FORT WAYNE, Ind., Oct. 13, 2006 (PRIMEZONE) -- Tower Financial Corporation (Nasdaq:TOFC) today announced third quarter 2006 net income of $973,000, an increase of 4.3 percent from the $932,700 reported for the third quarter of 2005. Diluted earnings per share were $0.24, up 4.3 percent from third quarter 2005 earnings of $0.23 per share. Performance reflects continued strong balance sheet and non-interest income growth, partially offset by margin compression and expenditures related to expansion.
For the first nine months of 2006, net income was $2.9 million compared with $2.5 million for the prior-year nine months, an increase of 15.1 percent. Diluted earnings increased 14.8 percent over the 2005 period, from $0.61 to $0.70 per share.
Third quarter and year-to-date highlights include:
-- Loan growth remains strong, up $27.0 million or 5.3 percent
from the previous quarter and $82.7 million or 18.4 percent
year-to-date; growth has been consistent in all categories
throughout the year, with commercial loans (C&I and CRE
combined) contributing approximately 52 percent of loan
growth and residential real estate approximately 38 percent.
Tower continues to neutralize the sensitivity of its loan
portfolio by retaining a higher level of fixed-rate mortgages
on its balance sheet.
-- Total revenue growth continues to be exceptionally strong,
up 17.8 percent for the 2006 nine-month period compared
with the prior year. Year-to-date, earning assets increased
18.5 percent. The impact of the five basis point decline
in nine-month margin year-over-year to 3.62 percent was
more than offset by the $690,000 or 22.6 percent,
improvement in fee income.
-- Based on the availability of a key hire -- William H.
Olds, Jr. -- the Company recently announced the filing of
an application to form Tower Bank of Central Indiana, a
de novo community bank serving Indianapolis and the Central
Indiana marketplace. The bank is expected to open in early
2007, and will be modeled on the Company's flagship Fort
Wayne community bank. With a local management team in
place under the leadership of Bill Olds, as well as
directors and investors from the Greater Indianapolis area,
the new community bank will have the flexibility to develop
strategies specifically tailored to Indianapolis and the
Central Indiana market.
-- During the second quarter, the Company invested $150,000
to form two investment subsidiaries that went into effect
on July 1, 2006; the impact of this one-time investment
is an ongoing reduction of approximately five percent in
Tower's effective tax rate.
Donald F. Schenkel, chairman, president and CEO, commented, "We continue to make exceptional progress by expanding our business through geographic and product diversification. Our expansion strategy is based on the success of our Fort Wayne community banking model, which was founded to meet the banking needs of its local marketplace. Whenever we find exceptional local banking talent, we move decisively to structure a banking facility that will allow us to execute the Tower model in a new market. This approach has worked for us in Angola, and we now have key bankers, with strong leadership abilities, in place in Warsaw and Indianapolis. We have a disciplined growth plan in place, and anticipate that our revenue-generating initiatives will thrive as Tower becomes better known in each of its new markets."
Total revenue, consisting of net interest income and non-interest income, was $6.4 million for the third quarter of 2006, an increase of 15.0 percent over the $5.6 million reported for the prior-year quarter. Net interest income grew 16.4 percent to $5.2 million, reflecting a 16.7 percent increase in average earning assets, partially offset by a 10 basis point decline in the net interest margin to 3.54 percent.
For the first nine-months of 2006, total revenue rose 17.8 percent compared with the prior year. Net interest income increased 16.7 percent as average earning assets rose 18.5 percent. The impact of a five basis point decline in the nine-month interest margin to 3.62 percent was more than offset by the $690,000, or 22.6 percent, improvement in fee income. Mr. Schenkel added, "Funding costs continue to be a challenge; in this highly competitive environment, our deposit mix continues to price upward while loan yields have been relatively flat. Our increasingly diversified revenue stream has allowed us to manage revenue growth despite the challenging interest rate environment."
Non-interest income for the third quarter of 2006 was $1.3 million, up 11.3 percent from the $1.2 million reported in the third quarter of 2005, and 14.9 percent above the preceding quarter. Trust and brokerage fees, which contribute over 50 percent of total fee income, resumed their strong growth trend after a lower-than-anticipated second quarter reflecting the lackluster performance of the stock market. Trust and brokerage fees for the current quarter were $717,700, up $176,600 or 32.6 percent from the year-ago quarter, and $114,100 or 18.9 percent greater than the previous quarter. Tower Private Advisors continues to build its wealth management franchise and currently manages $526.7 million in combined trust and brokerage assets compared with $456.1 million in combined assets a year ago, an increase of 15.5 percent.
