencement of operations of
Tower Bank through March 31, 1999, had been used in the
calculation, the resulting loss per share would have been
$.24.
All stock options granted through March 31, 1999, had an anti-
dilutive effect on earnings per share.
5. INCOME TAXES:
At March 31, 1999, Tower Financial had net operating loss
carryforwards of approximately $1,092,544. No deferred tax
asset is recorded as a valuation allowance reduces the gross
deferred tax asset of approximately $437,017 to zero.
6. STOCK OPTION PLAN:
On December 14, 1998, and subsequently amended on January 21,
1999, the stockholder and Board of Directors adopted the 1998
Stock Option and Incentive Plan (the "Plan") for officers,
employees and directors. The maximum number of shares, which
may be issued under the Plan, may not exceed 310,000 and will
include both incentive stock options and non-qualified
options. The exercise price for incentive stock options will
not be less than the fair market value of the shares at the
time of grant, except as granted to a 10% shareholder where
the option price will not be less than 110% of fair market
value. The exercise price for non-qualified stock options
will not be less than the fair market value at the time of
grant. The duration of each option may not exceed ten years
from the date of grant.
At March 31, 1999, options for 290,440 shares have been
granted to certain officers, employees, and directors. The
options were granted at the market price on the dates of grant
in a range from $9.875 to $10.1875 per share.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
OVERVIEW
Tower Financial was formed in July 1998 to be the bank holding
company for Tower Bank. Tower Financial was in a development
stage until Tower Bank commenced operations on February 19, 1999.
Tower Bank is an Indiana chartered bank with depository accounts
insured by the Federal Deposit Insurance Corporation. Tower Bank
is also a member of the Federal Reserve System. Tower Bank
provides a full range of commercial and consumer banking services
primarily in Allen County, Indiana, including Fort Wayne and its
suburbs.
Since its organization, Tower Financial's principal activities
have related to the organization of Tower Bank and the conducting
of Tower Financial's initial public offering. Tower Financial
funded its start-up and organizational costs through loans from
directors in an aggregate amount of $760,000, which loans were
repaid upon completion of the public offering. Total proceeds to
Tower Financial from the initial public offering were $22,713,770
(net of offering expenses, underwriters discounts and repayment
of director loans), of which $15,000,000 was used to capitalize
Tower Bank.
The following discussion presents management's discussion and
analysis of the consolidated financial condition and results of
operations of Tower Financial as of March 31, 1999 and December
31, 1998 and for the three months ended March 31, 1999. This
discussion should be read in conjunction with Tower Financial's
unaudited consolidated condensed financial statements and the
related notes appearing elsewhere in this report. Since
principal banking operations commenced on February 19, 1999, a
comparison of the March 31, 1999 results (when Tower Bank was
operating) to those of March 31, 1998 (prior to formation of
Tower Financial) is not meaningful.
FINANCIAL CONDITION
Total assets of Tower Financial were $37,695,700 at March 31,
1999 compared to its development stage assets at December 31,
1998 of $396,576. The significant increase in assets was
primarily attributable to the inflow of funds from the initial
public offering ("IPO") and the deposit growth from the
commencement of bank operations. As Tower Bank is in its initial
year of operations, Tower Financial anticipates that assets will
continue to increase significantly.
Cash and cash equivalents, which include federal funds sold,
increased by $20,132,685 to $20,346,605 at March 31, 1999 from
$213,920 at December 31, 1998. Securities available for sale
were $5,441,500 at the end of the first quarter of 1999. There
were no securities owned by Tower Financial at December 31, 1998.
The significant increase was again the result of the inflow of
funds from the IPO and the investment of customer deposits after
commencement of Tower Bank's operations.
Total loans were $11,392,481 at March 31, 1999 as significant
growth also occurred in this category. There were no loans
recorded at December 31, 1998. The loan growth occurred as a
result of the commencement of bank operations and was
attributable mainly to the commercial and small business sector.
The allowance for loan losses at March 31, 1999 was $90,000.
