FORT WAYNE, Ind., July 14, 2006 (PRIMEZONE) -- Tower Financial Corporation (Nasdaq:TOFC) today announced second quarter 2006 net income of $912,000, an increase of 8.4 percent from the $841,600 reported for the second quarter of 2005. Diluted earnings per share were $0.22, up 4.8 percent from second quarter 2005 earnings of $0.21 per share. For the first six months of 2006, net income was $1.9 million compared with $1.6 million for the prior-year six months, an increase of 21.5 percent. Diluted earnings per share increased 18.0 percent, from $0.39 for the first six months of 2005 compared with $0.46 for the current six-month period.
Performance reflects a continuation of strong loan and deposit growth, moderated by a higher level of expenses to support corporate expansion and infrastructure development. Second quarter highlights include:
-- Loan growth of $76.8 million, or 17.9 percent over the past
twelve months, to $506.1 million; year-to-date, loan growth was
$55.7 million, or 12.4 percent, balanced between fixed rate and
variable-yields.
-- Deposit growth of $80.6 million or 18.1 percent since second
quarter 2005, to $510.2 million; year-to-date, deposits
increased $49.3 million, or 10.7 percent. Approximately
$28 million was the result of a new business sweep product that
moved outsourced deposits in-house.
-- A one-time pre-tax cost of $150,000 associated with the
formation of two investment subsidiaries, wholly-owned by Tower
Bank, that will provide the company with an alternative
investment vehicle for raising capital, and also provide certain
state income tax benefits going forward. Beginning July 1, 2006,
the effective tax rate for the company will be reduced by
approximately 5%.
-- Expansion into new markets with the hiring of two senior
business development officers to open and manage loan production
offices in Warsaw and Indianapolis.
-- The opening of a sixth full-service financial center in
southwest Fort Wayne. In addition, the Angola loan production
office will become a seventh full-service financial center in
August of this year.
Donald F. Schenkel, Chairman and Chief Executive Officer, commented, "This has been an extremely productive quarter for us. We continue to launch new products, expand our network of financial centers locally as well as into new geographic markets, and position the organization for growth and greater efficiencies going forward. While the current quarter reflects a higher level of investment as a result of these initiatives, we are excited by the growing profit potential we see from virtually every market and business line."
Total revenue, consisting of net interest income and non-interest income, was $6.1 million for the second quarter of 2006, an increase of 14.3 percent over the $5.3 million reported for the prior-year quarter. Net interest income grew 15.4 percent to $5.0 million, reflecting a 20.4 percent increase in average earning assets, partially offset by a 15 basis point decline in the net interest margin to 3.60 percent. For the first six months of 2006, total revenue was $12.2 million, up 19.4 percent from the prior-year six-month period. Year-to-date, net interest income was $9.7 million, an increase of 16.8 percent above the comparable 2005 period; average earning assets grew 17.7 percent, while the net interest margin was virtually unchanged from the 3.69 percent reported for the first six months of 2005. Mr. Schenkel noted that the company has taken a conservative approach to the interest rate uncertainties; Tower's formerly asset-sensitive balance sheet is now essentially neutral, and it will remain so until the Federal Reserve changes its present policy. "While there was an opportunity cost this quarter," Mr. Schenkel continued, "we believe that future rate changes will have a minimal impact on Tower."
Fee income moderated from an extremely robust first quarter. Non-interest income for the second quarter of 2006 was $1.1 million, up 9.5 percent from the $1.0 million reported in the second quarter of 2005, but $295,000 below the first quarter of this year. Trust and brokerage fees contributed $603,500, up $65,100 or 12.1 percent, from the year-ago quarter and $187,000 lower than the previous quarter where the comparison is skewed by the approximately $200,000 in large estate fees received in the first quarter. According to Mr. Schenkel, "Trust services continue to expand, although asset growth and fee income have moderated as a result of lackluster stock market performance." Tower Private Advisors currently manages $505.5 million in combined trust and brokerage assets compared with $434.9 million in combined assets a year ago, an increase of 16.2 percent.
