UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 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 registrant 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) (Zip Code)
Registrant's telephone number, including area code:
(219) 427-7000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended December 31, 1998:
NONE
Aggregate market value of the voting stock held by nonaffiliates
of the Registrant based on the last sale price for such stock at
March 1, 1999 (assuming solely for the purposes of this
calculation that all directors and executive officers of the
Registrant are "affiliates"). $23,315,850
Number of shares of Common Stock outstanding at March 1, 1999:
2,530,000
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE>
TOWER FINANCIAL CORPORATION
Fort Wayne, Indiana
Annual Report to Securities and Exchange Commission
December 31, 1998
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Tower Financial Corporation (the "Company") was
incorporated as an Indiana corporation on July 8, 1998. The
Company was formed to acquire all of the issued and outstanding
stock of Tower Bank & Trust Company (the "Bank") and to engage in
the business of a bank holding company under the Federal Bank
Holding Company Act of 1956, as amended. The Bank was organized
as an Indiana chartered bank with depository accounts to be
insured by the Federal Deposit Insurance Corporation ("FDIC") and
as a member of the Federal Reserve System. On December 15, 1998,
the Department of Financial Institutions of the State of Indiana
(the "Department") issued an order approving the application to
establish the Bank. The Company's application to become a bank
holding company for the Bank and the Bank's application to become
a member of the Federal Reserve System were each approved by the
Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") on January 19, 1999. On January 22, 1999, the
Bank's application for FDIC deposit insurance was approved. In
each case, these approvals were issued subject to the
satisfaction of certain conditions that the Company believes are
customary in transactions of this type, including conditions
relating to capitalization of the Bank and continuing capital
adequacy. The Bank commenced business on February 19, 1999.
The Bank provides a range of commercial and consumer
banking services primarily in Allen County, Indiana, including
Fort Wayne and its suburbs. Those services reflect the Bank's
strategy of serving small to medium-sized businesses and
individual customers. The Bank's lending strategy is focused on
commercial loans and, to a lesser extent, on consumer and
residential mortgage loans. The Bank offers a broad array of
deposit products, including checking, business checking, savings
and money market accounts, certificates of deposit and direct
deposit services.
The Bank's main office is located in downtown Fort
Wayne and serves as the Company's corporate headquarters. The
address of the Company and the Bank is Lincoln Tower, 116 East
Berry Street, Fort Wayne, Indiana 46802. The Company's telephone
number is (219) 427-7000.
LENDING PRACTICES
The Bank makes loans to individuals and businesses
located within the Bank's market area. The Bank anticipates that
its loan portfolio will consist of commercial loans (80%),
residential mortgage loans (10%) and personal loans (10%),
although these percentages are approximations and the actual
percentages may vary. The Bank's legal lending limit under
applicable regulations is approximately $2.25 million, based on
the legal lending limit of 15% of capital and surplus.
COMMERCIAL LOANS. Commercial loans are made primarily
to small and medium-sized businesses. These loans may be secured
or unsecured and are made available for general operating
purposes, acquisition of fixed assets including real estate,
purchases of equipment and machinery, financing of inventory and
accounts receivable, as well as any other purposes considered
appropriate. The Bank generally looks to a borrower's business
operations as the principal source of repayment, but also
receives, when appropriate, mortgages on real estate, security
interests in inventory, accounts receivable and other personal
property and/or personal guarantees. Approximately 20% of the
Bank's commercial loans are expected to be commercial real estate
loans secured by a first lien on the commercial real estate. In
addition, the Company expects that the majority of the Bank's
commercial loans that are not mortgage loans will be secured by a
lien on equipment, inventory and/or other assets of the
commercial borrower.
Commercial lending involves more risk than residential
lending because loan balances are greater and repayment is
dependent upon the borrower's operations. The Bank is attempting
to minimize the risks associated with these transactions by
generally limiting its exposure to owner-operated properties of
customers with an established profitable history. In many cases,
the Bank expects to further reduce risk by (i) limiting the
amount of credit to any one borrower to an amount less than the
Bank's legal lending limit and (ii) avoiding certain types of
commercial real estate financings.
RESIDENTIAL MORTGAGE LOANS. The Bank will originate
residential mortgage loans, which are generally long-term, with
either fixed or variable interest rates. The Bank's anticipated
general policy, which is subject to review by management as a
result of changing market and economic conditions and other
factors, will be to retain all or a portion of variable interest
rate mortgage loans in the Bank's loan portfolio and to sell all
fixed rate loans in the secondary market. The Bank also expects
to offer home equity loans. The Bank does not expect to retain
servicing rights with respect to the majority of the residential
mortgage loans that it originates. The Company anticipates that
all of the Bank's residential real estate loans will be secured
by a first lien on the real estate and that the majority of the
Bank's personal loans will be home equity loans secured by a
second lien on real estate.
PERSONAL LOANS AND CREDIT. The Bank will make personal
loans and lines of credit available to consumers for various
purposes, such as the purchase of automobiles, boats and other
recreational vehicles, and the making of home improvements and
personal investments. The Bank expects to retain substantially
all of such loans. The Bank also may offer credit card services
depending, in part, on the level of demand among the Bank's
customers.
Consumer loans generally have shorter terms and higher
interest rates than residential mortgage loans and, except for
home equity lines of credit, usually involve more credit risk
than mortgage loans because of the type and nature of the
collateral. Consumer lending collections are dependent on a
borrower's continuing financial stability and are thus likely to
be adversely affected by job loss, illness and personal
bankruptcy. In many cases, repossessed collateral for a
defaulted consumer loan will not provide an adequate source of
repayment of the outstanding loan balance because of depreciation
of the underlying collateral. The Bank intends to underwrite its
loans carefully, with a strong emphasis on the amount of the down
payment, credit quality, employment stability and monthly income.
These loans are expected generally to be repaid on a monthly
repayment schedule with the payment amount tied to the borrower's
periodic income. The Bank believes that the generally higher
yields earned on consumer loans will help compensate for the
increased credit risk associated with such loans and that
consumer loans will be important to its efforts to serve the
credit needs of its customer base.
LOAN POLICIES. Although the Bank intends to take a
progressive and competitive approach to lending, it will stress
high quality in its loans. Because of the Bank's local nature,
management believes that quality control should be achievable
while still providing prompt and personal service. The Bank is
subject to written loan policies that contain general lending
guidelines and are subject to periodic review and revision by the
Bank's Loan and Investment Committee and its board of directors.
These policies concern loan administration, documentation,
approval and reporting requirements for various types of loans.
The Bank's loan policies include procedures for
oversight and monitoring of the Bank's lending practices and loan
portfolio. The Bank will seek to make sound loans, while
recognizing that lending money involves a degree of business
risk. The Bank's loan policies are designed to assist the Bank
in managing the business risk involved in making loans. These
policies provide a general framework for the Bank's loan
operations, while recognizing that not all loan activities and
procedures can be anticipated. The Bank's loan policies instruct
lending personnel to use care and prudent decision-making and to
seek the guidance of the Chief Lending Officer or the President
and Chief Executive Officer of the Bank where appropriate.
The Bank's loan policies provide guidelines for loan-
to-value ratios that limit the size of certain types of loans to
a maximum percentage of the value of the collateral securing the
loans, which percentage varies by the type of collateral,
including the following loan-to-value maximum ratios: raw land
(65%), improved residential real estate lots (75%), owner-
occupied commercial real estate (80%), non-owner-occupied
commercial real estate (75%), first mortgages on residences (80%)
and junior mortgages on residences (90%). The Bank expects to
use credit risk insurance, principally for residential real
estate mortgages where the loan-to-value ratio exceeds 80%.
Regulatory and supervisory loan-to-value limits are established
by the Federal Deposit Insurance Corporation Improvement Act of
1991. The Bank's internal loan-to-value limitations will follow
those limits and, in certain cases, are more restrictive than
those required by the regulators.
The Bank's loan policies also establish a limit on the
aggregate amount of loans to any one borrower. These loan
policies provide that no loan shall be granted where the
aggregate liability of the borrower to the Bank will exceed $1.5
million. This internal lending limit is subject to review and
revision by the board of directors from time to time.