This represented .8% of total loans outstanding. Management
considers the allowance for loan losses to be adequate; however,
there can be no assurance that charge-offs in future periods will
not exceed the allowance for loan losses or that additional
provisions of the allowance will not be required. Tower
Financial had not experienced any loan losses as of March 31,
1999.
Premises and equipment increased by $485,390 during the first
three months of 1999. The increase resulted from the purchase
of computer and communications equipment and software, as well as
expenditures for leasehold improvements to Tower Financial's
office space to begin bank operations.
Other assets decreased by $62,932 during the first quarter of
1999 as deferred offering costs recorded at December 31, 1998 of
$124,960 were netted against the proceeds from the IPO, and this
decrease was offset by $62,028 of interest accrued on earning
assets.
Total deposits increased sharply when the bank commenced
operations and were $14,999,856 at March 31, 1999. There were
no deposits recorded at December 31, 1998. At March 31, 1999,
noninterest-bearing deposit balances were $3,831,491 while
interest-bearing deposit balances were $11,168,365.
Accrued expenses and other liabilities increased by $204,704
from $110,000 at December 31, 1998. This increase was mainly
attributable to accrued start-up costs. Additionally, Tower
Financial repaid the $760,000 of related party notes that were
recorded at December 31, 1998, concurrently with the closing of
the IPO.
At the completion of its IPO, Tower Financial issued 2,530,000
shares of common stock and redeemed the one share of common stock
outstanding at December 31, 1998. The net proceeds from the sale
of common stock in the IPO were $23,473,770 after deducting
offering expenses and underwriters' discounts; $20,943,770 of the
net proceeds were recorded as additional paid-in capital. The
accumulated deficit increased during the first quarter of 1999
from $473,424 at December 31, 1998 to $1,092,544 at March 31,
1999. See "Results of Operations."
RESULTS OF OPERATIONS
While Tower Financial was formed in July 1998; its wholly-
owned subsidiary, Tower Bank did not commence operations until
February 1999. Accordingly, results for the three-month period
ended March 31, 1999, reflect a mix of start-up costs and
operating results. Tower Financial reported a net loss for the
three-month period ended March 31, 1999, in the amount of
$619,110. At March 31, 1999, Tower Financial had an accumulated
deficit of $1,092,544. The accumulated deficit and net loss are
mainly reflective of organizational and start-up costs incurred
during the development stage of Tower Financial from July 1998 to
February 1999, including salaries paid to employees and expenses
incurred in applying for and obtaining regulatory approvals.
Management believes that Tower Financial will generate a net loss
for the year ended December 31, 1999 as a result of these
expenditures and as Tower Bank continues to build its loan
portfolio. Management believes that the expenditures made in
1998 and 1999 have created the infrastructure to achieve future
growth and profitability.
Loss per share for the three-month period ended March 31,
1999, was $.35, which amount is $.11 greater than the $.24 loss
per share previously reported in Tower Financial's news release
concerning the first quarter results for 1999. See Note 4 -
"Earnings Per Share" to the financial statements.
Interest income for the three-month period ended March 31,
1999, was $233,667 while interest expense was $33,709, resulting
in net interest income of $199,958 and a net interest margin of
4.61%. A loan loss provision was recorded in the amount of
$90,000. As Tower Financial had no loan loss experience in the
first quarter of 1999, the provision was established based upon
peer industry data for comparable commercial banks and adjusted
to reflect the start-up nature of the loan portfolio.
Noninterest income was $6,170 while noninterest expense was
$735,238. The main components of noninterest expense during the
first quarter of 1999 were salaries and benefits in the amount of
$426,324, occupancy and equipment in the amount of $59,595, and
legal and professional expenses in the amount of $118,231.
These costs were primarily the result of organizational and
start-up activities.
LIQUIDITY AND CAPITAL RESOURCES
In its IPO, Tower Financial raised equity capital with
aggregate proceeds, net of underwriters' discount and offering
expenses, of $23,473,770. Tower Financial contributed
$15,000,000 of the net proceeds from the offering to Tower Bank.
