<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
-------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0000887203
TOWNE BANCORP, INC.
(Exact name of Registrant 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)
Registrant's telephone number, including area code: (419) 874-2090
-----------------
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
Check whether the Registrant (1) 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
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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 ]
The Registrant's revenues for its most recent fiscal year are $14,606.
There is no market for the Registrant's voting stock. The aggregate market
value of the voting stock held by non-affiliates of the Registrant, is
indeterminate as of March 27, 2000, due to the limited number of transactions in
the Registrant's voting stock.
As of March 27, 2000, there were issued and outstanding 370,761 shares of
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III.
Portions of Registrant's Form S-2 Registration Statement, dated January 5,
1998 (Registration No. 333-43741), are incorporated by reference in Item
13 - Part III of Form 10-KSB.
Transitional Small Business Disclosure Format (check one) Yes ____ No X
Portions of Registrant's Form 10-KSB, filed April 17, 1998 (Registration
No. 33-47504), are incorporated by reference in Item 7, Part II.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
ITEM 1. Description of Business........................................................... 3
ITEM 2. Description of Business Property.................................................. 9
ITEM 3. Legal Proceedings................................................................. 9
ITEM 4. Submission of Matters to a Vote of Security Holders............................... 10
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.......................... 10
ITEM 6. Management's Discussion and Analysis of Operations................................ 10
ITEM 7. Financial Statements.............................................................. 11
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................................... 11
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act............................ 11
ITEM 10. Executive Compensation............................................................ 11
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.................... 11
ITEM 12. Certain Relationships and Related Transactions.................................... 11
ITEM 13. Exhibits and Reports on Form 8-K.................................................. 12
SIGNATURES............................................................................................ 13
</TABLE>
<PAGE> 3
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Towne Bancorp, Inc. (Company) was organized under the laws of the state of Ohio
on April 1, 1992, and is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended. The principal offices of the Company
are located at 16967 BG Rd. West, Bowling Green, Ohio. The Company had total
assets of $373,351 at December 31, 1999.
Until June 1998, the Company owned all of the voting shares of Towne Bank
(Bank), an Ohio-chartered bank organized in 1995.
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 the sole 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 months. At the end of such six-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 voluntarily received by the Company.
Substantially all operations of the Company were conducted through the bank. The
Company has had no operations since the sale of the bank.
GENERAL
The Company was formed by Jerome Bechstein, John Weinert and others. The initial
capitalization of the Bank was achieved through the purchase of 6,500 shares by
the organizers at a per share price of $12.50 ($81,250) and by selling shares to
the general public in the communities of the Bank's service areas. The offering
began in August 1992 and was completed in November 1995 with the issuance of
348,464 shares at a per share price of $12.50 ($4,355,800).
The Company is regulated by federal and state banking agencies. As a result, it
is subject to periodic examinations by the agencies and is required to comply
with various regulatory matters.
- 3 -
<PAGE> 4
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I CONTINUED
ITEM 1. DESCRIPTION OF BUSINESS-CONTINUED
REGULATION AND SUPERVISION
The Company, as a registered bank holding company, is subject to regulation,
examination and supervision by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956, as amended (Act). The Act
limits the activities in which the Company may engage to those activities that
the Federal Reserve Boards finds, by order or regulation, to be so closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto. A favorable determination by the Federal Reserve Board as to whether
any such new activity by the Company is in the public interest, taking into
account both the likely adverse effects and the likely benefits, is also
necessary before any such activity may be engaged in. The Act also requires
every bank holding company to obtain the prior approval of the Federal Reserve
Board before acquiring all or substantially all of the assets of any bank, or
acquiring ownership or control of any voting shares of any other bank if, after
such acquisition, it would own or control such bank. In making such
determinations, the Federal Reserve Board considers the effect of the
acquisition on competition, the financial and managerial resources of the
holding company, and the convenience and needs of the affected communities. The
Federal Reserve Board also possesses cease and desist powers over bank holding
companies and their non-bank subsidiaries for activities that are deemed by the
Board of Governors to constitute a serious risk to the financial safety,
soundness or stability of a bank holding company, that are inconsistent with
sound banking principles, or that are in violation of law. Further, under
Section 106 of the 1970 Amendments to the Board's regulations, bank holding
companies and their subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, or lease or sale of any
property, or the furnishing of services.
EMPLOYEES
The Company has no employees.
STATISTICAL DISCLOSURES
The following pages present various statistical disclosures required for bank
holding companies. The information represents only domestic information since
the Company has no foreign operations or foreign loans.