Growth in non-interest expense continues to reflect Tower's expansion initiatives over the past year as the Company pursues new markets beyond its Fort Wayne hub. In addition to a sixth full-service financial center in Fort Wayne in the second quarter of 2006, Tower has expanded into Indianapolis and Warsaw with loan production offices, converted its Angola LPO into a full-service financial center, and recently announced its plan to organize a de novo community bank in Indianapolis. Mr. Schenkel commented, "The new offices in Warsaw and Angola allow us to serve our Northeast Indiana constituency more efficiently. However, our business model calls for each distinct geographic region to be managed locally, which led us to organize Tower Bank of Central Indiana with its own board of local business leaders and its own management team. Thus far, we have invested approximately $100,000, which we believe is modest relative to the upside we envision. The bank should open early in 2007, with a strategy to serve the needs of the Greater Indianapolis marketplace."
Non-interest expense for the third quarter of 2006 was $4.4 million, a 23.4 percent increase over the $3.6 million reported for the prior-year period. Salary and benefits expense, up 24.7 percent, accounted for approximately 61 percent of the total increase; this related to the addition of 33.5 employees (full-time equivalent) year-over-year, up 22.8 percent to 180.5, who were hired to support operations as well as staff the new offices. Operating expenses have remained in line with asset growth throughout 2006 despite the elevated level of investment in people and infrastructure; as a percent of average assets, operating expenses (annualized) have declined from a high of 2.95 percent in the first quarter of 2006 to 2.84 percent for the current quarter. The efficiency ratio for the third quarter of 2006 was 68.59 percent compared with 63.89 percent for the prior-year third quarter, and down from the 71.64 percent reported for the previous quarter.
Asset quality has remained sound with a declining level of net charge-offs in YTD 2006 compared with the prior-year nine-month period. Net charge-offs were $238,000 this quarter, or 0.18 percent of average loans on an annualized basis; year-to-date, annualized net charge-offs were 0.21 percent compared with 0.48 percent in 2005. Non-performing assets have been trending upward during the course of the past year until this recent quarter. At September 30, 2006, non-performing assets plus delinquencies were $4.5 million, or 0.70 percent of total assets, compared with $4.9 million or 0.80 percent for the previous quarter and $3.1 million or 0.57 percent for the year-ago period. Tower's allowance for loan losses was 1.23 percent of total loans at September 30, 2006.
Asset growth remains strong, reaching $643.7 million at September 30, 2006, a $101.1 million or 18.6 percent increase over the $542.6 million reported twelve months ago. Loans outstanding grew $89.7 million, or 20.2 percent, reaching $533.1 million at period-end. Commercial loan (CRE plus C&I) growth continues at a solid pace. Since year-end 2005, commercial loans increased $43.8 million or 12.4 percent (16.5 percent annualized) to $398.3 million, and now account for 74.7 percent of Tower's loan portfolio. Tower has been retaining fixed-rate mortgages in its portfolio to neutralize the interest-rate sensitivity of its balance sheet; year-to-date, residential mortgages grew $31.6 million or 62.9 percent, to $81.9 million, or 15.4 percent of Tower's loan portfolio, compared with $50.3 million, or 11.2 percent at year-end 2005.
Deposits reached $554.3 million at September 30, 2006, up 18.6 percent compared with the year-ago period. Time deposits, including retail, local jumbo and out-of-market CDs, account for 59.1 percent of total deposits, all of which are comparable in cost and for which the competition is increasingly fierce. Since year-end, non-interest bearing demand deposits increased $10.5 million to $77.2 million, up 15.7 percent (20.9 percent annualized).
Shareholders' equity was $49.9 million at September 30, 2006, an increase of 7.2 percent from the $46.5 million reported twelve months ago. Tower continues to meet the requirements for "well-capitalized" banks; the total risk-based capital ratio was 12.35 percent. Period-end common shares outstanding were 4,025,560.
Mr. Schenkel concluded, "We are excited to extend our reach to new markets within Indiana, where our combination of quality products and service, combined with local delivery and decision-making, distinguish Tower from other area banks. We look forward to leveraging our current investments into an even stronger income stream in future years."