Based upon pre-opening growth projections and deposit levels
achieved during the first weeks of operations, management
believes that Tower Financial is likely to have adequate funds to
meet its capital requirements and the capital requirements of
Tower Bank for at least twelve months.
YEAR 2000 COMPLIANCE
THE YEAR 2000 PROBLEM. The "Year 2000" problem arose because
many existing computer systems use only the last two digits to
refer to the year. Therefore, these computer programs do not
properly recognize a year that begins with a year "20" instead of
the familiar "19." If not corrected, many computer applications
and other technology-based systems could fail or create erroneous
results.
TOWER FINANCIAL'S STATE OF READINESS. Tower Financial is in
the process of assessing the impact of the arrival of the year
2000 on its computerized information systems and other electronic
equipment. Tower Financial's main data processing vendor has
represented to Tower Financial that it will be Year 2000 ready or
compliant by June 30, 1999, and has provided updates on its
progress to Tower Financial. In addition, Tower Financial has
begun an internal evaluation of equipment and vendor supply
products to assess its Year 2000 readiness in the areas of
processing services and reports, electronic banking services,
correspondent services and communications systems. Other systems
which Tower Financial plans to assess include security systems,
HVAC systems and local utility services. Tower Financial has
appointed one of its senior officers to oversee the Year 2000
process and to inform its board of directors on a regular basis
of the progress being made. Tower Financial intends to complete
this assessment by June 30, 1999. Tower Financial is also
developing a contingency plan to address Year 2000 problems that
may occur after December 31, 1999, and expects to complete the
plan by June 30, 1999.
Tower Bank requires general assurances from commercial
borrowers as to their Year 2000 readiness as part of the loan
application and review process. Additionally, Tower Bank plans
to use the following steps to minimize Year 2000 risks: (1)
internal communications to keep employees knowledgeable and
updated on Year 2000 readiness; (2) written communications to
all loan applicants to notify them of Tower Bank's Year 2000
readiness efforts; (3) questionnaires to be completed by all
significant commercial borrowers to apprise them of possible Year
2000 issues applicable to them; and (4) continued dialogue with
loan clients during 1999 to review Year 2000 readiness.
Because it is starting with new equipment, Tower Financial
does not expect to incur large operating expenses to modify its
systems to be Year 2000 ready. Costs to Tower Financial related
to Year 2000 readiness are estimated to be less than $25,000.
These costs may include testing of equipment and software
programs, equipment upgrades and customer education. It is
difficult to predict such costs, and additional funds may be
needed. The failure of Tower Financial, its vendors or its
customers to successfully address Year 2000 issues could
interfere with Tower Financial's ability to operate its business
and could have an adverse effect on its financial condition and
results of operation.
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report filed on
Form 10-QSB that are not historical facts are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act. Forward-looking statements are made based
upon management's current expectations and beliefs concerning
future developments and their potential effects upon Tower
Financial or Tower Bank. There can be no assurance that future
developments affecting Tower Financial or Tower Bank will be
those anticipated by management. Actual results may differ
materially from those included in the forward-looking statements.
These forward-looking statements involve risks and uncertainties
including, but not limited to, the following:
<circle>Tower Financial's status as a start-up company with no
significant operating history;
<circle>Tower Financial's expectation of significant losses
for at least the first two years of operations;
<circle>the effect of extensive banking regulation on Tower
Bank's ability to grow and compete;
<circle>the effect of changes in federal economic and monetary
policies on Tower Bank's ability to attract deposits,
make loans and achieve satisfactory interest spreads;
<circle>the competitive disadvantage resulting from Tower
Financial's status as a highly-regulated, start-up
company;
<circle>Tower Financial's dependence on key management
personnel;
<circle>the increased risk of losses due to loan defaults
caused by Tower Bank's commercial loan concentration;
<circle>Tower Financial's dependence on a favorable local
economy in Tower Bank's primary service area;
<circle>Tower Bank's dependence on net interest spread for
profitability; and
<circle>Tower Bank's ability to implement developments in
technology to be competitive.