In addition, the Bank's loan policies provide
guidelines for (i) personal guarantees, (ii) environmental policy
review, (iii) loans to employees, executive officers and
directors, (iv) problem loan identification, (v) maintenance of a
loan loss reserve and (vi) other matters relating to the Bank's
lending practices.
DEPOSITS AND OTHER SERVICES
DEPOSITS. The Bank offers a broad range of deposit
services, including checking, business checking, savings and
money market accounts, certificates of deposit and direct-deposit
services. Transaction accounts and certificates of deposit are
tailored to the Bank's primary market area at rates competitive
with those offered in Allen County. All deposit accounts will be
insured by the FDIC up to the maximum amount permitted by law.
The Bank intends to solicit these accounts from individuals,
businesses, associations, financial institutions and government
entities.
OTHER SERVICES. The Bank intends to contract with a
third-party vendor to provide telephonic banking within the first
quarter of operations. The Bank also may consider providing
personal computer based at-home banking and trust services in the
future. Management believes that the Bank's personalized service
approach will benefit from customer visits to the Bank. The Bank
offers a courier service for customer convenience. In addition,
the Bank may establish relationships with correspondent banks and
other independent financial institutions to provide other
services requested by its customers, including loan
participations where the requested loan amounts exceed the Bank's
policies or legal lending limits.
INVESTMENTS
The principal investment of the Company is its purchase
of all of the common stock of the Bank. Funds retained by the
Company from time to time may be invested in various debt
instruments, including but not limited to obligations of or
guaranteed by the United States, general obligations of a state
or political subdivision thereof, bankers' acceptances of deposit
of United States commercial banks, or commercial paper of United
States issuers rated in the highest category by a nationally
recognized statistical rating organization. Although the Company
is permitted to make limited portfolio investments in equity
securities and to make equity investments in subsidiary
corporations engaged in certain non-banking activities (which may
include real estate-related activities such as mortgage banking,
community development, real estate appraisals, arranging equity
financing for commercial real estate, and owning or operating
real estate used substantially by the Bank or acquired for future
use), the Company has no present plans to make any such equity
investment.
The Bank may invest its funds in a wide variety of debt
instruments and may participate in the federal funds market with
other depository institutions. Subject to certain exceptions,
the Bank is prohibited from investing in equity securities. Real
estate acquired by the Bank in satisfaction of or foreclosure
upon loans may be held by the Bank for no longer than 10 years
after the date of acquisition without the written consent of the
Department. The Bank is also permitted to invest an aggregate
amount not in excess of 50% of the "sound capital" of the Bank in
such real estate and buildings as is necessary for the convenient
transaction of its business. The Bank's board of directors may
alter the Bank's investment policy without shareholder approval.
FUNDING SOURCES
The Bank plans to fund its operations initially from
the capitalization of the Bank with proceeds of the Company's
initial public offering and, on an ongoing basis, primarily with
local deposits. However, the Bank may also use alternative
funding sources as needed, including advances from a Federal Home
Loan Bank, when eligible, and other forms of wholesale financing.
These alternative funding sources may be more costly than local
deposits.
EFFECT OF GOVERNMENT MONETARY POLICIES
The earnings of the Company are affected by domestic
economic conditions and the monetary and fiscal policies of the
United States government, its agencies and the Federal Reserve
Board. The Federal Reserve Board's monetary policies have had,
and will likely continue to have, an important impact on the
operating results of commercial banks through its power to
implement national monetary policy in order to, among other
things, curb inflation and avoid a recession. The instruments of
monetary policy employed by the Federal Reserve Board include
open market operations in United States Government securities,
changes in the discount rate on member bank borrowing and changes
in reserve requirements against deposits held by all federally-
insured banks. In view of changing conditions in the national
economy and in the money markets, as well as the effect of
actions by monetary fiscal authorities, including the Federal
Reserve Board, no prediction can be made as to possible future
changes in interest rates, deposit levels, loan demand or the
business and earnings of the Bank.
REGULATION AND SUPERVISION
Financial institutions and their holding companies are
extensively regulated under federal and state law. Consequently,
the growth and earnings performance of the Company and the Bank
can be affected not only by management decisions and general
economic conditions, but also by the statutes administered by,
and the regulations and policies of, various governmental
regulatory authorities. Those authorities include, but are not
limited to, the Federal Reserve Board, the FDIC, the Department,
the Internal Revenue Service and the state taxing authorities.
The effect of such statutes, regulations and policies can be
significant and cannot be predicted with any high degree of
certainty. Federal and state laws and regulations generally
applicable to the Company and the Bank regulate, among other
things:
> the scope of business > investments
> reserves against deposits > capital levels relative to
> lending activities and operations
practices > the nature and amount of
> the establishment of collateral for loans
branches > mergers and consolidations
> dividends
The system of supervision and regulation applicable to the
Company and the Bank establishes a comprehensive framework for
their respective operations and is intended primarily for the
protection of the FDIC's deposit insurance funds, the depositors
of the Bank and the public, rather than shareholders of the Bank
or the Company. Any change in government regulation may have a
material adverse effect on the business of the Company and the
Bank.
THE COMPANY
As a bank holding company, the Company is subject to
regulation by, the Federal Reserve Board under the federal Bank
Holding Company Act of 1956, as amended (the "BHCA"). Under the
BHCA, the Company is subject to examination by the Federal
Reserve Board and is required to file reports of its operations
and such additional information as the Federal Reserve Board may
require.
Under Federal Reserve Board policy, the Company will be
expected to act as a source of financial strength to the Bank and
to commit resources to support the Bank in circumstances where
the Company might not do so absent such policy. In addition, in
certain circumstances, an Indiana banking corporation may be
required by order of the Department to increase the sound capital
of the Bank or reduce the amount of its deposits.
Any loans by a bank holding company to a subsidiary
bank are subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary bank. In the event
of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
With certain limited exceptions, the BHCA prohibits
bank holding companies from acquiring direct or indirect
ownership or control of voting shares or assets of any company
other than a bank, unless the company involved is engaged solely
in one or more activities which the Federal Reserve Board has
determined to be so closely related to banking or managing or
controlling banks as to be incidental to these operations. Under
current Federal Reserve Board regulations, such permissible non-
bank activities include such things as mortgage banking,
equipment leasing, securities brokerage, and consumer and
commercial finance company operations. As a result of recent
amendments to the BHCA, many of these acquisitions may be
affected by bank holding companies that satisfy certain statutory
criteria concerning management, capitalization, and regulatory
compliance, if written notice is given to the Federal Reserve
Board within 10 business days after the transaction. In other
cases, prior written notice to the Federal Reserve Board will be
required.
The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding
companies. If capital falls below minimum guidelines, a bank
holding company may, among other things, be denied approval to
acquire or establish additional banks or non-bank businesses.
THE BANK
The Bank is an Indiana banking corporation and a member
of the Federal Reserve System. As a state-chartered, member
bank, the Bank is subject to the examination, supervision,
reporting and enforcement jurisdiction of the Department, as the
chartering authority for Indiana banks, and the Federal Reserve
Board, as the primary federal bank regulatory agency for state-
chartered, member banks. The Bank's deposit accounts are insured
by the Bank Insurance Fund ("BIF") of the FDIC, which has
supervision, reporting and enforcement jurisdiction over BIF
insured banks. These agencies, and federal and state law,
extensively regulate various aspects of the banking business
including, among other things:
> permissible types and amounts of loans
> investments and other activities
> capital adequacy
> branching
> interest rates on loans and on deposits
> the maintenance of non-interest bearing reserves on
deposit accounts
> the safety and soundness of banking practices
Federal law and regulations, including provisions added
by the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") and regulations promulgated thereunder, establish
supervisory standards applicable to the lending activities of the
Bank, including internal controls, credit underwriting, loan
documentation and loan-to-value ratios for loans secured by real
property.