- 4 -
<PAGE> 5
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I CONTINUED
ITEM 1. DESCRIPTION OF BUSINESS-CONTINUED
DISTRIBUTION OF ASSETS, LIABILITIES, RESCINDABLE COMMON STOCK AND STOCKHOLDERS'
DEFICIT; INTEREST RATES AND INTEREST DIFFERENTIAL
The following table sets forth, for the years ended December 31, 1999 and 1998,
the distribution of assets, liabilities, rescindable common stock and
stockholders' deficit, including interest amounts and average rates of major
categories of interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1999
----------------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------------- -------------- ---------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS
Loans $ - - -%
Investment securities - - -
Deposit in bank 532,888 14,606 2.74
Federal funds sold - - -
------------- -------------- ---------
Total interest-earning assets 532,888 14,606 2.74%
------------- -------------- =========
NON-INTEREST EARNING ASSETS
Cash and due from banks 18,523 -
Bank premises and equipment, net - -
Other assets - -
Less allowance for loan losses - -
------------- --------------
Total $ 551,411 $ 14,606
============= ==============
LIABILITIES, RESCINDABLE COMMON STOCK
AND STOCKHOLDERS' DEFICIT
INTEREST-BEARING LIABILITIES
Deposits $ - - -%
------------- -------------- ---------
Total interest-bearing liabilities - - -%
------------- -------------- =========
NON-INTEREST-BEARING LIABILITIES
Capital lease obligations - -
Demand deposits - -
Other liabilities 87,044 -
------------- --------------
Total non-interest-bearing liabilities 87,044 -
RESCINDABLE COMMON STOCK 4,482,533 -
STOCKHOLDERS' DEFICIT (4,018,166) -
------------- --------------
Total $ 551,411 -
============= --------------
Net interest income $ 14,606
==============
Net yield on interest-earning assets 2.74%
=========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------------- ------------- --------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS
Loans $ 14,296,755 $ 617,534 4.3%
Investment securities 2,496,961 64,783 2.59
Deposit in bank 358,632 11,843 3.30
Federal funds sold 3,380,000 65,393 1.93
------------- ------------- --------
Total interest-earning assets 20,532,348 759,553 3.70%
------------- ------------- ========
NON-INTEREST EARNING ASSETS
Cash and due from banks 513,249 -
Bank premises and equipment, net 2,382,685 -
Other assets 285,780 -
Less allowance for loan losses (692,728) -
Total $ 23,021,334 $ 759,553
============= =============
LIABILITIES, RESCINDABLE COMMON STOCK
AND STOCKHOLDERS' DEFICIT
INTEREST-BEARING LIABILITIES
Deposits $ 17,386,748 $ 386,756 2.22%
------------- ------------- --------
17,386,748 386,756 2.22%
Total interest-bearing liabilities ------------- ------------- ========
NON-INTEREST-BEARING LIABILITIES
Capital lease obligations
Demand deposits
Other liabilities 2,482,729 -
1,131,090 -
225,385 -
Total interest-bearing liabilities ------------- -------------
Total non-interest-bearing liabilities
3,839,204 -
RESCINDABLE COMMON STOCK
4,482,533 -
STOCKHOLDERS' DEFICIT
(3,231,628) -
-------------
Total
$ 22,476,857 386,756
============= -------------
Net interest income
$ 372,797
=============
Net yield on interest-earning assets 1.82%
========
</TABLE>
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<PAGE> 6
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I CONTINUED
ITEM 1. DESCRIPTION OF BUSINESS-CONTINUED
DISTRIBUTION OF ASSETS, LIABILITIES, RESCINDABLE COMMON STOCK AND STOCKHOLDERS'
DEFICIT; INTEREST RATES AND INTEREST DIFFERENTIAL-CONTINUED
NOTES:
(1) Since the Bank was held by the Company for only 5 1/2 months in 1998,
average balances applicable to Bank for 1998 have been adjusted to an
annual basis in order to compute the effective yield/rate.
(2) Included in loan interest income are loan fees of $0 in 1999, and $34,087
in 1998.
(3) The Bank has no non-accrual loans for the periods reported above.
(4) All taxable investments.
(5) Interest expense on capital lease obligations is reported in occupancy
expense for financial reporting purposes. Such interest amounted to
$286,570 in 1997 (11.42%).
The following table sets forth a summary of the 1999 and 1998 changes in
interest income and interest expenses resulting from changes in volume and
changes in rate.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998
INCREASE (DECREASE) (1)
-------------------------------
1999 NET 1998 NET
-------------- -------------
<S> <C> <C>
INTEREST INCOME
Loans $ (617,534) $ (169,291)
Investment securities (50,177) (126,045)
Deposit in bank (11,843) 11,843
Federal funds sold (65,393) (122,738)
------------- -------------
Total interest-
earning assets (744,947) (406,231)
------------- -------------
INTEREST EXPENSE
Deposits (386,756) (206,637)
Organizer advances - -
------------- -------------
Total interest expense (386,756) (206,637)
------------- -------------
Net interest income $ (358,191) $ (199,594)
============= =============
</TABLE>
(1) Due to the sale of the Bank in June 1998, substantially all changes in
interest income and expense between 1999 and 1998 are related to decreases
in volume.
- 6 -
<PAGE> 7
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I CONTINUED
ITEM 1. DESCRIPTION OF BUSINESS-CONTINUED
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Information for 1999 and 1998 is not presented due to the sale of the Bank in
June 1998.
DEPOSITS
Due to the sale of the Bank in June 1998, amounts related to 1999 and 1998
deposits are not presented.
RETURN ON EQUITY AND ASSETS
The ratio of net loss to average total assets and average stockholders' equity
and certain other ratios, for the periods noted, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Percentage of net loss to:
Average total assets (57.3)% (5.4)%
Average stockholders' equity:
Including rescindable common stock (68.1)% (98.6)%
Excluding rescindable common stock 7.9 % 38.2 %
Percentage of average stockholders' equity to average total
assets:
Including rescindable common stock 84.2 % 5.4 %
Excluding rescindable common stock (728.7)% (14.0)%
</TABLE>
BUSINESS RISKS
Except for the historical information contained herein, the matters discussed in
this Form 10-KSB include certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (Exchange Act), which are intended to be covered by the
safe harbors created thereby. Those statements include, but may not be limited
to, all statements regarding the intent, belief and expectations of the Company
and its management, such as statements concerning the Company's future
profitability. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including, without limitation, factors detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate. There can be no assurance that the
forward-looking statements contained herein are reasonable, and any of the
assumptions could be inaccurate. Therefore, there can be no assurance that the
forward-looking statements included in this Form 10-KSB will prove to be
accurate, and in light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a presentation by the Company or any other person that
the objectives and plans of the Company will be achieved.
- 7 -
<PAGE> 8
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I CONTINUED
ITEM 1. DESCRIPTION OF BUSINESS-CONTINUED
LACK OF PROFITABLE OPERATIONS; ABILITY TO CONTINUE GOING CONCERN
The Company does not conduct operations and is not a going concern. Since the
sale of the Bank in June 1998, the Company's only activities have been obtaining
legal and other professional services for matters related to litigation and
reporting requirements.
HOLDING COMPANY STRUCTURE; GOVERNMENT REGULATION AND POLICIES
As a bank holding company, the Company is subject to regulation, examination and
supervision by the Board of Governors of the Federal Reserve System. These
regulations are primarily intended to protect depositors and may impose
limitations on the Company which may not be in the best interests of its
stockholders. Regulations now affecting the Company may be changed at any time,
and the interpretation of those regulations by examining authorities is also
subject to change. Legislative proposals are made from time to time which, if
enacted, could adversely affect banking corporations generally, including the
Company. It is not possible to predict whether any such initiatives will be
successful, or what would be the assurance that future changes in the
regulations or in the interpretation thereof will not adversely affect the
business of the Company. Changes in the government's monetary, fiscal, housing
finance or tax policies may also adversely affect the business of the Company.