Non-interest expense for the second quarter of 2006 was $4.3 million, a 25.6 percent increase over the $3.5 million reported for the prior-year second quarter, most of which was growth related. "We made exceptional progress on several fronts: hiring high quality bankers to lead our company into Indianapolis and Warsaw, and the staffing of the new Fort Wayne financial center, both of which contributed to the $501,000 or 24.3 percent increase in salaries and benefit expense; as well as the formation of two new investment subsidiaries that will reduce our effective tax rate. We believe the one-time $150,000 increase in professional fees related to subsidiaries' formation will be recaptured before year-end, and Tower should experience the benefits of enhanced profitability into future years." The efficiency ratio for the second quarter of 2006 was 71.62 percent compared with 65.22 percent for the prior-year second quarter, and 66.52 percent for the previous quarter.
Asset quality remains strong. Net charge-offs were $364,000 this quarter, or 0.30 percent of average loans on an annualized basis, somewhat higher than previous quarter charge-offs of $158,000 or 0.14 percent of average loans, but comparable to the year-ago quarter, with $334,000 in net charge-offs, equivalent to 0.32 percent of average loans. Non-performing assets plus delinquencies were $4.9 million, or 0.80 percent of total assets at June 30, 2006, up from $3.7 million last quarter, and $3.3 million for the year-ago quarter. Mr. Schenkel noted that approximately $1.0 million of the non-performing loans is backed by strong guarantees. Tower's allowance for loan losses was 1.22 percent of total loans at June 30, 2006.
Assets reached $609.8 million at June 30, 2006, a $102.3 million or 20.2 percent increase over the $507.5 million reported twelve months ago. Loans outstanding grew by $76.8 million, or 17.9 percent, reaching $506.1 million at period-end; other earning assets increased by $18.1 million, or 36.2 percent. Mr. Schenkel noted that the transition to a neutral balance sheet is virtually complete. Commercial loans (CRE plus C&I), the majority of which are variable-rate, now account for 75.9 percent of Tower's loan portfolio, while fixed-rate residential mortgages account for 14.1 percent; this compares with 78.7 percent and 11.2 percent, respectively, at year-end 2005. Deposits grew 10.2 percent over the twelve month period, to $510.2 million. Core deposits (excluding wholesale CDs) now comprise 57.3 percent of total deposits, boosted by the introduction of an internally-developed sweep account; this enabled Tower to retain approximately $27.9 million of money market accounts on its books that had formerly been outsourced overnight to a third-party vendor.
Shareholders' equity was $48.3 million at June 30, 2006, an increase of 5.7 percent from the $45.7 million reported twelve months ago. Tower continues to meet the requirements for "well-capitalized" banks; the total risk-based capital ratio was 12.62 percent. Period-end shares outstanding were 4,019,310. Mr. Schenkel concluded, "We are on track for another successful year as we expand into new markets and provide a greater variety of high-quality services. As we grow, we are committed to maintain a community banking model, serving the diverse financial needs of our businesses and consumers with greater convenience and a higher level of expertise and service. Basically, that is the key to our success."
ABOUT THE COMPANY
Headquartered in Fort Wayne, Indiana, Tower Financial Corporation is a financial services holding company for two subsidiaries: Tower Bank & Trust Company, a growing community bank that opened in February 1999; and Tower Trust Company, a state-chartered wealth services firm doing business as Tower Private Advisors. Tower Bank provides a wide variety of financial services to businesses and consumers located in Northeast Indiana through its six full-service financial centers in Fort Wayne and business development offices in Angola, Indianapolis and Warsaw, Indiana. Tower Financial Corporation's common stock is listed on the Nasdaq National Market under the symbol "TOFC." For further information, please visit Tower's web site at www.TOFC.net.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation and the Bank. These forward-looking statements are intended to be covered by the safe-harbor provisions of the Private Securities Reform Act of 1995.
These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Actual results and outcomes may differ materially from what may be expressed or forecasted in the forward-looking statements. Future factors include changes in interest rates and interest-rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies, trends in customer behavior and their ability to repay loans; changes in the national and local economy; and other factors, including risk factors, referred to from time to time in filings made by the Corporation with the Securities and Exchange Commission and available via EDGAR. These are representative of the future factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement. The Corporation undertakes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise.