The Bank is subject to certain federal and state
statutory and regulatory restrictions on any extensions of credit
to the Company or its subsidiaries, on investments in the stock
or other securities of the Company or its subsidiaries, and on
the acceptance of the stock or other securities of the Company or
its subsidiaries as collateral for loans to any person. Certain
limitations and reporting requirements are also placed on
extensions of credit by the Bank to its directors and officers,
to directors and officers of the Company and its subsidiaries, to
principal shareholders of the Company, and to "related interests"
of such directors, officers and principal shareholders. In
addition, such legislation and regulations may affect the terms
upon which any person becoming a director or officer of the
Company or one of its subsidiaries or a principal shareholder of
the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
The FDIC, the Office of Thrift Supervision, the Federal
Reserve Board and the Office of the Comptroller of the Currency
have published guidelines implementing the FDICIA requirement
that the federal banking agencies establish operational and
managerial standards to promote the safety and soundness of
federally insured depository institutions. The guidelines
establish standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines prescribe the goals to be
achieved in each area, and each institution will be responsible
for establishing its own procedures to achieve those goals. If
an institution fails to comply with any of the standards set
forth in the guidelines, the institution's primary federal bank
regulator may require the institution to submit a plan for
achieving and maintaining compliance. The preamble to the
guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or
more of the standards is of such severity that it could threaten
the safe and sound operation of the institution. Failure to
submit an acceptable compliance plan, or failure to adhere to a
compliance plan that has been accepted by the appropriate
regulator, would constitute grounds for further enforcement
action. Effective October 1, 1996, the agencies expanded the
guidelines to establish asset quality and earnings standards. As
before, the expanded guidelines make each depository institution
responsible for establishing its own procedures to meet such
goals.
The Bank's business will include making a variety of
types of loans to individuals. In making these loans, the Bank
will be subject to state usury and regulatory laws and to various
federal statutes, such as the Equal Credit Opportunity Act, the
Fair Credit Reporting Act, the Truth in Lending Act, the Real
Estate Settlement Procedures Act and the Home Mortgage Disclosure
Act, and the regulations promulgated thereunder, which prohibit
discrimination, specify disclosures to be made to borrowers
regarding credit and settlement costs and regulate the mortgage
loan servicing activities of the Bank, including the maintenance
and operation of escrow accounts and the transfer of mortgage
loan servicing. The Riegle Act imposed new escrow requirements
on depository and non-depository mortgage lenders and servicers
under the National Flood Insurance Program. In receiving
deposits, the Bank will be subject to extensive regulation under
state and federal law and regulations, including the Truth in
Savings Act, the Expedited Funds Availability Act, the Bank
Secrecy Act, the Electronic Funds Transfer Act, and the Federal
Deposit Insurance Act. Violation of these laws could result in
the imposition of significant damages and fines upon the Bank,
its directors and officers.
Under the Community Reinvestment Act (the "CRA") and
the implementing regulations, the Bank will have a continuing and
affirmative obligation to help meet the credit needs of its local
community, including low and moderate-income neighborhoods,
consistent with the safe and sound operation of the institution.
The CRA requires the board of directors of financial
institutions, such as the Bank, to adopt a CRA statement for each
assessment area that, among other things, describes its efforts
to help meet community credit needs and the specific types of
credit that the institution is willing to extend. The Bank's
service area initially was designated as Wayne Township in Allen
County, Indiana. The Bank's office will be located in Allen
County. The Bank's board of directors is required to review the
appropriateness of this delineation at least annually.
COMPETITION
All phases of the business of the Bank are highly
competitive. The Bank competes with numerous financial
institutions, including other commercial banks in Allen County,
Indiana, including the City of Fort Wayne. The Bank, along with
other commercial banks, competes with respect to its lending
activities, and competes in attracting demand deposits. The Bank
faces competition from thrift institutions, credit unions and
other banks as well as finance companies, insurance companies,
mortgage companies, securities brokerage firms, money market
funds, trust companies and other providers of financial services.
Most of the Bank's competitors have been in business a number of
years, have established customer bases, are larger and have
larger lending limits than the Bank. The Bank competes for loans
principally through its ability to communicate effectively with
its customers and understand and meet their needs. Management
believes that its personal service philosophy enhances its
ability to compete favorably in attracting individuals and small
to medium-sized businesses, and also will offer personal
attention, professional service, off-site ATM capability and
competitive interest rates.
EMPLOYEES
As of December 31, 1998, the Company had six full time
employees. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that its
relationship with its employees is satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company is leasing the ground floor of the Lincoln
Tower, a landmark building located at 116 East Berry Street in
downtown Fort Wayne, Indiana, for use as the Bank's main office
and the Company's headquarters. The headquarters facility
consists of drive-through banking windows and approximately
13,900 square feet of usable office space. The lease has an
initial term of 10 years, with one renewal option for an
additional 10 years. The Bank believes that this space is
adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS.
The Bank may be involved from time to time in various
routine legal proceedings incidental to its business. Neither
the Company nor the 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 the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
By written consent dated November 11, 1998, the
Company's sole shareholder approved the Company's Restated
Articles of Incorporation, which contain provisions associated
with the Company's initial public offering. The Company's sole
shareholder also approved the 1998 Stock Option and Incentive
Plan of the Company by written consent dated December 14, 1998.
The Restated Articles of Incorporation and the 1998 Stock Option
and Incentive Plan are incorporated by reference as Exhibits 3.1
and 10.3, respectively, in this Annual Report on Form 10-KSB.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
GENERAL
The Company's common stock is traded on the OTC
Bulletin Board section of the Nasdaq Stock Market ("NASDAQ"),
under the symbol TOFC. Prior to the Company's initial public
offering on January 29, 1999, there was no public market for the
common stock. As of March 10, 1999, there were 126 holders of
record of the common stock.
DIVIDENDS
The Company initially expects that its earnings and
those of the Bank, if any, will be retained to finance the growth
and operations of the Company and the Bank. The Company does not
anticipate paying any cash dividends on the common stock in the
foreseeable future. If and when the Bank becomes profitable,
recovers its accumulated deficit and adequately reserves for
losses, the Company may consider payment of dividends. However,
the declaration of dividends is at the discretion of the board of
directors, and there is no assurance that dividends will be
declared at any time. If and when dividends are declared, the
Company will be largely dependent upon dividends received from
the Bank for funds to pay dividends on the common stock.
As a banking organization organized under Indiana law,
the Bank will be restricted as to the maximum amount of dividends
it may pay to the Company. Indiana law prohibits the Bank from
declaring or paying dividends which would impair the Bank's
capital or would be greater than its undivided profits. In
addition, the prior approval of the Department is required for
the payment of any dividend if the aggregate amount of all
dividends paid by the Bank during a calendar year, including the
proposed dividend, would exceed the sum of the retained net
income of the Bank for the year to date and previous two years.
The Department, the Federal Reserve Board and the FDIC are also
authorized to prohibit the payment of dividends by the Bank under
certain circumstances.
The Company is organized under the Indiana Business
Corporation Law, which prohibits the payment of a dividend if,
after giving it effect, the Company would not be able to pay its
debts as they become due in the usual course of business or the
Company's total assets would be less than the sum of its total
liabilities plus (unless the Articles of Incorporation of the
Company permit otherwise) the amount that would be needed, if the
Company were to be dissolved, to satisfy the preferential rights
upon dissolution of preferred shareholders. In addition, the
Federal Reserve Board may impose restrictions on dividends paid
by the Company.
SALES OF UNREGISTERED SECURITIES
The following information is furnished as to securities
of the Company sold during 1998 that were not registered under
the Securities Act of 1933, as amended:
a. The Company sold one share of its
common stock to Donald F. Schenkel, Chairman
of the Board, President and Chief Executive
Officer and a director of the Company for
$10, on December 14, 1998.
b. During the period from its inception
until December 31, 1998, the Company borrowed
$760,000 from current and former members of
the Company's board of directors to pay
organizational and related expenses.
To the extent that these transactions would be deemed to involve
the offer or sale of a security, the Company would claim an
exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof, for such transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
PLAN OF OPERATION
Tower Financial Corporation was incorporated as a bank
holding company to establish and own Tower Bank & Trust Company.
The Bank began operations on February 19, 1999, with 15
employees. Based on the pre-opening growth projection and gross
levels achieved during the first several days of operations,
management believes that the Bank is likely to have adequate
funds to meet its capital requirements for at least 12 months.