RESCISSION OFFER AND POSSIBLE VIOLATIONS OF SECURITIES LAW The Company sold
370,761 shares of its common stock, without par value (Shares), during a period
from 1992 through 1996, at prices ranging from $12.50 to $14.50 per Share. The
Company may have a contingent liability to its shareholders as a result of
potential violation of applicable federal and state securities laws in
connection with the sale of those Shares. On January 5, 1998, the Company filed
a Registration Statement on Form S-2 with the Securities and Exchange Commission
(Registration Statement), whereby the Company intends to provide purchasers of
the Shares an opportunity to rescind their purchase (Rescission Offer). If the
conditions to the Rescission Offer are satisfied, the Company will repay
shareholders who accept the offer to rescind the amounts they paid to the
Company for their Shares, together with interest thereon from the date of their
respective purchases through the date of repayment by the Company. The purpose
of the Rescission Offer is to remove or reduce, to the extent possible, any
contingent liabilities that the Company may have resulting from such potential
federal and state securities law violations. There can be no assurance that the
Registration Statement facilitating Rescission Offer will ultimately be declared
effective by the SEC. The Rescission Offer does not preclude any individual
shareholder from pursuing claims against the Company or its officers or
directors. In the event that a large number of shareholders accept the
Rescission Offer, and the Company is unable to raise sufficient funds to
repurchase such Shares, the Company's financial position could be adversely
affected if a large number of shareholders elect to pursue claims against the
Company or its officers or directors. Furthermore, the Rescission Offer does not
prevent any government agency from asserting violations of the securities laws
in a proceeding against the Company or its officers or directors, and the
Company's financial position will also be adversely affected if any such claims
are asserted and pursued. Currently, the company does not have funds to fund any
rescission offer.
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<PAGE> 9
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I CONTINUED
ITEM 1. DESCRIPTION OF BUSINESS-CONTINUED
FUNDING OF THE RESCISSION OFFER
The Company is unable to fund the rescission offer due to a lack of available
funds.
ANTI-TAKEOVER PROVISIONS
The Articles of Incorporation of the Company contain provisions which would
discourage the acquisition of control of the Company. The number of Shares
purchased now or in the future by the Company's management may have a similar
effect. These factors may have an adverse effect upon the value of the Shares.
ITEM 2. DESCRIPTION OF BUSINESS PROPERTY
All property held by the Company was disposed of in connection with the June 19,
1998 sale of the Bank.
ITEM 3. LEGAL PROCEEDINGS
The Company has negotiated a confidential settlement with Thomas Eichler, a
former officer and director of the Company, who filed a complaint against the
Company. In connection with the settlement, all claims were dismissed and the
Company accrued a $40,000 liability due to Mr. Eichler. The liability was paid
in February, 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 two lawsuits
were consolidated in early 1999. The plaintiffs have sought class action status,
however the judge has not made a determination to certify it as a class action
lawsuit. 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 consolidated class action lawsuits, the presiding judge ordered the freezing
of the Company's bank account, with $125,000 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 consolidated class action lawsuits, the Company filed a
crossclaim against its casualty insurance carrier for breach of contract for
denying and 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 crossclaim.
The Company has agreed to indemnify its directors and officers for costs assumed
by them in connection with these 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.
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<PAGE> 10
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART I CONTINUED
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company may have a contingent liability related to the sale of common stock
in its initial public offering, as a result of possible defects in its
registration with the Securities and Exchange Commission and various state
securities authorities. Information relating to this matter is discussed in
Financial Statement Footnote 3 captioned "Common Stock (Rescindable Common Stock
Subject to Rescission Offer)" and Footnote 12 captioned "Contingent Liabilities"
of the 1999 and 1998 Consolidated Financial Statements of Towne Bancorp, Inc.,
and is incorporated herein by reference.
The number of holders of record of the Company's common stock at December 31,
1999 is 741.
There is no established public trading market for the Company's Common Stock.
No dividends have been declared or paid by the Company on its Common Stock in
the last two fiscal years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Management's discussion and analysis of operations and related financial data
are presented herein to assist investors in understanding the consolidated
financial condition and results of operations of the Company as of and for the
years ended December 31, 1999 (unaudited), 1998 (unaudited), and 1997 (audited).
See Item 7 for explanation of inclusion of unaudited financial statements for
1999 and 1998. This discussion should be read in conjunction with the
consolidated financial statements and related footnotes presented elsewhere in
this report.
FINANCIAL CONDITION - SUMMARY
The Company had total consolidated assets of $373,351 at December 31, 1999, a
decrease of $356,120 or 48.8% from the $729,471 total at December 31, 1998. The
Company sold its bank subsidiary on June 19, 1998, as described in Note 1 of the
Notes to Consolidated Financial Statements included in Item 7.
The Company reported a net loss of $320,615 and $1,242,134 for the years ended
December 31, 1999 and 1998, respectively. A significant portion of the 1998 loss
can be attributed to the provision for loan losses.
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 plans to dissolve
and liquidate after the lawsuits are settled.
- 10 -
<PAGE> 11
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART II CONTINUED
ITEM 7. FINANCIAL STATEMENTS
The Company sold its only operating subsidiary, the bank, on June 19, 1998.
Since the sale of the bank, the Company's only source of income has been, and
continues to be, interest income. The proceeds from the sale of the bank are
being used to pay ongoing expenses pending the dissolution and liquidation of
the Company. The Company intends to dissolve and liquidate as soon as
practicable following resolution of pending lawsuits. Accordingly, management
believes that the expense associated with an audit of the Company's financial
statements outweighs the corresponding benefit that would be derived by the
Company's shareholders from having audited financial statements included in this
Form 10-KSB.
The consolidated financial statements of the Company are set forth on pages F-1
through F-19. The 1999 and 1998 consolidated financial statements are unaudited.
The 1997 financial statements were audited by independent auditors and they
expressed an unqualified opinion on them in their report dated March 3, 1998.