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 headquartered in Fort Wayne 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 Indiana through its six full-service financial centers in Fort Wayne and a seventh in Angola, and business development offices in Indianapolis and Warsaw, Indiana. The Company has also applied for a charter to open a de novo bank to serve the Greater Indianapolis market. Tower Financial Corporation's common stock is listed on the Nasdaq Global 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 some predictive statements about future events, including statements related to conditions in the financial services industry, the economy, and about Tower Financial Corporation and its banking and trust company subsidiaries. These statements are intended to be made as "forward-looking," subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Such predictive statements are not guarantees of future performance, and actual results could differ materially from our current expectations.
Factors that could cause such predictive statements to turn out other than as anticipated or predicted include, among others: changes in general economic conditions affecting the demand for or the cost of credit; changes in interest rates and in interest rate relationships; the degree of competition by both traditional and non-traditional competitors; changes in banking regulation; changes in the tax laws; the impact of technological advances; changes in the national or local economies, including those that affect borrowers' ability to repay loans; and other factors, including various "risk factors" as set forth in our most recent Annual Report on Form 10-K and in other reports which we from time to time file with the Securities and Exchange Commission. These reports are available publicly on the SEC website, www.sec.gov, and on Tower Financial Corporation's website, www.TOFC.net.
Forward-looking or predictive statements we make are based on our knowledge of our businesses and the environment in which they operate as of the date on which the statements are made. Due to these risks and uncertainties, as well as other matters beyond our control which can affect forward-looking statements, you are cautioned not to place undue reliance on these predictive statements, which speak only as of the date of this presentation. We undertake no duty to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Tower Financial Corporation
Consolidated Financial Highlights
Third Quarter 2006
(unaudited)
Quarterly
($ in thousands -----------------------------------------------------
except for 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
share data) 2006 2006 2006 2005 2005
--------- --------- --------- --------- ---------
EARNINGS
Net interest
income $ 5,182 4,966 4,773 4,774 4,453
Provision for
loan loss $ 645 475 575 675 600
NonInterest
income $ 1,259 1,096 1,391 1,129 1,147
NonInterest
expense $ 4,417 4,343 4,100 3,797 3,578
Net income $ 973 912 993 938 933
Basic earnings
per share $ 0.24 0.23 0.25 0.23 0.23
Diluted
earnings
per share $ 0.24 0.22 0.24 0.23 0.23
Average
shares out-
standing 4,022,071 4,017,254 4,008,000 4,007,936 4,007,697
Average diluted
shares out-
standing 4,123,773 4,128,151 4,105,496 4,037,920 4,093,426
PERFORMANCE
RATIOS
Return on
average
assets(a) 0.62% 0.61% 0.72% 0.70% 0.71%
Return on
average common
equity(a) 7.92% 7.58% 8.42% 7.92% 8.02%
Net interest
margin (fully-
tax
equivalent)(a) 3.54% 3.60% 3.74% 3.79% 3.64%
Efficiency
ratio 68.58% 71.64% 66.52% 64.32% 63.89%
Full-time
equivalent
employees 180.50 167.50 155.50 150.50 147.00
CAPITAL
Equity to
assets 7.75% 7.92% 8.37% 8.47% 8.58%
Regulatory
leverage
ratio 9.92% 10.24% 10.76% 11.08% 9.67%
Tier 1 capital
ratio 11.23% 11.52% 11.88% 12.16% 10.44%
Total risk-
based capital
ratio 12.35% 12.62% 13.00% 13.24% 11.62%
Book value
per share $ 12.39 12.02 11.96 11.79 11.61
Cash dividend
per share $ 0.04 0.04 0.04 n/a n/a
ASSET QUALITY
Net charge-
offs $ 238 364 158 860 697
Net charge-offs
to average
loans(a) 0.18% 0.30% 0.14% 0.77% 0.63%
Allowance for
loan losses $ 6,581 6,174 6,062 5,645 5,830
Allowance for
loan losses to
total loans 1.23% 1.22% 1.28% 1.25% 1.31%