The Company expended approximately $96,000 for leasehold
improvements and related architectural and engineering services,
and approximately $405,000 for furniture, fixtures, equipment and
other necessary assets, prior to the Bank's commencing
operations. During the first 12 months of operations, the
Company does not anticipate requiring substantial additional
equipment or building additional facilities. Management expects
to hire approximately 13 employees, in addition to the 15
employees at the time the Bank opened, during the first 12 months
of operations.
As of December 31, 1998, the Company had a deficit
accumulated during the development stage of $473,434. This
deficit resulted primarily from costs related to organizing the
Bank. Management believes that the Company will generate a net
loss for 1999 as a result of expenditures made to build its
management team and operating costs related to the Bank once it
commences operations. In addition, significant loan loss
reserves will also contribute to this deficit during 1999 due to
the projected rapid increase in the Bank's loan portfolio.
Management believes that the expenditures made in 1998 and 1999
will create the infrastructure and lay the foundation for growth
in subsequent years.
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report filed on
Form 10-KSB 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 the Company
or the Bank. There can be no assurance that future developments
affecting the Company or the 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:
>the Company's status as a start-up company with no operating
history;
>the Company's expectation of significant losses for at least
the first two years of operations;
>the effect of extensive banking regulation on the Bank's
ability to grow and compete;
>the effect of changes in federal economic and monetary
policies on the Bank's ability to attract deposits,
make loans and achieve satisfactory interest spreads;
>the competitive disadvantage resulting from the Company's
status as a highly-regulated, start-up company;
>the Company's dependence on key management personnel;
>the increased risk of defaults by borrowers caused by the
Bank's commercial loan concentration;
>the Company's dependence on a favorable local economy in
the Bank's primary service area;
>the Bank's dependence on net interest spread for
profitability; and
>the Bank's ability to implement developments in technology
to be competitive.
YEAR 2000 READINESS
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.
THE COMPANY'S STATE OF READINESS. The Company is in
the process of assessing the impact of the arrival of the year
2000 on its computerized information systems and other electronic
equipment. The Company's main data processing vendor has
represented to the Company that it will be Year 2000 ready or
compliant by June 30, 1999, and has provided updates on its
progress to the Company. In addition, the Company 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 the
Company plans to assess include security systems, HVAC systems
and local utility services. The Company has appointed one of its
senior officers to oversee the Year 2000 process and to inform
the board of directors on a regular basis of the progress being
made. The Company intends to complete this assessment by June
30, 1999.
The Bank requires general assurances from commercial
borrowers as to their Year 2000 readiness as part of the loan
application and review process. Additionally, the 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 the Bank's Year 2000 readiness
efforts; (3) questionnaires to be completed by all material loan
clients to make them aware 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, the Company
does not expect to incur large operating expenses to modify its
systems to be Year 2000 ready. Costs to the Company 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 the Company, its vendors or its customers to
successfully address Year 2000 issues could interfere with its
ability to operate its business and could have an adverse effect
on its financial condition and results of operation. The
Company intends to develop a contingency plan to address Year
2000 problems that may occur after December 31, 1999, and expects
to develop the plan prior to September 30, 1999.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
At December 31, 1998
ASSETS
Cash $5,704
Interest bearing deposits in bank 208,216
Total cash and cash equivalents 213,920
Equipment, at cost 57,696
Deferred offering costs 124,960
Total assets $396,576
LIABILITIES AND STOCKHOLDER'S DEFICIT
Liabilities:
Accounts payable and accrued expenses 90,000
Accounts payable and accrued expenses - related parties 20,000
Related party notes payable 760,000
Total liabilities 870,000
Commitments and contingencies
Stockholder's 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 authorized;
1 share issued and outstanding 10
Additional paid-in capital
Deficit accumulated during the development stage (473,434)
Total stockholder's deficit (473,424)
Total liabilities and stockholder's deficit $396,576
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the period from July 8, 1998 (date of inception) to December
31, 1998
Operating expenses:
Salaries and benefits expense $261,188
Professional fees 127,066
Other expenses 85,180
Total operating expenses 473,434
Net loss $(473,434)
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
For the period from July 8, 1998 (date of inception) to December
31, 1998
<TABLE>
<CAPTION>
PREFERRED COMMON ADDITIONAL DEFICIT TOTAL
STOCK STOCK PAID IN ACCUMULATED
CAPITAL DURING THE
DEVELOPMENT
STAGE
<S> <C> <C> <C> <C> <C>
Balance at inception $ $ $ $ $
(July 8, 1998)
Issuance of common 10 10
stock
Net loss (473,434) (473,434)
Balance, December 31, $ $10 $ $(473,434) $(473,424)
1998
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the period from July 8, 1998 (date of inception) to December
31, 1998
Cash flows from operating activities
Net loss $(473,434)
Adjustments to reconcile net loss to net cash
used in operating activities:
Increase in accounts payable and accrued expenses 110,000
Net cash used in operating activities (363,434)
Cash flows from investing activities
Equipment expenditures (57,696)
Net cash used in investing activities (57,696)
Cash flows from financing activities
Proceeds from related party notes payable 760,000
Proceeds from issuance of common stock 10
Deferred offering costs (124,960)
Net cash provided from financing activities 635,050
Net increase in cash and cash equivalents 213,920
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period $213,920
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
TOWER FINANCIAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. ORGANIZATION: Tower Financial Corporation ("Tower
Financial") was incorporated on July 8, 1998.
Tower Financial's activities through December 31,
1998 have been limited to the organization of
Tower Bank & Trust Company ("Tower Bank"), as well
as preparation for a common stock offering
initially estimated to be $20,000,000 (the
"offering"). A substantial portion of the
proceeds of the offering will be used by Tower
Financial to provide initial capitalization of
Tower Bank. Subsequent to December 31, 1998, the
start-up of Tower Bank was approved by various
banking regulatory authorities, the offering was
completed and Tower Bank commenced operations.
See Note 5.
B. NATURE OF BUSINESS: Tower Bank intends to offer a
full range of commercial and consumer banking
services primarily within Allen County, Indiana.
C. USE OF ESTIMATES: The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the amounts
reported in the financial statements and
accompanying notes. Actual results could differ
from those estimates.
D. CASH AND CASH EQUIVALENTS: Tower Financial
considers all highly liquid investment
instruments, including investments with maturities
of three months or less at acquisition, to be cash
equivalents. At December 31, 1998 cash
equivalents consisted of certificates of deposit
aggregating $200,000.
E. DEFERRED OFFERING COSTS: Deferred offering costs
consist of professional fees incurred in
connection with the registration of Tower
Financial's common stock. These costs will be
charged against the stock proceeds or, if the
offering is not successful, charged to operations
at that time.
F. INCOME TAXES: Tower Financial utilizes the
liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference
between the financial statement and tax bases of
assets and liabilities using enacted tax rates in
effect for the year in which the differences are
expected to reverse.
2. NOTES PAYABLE RELATED PARTIES:
Non-interest bearing notes payable in the amount of
$760,000 are outstanding to current and former members
of the Board of Directors of Tower Financial. The
notes are to be paid with proceeds received from the
offering and are to be repaid on or before March 31,
1999.
3. LEASE COMMITMENT:
Tower Financial has a lease commitment with a related
party company owned by a former director for space to
be used as Tower Financial's main office effective
January 1, 1999. The lease term is for ten years at
rents ranging from approximately $11,300 to $17,100 per
month with an option to extend for one successive ten
year period. Tower Financial incurred rent expense of
approximately $5,900 to this related party for
temporary space through December 31, 1998.
Future minimum commitments for the following calendar
years are approximately:
1999 $ 135,400
2000 135,400
2001 152,800
2002 152,800
2003 170,200
Total $ 746,600
4. INCOME TAXES:
At December 31, 1998 Tower Financial had net operating
loss carryforwards of approximately $473,000. No
deferred tax asset is recorded, as a valuation
allowance reduces the gross deferred tax asset of
approximately $189,000 to zero.
5. COMMON STOCK OFFERING:
Tower Financial completed a successful common stock
offering of 2,200,000 shares at $10.00 per share on
January 29, 1999. On February 19, 1999, the Company
completed the sale of 330,000 of over-allotment common
shares also at $10.00 per share. The total proceeds
from the sale of common stock was $25,300,000 less
offering expenses of $1,831,250 for net proceeds of
$23,468,750.