However, they also included an explanatory paragraph in the report that
disclosed matters that raised substantial doubt about the Company's ability to
continue as a going concern. The financial statements included no adjustments
that might result from the outcome of these uncertainties. The 1997 independent
auditors' report is at page F-2 of the Company's 1997 Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
The information required by this Item is included in the Company's Proxy
Statement relating to the Company's 1999 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
There were only two officers and no other employees in 1999 and the officers
received no compensation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Company's Proxy
Statement related to the Company's 1999 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Company's Proxy
Statement related to the Company's 1999 Annual Meeting of Stockholders, and is
incorporated herein by reference.
- 11 -
<PAGE> 12
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
PART III CONTINUED
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as an exhibit to this document:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------
<S> <C>
*3(a) Second Amended and Restated Articles of Incorporation of Towne
Bancorp (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-2 - Registration No. 333-43741)
*3(b) Code of Regulations of Towne Bancorp, Inc. (incorporated by
reference to Exhibit 3.3 to the Registration Statement on Form
S-1 - Registration No. 33-47504) filed on May 4, 1992)
24.0 Power of Attorney
27.0 Financial Data Schedule
</TABLE>
The exhibits to this report begin immediately following the signature page.
The Registrant agrees to furnish to the Commission upon its request copies of
any omitted schedules or exhibits to any Exhibit filed herewith.
(b) Reports on Form 8-K
None
*Incorporated by reference as indicated.
- 12 -
<PAGE> 13
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TOWNE BANCORP, INC.
/s/ Jerome C. Bechstein
--------------------------------------
Jerome C. Bechstein, President and CEO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated:
/s/ Jerome C. Bechstein 3/28/00
- ------------------------------------------ ---------------------
Jerome C. Bechstein, President, CEO, Date
Director, and Chief Financial Officer
/s/ Lois A. Brigham 3/28/00
- ------------------------------------------ ---------------------
Lois A. Brigham, Senior Vice President, Date
Secretary and Director
/s/ John P. Weinert 3/28/00
- ------------------------------------------ ---------------------
John P. Weinert, Director Date
By: /s/ Jerome C. Bechstein 3/28/00
------------------------------------------------ ---------------------
Jerome C. Bechstein, Attorney- Date
in-fact for each of the persons indicated
- 13 -
<PAGE> 14
TOWNE BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
F-1
<PAGE> 15
CONTENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
CONSOLIDATED BALANCE SHEETS........................................................................ F-3
CONSOLIDATED STATEMENTS OF OPERATIONS.............................................................. F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT................................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS.............................................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................................................... F-7 - F-19
</TABLE>
F-2
<PAGE> 16
TOWNE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------------- --------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 373,351 $ 729,471
Total cash and cash equivalents 373,351 729,471
---------------- --------------
Total assets $ 373,351 $ 729,471
================ ==============
LIABILITIES, RESCINDABLE COMMON STOCK
AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accrued interest, taxes and other liabilities 73,699 109,204
---------------- --------------
Total liabilities 73,699 109,204
---------------- --------------
RESCINDABLE COMMON STOCK (Notes 1, 3, and 12)
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 (4,182,881) (3,862,266)
---------------- --------------
Total stockholders' deficit 299,652 620,267
---------------- --------------
Total liabilities, rescindable common stock
and stockholders' deficit $ 373,351 $ 729,471
================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 17
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 (UNAUDITED),
1998 (UNAUDITED), AND 1997 (AUDITED)
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
INTEREST INCOME
Loans - $ 617,534 $ 786,825
Investment securities $ 14,606 76,626 190,828
Deposits in other bank, escrow account - - -
Federal funds sold - 65,393 188,131
------------- -------------- -------------
Total interest income 14,606 759,553 1,165,784
INTEREST EXPENSE
Deposits - 386,756 593,393
------------- -------------- -------------
Total interest expense - 386,756 593,393
------------- -------------- -------------
Net interest income 14,606 372,797 572,391
PROVISION FOR LOAN LOSSES - 739,610 721,883
------------- -------------- -------------
Net interest income (expense)
after provision for loan losses 14,606 (366,813) (149,492)
------------- -------------- -------------
NON-INTEREST INCOME
Service charges on deposit accounts - 36,740 22,854
Net gain on sale of bank - 184,866 --
Other operating income - 44,009 29,912
------------- -------------- -------------
Total non-interest income - 265,615 52,766
------------- -------------- -------------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits - 224,013 440,748
Occupancy expenses, including interest on
capital lease obligations - 453,150 499,080
Other operating expenses 335,221 694,420 802,354
------------- -------------- -------------
Total non-interest expenses 335,221 1,371,583 1,742,182
------------- -------------- -------------
Loss before federal income taxes (320,615) (1,472,781) (1,838,908)
CREDIT FOR FEDERAL INCOME TAXES - - -
------------- -------------- -------------
Loss before extraordinary item (320,615) (1,472,781) (1,838,908)
Extraordinary item, net of tax - 230,647 -
------------- -------------- -------------
Net loss $ (320,615) $ (1,242,134) $ (1,838,908)
============= ============== =============
Comprehensive loss $ (320,615) $ (1,246,622) $ (1,836,655)
============= ============== =============
PER SHARE
Loss before extraordinary item $ (0.86) $ (3.97) $ (4.96)
============= ============== =============
Net loss $ (0.86) $ (3.35) $ (4.96)
============= ============== =============
Comprehensive loss $ (0.86) $ (3.36) $ (4.95)
============= ============== =============
AVERAGE COMMON SHARES OUTSTANDING (Note 3) 370,761 370,761 370,761
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 18
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
<TABLE>
<CAPTION>
RETAINED NET
EARNINGS UNREALIZED
(ACCUMULATED HOLDING
DEFICIT) GAIN TOTAL
--------------- -------------- -------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ (781,224) $ 2,235 $ (778,989)
Net loss for 1997 (1,838,908) - (1,838,908)
