<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999 Commission File Number 0000887203
TOWNE BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
OHIO 34-1704637
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
16967 BG Road W, Bowling Green, Ohio 43402
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (419) 352-5601
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
periods 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
----- -----
370,761 common shares were outstanding as of June 30, 1999.
This document contains 10 pages.
<PAGE> 2
TOWNE BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.............................................................. 3-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.............................................. 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................. 9
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................... 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 9
ITEM 5. OTHER INFORMATION................................................................. 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 9
SIGNATURES......................................................................................... 10
</TABLE>
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
TOWNE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------- ---------------
ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 635,376 $ 729,471
---------------- ---------------
Total assets $ 635,376 $ 729,471
================ ===============
LIABILITIES, RESCINDABLE COMMON STOCK
AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable and accrued liabilities $ 216,326 $ 109,204
---------------- ---------------
Total liabilities 216,326 109,204
---------------- ---------------
RESCINDABLE COMMON STOCK
Common stock, without par value. Authorized
800,000 shares; issued and outstanding
370,761 shares 4,482,533 4,482,533
---------------- ---------------
STOCKHOLDERS' DEFICIT
Accumulated deficit (4,063,483) (3,862,266)
---------------- -------------
Total stockholders' deficit 419,050 (3,862,266)
---------------- ---------------
Total liabilities, rescindable
common stock and stockholders' deficit $ 635,376 $ 729,471
================ ===============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME FOR THE
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND
1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
1999 1998 1999 1998
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ ---- $ 297,353 ---- 617,534
Investment securities 4,187 27,859 8,422 65,386
Federal funds sold --- 16,240 ---- 65,393
------------- ------------- -------------- ------------
Total interest income 4,187 341,452 8,422 748,313
Interest expense-deposits --- 144,915 ---- 386,756
------------- ------------- -------------- ------------
Net interest income 4,187 196,537 8,422 361,557
Provision for loan losses --- 406,303 ---- 739,610
------------- ------------- -------------- ------------
Net interest income (expense)
after provision for loan losses 4,187 (209,766) 8,422 (378,053)
------------- ------------- -------------- ------------
NON-INTEREST INCOME
Net gain on sale of bank ---- 184,866 ---- 36,740
Service charges on deposit accounts ---- 18,419 ---- 184,866
Other operating income ---- 19,187 ---- 44,009
------------- ------------- -------------- ------------
Total non-interest income ---- 222,472 ---- 265,615
------------- ------------- -------------- ------------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits --- 117,112 ---- 224,013
Occupancy expenses, including
interest on capital lease obligations --- 319,855 ---- 453,150
Other operating expenses 107,606 296,055 209,639 535,337
------------- ------------- -------------- ------------
Total non-interest expenses 107,606 733,022 209,639 1,212,500
------------- ------------- -------------- ------------
Loss before extraordinary item (103,419) (720,316) (201,217) (1,324,938)
Extraordinary item, net of tax ---- 230,646 ---- 230,646
------------- ------------- -------------- ------------
Net loss $ (103,419) $ (489,670) (201,217) (1,094,292)
============= ============= -============= ============
Comprehensive loss $ (103,419) $ (483,833) (201,217) (1,088,455)
============= ============= ============== ============
PER SHARE
Loss before extraordinary item $ (0.28) $ (1.94) (0.54) (3.57)
============= ============ ============= =============
Net loss $ (0.28) $ (1.32) (0.54) (2.95)
============= ============ ============= =============
Comprehensive loss $ (0.28) $ (1.30) (0.54) (2.93)
============= ============ ============= =============
Average common shares outstanding 370,761 370,761 370,761 370,761
============= ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 5
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, 1998
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (201,217) $ (1,094,292)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization --- 75,841
Provision for loan losses --- 739,610
Net gain on sale of bank --- (184,866)
Gain on termination of capital lease obligations --- (230,646)
Accretion of investment securities discounts,
net of premium amortization --- (2,704)
Effects of changes in operating assets and liabilities:
Other assets --- (266,516)
Accounts payable and accrued liabilities 107,122 (255,548)
------------- -------------
Net cash used in operating activities (94,095) (1,219,121)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of bank --- 825,420
Proceeds from maturity of investment securities --- 2,598,422
Net increase in loans receivable --- 12,375,456
Other --- (4,488)
------------- -------------
Net cash used in investing activities --- 15,794,830
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits --- (17,869,056)
------------- -------------
Net decrease in cash and cash equivalents (94,095) (3,293,347)
CASH AND CASH EQUIVALENTS
At beginning of period 729,471 4,156,289
------------- -------------
At end of period $ 635,376 $ 862,942
============= =============
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared by Towne
Bancorp, Inc. ("the Company") without audit. In the opinion of
management, all adjustments necessary to present fairly the
Company's financial position, results of operations and changes in
cash flows have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted. The results for
the period ended June 30, 1999 are not necessarily indicative of
results for the full year.