Readers are also directed to other risks and uncertainties
discussed in other documents filed by Tower Financial with the
Securities and Exchange Commission. Tower Financial undertakes
no obligation to update or revise any forward-looking
information, whether as a result of new information, future
developments or otherwise.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Tower Bank may be involved from time to time in various
routine legal proceedings incidental to its business. Neither
Tower Financial nor Tower Bank is engaged in any legal proceeding
that is expected to have a material adverse effect on the results
of operation or financial position of Tower Financial or Tower
Bank.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES
The following information is furnished as to securities of
Tower Financial sold during the quarter ended March 31, 1999 that
were not registered under the Securities Act of 1933, as amended.
<circle>On January 4, 1999, Tower Financial's Compensation
Committee granted options to certain officers and
directors under the 1998 Stock Option and Incentive Plan
(the "Plan") for an aggregate of 90,000 shares of common
stock, effective at the closing date of the IPO, at an
exercise price equal to the IPO price ($10.00 per share).
Each of these options has a term of ten years. Of these
option grants, non-qualified stock options to purchase a
total of 10,000 shares were granted to two directors as
compensation for consulting services provided to Tower
Financial. These non-qualified stock options vested upon
the closing of the IPO. Incentive stock options to
purchase a total of 80,000 shares were granted to certain
executive officers as compensation for services rendered
in their capacities as officers of Tower Financial and
Tower Bank. These incentive stock options vest in four
annual increments of 25% of the total number of shares
included in the stock option, commencing on January 29,
2000.
<circle>On January 29, 1999, Tower Financial's Compensation
Committee granted non-qualified options under the Plan to
purchase an aggregate of 150,000 shares to the directors
of Tower Financial concurrently with the closing of the
IPO. These options were granted on a pro rata basis
based upon the number of shares of common stock purchased
in the offering by the directors. Each of these options
has an exercise price equal to the IPO price ($10.00 per
share) and a term of ten years. These options vest in
increments of one-third of the total number of shares
included in the stock option six months, one year and two
years after January 29, 1999.
<circle>On February 15, 1999, Tower Financial's Compensation
Committee granted incentive stock options under the Plan
to purchase an aggregate of 44,440 shares to certain
employees of Tower Financial and Tower Bank. Each of
these options has an exercise price equal to the market
value (as defined in the Plan) of one share of Tower
Financial's common stock on February 15, 1999 ($10.1875
per share) and a term of ten years. These options vest
in four annual increments of 25% of the total number of
shares included in the stock option, commencing on
February 15, 2000.
<circle>On March 15, 1999, Tower Financial's Compensation
Committee granted incentive stock options under the Plan
to purchase an aggregate of 6,000 shares to certain
employees of Tower Financial and Tower Bank. Each of
these options has an exercise price equal to the market
value (as defined in the Plan) of one share of Tower
Financial's common stock on March 15, 1999 ($9.875 per
share) and a term of ten years. These options vest in
four annual increments of 25% of the total number of
shares included in the stock option, commencing on March
15, 2000.
The transactions described above are exempt from the registration
requirements of the Securities Act pursuant to Section 4(2)
thereof. Tower Financial filed its Registration Statement on
Form S-8 on April 1, 1999 for the purpose of registering under
the Securities Act 310,000 shares of Tower Financial's common
stock issuable pursuant to the Plan.
USE OF PROCEEDS
Tower Financial's Registration Statement on Form SB-2 (File
No. 333-67235), registering 2,300,000 shares of common stock for
sale to the public, was declared effective on January 26, 1999.
Tower Financial filed its Registration Statement on Form SB-2
(File No. 333-71219) on January 26, 1999, registering an
additional 230,000 shares pursuant to Rule 462(b) under the
Securities Act. Of the aggregate 2,530,000 shares registered
with the Securities and Exchange Commission, all of the shares
were sold in a firm commitment underwriting. The closing for the
2,200,000 firm shares included in the offering occurred on
January 29, 1999, and the closing for the 330,000 shares included
in the underwriters' overallotment option occurred on February
12, 1999. The managing underwriters for the offering were Roney
Capital Markets, a division of First Chicago Capital Markets,
Inc., and McDonald Investments, Inc. The shares were sold to the
public at a price of $10.00 per share for an aggregate offering
price of 25,300,000.