Change in net unrealized holding gain for 1997 - 2,253 2,253
--------------- -------------- -------------
BALANCE AT DECEMBER 31, 1997 (2,620,132) 4,488 (2,615,644)
Net loss for 1998 (1,242,134) - (1,242,134)
Change in net unrealized holding gain for 1998 - (4,488) (4,488)
--------------- -------------- -------------
BALANCE AT DECEMBER 31, 1998 (3,862,266) 0 (3,862,266)
Net loss for 1999 (320,615) 0 (320,615)
--------------- -------------- -------------
BALANCE AT DECEMBER 31, 1999 $ (4,182,881) $ 0 $ (4,182,881)
=============== ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 19
TOWNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (320,615) $ (1,242,134) $ (1,838,908)
Adjustment to reconcile net loss to net cash
used in operating activities:
Gain on termination of capital lease obligations - (230,646) -
Depreciation and amortization - 75,841 155,869
Provision for loan losses - 739,610 721,883
Accretion of investment securities discounts,
net of premium amortization - (2,704) (4,215)
Gain on sale of bank - (184,866) -
Effects of changes in operating assets and liabilities:
Other assets - (266,516) (119,275)
Accrued interest, taxes and other liabilities (35,505) (241,177) 65,406
------------- -------------- -------------
Net cash used in
operating activities (356,120) (1,352,592) (1,019,240)
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of premises - -- -
Proceeds from sale of bank - 825,420 -
Proceeds from maturity of investment securities:
Available-for-sale - - 400,000
Held-to-maturity - - 400,000
Sales (purchases) of investment securities:
Available-for-sale - 999,397 -
Held-to-maturity - 1,599,045 -
Net decrease (increase) in loans receivable - 12,375,456 (12,734,036)
Unrealized holding gain on available for-sale securities - (4,488) -
Additions to premises and equipment - - (49,195)
------------- -------------- -------------
Net cash provided by
investing activities - 15,794,830 (11,983,231)
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (increase) decrease in deposits - (17,869,056) 11,363,484
Principal payments on capital lease obligations - - (17,271)
------------- -------------- -------------
Net cash used in
financing activities - (17,869,056) 11,346,213
------------- -------------- -------------
Decrease in cash and cash equivalents (356,120) (3,426,818) (1,656,258)
CASH AND CASH EQUIVALENTS
At beginning of year 729,471 4,156,289 5,812,547
------------- -------------- -------------
At end of year $ 373,351 $ 729,471 $ 4,156,289
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 20
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 1 - OPERATING RESULTS, CONTINGENCIES AND RELATED MATTERS
Towne Bancorp, Inc. (Company) was incorporated on April 1, 1992 in the
state of Ohio. The Company is a bank holding company and had one
wholly-owned subsidiary, Towne Bank (Bank). The Company's bank
subsidiary began operations on October 15, 1996 when it opened its
Perrysburg office, followed by the opening of its Sylvania office on
January 13, 1997. While initial operating losses were expected, the
size of the Company's net losses has exceeded original projections
because of a number of factors, including the following: larger
pre-opening expenses than anticipated as a result of delays in getting
necessary regulatory approvals, litigation settlements as described in
Note 13, a significant provision for loan losses in 1997, significant
legal and consulting fees for litigation and regulatory matters, and
growth in assets and deposits not meeting planned levels. These and
other matters have resulted in a 1999 net loss of $320,615 and an
accumulated deficit of ($4,182,881) as of December 31, 1999.
As discussed below, the Company sold its only operating subsidiary, the
bank, on June 19, 1998. Since the sale of the bank, the Company's only
source of income has been, and continues to be, interest income. The
proceeds from the sale of the bank are being used to pay ongoing
expenses pending the dissolution and liquidation of the Company. The
Company intends to dissolve and liquidate as soon as practicable
following resolution of pending lawsuits. Accordingly, management
believes that the expense associated with an audit of the Company's
financial statements outweighs the corresponding benefit that would be
derived by the Company's shareholders from having audited financial
statements included in its Form 10-KSB.
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 the sole
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 months. At the end of such six-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
voluntarily received by the Company.
As described in Notes 3 and 13, the Company has a contingent liability
regarding the original issuance of its common stock.
F-7
<PAGE> 21
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by the Company are presented
below.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during each reporting period. The most significant area
involving the use of management's estimates and assumptions is
depreciation and amortization of premises and equipment, and the
reserve for loan losses. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and federal
funds sold which mature overnight or within three days.
ADVERTISING COSTS
All advertising costs are expenses as incurred.
INCOME PER SHARE
Net income (loss) per share is computed based on the weighted average
number of shares of common stock outstanding during each year. Under
Financial Accounting Standards Board's (FASB) Statement No. 128,
Earnings Per Share, which was effective in 1997, this computation is
referred to as "basic earnings per share."
NOTE 3 - COMMON STOCK (SUBJECT TO RESCISSION OFFER)
The information in this footnote should be read in connection with Note
12. As described in Note 12, on January 5, 1998 the Company filed a
Registration Statement with the Securities and Exchange Commission as a
result of federal and state securities law compliance matters regarding
the public offering of the common stock, resulting in a possible
rescission offer to its shareholders.
The organizers of the Company purchased a total of 6,500 shares of
common stock, without par value, at $12.50 per share. In July 1992, the
Company initiated a public offering of its common stock, also at $12.50
per share. Over a period of approximately three years, the organizers
actively sought, without compensation, subscriptions to purchase the
common shares of the Company. All subscription payments were deposited
with a bank escrow agent, and the subscribers earned interest on
amounts paid at an amount equal to the passbook savings rate of the
escrow agent. A significant portion of the interest earned by the
subscribers was ultimately paid through the issuance of additional
shares of the Company's common stock.
In November 1995, the initial offering of the common stock was
completed and the escrow agent issued 348,464 shares at a value of
$4,355,800, including $167,983 of accrued interest expense due the
subscribers. Since such date, additional shares have been issued and
purchased at various prices per share.