Until June, 1998, the Company owned all of the voting shares of
Towne Bank (Bank), an Ohio-Chartered bank organized in 1995. In
June, 1998, the Company sold the Bank, which was its only
subsidiary. The proceeds of the transaction will be used to pay
ongoing expenses of the Company including its proposed liquidation
and dissolution. The Board of Directors of the Company plans to
liquidate the Company as soon as practical following a resolution
of pending litigation. All remaining assets of the Company, if
any, will be distributed to its shareholders at such time.
The Company does not conduct operations and is not a going
concern. Since the sale of the Bank, the Company's only activities
have been obtaining legal and other professional services for
matters related to litigation and reporting requirements.
NOTE 2 - REGULATORY MATTERS
On a parent company only basis, the Company's only source of funds
are dividends paid by the Bank. The ability of the Bank to pay
dividends is subject to limitations under various laws and
regulations, and to prudent and sound banking principles.
The Board of Governors of the Federal Reserve System generally
considers it unsafe and unsound banking practices for a bank
holding company to pay dividends except out of current operating
income, although other factors such as overall capital adequacy
and projected income may also be relevant in determining whether
dividends should be paid.
Because the Bank was sold on June 19, 1998, the Company no longer
has adequate sources of funds to pay dividends.
NOTE 3 - CONTINGENT LIABILITIES - RESCINDABLE COMMON STOCK AND RELATED
CLASS ACTION LAWSUITS
The Company, as a result of federal and state securities law
compliance matters, has a contingent liability related to the sale
of common stock in its initial public offering. Notification of
these securities law compliance matters was first received from
the Securities and Exchange Commission in a letter dated February
4, 1997. The maximum contingent liability would be the full
purchase price of all 370,761 shares sold by the Company, or
approximately $4,500,000, plus interest. The common stock issued
and outstanding has been reported in the consolidated balance
sheets as "rescindable common stock." Such amount is reported
after liabilities but before stockholders' deficit. The Company
does not have adequate financial resources to fund the rescission
offer if it is allowed.
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<PAGE> 7
Two class action lawsuits, filed in the U.S. District Court for
the Northern District of Ohio, Western Division, exist against the
Company, its directors, its corporate stock transfer agent, and
(in one suit) its Directors' and Officers' insurer. The suits
allege violation of various Federal and State laws in connection
with the Company's offering of common stock. The suits request
unspecified damages and costs.
In one of the class action lawsuits, the presiding judge ordered
the freezing of the Company's bank account, with $150,000
allocated to Huntington Trust Co., N.A. (a defendant in the suit),
on an indicated claim. After obtaining court approval, monies from
the frozen account can be withdrawn to pay current operating
expenses.
Also in connection with one of the class action lawsuits, the
Company filed a cross claim against its casualty insurance carrier
for breach of contract for denying the voiding directors' and
officers' liability insurance and tail coverage. The Company seeks
reinstatement of coverage, and compensatory and punitive damages
of $100,000 and $10,000,000, respectively. The insurance carrier
refunded the Company approximately $100,000 of premiums paid to it
by the Company, however, the Company returned the money to the
insurance carrier and intends to vigorously pursue the cross
claim.
The Company has agreed to indemnify its directors and officers for
costs assumed by them in connection with such lawsuits. The
Company intends to vigorously defend itself in connection with
these lawsuits.
NOTE 4 - CONTINGENT LIABILITY - OTHER
The Company received an informal inquiry from the Securities and
Exchange Commission, Midwest Regional Office, Division of
Enforcement regarding the initial public offering of the Company's
common shares. In connection with the informal inquiry, the
Division of Enforcement has requested that the Company furnish
certain documents relating to the offering. The Company intends to
fully cooperate with the informal inquiry. In the event the
Division of Enforcement determines that there is a basis for an
enforcement action and elects to pursue such an action against the
Company, its officers or directors, the defense costs associated
with, and any resulting judgments from any enforcement action will
have a material adverse affect on the Company.
NOTE 5 - SALE OF BANK
On June 11, 1998, the Company signed a definitive Agreement that
provided for a capital infusion of $2,000,000 into Towne Bank, the
wholly-owned subsidiary of the Company, by Exchange Bancshares,
Inc. (EBI), Luckey, Ohio. The Company and EBI also joined the
execution of a separate Merger Agreement by and between Towne Bank
and The Exchange Bank, a wholly-owned subsidiary of EBI, dated as
of June 19, 1998. The transactions contemplated under the
Agreement and the Merger Agreement were consummated effective as
of June 19, 1998, after receipt of approval from the Ohio Division
of Financial Institutions and the Federal Reserve Bank of
Cleveland. Pursuant to the terms of the Agreement and the Merger
Agreement, the Company, as a shareholder of Towne Bank, received
cash in the amount of $825,420 on June 19, 1998. A gain of
$184,866 resulted from the sale.