Tower Financial Corporation
Consolidated Financial Highlights
Second Quarter 2006
(unaudited)
($ in thousands except for share data)
Quarterly
---------------------------------------------------
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
2006 2006 2005 2005 2005
--------- --------------------------------------
EARNINGS
Net interest
income $ 4,966 4,773 4,774 4,453 4,304
Provision for
loan loss $ 475 575 675 600 536
NonInterest
income $ 1,096 1,391 1,129 1,147 1,001
NonInterest
expense $ 4,343 4,100 3,797 3,578 3,460
Net income $ 912 993 938 933 842
Basic
earnings
per share $ 0.23 0.25 0.23 0.23 0.21
Diluted
earnings
per
share $ 0.22 0.24 0.23 0.23 0.21
Average
shares
outstanding 4,017,254 4,008,000 4,007,936 4,007,697 4,005,824
Average
diluted
shares
outstanding 4,128,151 4,105,496 4,037,920 4,093,426 4,073,011
PERFORMANCE RATIOS
Return on
average
assets(a) 0.61% 0.72% 0.70% 0.71% 0.69%
Return on
average
common
equity(a) 7.58% 8.42% 7.92% 8.02% 7.48%
Net interest
margin
(fully-tax
equivalent)(a) 3.60% 3.74% 3.79% 3.64% 3.75%
Efficiency
ratio 71.64% 66.52% 64.32% 63.89% 65.22%
Full-time
equivalent
employees 167.50 155.50 150.50 147.00 138.50
CAPITAL
Equity to
assets 7.92% 8.37% 8.47% 8.58% 9.01%
Regulatory
leverage ratio 10.24% 10.76% 11.08% 9.67% 10.12%
Tier 1
capital ratio 11.52% 11.88% 12.16% 10.44% 10.69%
Total
risk-based
capital ratio 12.62% 13.00% 13.24% 11.62% 11.90%
Book value
per
share $ 12.02 11.96 11.79 11.61 11.41
Cash
dividend
per share $ 0.04 0.04 n/a n/a n/a
ASSET QUALITY
Net
charge-offs $ 364 158 860 697 334
Net
charge-offs
to average
loans(a) 0.30% 0.14% 0.77% 0.63% 0.32%
Allowance for
loan losses $ 6,174 6,062 5,645 5,830 5,927
Allowance for
loan
losses to
total loans 1.22% 1.28% 1.25% 1.31% 1.38%
Nonperforming
loans $ 3,118 1,833 1,688 1,961 2,175
Other real
estate owned
(OREO) $ 430 509 244 -- 400
Nonperforming
assets (NPA) $ 3,548 2,342 1,932 1,961 2,575
90+ Day
delinquencies $ 1,304 1,380 864 1,136 765
NPA's plus
90 Days
delinquent $ 4,852 3,722 2,796 3,097 3,340
NPA's to
Total
assets 0.58% 0.41% 0.35% 0.36% 0.51%
NPA's+90 to
Total assets 0.80% 0.65% 0.50% 0.57% 0.66%
NPA's to
Loans + OREO 0.70% 0.49% 0.43% 0.44% 0.60%
END OF PERIOD BALANCES
Total assets $609,781 572,632 557,821 542,632 507,519
Total earning
assets $574,053 539,187 528,036 513,036 479,241
Total loans $506,077 473,998 450,391 443,365 429,331
Total deposits $510,235 472,178 460,951 467,538 429,678
Stockholders'
equity $ 48,319 47,951 47,268 46,537 45,712
AVERAGE BALANCES
Total assets $596,293 556,479 534,172 518,540 487,429
Total earning
assets $563,858 526,423 507,361 492,937 468,357
Total loans $491,533 458,642 441,719 437,426 418,564
Total deposits $501,012 459,803 455,988 440,969 410,019
Stockholders'
equity $ 48,232 47,846 46,997 46,182 45,131
(a) annualized for quarterly data
($ in thousands except for share data)
Year-To-Date
-----------------------------
2006 2005
-----------------------------
EARNINGS
Net interest income 9,739 8,337
Provision for loan loss 1,050 1,117
NonInterest income 2,487 1,908
NonInterest expense 8,443 6,706
Net income 1,905 1,569
Basic earnings per share 0.47 0.39
Diluted earnings per share 0.46 0.39
Average shares outstanding 4,012,652 4,004,497
Average diluted shares
outstanding 4,115,682 4,071,104
PERFORMANCE RATIOS
Return on average assets(a) 0.67% 0.66%
Return on average common
equity (a) 8.00% 7.05%