F-8
<PAGE> 22
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 3 - COMMON STOCK (SUBJECT TO RESCISSION OFFER)-CONTINUED In addition to the
federal and state securities law compliance matters in the original
registration statement, the shares sold by the Company in connection
with its public offering were issued prior to the filing of the
amendment to the Company's Amended Articles of Incorporation, which
would have increased the Company's authorized common stock from 13,000
shares to 800,000 shares. On November 29, 1997, the Company held a
special meeting of those shareholders who were the sole shareholders of
the Company's common stock immediately prior to the issuance of the
shares sold in the public offering. At that meeting, a majority of the
common shares held by those shareholders were voted in favor of the
Second Amended and Restated Articles of Incorporation of the Company,
the sole purpose of which was to increase the authorized capital stock
of the Company to 800,000 common shares, without par value. The Second
Amended and Restate Articles of Incorporation were filed at the
direction of the Company's Board of Directors on December 23, 1997 with
the Secretary of the state of Ohio.
The following represents a summary of the activity in common stock for
the years ended December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------
SHARES AMOUNT
------------- -------------
<S> <C> <C>
BALANCE AT DECEMBER 31,
1997, 1998, AND 1999 370,761 $ 4,482,533
============= =============
</TABLE>
NOTE 4 - NON-INTEREST EXPENSES
The following is a summary of other operating expense for 1999, 1998
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Advertising, printing, and supplies $ - $ 36,017 $ 74,498
Professional fees, litigation and settlements 335,221 347,829 279,250
Equipment rent - 85,151 141,335
Insurance - 62,241 39,459
Outside services - 129,486 123,312
Franchise and other taxes - 13,368 62,653
Directors' fees - - 17,750
Automobile allowances - 1,400 14,624
Other expenses - 18,928 49,473
------------- ------------- -------------
Total other operating expenses $ 335,221 $ 694,420 $ 802,354
============= ============= =============
</TABLE>
Professional fees, litigation and settlements includes provisions for
litigation settlements of $73,300 in 1997.
F-9
<PAGE> 23
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 5 - FEDERAL INCOME TAXES
The provision (credit) for federal income taxes for the years ended
December 31, 1999, 1998 and 1997 amounted to $0. The actual provision
(credit) for income taxes attributable to income (loss) from operations
differed from the amounts computed by applying the U.S. federal income
tax rate of 34% to income (loss) before federal income taxes as a
result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Expected tax using statutory tax rate of 34% $ (109,000) $ (419,300) $ (625,200)
Impact of the following:
Increase in the valuation allowance
for deferred tax assets 102,800 413,100 619,000
Surtax exemption and other items, net 6,200 6,200 6,200
------------- ------------- -------------
Total $ 0 $ 0 $ 0
============= ============= =============
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
approximating $662,500, which were available to reduce future regular
federal taxable income. Such carryforwards expire in years 2016 through
2019.
In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible or are available.
NOTE 6 - LEASE COMMITMENTS
For 1997, rent expense under various operating lease agreements and
other short-term lease arrangements approximated $141,300. At December
31, 1999 and 1998, there were no outstanding lease commitments.
F-10
<PAGE> 24
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 7 - REGULATORY MATTERS
The Company is regulated by federal and state banking agencies. As a
result, it is subject to periodic examinations by the agencies and is
required to comply with various regulatory matters. As a result of a
June 30, 1997 Joint Report of Examination issued by the Ohio Division
of Financial Institutions (Division) and the Federal Reserve Bank of
Cleveland (Federal Reserve Bank), the Board of Directors of the Bank on
November 12, 1997 authorized the acceptance of a Memorandum of
Understanding between the Bank and the regulatory agencies. Under the
Memorandum, which was effective November 14, 1997, the Bank agreed to
develop a capital plan, upgrade its budgeting process, assess its
management structure and board oversight, hire an experienced chief
lending officer, establish loan review procedures, provide periodic
reporting to the regulators, and other matters.
As a result of an additional examination in December 1997 by the
regulatory agencies, the Board of directors of the Bank authorized, on
January 30, 1998, the acceptance of a Cease and Desist Order (Order)
between the Bank and the regulatory agencies. Under the Order, which
was effective February 4, 1998, the Bank agreed to comply with each and
every provision of the Order, many of which are in the Memorandum of
Understanding described above. The Order requires that the Bank: (a)
within 30 days employ a chief lending officer; (b) within 10 days
retain an independent bank management consultant, who will submit
written report to the Bank's board of directors within thirty days of
the date the consultant is retained; (c) within 30 days of the receipt
of the consultant's report submit a written management plan to the
Division and the Federal Reserve Bank; (d) within 30 days submit a
written plan for attaining and maintaining an adequate capital
position; (e) obtain written approval from the Division and the Federal
Reserve Bank prior to declaring or paying any dividends; (f) adhere to
certain loan approval policies; (g) within 30 days achieve and maintain
an adequate valuation reserve for loan losses; (h) within 60 days
submit a written record for determining and maintaining loan loss
reserves; (I) within 60 days submit written loan review procedures; (j)
within 60 days provide the Division and Federal Reserve Bank with
certain information regarding loans in excess of $25,000; (k) within 60
days submit a written plan for improving earnings for 1998 and 1999;
(l) within 30 days submit a written funds management plan; and (m)
within 60 days initiate a compliance program designed to ensure
compliance with the Order, and thereafter, within thirty days of the
end of each quarter submit a report of actions taken to comply with the
Order. The Order will remain in effect until stayed, modified, or
terminated by the Division and the Federal Reserve Bank. See Note 13
for additional information regarding the above matter.