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 non-
employee directors. The maximum number of shares which
may be issued under the Plan shall 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.
Subsequent to December 31, 1998, 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.
7. OTHER:
Certain members of Tower Financial's management are
entitled to incentive bonuses aggregating $35,000 upon
commencement of Tower Bank's business operations.
Tower Financial has entered into a five year contract
with a data processing company to outsource Tower
Financial's data processing effective February 1, 1999.
The contract contains automatic renewal options and
fees are primarily based on the volume of transactions
subject to certain minimum monthly amounts.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tower Financial Corporation:
In our opinion, the accompanying balance sheet and the related
statements of operations, of changes in stockholder's deficit and
of cash flows present fairly, in all material respects, the
financial position of Tower Financial Corporation (a development
stage company) at December 31, 1998, and the results of its
operations and its cash flows for the period from July 8, 1998
(date of inception) to December 31, 1998, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management,
our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers
Fort Wayne, Indiana
March 29, 1999
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.
The directors and executive officers of the
Company and their positions with the Bank, are as follows:
<TABLE>
<CAPTION>
POSITION(S) POSITION(S)
Name Age WITH with the Bank
the Company
<S> <C> <C> <C>
Curtis A. Brown 44 Chief Lending Officer Chief Operating Officer
and Chief Lending
Officer
Keith E. Busse 55 Director Director
Peter T. Eshelman 45 Director Director
Michael S. Gouloff 51 Director Director
Craig S. Hartman 44 Director Director
Kevin J. Himmelhaver 43 Chief Financial Officer Chief Financial Officer
and Secretary and Secretary
Michael Mirro, M.D. 50 Director Director
Debra A. Niezer 44 Director Director
William G. Niezer 49 Director Director
Maurice D. O'Daniel 67 Director Director
Leonard Rifkin 67 Director Director
Joseph D. Ruffolo 57 Director Director
Donald F. Schenkel 57 Chairman of the Board, Chairman of the Board,
President, Chief President, Chief
Executive Officer and Executive Officer and
Director Director
Larry L. Smith 51 Director Director
J. Richard Tomkinson 52 Director Director
Irene A. Walters 56 Director Director
</TABLE>
CURTIS A. BROWN is the Chief Lending Officer of the
Company and the Chief Operating Officer and Chief Lending Officer
of the Bank, positions he has held since October 1998. He is a
native of Fort Wayne and has over 21 years of experience in the
banking industry. From 1993 until 1998, Mr. Brown managed
corporate banking groups for NBD Bank Indiana in Fort Wayne, most
recently holding the positions of First Vice President and Group
Head. Mr. Brown is involved in United Way of Allen County, a
board member of Anthony Wayne Services, Inc., and a member of the
Workforce Development Council of the Greater Fort Wayne Chamber
of Commerce.
KEITH E. BUSSE is a director of the Company and the
Bank. Since September 1993, Mr. Busse has served as Chief
Executive Officer of Steel Dynamics, Inc., a primary steel-making
company headquartered in Butler, Indiana, and formed by Mr. Busse
and others in 1993. Steel Dynamics, Inc., is a publicly-held
company and a significant supplier of flat-rolled steel in the
upper Midwest. In 1997, Mr. Busse and Steel Dynamics were
listed in BUSINESS WEEK as being among the country's top 10
"entrepreneurs" and entrepreneurial corporations, and Mr. Busse
was named the regional winner of the Indiana Ernst & Young
Emerging Entrepreneur of the Year award. Mr. Busse is also a
director of Steel Dynamics, Inc., and Qualitech Steel
Corporation. Mr. Busse is involved in area civic and charitable
organizations, including Junior Achievement, the Leukemia Society
of America and local Little League and Senior League Baseball.
He is also a board member of Bridgewater Development Company,
Fort Wayne Fury and Fort Wayne Kustom.
PETER T. ESHELMAN is a director of the Company and the
Bank. Mr. Eshelman is President and Chief Executive Officer of
American Specialty Companies, Inc., a sports and entertainment
risk management company based in Roanoke, Indiana, of which he is
the majority shareholder. He has held these positions since
1989. Mr. Eshelman is also a founding trustee of American
Specialty Foundation, a charitable foundation for educational
development of youth through sports, the Chairman of the Roanoke,
Indiana, Chamber of Commerce Beautification Committee, and serves
as an appointee of Governor O'Bannon on the State of Indiana
Regulated Amusement and Safety Device Board.
MICHAEL S. GOULOFF is a director of the Company and the
Bank. Mr. Gouloff has served as President of Schenkel Schultz
Architects, a national architectural firm known for the design of
educational and correctional facilities, since 1985 and has been
employed by the firm since 1973. He is currently a registered
architect in 18 states. A Fort Wayne native, Mr. Gouloff is an
active member of the community, currently serving on the boards
of Canterbury School, Fort Wayne Country Club, Fort Wayne Airport
Authority and Parkview Hospital. Mr. Gouloff is a current
Commissioner for the Hoosier Lottery and a past Commissioner for
the Indiana State Office Building Commission.
CRAIG S. HARTMAN is a director of the Company and the
Bank. Mr. Hartman is Chairman and Chief Executive Officer of
Preferred, Inc., a commercial and industrial painting, roofing
and flooring company. Mr. Hartman founded Preferred, Inc., in
1973 at the age of 18 and has served as its Chief Executive
Officer since that time. He also serves as Chief Executive
Officer of Preferred Environmental Services, Inc., an asbestos
and lead abatement company founded in January 1991. Mr. Hartman
currently is a member of the Fort Wayne Junior Achievement Board
of Directors, the boards of the Indiana Chamber of Commerce and
the Greater Fort Wayne Chamber of Commerce Foundation and a
member of the Indiana Chapter of the Young President's
Organization. Mr. Hartman is a native of Fort Wayne and has been
involved in numerous other community organizations. He has been
recognized in the Fort Wayne community and the state as an
entrepreneur and small business person and was a delegate to The
White House Conference on Small Business in 1995.
KEVIN J. HIMMELHAVER is the Chief Financial Officer and
Secretary of the Company and the Bank, positions he has held
since October 1998 and November 1998, respectively. Mr.
Himmelhaver has nearly 20 years of banking experience in the Fort
Wayne area. From 1993 to 1998, Mr. Himmelhaver worked for
Norwest Bank Indiana, N.A. and Norwest Bank Ohio, N.A. as Senior
Vice President and Chief Financial Officer. His responsibilities
included managing regional finance, properties and various
operations groups, as well as strategic planning, acquisitions
and asset and liability management. Mr. Himmelhaver also served
as a director of Norwest Bank Indiana, N.A. and Norwest Bank
Ohio, N.A. A native of Fort Wayne, Indiana, Mr. Himmelhaver is a
board member of the Summit Club, a director and the Treasurer of
Fort Wayne Aquatics, Inc., and a director of Leadership Fort
Wayne.
MICHAEL MIRRO, M.D., is a director of the Company and
the Bank. Dr. Mirro has been a partner of Fort Wayne Cardiology
since 1982 and has previously served on the group's governing
board. In 1998, Fort Wayne Cardiology merged with a multi-
specialty internal medicine group to form Indiana Medical
Associates, LLC. Dr. Mirro served as founding board chairman
during the merger. Indiana Medical Associates, LLC, is a group
of 46 physicians providing health services to the entire
Northeast Indiana Region. Dr. Mirro is a Fellow of the American
College of Physicians, American College of Cardiology and
American College of Chest Physicians. Recently, he served as
President of the Fort Wayne/Allen County Medical Society. Dr.
Mirro is a past member of the Indiana Medical Licensing Board.
Dr. Mirro's civic interests include serving as the Chairman of
the Greater Fort Wayne Chamber of Commerce and as the past
Chairman of the Economic Development Council for that
organization.
DEBRA A. NIEZER is a director of the Company and the
Bank. Ms. Niezer is the Vice President and Assistant Treasurer
of AALCO Distributing Company, a beer distributor in Fort Wayne.