Under the terms of the Agreement and the Merger Agreement, an
additional $275,140 was deposited with Exchange Bank, as escrow
agent, to be held for a period of six (6) months. At the end of
such six (6) month period, assuming there has been no demonstrated
breach of the representations and warranties of the Agreement or
Merger Agreement by the Company or Towne Bank, the $275,140 held
in escrow will be released to the Company. It is not probable that
the $275,140 will be received by the Company.
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company had total consolidated assets of $635,376 at June 30,
1999, a decrease of $94,095 compared to $729,471 at December 31,
1998. The Company sold its bank subsidiary on June 19, 1998 as
described in Note 5 of the Notes to Consolidated Financial
Statements included in Item 1.
The Company reported net losses for the three months and six
months ended June 30, 1999.
The Company is a party to certain lawsuits. In 1998, two class
action lawsuits were filed in the U.S. District Court for the
Northern District of Ohio, Western Division, against the Company,
its directors, its corporate stock transfer agent, and (in one
suit) its Directors and Officers insurer. The suits allege
violation of various Federal and State laws in connection with the
Company's offering of common stock. The suits request unspecified
damages and costs.
The Company has agreed to indemnify its directors and officers for
costs assumed by them in connection with such lawsuits. The
Company intends to vigorously defend itself in connection with
these lawsuits. The Company does not plan to liquidate until the
lawsuits are settled.
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995
The Company cautions that any forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of
1995) including, but not limited to, statements regarding the
Company's operations during the pendancy of litigation and the
amount of working capital needed to fund operations contained in
this report, or made by management of the Company, involves risks
and uncertainties, and are subject to change based on various
important factors. The following factors, among others, in some
cases have affected, and in the future could affect, the Company's
financial performance and actual results, and could cause actual
results for fiscal 1999 and beyond to differ materially from those
expressed or implied in any such forward-looking statements:
greater than anticipated costs associated with pending litigation,
additional claims, which could result in increased defense costs
and future capital needs. Actual results may differ materially
from management expectations.
-8-
<PAGE> 9
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain lawsuits. In 1998, two class action
lawsuits were filed in the U.S. District Court for the Northern
District of Ohio, Western Division, against the Company, its
directors, its corporate stock transfer agent, and (in one suit) its
Directors and Officers insurer. The suits allege violation of various
Federal and State laws in connection with the Company's offering of
common stock. The suits request unspecified damages and costs.
In one of the class action lawsuits, the presiding judge ordered the
freezing of the Company's bank account, with $150,000 allocated to
Huntington Trust Co., N.A. (a defendant in the suit), on an indicated
claim. After obtaining court approval, monies from the frozen account
can be withdrawn to pay current operating expenses.
Also in connection with one of the class action lawsuits, the Company
filed a cross claim against its casualty insurance carries for breach
of contract for denying the voiding directors' and officers'
liability insurance and tail coverage. The Company seeks
reinstatement of coverage, and compensatory and punitive damages of
$100,000 and $10,000,000, respectively. The insurance carrier
refunded the Company approximately $100,000 of premiums paid to it by
the Company, however, the Company returned the money to the insurance
carrier and intends to vigorously pursue the cross claim.
The Company has agreed to indemnify its directors and officers for
costs assumed by them in connection with such lawsuits. The Company
intends to vigorously defend itself in connection with these
lawsuits. The Company does not plan to liquidate until the lawsuits
are settled.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 27 - Financial data schedule.
(B) None.
-9-
<PAGE> 10
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.
Towne Bancorp, Inc.
---------------------------------------
Registrant
/s/ John P. Weinert
Dated August 13, 1999 ---------------------------------------
-------------------- John P. Weinert, Chairman
Dated August 13, 1999 /s/ Jerome C. Bechstein
-------------------- ---------------------------------------
Jerome C. Bechstein, President and CEO
-10-
<PAGE> 11
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 635,376
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 635,376
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 216,326
<LONG-TERM> 0
0
0
<COMMON> 4,482,533
<OTHER-SE> (4,063,483)
<TOTAL-LIABILITIES-AND-EQUITY> 635,376
<INTEREST-LOAN> 0
<INTEREST-INVEST> 4,187
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,187
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 107,606
<INCOME-PRETAX> (103,419)
<INCOME-PRE-EXTRAORDINARY> 103,419
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,419)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
<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>