Net interest margin
(fully-tax equivalent)(a) 3.67% 3.69%
Efficiency ratio 69.06% 65.46%
Full-time equivalent
employees 167.50 138.50
CAPITAL
Equity to assets 7.92% 9.01%
Regulatory leverage ratio 10.24% 10.12%
Tier 1 capital ratio 11.52% 10.69%
Total risk-based capital
ratio 12.62% 11.90%
Book value per share 12.02 11.41
Cash dividend per share 0.08 n/a
ASSET QUALITY
Net charge-offs 522 798
Net charge-offs to average
loans(a) 0.22% 0.39%
Allowance for loan losses 6,174 5,927
Allowance for loan losses
to total loans 1.22% 1.38%
Nonperforming loans 3,118 2,175
Other real estate owned
(OREO) 430 400
Nonperforming assets (NPA) 3,548 2,575
90+ Day delinquencies 1,304 765
NPA's plus 90 Days delinquent 4,852 3,340
NPA's to Total assets 0.58% 0.51%
NPA's+90 to Total assets 0.80% 0.66%
NPA's to Loans + OREO 0.70% 0.60%
END OF PERIOD BALANCES
Total assets 609,781 507,519
Total earning assets 574,053 479,241
Total loans 506,077 429,331
Total deposits 510,235 429,678
Stockholders' equity 48,319 45,712
AVERAGE BALANCES
Total assets 576,386 482,584
Total earning assets 545,139 463,239
Total loans 475,086 411,679
Total deposits 480,407 401,185
Stockholders' equity 48,039 44,862
(a) annualized for quarterly data
Tower Financial Corporation
Consolidated Statements of Operations
For the three and six months ended June 30, 2006 and 2005
(unaudited)
For the Three For the Six
Months Ended Months Ended
June 30 June 30
------------------------ -------------------------
2006 2005 2006 2005
------------------------ -------------------------
Interest income:
Loans, including
fees $ 9,076,121 $ 6,372,476 $17,221,565 $12,133,057
Securities
- taxable 524,597 231,258 1,015,161 478,548
Securities
- tax exempt 169,863 134,632 317,255 269,361
Other
interest
income 162,912 122,003 307,915 203,787
------------------------ -------------------------
Total
interest
income 9,933,493 6,860,369 18,861,896 13,084,753
Interest expense:
Deposits 4,389,514 2,293,840 7,983,268 4,157,443
Short-term
borrowings -- 289
FHLB advances 369,069 181,405 721,249 428,105
Trust
preferred
securities 209,230 81,180 418,461 162,360
------------------------ -------------------------
Total
interest
expense 4,967,813 2,556,425 9,122,978 4,748,197
------------------------ -------------------------
Net interest
income 4,965,680 4,303,944 9,738,918 8,336,556
Provision for
loan losses 475,000 536,000 1,050,000 1,117,000
------------------------ -------------------------
Net interest
income after
provision for
loan losses 4,490,680 3,767,944 8,688,918 7,219,556
Noninterest income:
Trust and
brokerage
fees 603,542 538,442 1,394,498 1,038,583
Service
charges 141,182 169,285 319,864 317,437
Loan broker
fees 4,409 48,602 35,028 110,795
Other fees 346,630 244,513 737,674 440,950
------------------------ -------------------------
Total
noninterest
income 1,095,763 1,000,842 2,487,064 1,907,765
Noninterest expense:
Salaries
and benefits 2,564,673 2,063,704 5,067,656 3,988,543
Occupancy
and equipment 511,668 461,541 991,845 897,257
Marketing 124,290 153,211 296,636 309,743
Data
processing 177,644 101,602 323,611 223,920
Loan and
professional
costs 328,998 217,743 549,784 394,149
Office
supplies
and postage 122,457 70,843 229,096 141,043
Courier
service 86,939 83,464 179,645 162,696
Business
Development 138,511 101,060 243,455 196,741
Other expense 288,294 206,885 561,632 391,755
------------------------ -------------------------