She has held these positions since April 1995. From January 1989
to March 1995, Ms. Niezer served as Vice President and Employee
Benefits Officer for NBD Bank Indiana in Fort Wayne. A native of
Fort Wayne, Ms. Niezer is the past President of the Gamma Lambda
Chapter of Kappa Kappa Kappa and is the Co-Chair of Bishop
Dwenger High School Saints Alive! for 1999.
WILLIAM G. NIEZER is a director of the Company and the
Bank. Mr. Niezer is the President and Chief Executive Officer of
Acordia of Indiana, Inc., an insurance broker, positions he has
held since September 1997. Mr. Niezer previously served as
President and Chief Executive Officer of Acordia of Northeast
Indiana, Inc., an insurance broker and third-party administrator,
from February 1995 to September 1997 and the Director of Property
& Casualty Operations of Acordia of Northeast Indiana, Inc., from
October 1994 to February 1995. Prior to that time, Mr. Niezer
was the President of O'Rourke, Andrews & Maroney, Inc., a
regional insurance broker, from May 1988 to October 1994. Mr.
Niezer is the President of the Board of Trustees of the
University of St. Francis, a member of the Allen County Plan
Commission, and a board member of St. Joseph Community Health
Foundation. Mr. Niezer is a native of Fort Wayne.
MAURICE D. O'DANIEL is a director of the Company and
the Bank. Mr. O'Daniel is the Chairman and Chief Executive
Officer of O'Daniel Automotive, Inc., an automobile dealership
with four locations in the Fort Wayne area. Mr. O'Daniel has
served in these positions since July 1979. From 1975 to 1977,
Mr. O'Daniel served on the board and loan committee of First
Federal Savings & Loan Corporation in Evansville, Indiana, and in
1995 and 1996, he was Chairman of the Board of Northern Indiana
Trust Corporation in Fort Wayne. He currently serves as a
director of St. Joseph Community Health Foundation and is
Chairman of the Junior Achievement Foundation and a member of the
Greater Fort Wayne Chamber of Commerce Economic Development
Council.
LEONARD RIFKIN is a director of the Company and the
Bank. Mr. Rifkin served as the Chief Executive Officer and
President of OmniSource, Inc., from 1970 until 1996, when he was
appointed Chairman and Chief Executive Officer, positions he
currently holds. OmniSource is a scrap metal processing, trading
and brokerage company that specializes in scrap management
programs throughout the United States and Canada. Mr. Rifkin is
also a director of Steel Dynamics, Inc., and Qualitech Steel
Corporation. His civic involvement includes the Greater Fort
Wayne Chamber of Commerce and the Fort Wayne Philharmonic.
JOSEPH D. RUFFOLO is a director of the Company and the
Bank. Since 1993, Mr. Ruffolo has been a member of Ruffolo
Richard, LLC, a business investment firm located in Fort Wayne.
Ruffolo Richard, LLC, specializes in management buy-outs, capital
sourcing and acquisitions. From 1988 to 1993, Mr. Ruffolo served
as Chief Executive Officer and President of North American Van
Lines, a moving company. Mr. Ruffolo has resided in Fort Wayne
since 1974, is a director of Parkview Health System, Inc., and is
active with the Fort Wayne Museum of Art and the Greater Fort
Wayne Chamber of Commerce.
DONALD F. SCHENKEL is the President and Chief Executive
Officer and a director of the Company and of the Bank, positions
he has held since July 1998, and was elected the Chairman of the
Board of the Company and the Bank in October 1998. Mr. Schenkel
is a native of Fort Wayne and has nearly 30 years of experience
in the banking industry. Most recently, Mr. Schenkel served as
First Vice President of NBD Bank Indiana. From 1993 to 1998, he
served in the capacities of Division Head of Retail Banking and
Private Banking & Investments for NBD Bank Indiana. From 1990 to
1993, Mr. Schenkel served as Senior Vice President of INB
National Bank, a regional bank that was acquired by NBD Bank,
N.A., in 1993. His positions with INB National Bank included
senior level responsibility for commercial lending, retail
lending and branch administration. Mr. Schenkel serves as
Chairman of the St. Joseph Community Health Foundation and is a
member of the Board of Trustees of the University of St. Francis.
He is also a board member of the Fort Wayne Zoological Society
and Junior Achievement.
LARRY L. SMITH is a director of the Company and the
Bank. Mr. Smith has served since March 1993 as President and
Chief Executive Officer of Q.C. Onics, Inc., an automotive
supplier based in Angola, Indiana. Prior to this time, Mr. Smith
had a twenty-year career with Chrysler Corporation, where he held
numerous management positions in product engineering,
manufacturing and quality control. During his tenure as Chief
Engineer of Vehicle Safety Management with Chrysler Corporation,
he was appointed by the U.S. Secretary of Transportation to the
National Highway Traffic Safety Administration's Research Board
on Highway Safety. Mr. Smith previously served on the board and
the Trust Committee of Summit Bank in Fort Wayne. He has been
active in numerous civic and charitable organizations in the Fort
Wayne area, such as the Greater Fort Wayne Chamber of Commerce,
the Fort Wayne Urban League, Junior Achievement, the Fort Wayne
Philharmonic and the Fort Wayne Corporate Council.
J. RICHARD TOMKINSON is a director of the Company and
the Bank. Mr. Tomkinson is the President and owner of Tomkinson
Automotive Group. He has served in this position since 1979.
Tomkinson Automotive Group operates two Fort Wayne area
automobile dealerships. Mr. Tomkinson also is the President and
co-owner of Lincoln Graphics, Inc., a Fort Wayne graphics design
and reproduction company serving architects and construction
companies in Northeast Indiana, and Vice President and co-owner
of Gallatin Highlands Corporation, a Big Sky, Montana real estate
development company. Mr. Tomkinson has been a member of the
National Auto Dealers Association since 1977.
IRENE A. WALTERS is a director of the Company and the
Bank. Ms. Walters is the Director of University Relations and
Communications at Indiana University-Purdue University Fort
Wayne. Ms. Walters has held this position since 1995. Prior to
that time, from 1990 to 1995, Ms. Walters was the Executive
Director of the Fort Wayne Bicentennial Celebration Council. Ms.
Walters has served in leadership positions in many civic and
charitable projects and has served on numerous boards in the Fort
Wayne area for over twenty-five years. In 1994, she received
Indiana's highest civilian award, the Sagamore of the Wabash, and
in 1995 was named Fort Wayne's Citizen of the Year by the Fort
Wayne Journal-Gazette. She led Fort Wayne's award-winning All-
America City delegation in 1998 and most recently was appointed
Co-Chair of the City of Fort Wayne Millennium Celebration
Commission.
The Company's By-Laws provide that the number of
directors of the Company shall be eighteen. This number is
subject to change from time to time by a vote of 66 2/3 % of the
Board of Directors without shareholder approval. There are four
vacancies on the Board. Directors of the Company are divided
into three classes with staggered three-year terms. The term of
the first class will expire at the annual meeting of shareholders
in 2000, and the terms of the second and third classes will
expire at the annual meetings of shareholders in 2001 and 2002,
respectively. The terms of the Company's directors will expire
as follows:
>2000 - Ms. Niezer and Messrs. Hartman, O'Daniel and Ruffolo;
>2001 - Messrs. Mirro, Niezer, Rifkin and Smith; and
>2002 - Messrs. Busse, Eshelman, Gouloff, Schenkel and
Tomkinson and Ms. Walker.
Mr. Rifkin is the first cousin of Ms. Walters' spouse.
Ms. Niezer is the sister-in-law of Mr. Niezer. There are no
other family relationships among any of the directors or
executive officers of the Company.
COMPENSATION OF DIRECTORS
In the first year of operation, no compensation is
expected to be paid to any directors of the Company or the Bank
for their services in such capacities, except for options to
purchase shares of common stock under the Company's 1998 Stock
Option and Incentive Plan. No such options were granted to
directors in 1998. Depending on the structure and operation of
the Company and the operations of the Bank and other factors, the
Company and the Bank's boards of directors may thereafter
determine that reasonable fees or compensation are appropriate.