F-11
<PAGE> 25
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 8 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
A summary of condensed financial information of the parent company as
of December 31, 1999 and 1998, and for certain financial statements for
each of the three years in the period ended December 31, 1999, are as
follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash on deposit:
In subsidiary bank $ - $ -
In other bank 373,351 729,471
Investment in subsidiary - -
Premises under capital lease, net - -
Other asset - refundable federal income taxes - -
Total assets $ 373,351 $ 729,471
============= =============
LIABILITIES, RESCINDABLE COMMON STOCK
AND STOCKHOLDERS' DEFICIT
LIABILITIES
Capital lease obligations $ - $ -
Accrued interest and other liabilities 73,699 109,204
------------- -------------
Total liabilities 73,699 109,204
RESCINDABLE COMMON STOCK 4,482,533 4,482,533
STOCKHOLDERS' DEFICIT
Accumulated deficit (4,182,881) (3,862,266)
Net unrealized holding gain on
securities available-for-sale - -
------------- -------------
Total stockholders' deficit (4,182,881) (3,862,266)
------------- -------------
Total liabilities, rescindable common
stock and stockholders' deficit $ 373,351 $ 729,471
============= =============
</TABLE>
F-12
<PAGE> 26
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 8 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION-CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Interest income $ 14,606 $ 11,843 $ -
Interest expense - - -
------------- ------------- -------------
Net interest income 14,606 11,843 -
Gain on sale of subsidiary - 184,866 -
Extraordinary item-extinguishments of debt - 230,646 -
------------- ------------- -------------
Total non-interest income - 415,512 0
Occupancy expenses, net - 81,300 108,054
Other operating expenses - 226,212 273,900
------------- ------------- -------------
Total non-interest expenses 335,221 307,512 381,954
------------- ------------- -------------
Income (loss) before federal
income taxes and equity
in net loss of subsidiary (320,615) 119,843 (381,954)
Provision (credit) for federal income taxes - - -
------------- ------------- -------------
Income (loss) before equity
in net loss of subsidiary (320,615) 119,843 (381,954)
Equity in net loss of subsidiary - (1,361,977) (1,456,954)
------------- ------------- -------------
Net income (loss) $ (320,615) $ (1,242,134) $ (1,838,908)
============= ============= =============
</TABLE>
F-13
<PAGE> 27
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 8 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION-CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (320,615) $ (1,242,134) $ (1,838,908)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization - 62,501 125,000
Gain on termination of capital lease
obligations - (230,646) -
Gain on sale of subsidiary - (184,866) -
Equity in net loss of subsidiary - 1,361,977 1,456,954
Expenses paid directly by organizers - - -
Decrease in other assets - - 22,290
Increase (decrease) in accrued
interest and other liabilities (35,505) (110,516) 51,071
------------- ------------- -------------
Net cash used in operating activities (356,120) (343,684) (183,593)
INVESTING ACTIVITIES
Proceeds from sale of bank - 825,420 -
Investment in subsidiary - - -
Proceeds from sale-leaseback agreement - - -
Additions to premises and equipment - - -
------------- ------------- -------------
Net cash provided by
investing activities - 825,420 -
FINANCING ACTIVITIES
Proceeds from issuance of common stock - - -
Principal payments on capital lease
obligations - - (17,271)
Purchase of common stock - - -
Repayment of advances from
organizers, net - - -
------------- ------------- -------------
Net cash used in
financing activities - - (7,271)
------------- ------------- -------------
Increase (decrease) in cash (356,120) 481,736 (200,864)
Cash at beginning of year 729,471 247,735 448,599
------------- ------------- -------------
Cash at end of year $ 373,351 $ 729,471 $ 247,735
============= ============= =============
</TABLE>
F-14
<PAGE> 28
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999(UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 8 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION - CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS - CONTINUED
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ - $ - $ 287,729
============= ============= =============
Federal income taxes $ - $ - $ -
============= ============= =============
Non-cash investing activities:
Change in net unrealized holding gain on
available-for-sale investment securities $ - $ - $ 2,253
============= ============= =============
Non-cash financing activities:
Capital lease obligations $ - $ (2,482,729) $ -
============= ============= =============
</TABLE>
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Bank's principal
financial instruments, as defined by the Financial Accounting Standards
Board's Statement No. 107, Disclosure About Fair Value of Financial
Instruments, were as follows at December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------------------------------- -----------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 373,351 $ 373,351 $ 729,471 $ 729,471
--------------- ----------------- ---------------- -----------------
Total $ 373,351 $ 373,351 $ 729,471 $ 729,471
=============== ================= ================ =================
FINANCIAL LIABILITIES
Accrued interest, taxes
and other liabilities $ 73,699 $ 73,699 $ 109,204 $ 109,204
--------------- ----------------- ---------------- -----------------
Total financial liabilities 73,699 73,699 109,204 109,204
RESCINDABLE COMMON STOCK 4,482,533 4,482,533 4,482,533 4,482,533
--------------- ----------------- ---------------- -----------------
Total $ 4,556,232 $ 4,556,232 $ 4,591,737 $ 4,591,737
=============== ================= ================ =================
</TABLE>
F-15
<PAGE> 29
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS-CONTINUED
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments shown on the previous
page:
CASH AND CASH EQUIVALENTS
Because of the short maturity of cash equivalents, the carrying amount
reported in the consolidated balance sheet approximates fair value.
RESCINDABLE COMMON STOCK
The fair value of rescindable common stock is considered to be the
carrying amount since the Company's Rescission Offer (as described in
Note 17) will include an offer to repurchase the shares for the initial
price paid to the Company by each shareholder, plus interest.
OTHER FINANCIAL INSTRUMENTS
The fair value of accrued interest receivable and accrued interest,
taxes and other liabilities is determined to be the carrying amount.
NOTE 10- FUTURE CHANGE IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income, in June 1997. Statement No. 130
establishes standards for reporting and display of comprehensive
income (as defined) in a full set of general-purpose financial
statements. Statement No. 130 will require classification of items of
other comprehensive income by their nature in a financial statement
and display of the accumulated balance of other comprehensive income
separately from retained earnings (accumulated deficit) and surplus in
the equity section of the balance sheet. Statements No. 130 is
effective for fiscal years beginning after December 15, 1997 and
requires reclassification of financial statements for earlier periods
provided for comparative purposes.
The application of Statement No. 130 did not materially affect the
Company's consolidated financial statements.
F-16
<PAGE> 30
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 11- SUPPLEMENTAL CASH FLOW DISCLOSURES
Consolidated supplemental cash flow disclosures consisted of the
following for the years ended December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest, including $287,729 in 1997
related to capital lease obligations $ - $ - $ 855,891
============= ============= =============
Federal income taxes $ - $ - $ -
============= ============= =============
Non-cash investing activities:
Change in net unrealized holding gain on
available-for-sale investment securities $ - $ - $ 2,253
============= ============= =============
Non-cash financing activities:
Capital lease obligations $ - $(2,482,729) $ -
============= ============ =============
</TABLE>
NOTE 12- CONTINGENT LIABILITY-RESCINDABLE COMMON STOCK
The Company has a contingent liability related to the sale of common
stock in its initial public offering, as a result of federal and state
securities law compliance matters. 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 Company
has retained special securities counsel to advise it with respect to
the matter. As a result, the Company filed a Registration Statement
with the Securities and Exchange Commission on January 5, 1998 to
address this matter. However, no assurance can be made that the
Securities and Exchange Commission will declare the Registration
Statement effective.