Nonperforming
loans $ 4,034 3,118 1,833 1,688 1,961
Other real
estate owned
(OREO) $ 465 430 509 244 --
Nonperforming
assets (NPA) $ 4,499 3,548 2,342 1,932 1,961
90+ Day
delinquencies $ 23 1,304 1,380 864 1,136
NPAs plus
90 Days
delinquent $ 4,522 4,852 3,722 2,796 3,097
NPAs to Total
assets 0.70% 0.58% 0.41% 0.35% 0.36%
NPAs +90 to
Total assets 0.70% 0.80% 0.65% 0.50% 0.57%
NPAs to Loans
+ OREO 0.84% 0.70% 0.49% 0.43% 0.44%
END OF PERIOD
BALANCES
Total assets $ 643,725 609,781 572,632 557,821 542,632
Total earning
assets $ 607,114 574,053 539,187 528,036 513,036
Total loans $ 533,057 506,077 473,998 450,391 443,365
Total deposits $ 554,335 510,235 472,178 460,951 467,538
Stockholders'
equity $ 49,895 48,319 47,951 47,268 46,537
AVERAGE BALANCES
Total assets $ 621,597 596,293 556,479 534,172 518,540
Total earning
assets $ 591,632 563,858 526,423 507,361 492,937
Total loans $ 520,260 491,533 458,642 441,719 437,426
Total deposits $ 528,961 501,012 459,803 455,988 440,969
Stockholders'
equity $ 48,731 48,232 47,846 46,997 46,182
(a) annualized for quarterly data
($ in thousands Year-To-Date
except for share data) ------------------------
2006 2005
---------- ----------
EARNINGS
Net interest income $ 14,923 12,790
Provision for loan loss $ 1,695 1,717
NonInterest income $ 3,746 3,055
NonInterest expense $ 12,861 10,284
Net income $ 2,880 2,502
Basic earnings per share $ 0.72 0.62
Diluted earnings per share $ 0.70 0.61
Average shares outstanding 4,015,826 4,005,575
Average diluted shares outstanding 4,134,131 4,078,027
PERFORMANCE RATIOS
Return on average assets(a) 0.65% 0.68%
Return on average common equity(a) 7.98% 7.38%
Net interest margin
(fully-tax equivalent)(a) 3.62% 3.67%
Efficiency ratio 68.89% 64.90%
Full-time equivalent employees 180.50 147.00
CAPITAL
Equity to assets 7.75% 8.58%
Regulatory leverage ratio 9.92% 9.67%
Tier 1 capital ratio 11.23% 10.44%
Total risk-based capital ratio 12.35% 11.62%
Book value per share $ 12.39 11.61
Cash dividend per share $ 0.12 n/a
ASSET QUALITY
Net charge-offs $ 760 1,495
Net charge-offs to average loans(a) 0.21% 0.48%
Allowance for loan losses $ 6,581 5,830
Allowance for loan losses to
total loans 1.23% 1.31%
Nonperforming loans $ 4,034 1,961
Other real estate owned (OREO) $ 465 0
Nonperforming assets (NPA) $ 4,499 1,961
90+ Day delinquencies $ 23 1,136
NPAs plus 90 Days delinquent $ 4,522 3,097
NPAs to Total assets 0.70% 0.36%
NPAs+90 to Total assets 0.70% 0.57%
NPAs to Loans + OREO 0.84% 0.44%
END OF PERIOD BALANCES
Total assets $ 643,725 542,632
Total earning assets $ 607,114 513,036
Total loans $ 533,057 443,365
Total deposits $ 554,335 467,538
Stockholders' equity $ 49,895 46,537
AVERAGE BALANCES
Total assets $ 591,456 494,570
Total earning assets $ 560,638 473,139
Total loans $ 490,145 420,261
Total deposits $ 496,592 414,446
Stockholders' equity $ 48,270 45,302
(a) annualized for quarterly data
Tower Financial Corporation
Consolidated Balance Sheets
At September 30, 2006, December 31, 2005, and September 30, 2005
(unaudited) (unaudited)
Sept 30 December 31 Sept 30
2006 2005 2005
------------------------------------------------------ ------------
ASSETS
Cash and due from banks $ 17,722,973 $ 14,326,710 $ 16,236,559
Short-term investments and
interest-earning deposits 5,251,446 16,393,439 26,712,330
Federal funds sold 5,903,441 7,188,188 3,816,104
-------------------------- ------------
Total cash and cash
equivalents 28,877,860 37,908,337 46,764,993
Securities available for
sale, at fair value 59,668,043 50,642,276 35,721,634
FHLBI and FRB stock 3,233,800 3,421,300 3,421,300
Loans 533,057,067 450,390,935 443,365,485
Allowance for loan losses (6,580,761) (5,645,301) (5,829,697)
-------------------------- ------------
Net loans 526,476,306 444,745,634 437,535,788
Premises and equipment, net 5,856,732 4,638,436 3,892,134
Accrued interest receivable 3,341,940 2,802,189 2,162,878
Bank Owned Life Insurance 10,752,278 10,462,402 --
Other assets 5,517,567 3,200,086 13,133,518
-------------------------- ------------
Total assets $643,724,526 $557,820,660 $542,632,245
========================== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 77,229,926 $ 66,742,748 $ 83,254,826