In that event, it is likely that directors of the Company and the
Bank would receive compensation, such as meeting fees, which
would be consistent with the compensation paid to directors of
financial institution holding companies and banks of similar
size.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table shows compensation paid to the
Company's Chairman of the Board, President and Chief Executive
Officer for the period from July 8, 1998 (inception) to December
31, 1998. No other executive officer of the Company received
compensation exceeding $100,000 for such period.
ANNUAL COMPENSATION
Other Annual
NAME AND POSITION SALARY BONUS COMPENSATION
Donald F. Schenkel, $66,923 $100,000 $12,571 (1)
Chairman of the Board,
President and Chief
Executive Officer
____________________
(1) Of this amount, $4,256 represents payment of a car
allowance; $1,298 represents payment of health, dental
and disability insurance premiums; $1,792 represents
payment of life insurance premiums; and $5,225
represents payment of club dues.
Mr. Schenkel and the other officers of the Company and
the Bank may participate in the Company's 1998 Stock Option and
Incentive Plan. Officers of the Bank may also participate in any
benefit plans adopted for Bank employees generally. Pending the
establishment of the Company's and the Bank's benefit plans for
employees generally, the Company has purchased life insurance and
disability insurance covering Messrs. Schenkel, Himmelhaver and
Brown. The Bank expects to adopt a 401(k) plan for its
employees.
EMPLOYMENT AGREEMENTS
On December 1, 1998, the Company entered into
employment agreements with Messrs. Schenkel, Himmelhaver and
Brown, each for an initial term of three years with automatic
one-year renewals. Each agreement provides that, if the
executive's employment is terminated by the Company without
cause, the Company will pay to the executive the aggregate amount
of the salary he would be entitled to receive under the agreement
for the balance of the employment term, provided that such
payment will not be less than one year's salary at the then-
effective rate being paid to the executive. The agreements
prohibit the officers from competing with the Company during the
periods of their employment and for an additional 24 months
thereafter (12 months if their employment is terminated by the
Company without cause).
<PAGE>
The agreements provide for initial annual salaries of
$145,000, $105,000 and $115,000 for Messrs. Schenkel, Himmelhaver
and Brown, respectively, each of which may be increased from time
to time by the board of directors. Mr. Schenkel's agreement
provides that he is eligible to qualify for an annual performance
bonus equal to a minimum of 30% (and up to a maximum of 100%) of
his annual salary upon compliance with goals set from time to
time by the board of directors in its sole discretion. Mr.
Himmelhaver's agreement entitles him to (a) a signing bonus of
$20,000, payable no later than January 31, 1999, to compensate
him for accrued benefits forfeited by him upon leaving his
previous employer to accept his positions with the Company and
(b) an incentive bonus payment of $10,000 payable within 30 days
after the Bank commences business. Mr. Brown's agreement
entitles him to an incentive bonus payment of $25,000 payable
within 30 days after the Bank commences business. No bonuses
were paid by the Company to Mr. Himmelhaver or Mr. Brown during
1998.
1998 STOCK OPTION AND INCENTIVE PLAN
On December 14, 1998, the board of directors and the
sole stockholder of the Company adopted, and on January 21, 1999,
the board of directors and the sole stockholder amended, the 1998
Stock Option and Incentive Plan (the "1998 Stock Option Plan").
Under the 1998 Stock Option Plan, the Company may award stock
options and performance shares to employees and directors of the
Company. The aggregate number of shares of common stock that may
be awarded under the 1998 Stock Option Plan is 310,000, subject
to adjustment in certain events. No individual participant may
receive awards for more than 75,000 shares in any calendar year.
The 1998 Stock Option Plan is administered by the
Compensation Committee. Subject to the terms of the 1998 Stock
Option Plan, the Compensation Committee will have the sole
discretion and authority to select those persons to whom awards
will be made, to designate the number of shares to be covered by
each award, to establish vesting schedules, to specify all other
terms of the awards (subject to certain restrictions) and to
interpret the 1998 Stock Option Plan.
With respect to stock options under the 1998 Stock
Option Plan that are intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code, the
option price must be at least 100% (or, in the case of a holder
of more than 10% of the common stock, 110%) of the fair market
value of a share of common stock on the date of the grant of the
stock option. The Compensation Committee will establish, at the
time the options are granted, the exercise price of options that
do not qualify as incentive stock options ("non-qualified stock
options"), which may not be less than 100% of the fair market
value of a share of common stock on the date of grant. No
incentive stock option granted under the 1998 Stock Option Plan
may be exercised more than ten years (or, in the case of a holder
of more than 10% of the common stock, five years) from the date
of grant or such shorter period as the Compensation Committee may
determine at the time of the grant. Non-qualified stock options
may be exercised during such period as the Compensation Committee
determines at the time of grant, which period may not be more
than ten years from the date of grant. Under the 1998 Stock
Option Plan, the Compensation Committee may also make awards of
performance shares, in which case the grantee would be granted
shares of common stock, subject to the Company's satisfaction of
performance goals determined by the Compensation Committee.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
At December 31, 1998, the Company had issued only one
share of common stock. The following table presents information
regarding the beneficial ownership of the Company's common stock
as of March 1, 1999 by (i) each person, if any, who beneficially
owns more than 5% of the outstanding common stock, (ii) each
director of the Company, (iii) each of the Company's executive
officers and (iv) all current directors and executive officers of
the Company as a group.
Name and Address Number of Shares Percent
Beneficially Owned of Class(2)
(1)(3)
Curtis A. Brown 7,500 *
7626 Lissa Court
Fort Wayne, Indiana 46804
Keith E. Busse 20,000 *
4500 County Road 59
Butler, Indiana 46721
Peter T. Eshelman 10,000 *
142 North Main Street
Roanoke, Indiana 46783
Michael S. Gouloff 10,000 *
111 East Wayne Street
Fort Wayne, Indiana 46802
Craig S. Hartman (4) 57,500 2.27%
4031 Transportation Drive
Fort Wayne, Indiana 46818
Kevin J. Himmelhaver 3,000 *
9119 Bradenton Road
Fort Wayne, Indiana 46835
Michael Mirro, M.D. 13,000 *
1819 Carew Street
Fort Wayne, Indiana 46805
Debra A. Niezer 2,000 *
12515 Chapelwood Place
Fort Wayne, Indiana 46845
William G. Niezer 10,000 *
1721 Magnavox Way
Fort Wayne, Indiana 46801
Maurice D. O'Daniel 20,000 *
5611 Illinois Road
Fort Wayne, Indiana 46801
Leonard Rifkin 30,000 1.19%
1610 North Calhoun Street
Fort Wayne, Indiana 46802
Joseph D. Ruffolo (5) 13,600 *
200 East Main Street
Fort Wayne, Indiana 46802
Donald F. Schenkel 15,200 *
10710 Country Wood Trail
Fort Wayne, Indiana 46845
Larry L. Smith 5,000 *
1410 Wohlert Street
Angola, Indiana 46703
J. Richard Tomkinson 10,400 *
4140 Coldwater Road
Fort Wayne, Indiana 46825
Irene A. Walters 10,000 *
2101 East Coliseum Boulevard
Fort Wayne, Indiana 46805
Directors and executive officers of 237,200 9.37%
the Company as a group (16 persons)
_______________
*Less than one percent.
(1) Some or all of the common stock listed may be held
jointly with, or for the benefit of, spouses and
children of, or various trusts established by, the
person indicated.
(2) The percentages shown are based on the 2,530,000 shares
outstanding plus for each person or group the number of
shares that person or group has the right to acquire
within 60 days pursuant to options granted under the
1998 Stock Option Plan.
(3) Does not include options to purchase shares that have
been issued under the 1998 Stock Option Plan but are
not exercisable within 60 days.
(4) The number of shares shown for Mr. Hartman includes
7,500 shares that he has the option to acquire
effective as of January 29, 1999 (the completion of the
initial public offering) under a stock option granted
to him on January 4, 1999 under the Stock Option Plan.