If the Registration Statement were to become effective, the Company
would offer (Rescission Offer) to purchase shares of the Company's
common stock from those shareholders of the Company who purchased the
shares directly from the Company from 1992 through 1996, subject to the
terms and conditions set forth in the Rescission Offer. However, the
Company is unable to fund the rescission offer due to a lack of
available funds.
F-17
<PAGE> 31
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 12- CONTINGENT LIABILITY-RESCINDABLE COMMON STOCK-CONTINUED
The Company intended to make the Rescission Offer to reduce or
eliminate any contingent liability resulting from potential claims by
shareholders arising as a result of possible violations of the
Securities Act of 1933, as amended, and state securities laws in
connection with the initial sale of the shares by the Company. A
shareholder rejecting the Rescission Offer would keep his shares. There
can be no assurance that the Registration Statement facilitating the
Rescission Offer will ultimately be declared effective by the
Securities and Exchange Commission. The Rescission Offer does not
preclude any individual shareholder from pursuing claims against the
Company or its officers or directors.
As a result of this matter, 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 Rescission Offer, if allowed, would be subject to a number of
conditions, including the availability of sufficient funds to purchase
all shares tendered, and regulatory approval. The Company will attempt
to fund the purchase of any shares tendered under the Rescission Offer
with the proceeds of a new public offering of shares or the obtaining
of additional funds from a private placement of securities. No specific
arrangements are in place at this time and no assurance can be made as
to the ability of the Company to secure such additional funds.
If the Registration Statement is not declared effective by the
Securities and Exchange Commission, which is required in order to make
the Rescission Offer, or if the Company is unable to fund the
repurchase of the shares tendered in acceptance of the Rescission
Offer, then, in either event, the Company will be required to defend
the lawsuits, if any, brought by shareholders of the Company to rescind
their purchases of common stock from the Company. The Company's legal
counsel believes that the Company will have defenses in any such
lawsuit, including, among others, a statute of limitations defense. No
assurance can be made as to the possibility of success of any such
defense, or the ability of the Company to pay the cost of defending
such actions.
Whether the Company proceeds with the Rescission Offer or not, the
Company will require significant additional financial resources to
continue as a going concern. At this time, no plans exist which provide
any assurance that the Company will be able to obtain such resources to
satisfy the material adverse effect of the contingency described in
this Note.
F-18
<PAGE> 32
TOWNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999 (UNAUDITED), 1998 (UNAUDITED), AND 1997 (AUDITED)
NOTE 13- CONTINGENT LIABILITIES-OTHER
The Company has 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 asked the Company to 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 could have a material adverse affect on the Company.
The Company has negotiated a settlement with Thomas Eichler, a former
officer and director of the Company, who filed a complaint against the
Company. In connection with the settlement, all claims were dismissed
and the Company accrued a $40,000 liability due to Mr. Eichler. The
liability was paid in 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 two lawsuits were consolidated in early 1999.
The plaintiffs have sought class action status, however the judge has
not made a determination to certify it as a class action lawsuit.
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 $125,000 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 and 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.
F-19
<PAGE> 33
TOWNE BANCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -------------------------------------------------
<S> <C>
*3(a) Second Amended and Restated Articles of
Incorporation of Towne Bancorp (incorporated by
reference to Exhibit 4.1 to the Registration
Statement on Form S-2 - Registration No.
333-43741)
*3(b) Code of Regulations of Towne Bancorp, Inc.
(incorporated by reference to Exhibit 3.3 to the
Registration Statement on Form S-1 - Registration
No. 33-47504) filed on May 4, 1992)
24.0 Power of Attorney
27.0 Financial Data Schedule
</TABLE>
*Incorporated by reference as indicated.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned officers and/or directors of Towne Bancorp, Inc., an
Ohio corporation (Corporation), hereby appoints Jerome C. Bechstein as his or
her true and lawful attorney-in-fact, in his or her name and on his or her
behalf, and in any and all capacities stated below, and to cause to be filed
with the Securities and Exchange Commission, the Corporation's Annual Report on
Form 10-KSB (Annual Report) for the fiscal year ended December 31, 1999, and
likewise to sign and file any amendments, including post-effective amendments,
to the Annual Report, hereby granting unto such attorney the full power and
authority to do and perform in the name and on behalf of the undersigned, and in
any and all such capacities, every act and thing whatsoever necessary to be done
in and about the premises as fully as the undersigned could or might do in
person, hereby granting to such attorney-in-fact full power of substitution and
revocation, and hereby ratifying all that such attorney-in-fact or his
substitutes may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney in
counterparts if necessary, effective as of March 31, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------- ------------------
<S> <C> <C>
/s/ Jerome C. Bechstein
- ------------------------------------------ Chief Executive Officer, President March 28, 1999
Jerome C. Bechstein and Director (Principal Executive
Officer and Chief Accounting Officer)
/s/ Lois Brigham
- ------------------------------------------ Senior Vice President, March 28, 1999
Lois Brigham Secretary and Director
/s/ John Weinert
- ------------------------------------------ Director March 28, 1999
John Weinert
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,838
<INT-BEARING-DEPOSITS> 348,513
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 373,351
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 73,699
<LONG-TERM> 0
0
0
<COMMON> 4,482,533
<OTHER-SE> (4,182,881)
<TOTAL-LIABILITIES-AND-EQUITY> 373,351
<INTEREST-LOAN> 0
<INTEREST-INVEST> 14,606
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,606
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 14,606
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 335,221
<INCOME-PRETAX> (320,615)
<INCOME-PRE-EXTRAORDINARY> (320,615)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (320,615)
<EPS-BASIC> (0.86)
<EPS-DILUTED> (0.86)<F1>
<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
<FN>
<F1>EPS COMPREHENSIVE
</FN>
</TABLE>