After the underwriters' discount of $1,581,250, Tower
Financial received proceeds aggregating $23,718,750 before
expenses of the offering. Through March 31, 1999, the aggregate
amount of expenses incurred for Tower Financial's account in
connection with the issuance and distribution of its common stock
was $244,980. Accordingly, the total expenses incurred for the
offering through March 31, 1999, including underwriters'
discount, was $1,826,230.
The net offering proceeds to Tower Financial, after deducting
the underwriters' discount and offering expenses, was
$23,473,770. As of March 31, 1999, the net offering proceeds
received by Tower Financial have been applied as follows:
<circle>$760,000 was applied to repay loans that had been made
by directors and former directors of Tower Financial to
cover organizational and other pre-opening expenses.
<circle>$15,000,000 was contributed to Tower Bank by
purchasing all of its issued and outstanding common
stock. Tower Bank applied approximately $96,000 of this
amount for leasehold improvements and related
architectural and engineering services and approximately
$460,000 to purchase furniture, equipment and other
assets necessary for operations. Of the remaining
$14,444,000 received by Tower Bank from Tower Financial,
Tower Bank retained approximately $470,000 for working
capital and used the remaining funds, along with
increases in deposits, to make new loans to customers and
to purchase interest-bearing bank deposits and investment
securities.
The balance of the net offering proceeds, approximately
$7,700,000, has been invested in demand and interest-bearing
deposits with banks and will be retained by Tower Financial as
working capital for general corporate purposes and to pay
operating expenses, as well as for possible future capital
contributions to Tower Bank.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent dated January 4, 1999, Tower Financial's
sole shareholder re-elected all of Tower Financial's fourteen
directors for the respective terms outlined in Tower Financial's
Registration Statement on Form SB-2 (Registration No. 333-
67235). By written consent dated January 21, 1999, Tower
Financial's sole shareholder approved an amendment to the 1998
Stock Option and Incentive Plan. The amended 1998 Stock Option
and Incentive Plan was filed as an exhibit to Amendment No. 2 to
Tower Financial's Registration Statement on Form SB-2
(Registration No. 333-67235). No other matters were submitted
to a vote of security holders during the quarter ended March 31,
1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER FINANCIAL CORPORATION
Dated: May 14, 1999 /S/ DONALD F. SCHENKEL
Donald F. Schenkel, Chairman of the
Board, President and Chief Executive
Officer
Dated: May 14, 1999 /S/ KEVIN J. HIMMELHAVER
Kevin J. Himmelhaver, Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF TOWER
FINANCIAL CORPORATION FOR THE THREE MONTHS ENDED MARCH 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 468,801
<INT-BEARING-DEPOSITS> 13,091,566
<FED-FUNDS-SOLD> 6,786,238
<TRADING-ASSETS> 605,114
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 5,441,500
<LOANS> 11,392,481
<ALLOWANCE> (90,000)
<TOTAL-ASSETS> 37,695,700
<DEPOSITS> 14,999,856
<SHORT-TERM> 0
<LIABILITIES-OTHER> 314,704
<LONG-TERM> 0
0
0
<COMMON> 2,530,000
<OTHER-SE> 19,851,140
<TOTAL-LIABILITIES-AND-EQUITY> 37,695,700
<INTEREST-LOAN> 40,083
<INTEREST-INVEST> 36,706
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 233,667
<INTEREST-DEPOSIT> 156,876
<INTEREST-EXPENSE> 33,709
<INTEREST-INCOME-NET> 199,958
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 735,238
<INCOME-PRETAX> (619,110)
<INCOME-PRE-EXTRAORDINARY> (619,110)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (619,110)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
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<ALLOWANCE-OPEN> 90,000
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</TABLE>