(5) The number of shares shown for Mr. Ruffolo includes
2,500 shares that he has the option to acquire
effective as of January 29, 1999 (the completion of the
initial public offering) under a stock option granted
to him on January 4, 1999 under the Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since its inception, the Company has engaged in
transactions with entities controlled by its directors and their
affiliates. Management believes that each of these transactions
was on terms no less favorable to the Company than those that
could be obtained from an unaffiliated third party. The Company
anticipates that it will continue to engage in certain of these
transactions if economically advantageous to the Company. Future
related party transactions will be subject to the review and
approval of the Company's Audit Committee, which is composed
exclusively of outside directors, and such transactions will be
on terms no less favorable to the Company than those that could
be obtained from an unaffiliated third party.
LOANS FROM DIRECTORS
During 1998, each of the current directors of the
Company, as well as former directors, made a loan to the Company
to fund start-up expenses. These loans totaled $760,000 at
December 31, 1998. Each loan was evidenced by a promissory note
payable to the director, which was non-interest bearing and due
on or before March 31, 1999. The Company repaid the notes
promptly following the completion of its initial public offering
on January 29, 1999.
LEASE OF HEADQUARTERS BUILDING
The Company leases its headquarters facility, which
contains the only location of the Bank, from Tippmann Properties,
Inc., agent for a former director. The lease is a ten-year lease
commencing on January 1, 1999, with annual rental payments of
$9.75 per square foot for the first two years of the lease and
fixed increases at the rate of $1.25 per square foot every two
years thereafter, ending at $14.75 per square foot for the last
two years of the lease. The lease provides for one renewal of
ten years at then prevailing market rates. The Company believes
that this lease is on terms at least as favorable as could be
obtained from an unaffiliated third party. The Company paid
Tippmann Properties, Inc., $5,900 under an interim lease for
temporary office space during fiscal year 1998.
CONSULTING SERVICES
Director Joseph Ruffolo and one of his affiliates
provided consulting services to the Company during fiscal year
1998 relating to the establishment of the Company and the Bank.
Those services included market analysis, director sourcing, and
the development and generation of information disclosed in the
applications to the federal and state banking regulatory
authorities. As compensation for these services, on January 4,
1999, the Company granted Mr. Ruffolo options to purchase 2,500
shares of common stock at an exercise price equal to the initial
offering price of the Company's common stock, which was $10. The
options became exercisable upon the closing of the offering and
expire ten years from the date of grant.
Director Craig Hartman provided services to the Company
to assist in its formation. These services included the
identification of potential investors and directors and
consulting services with respect to the viability of establishing
a locally-owned bank and with respect to the identity of
professional advisors to the Company, including the engagement of
the managing underwriters of its initial public offering. As
compensation for these services, on January 4, 1999, the Company
granted Mr. Hartman options to purchase 7,500 shares of common
stock at an exercise price equal to the initial offering price of
the Company's common stock, which was $10. The options became
exercisable upon the closing of the offering and expire ten years
from the date of grant.
INSURANCE
The Company has obtained key man life, director and
officer liability, property, liability, automobile and worker's
compensation insurance through Acordia of Indiana, Inc., an
insurance broker whose President and Chief Executive Officer is
director William Niezer. The Company paid a commission to
Acordia of Indiana, Inc., of $1,390, in 1998.
OTHER
During fiscal year 1998, the Company agreed to pay
approximately $6,250 to GKG Designs, an interior design firm
owned by Gretchen Gouloff, spouse of director Michael Gouloff,
for interior design services. Additionally, the Company leased a
car from O'Daniel Automotive, Inc., a car dealership owned by
director Maurice O'Daniel, for two years with a lease payment of
$605 per month and paid $4,256 on the car lease during fiscal
year 1998. The Company also purchased a computer from Preferred,
Inc., an affiliate of director Craig Hartman, for $1,600. The
purchase price was determined by the parties based on the
estimated value of the computer.
BANKING TRANSACTIONS
The Company anticipates that the directors and officers
of the Company and the Bank and the companies with which they are
associated will have banking and other transactions with the
Company and the Bank in the ordinary course of business. Any
loans and commitments to lend to such affiliated persons or
entities will be made in accordance with all applicable laws and
regulations and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated parties of similar
creditworthiness, and will not involve more than normal risk or
present other unfavorable features to the Company and the Bank.
Transactions between the Company or the Bank, on one hand, and
any officer, director, principal shareholder, or other affiliate
of the Company or the Bank, on the other hand, will be on terms
no less favorable to the Company or the Bank than could be
obtained on an arm's-length basis from unaffiliated third
parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
A list of exhibits required to be filed as part of
this report is set forth in the Index to Exhibits
appearing on page S-3, which immediately precedes
such exhibits, and is incorporated herein by
reference.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter
ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TOWER FINANCIAL CORPORATION
BY: /S/ DONALD F. SCHENKEL
Dated: March 31, 1999 DONALD F. SCHENKEL
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/S/ DONALD F. SCHENKEL Chairman of the Board, March 31, 1999
Donald F. Schenkel President, Chief Executive
Officer and Director
(Principal Executive Officer)
/S/ KEVIN J. HIMMELHAVER Chief Financial Officer March 31, 1999
Kevin J. Himmelhaver (Principal Financial Officer
and Principal Accounting
Officer)
/S/ KEITH E. BUSSE Director March 31, 1999
Keith E. Busse
/S/ PETER T. ESHELMAN Director March 31, 1999
Peter T. Eshelman
/S/ MICHAEL S. GOULOFF Director March 31, 1999
Michael S. Gouloff
/S/ CRAIG S. HARTMAN Director March 31, 1999
Craig S. Hartman
/S/ MICHAEL MIRRO, M.D. Director March 31, 1999
Michael Mirro, M.D.
/S/ DEBRA A. NIEZER Director March 31, 1999
Debra A. Niezer
/S/ WILLIAM G. NIEZER Director March 31, 1999
William G. Niezer
Director
Maurice D. O'Daniel
Director
Leonard Rifkin
/S/ JOSEPH D. RUFFOLO Director March 31, 1999
Joseph D. Ruffolo
/S/ LARRY L. SMITH Director March 31, 1999
Larry L. Smith
/S/ J. RICHARD TOMKINSON Director March 31, 1999
J. Richard Tomkinson
/S/ IRENE A. WALTERS Director March 31, 1999
Irene A. Walters
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT Description PAGE NO. IN THIS
No. Filing
<S> <C> <C>
3.1 (1) Restated Articles of Incorporation of the Registrant
3.2 (1) By-laws of the Registrant
10.1 (1) Lease Agreement dated October 6, 1998 between the
Registrant and Tippmann Properties, Inc.
10.2 (1) Electronic Data Processing Services Contract dated
October 1, 1998 between the Registrant and
Rurbanc Data Services, Inc.
10.3* (1) 1998 Stock Option and Incentive Plan
10.4* (1) Employment Agreement dated December 1, 1998 between the
Registrant and Donald F. Schenkel
10.5* (1) Employment Agreement dated December 1, 1998 between the
Registrant and Kevin J. Himmelhaver
10.6* (1) Employment Agreement dated December 1, 1998 between the
Registrant and Curtis A. Brown
21 Subsidiaries of the Company
27 Financial Data Schedule
</TABLE>
_______________
* The indicated exhibit is a management contract,
compensatory plan or arrangement required to be
filed by Item 601 of Regulation S-B.
(1) The copy of this exhibit filed as the same exhibit
number to the Company's Registration Statement on
Form SB-2 (Registration No. 333-67235) is
incorporated herein by reference.
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
SUBSIDIARY STATE OR OTHER JURISDICTION
OF INCORPORATION OR
ORGANIZATION
Tower Bank & Trust Company Indiana
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOWER FINANCIAL CORPORATION AS OF DECEMBER 31,
1998 AND FOR THE PERIOD FROM JULY 8, 1998 (DATE OF INCEPTION) THROUGH
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,704
<INT-BEARING-DEPOSITS> 208,216
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 182,656
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 396,576
<DEPOSITS> 0
<SHORT-TERM> 760,000
<LIABILITIES-OTHER> 110,000
<LONG-TERM> 0
0
0
<COMMON> 10
<OTHER-SE> (473,434)
<TOTAL-LIABILITIES-AND-EQUITY> 396,576
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 473,434
<INCOME-PRETAX> (473,434)
<INCOME-PRE-EXTRAORDINARY> (473,434)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (473,434)
<EPS-PRIMARY> (473,434)
<EPS-DILUTED> (473,434)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