Interest-bearing 477,105,510 394,208,113 384,283,278
-------------------------- ------------
Total deposits 554,335,436 460,950,861 467,538,104
Short-term borrowings -- -- --
Federal Home Loan Bank
advances 23,700,000 34,700,000 22,200,000
Junior subordinated debt 11,856,000 11,856,000 3,608,000
Accrued interest payable 1,533,680 954,075 777,337
Other liabilities 2,404,201 2,091,670 1,972,050
-------------------------- ------------
Total liabilities 593,829,317 510,552,606 496,095,491
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- 4,025,560 shares
at September 30, 2006 and
4,007,936 shares at
December 31, 2005 and
September 30, 2005 38,308,319 38,006,929 38,006,930
Retained earnings 11,839,994 9,478,812 8,541,238
Accumulated other
comprehensive income (loss),
net of tax of $(152,822) at
September 30, 2006,
$(122,449) at December 31,
2005, and $(6,420) at
September 30, 2005 (253,104) (217,687) (11,414)
-------------------------- ------------
Total stockholders'
equity 49,895,209 47,268,054 46,536,754
-------------------------- ------------
Total liabilities and
stockholders' equity $643,724,526 $557,820,660 $542,632,245
========================== ============
(a) annualized for quarterly data
Tower Financial Corporation
Consolidated Statements of Operations
For the three and nine months ended September 30, 2006 and 2005
(unaudited)
For the For the
Three Months Ended Nine Months Ended
Sept 30 Sept 30
------------------------ ------------------------
2006 2005 2006 2005
----------------- ------------------------ ------------------------
Interest income:
Loans, including
fees $10,040,721 $ 7,084,500 $27,264,488 $19,217,557
Securities
- taxable 565,520 225,580 1,580,679 704,128
Securities
- tax exempt 181,699 131,878 498,954 401,239
Other interest
income 117,457 150,666 425,374 354,453
------------------------ ------------------------
Total interest
income 10,905,397 7,592,624 29,769,495 20,677,377
Interest expense:
Deposits 5,142,295 2,836,590 13,125,563 6,994,033
Short-term
borrowings -- -- -- 289
FHLB advances 372,355 221,888 1,093,602 649,993
Trust preferred
securities 209,230 81,180 627,692 243,540
------------------------ ------------------------
Total interest
expense 5,723,880 3,139,658 14,846,857 7,887,855
------------------------ ------------------------
Net interest income 5,181,517 4,452,966 14,922,638 12,789,522
Provision for
loan losses 645,000 600,000 1,695,000 1,717,000
------------------------ ------------------------
Net interest income
after provision
for loan losses 4,536,517 3,852,966 13,227,638 11,072,522
Noninterest income:
Trust and
brokerage fees 717,772 541,191 2,112,270 1,579,775
Service charges 174,943 232,195 494,806 549,632
Loan broker fees 25,955 64,723 60,983 175,518
Other fees 340,015 309,108 1,077,690 750,059
------------------------ ------------------------
Total noninterest
income 1,258,685 1,147,217 3,745,749 3,054,984
Noninterest expense:
Salaries and
benefits 2,685,003 2,154,043 7,752,658 6,142,586
Occupancy and
equipment 555,323 447,331 1,547,168 1,344,588
Marketing 146,472 115,340 443,108 425,083
Data processing 177,223 111,974 500,834 335,894
Loan and
professional costs 197,917 271,081 747,701 665,229
Office supplies
and postage 104,643 75,638 333,739 216,681
Courier service 91,687 83,308 271,332 246,004
Business Development 146,947 108,733 390,402 305,474
Other expense 312,001 210,805 873,635 602,561
------------------------ ------------------------
Total noninterest
expense 4,417,216 3,578,253 12,860,577 10,284,100
------------------------ ------------------------
Income before
income taxes 1,377,986 1,421,930 4,112,810 3,843,406
Income taxes
expense 405,020 489,270 1,232,710 1,342,320
------------------------ ------------------------
Net income $ 972,966 $ 932,660 $ 2,880,100 $ 2,501,086
======================== ========================
Basic earnings per
common share $ 0.24 $ 0.23 $ 0.72 $ 0.62
Diluted earnings
per common share $ 0.24 $ 0.23 $ 0.70 $ 0.61
Average common
shares outstanding 4,022,071 4,007,697 4,015,826 4,005,575
Average common
shares and dilutive
potential common
shares outstanding 4,123,773 4,093,426 4,134,131 4,078,027