Total
noninterest
expense 4,343,474 3,460,053 8,443,360 6,705,847
------------------------ -------------------------
Income before
income taxes 1,242,969 1,308,733 2,732,622 2,421,474
Income taxes
expense 330,990 467,160 827,690 853,050
------------------------ -------------------------
Net income $ 911,979 $ 841,573 $ 1,904,932 $ 1,568,424
======================== =========================
Basic earnings
per common
share $ 0.23 $ 0.21 $ 0.47 $ 0.39
Diluted earnings
per common
share $ 0.22 $ 0.21 $ 0.46 $ 0.39
Average common
shares
outstanding 4,017,254 4,005,824 4,012,652 4,004,497
Average common
shares and
dilutive potential
common shares
outstanding 4,128,151 4,073,011 4,115,682 4,071,104
Tower Financial Corporation
Consolidated Balance Sheets
At June 30, 2006, December 31, 2005, and June 30, 2005
(unaudited) (unaudited)
June 30 December 31 June 30
2006 2005 2005
---------------------------------------------------------------------
ASSETS
Cash and due from
banks $ 17,128,235 $ 14,326,710 $ 16,103,495
Short-term
investments
and interest-earning
deposits 570,783 16,393,439 7,288,779
Federal funds sold 7,607,458 7,188,188 8,070,223
--------------------------- ------------
Total cash
and cash
equivalents 25,306,476 37,908,337 31,462,497
Securities
available
for sale, at
fair value 56,376,624 50,642,276 31,130,188
FHLBI and FRB stock 3,421,300 3,421,300 3,421,300
Loans held for sale -- -- --
Loans 506,077,120 450,390,935 429,330,502
Allowance for loan
losses (6,173,559) (5,645,301) (5,927,453)
--------------------------- ------------
Net loans 499,903,561 444,745,634 423,403,049
Premises and
equipment, net 5,805,145 4,638,436 2,805,166
Accrued interest
receivable 3,096,079 2,802,189 2,258,330
Bank Owned Life
Insurance 10,654,906 10,462,402 10,262,237
Other assets 5,217,017 3,200,086 2,775,905
--------------------------- ------------
Total assets $609,781,108 $557,820,660 $507,518,672
=========================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 69,668,932 $ 66,742,748 $ 64,514,586
Interest-bearing 440,565,925 394,208,113 365,163,112
--------------------------- ------------
Total deposits 510,234,857 460,950,861 429,677,698
Short-term
borrowings -- -- --
Federal Home Loan
Bank advances 36,200,000 34,700,000 26,200,000
Junior subordinated
debt 11,856,000 11,856,000 3,608,000
Accrued interest
payable 1,251,100 954,075 665,315
Other liabilities 1,920,190 2,091,670 1,655,753
--------------------------- ------------
Total liabilities 561,462,147 510,552,606 461,806,766
STOCKHOLDERS' EQUITY
Preferred stock, no
par value, 4,000,000 shares
authorized; no shares issued
and outstanding.
Common stock and
paid-in-capital, no par
value, 6,000,000 shares
authorized; issued and
outstanding - 4,019,310
shares at June 30,2006
and, 4,007,936 shares
at December 31, 2005,
and 4,007,686 shares
at June 30, 2005 38,210,903 38,006,929 38,003,894
Retained earnings 11,062,884 9,478,812 7,608,579
Accumulated other
comprehensive income
(loss), net of tax of
$(537,090) at June 30, 2006
and $(122,449)at
December 31, 2005,
and $55,931 at
June 30, 2005 (954,826) (217,687) 99,433
--------------------------- ------------
Total stockholders'
equity 48,318,961 47,268,054 45,711,906
--------------------------- ------------
Total liabilities and
stockholders' equity $609,781,108 $557,820,660 $507,518,672
=========================== ============