FORT WAYNE, Ind., April 20, 2007 (PRIME NEWSWIRE) -- Tower Financial Corporation (Nasdaq:TOFC) today announced first quarter 2007 net income of $177,000, a decline of 82.2 percent from the $993,000 reported for the first quarter of 2006. Diluted earnings per share were $0.04, down 83.3 percent from first quarter 2006 earnings of $0.24 per share.
The following factors shaped first quarter performance:
* Net interest income grew 10.0 percent year over year, with average earning asset growth of 20.4 percent more than offsetting continued pressure on the net interest margin. * The trust company has continued to thrive, building profitability as it gains market share in Fort Wayne, as evidenced by the 13.9 percent increase in assets under management to $574 million. The transition to an independent charter has been even more favorable than anticipated, generating record revenue growth, and even greater bottom line profitability. * The Company identified two lending relationships with elements of weakness. Both are current and collateralized by real property. To address the possibility of any further deterioration, the Company increased its first quarter provision by an additional $775,000, to $1.4 million. * The independently-chartered Tower Bank of Central Indiana (TBCI) received regulatory approval from the DFI in March but is still waiting for FDIC approval. Upon formation, TBCI will become a consolidated affiliate of Tower Financial, who will retain 51 percent ownership. To date, TBCI development costs were $528,000 through March 31, 2007, including $175,000 of costs incurred during the first quarter of 2007.
Donald F. Schenkel, chairman, president and CEO, said, "Our disappointing first quarter earnings resulted from the convergence of factors that simultaneously delayed revenues, maintained higher operating expenses levels, and affected asset quality.
"Although the fundamentals of our business remain strong, we want to respond quickly and completely to signs of weakness or further deterioration in our performance. We are modeling a number of possible outcomes to address the uncertainties inherent in our economy and our company's performance. For example, we have responded proactively to increase the first quarter loan loss provision -- even though the loans are still current and performing."
Revenue
Total revenue, consisting of net interest income and non-interest income, was $6.8 million for the first quarter of 2007, an increase of 9.3 percent over the $6.2 million reported in the prior-year first period. Net interest income grew 10.1 percent to $5.2 million, reflecting a 20.4 percent increase in average earning assets year over year, partially offset by a 31 basis point decline in the quarterly average net interest margin, to 3.43 percent. Mr. Schenkel added, "Challenges within the industry from the yield curve and increased competition for loans and deposits dictate that we be selective in adding new assets to maintain our profit levels. It is important, however, that we strike the right balance between relationship building and growth for growth's sake."
Fee income has become an increasingly important element in Tower's diversification strategy, and a key component of total revenue; fees contributed approximately 22.1 percent of revenue this quarter. Non-interest income was $1.5 million, up 7.03 percent from the $1.4 million reported in the first quarter of 2006. Trust and brokerage fees of $845,900 accounted for 56.8 percent of non-interest income this quarter; they rose $54,900 or 6.9 percent compared with the year-ago first quarter. The comparison with the 2006 first quarter suffers from the impact of approximately $200,000 of rarely-recurring income from a large estate settlement fee booked last year. Excluding this one fee, 2007 trust income would have been approximately 43 percent ahead of first quarter 2006. Compared to the linked quarter, trust fees increased $151,900 or 21.9 percent.
Service charge income increased to $265,330, up $86,650, or 48.5 percent, over the first quarter of 2006, and $36,900, or 16.1 percent, higher than the previous quarter; growth in service fee income was largely derived from the overdraft protection product introduced during the fourth quarter of 2006, and from sign-up fees for HSA accounts implemented during the first quarter of 2007.
Non-Interest Expense
Non-interest expense for the first quarter of 2007 was $5.2 million, up 25.9 percent over the $4.1 million reported for the first quarter of 2006, but 1.6 percent lower than the linked quarter. The increase supported Tower's expansion initiatives in Indianapolis, Warsaw, Angola and in Fort Wayne, where a sixth branch was added last year; all are coming on line within a twelve-month period. Salaries, benefits and occupancy expense together rose 23.5 percent year over year; FTE employees totaled 192 at year-end, 36 employees or 23.3 percent higher than a year earlier. While Tower added six employees since year-end, salary expense declined $191,300 on a linked quarter basis, or 6.0 percent, reflecting the $285,000 of severance paid to a former executive in the fourth quarter. The efficiency ratio for the first quarter of 2007 was 76.14 percent compared with 66.52 percent for the prior year first quarter, and 77.70 percent for the previous quarter.
Asset Quality
Tower identified two major relationships this quarter that were still performing, but management decided there was an underlying weakness that could compromise the bank's ability to collect. As a result, Tower took a special provision of approximately $775,000. Since the loans are still performing, it is difficult to get a clear determination on the resolution of these real-estate supported loans, but management continues to work with the borrowers to reduce outstandings.
For the first quarter of 2007, net charge-offs were $632,000, or 0.47 percent of average loans (annualized) compared with $210,000, or 0.15 percent for the linked quarter, and $158,000, or 0.14 percent for the prior-year quarter. Non-performing assets plus delinquencies were $6.5 million, or 0.96 percent of total assets at March 31, 2007, up from $3.7 million and 0.65 percent of total assets, respectively, twelve months ago, and $4.8 million and 0.72 percent, respectively, from the preceding quarter. Tower's allowance for loan losses is 1.35 percent of total loans at March 31, 2007, up from 1.28 percent for the previous quarter.
Balance Sheet
Assets reached $683.0 million at March 31, 2007, a 19.3 percent increase over the $572.6 million reported twelve months ago, and a 1.8 percent (7.1 percent annualized) increase over the $671.2 million reported at 2006 year end. Loans outstanding grew by $94.5 million, or 19.9 percent year over year, reaching $568.5 million at period-end. Year-over-year loan growth was driven by commercial loans (CRE plus C&I), which accounted for $59.9 million, or 63.4 percent of loan growth. Compared with the linked quarter, however, residential real estate was the largest contributor to loan growth, accounting for $7.6 million, or 41.9 percent, of loan growth during the first quarter of 2007; residential real estate now accounts for 16.0 percent of the bank's loan portfolio, compared with 13.4 percent at March 31, 2006.
Deposits grew 24.9 percent over the twelve-month period, to $589.8 million. The bank has successfully increased its core deposit base (DDA, savings, NOW, money market accounts and retail CDs), which now comprises 58.1 percent of total deposits, compared with 56.4 percent for the year-ago period, and 57.3 percent for the linked period. The increase in core deposits is attributable to the $11.3 million year-over-year growth of NOW accounts, which include the bank's HSA accounts; the $56.8 million increase in money market accounts, of which approximately $50 million is attributable to the introduction of Tower's sweep account product; and a $19.4 million increase in retail CDs.
Shareholders' equity was $51.7 million at March 31, 2007, an increase of 7.2 percent from the $48.0 million reported twelve months ago. Tower continues to meet the requirements for "well-capitalized" banks; the total risk-based capital ratio was 12.97 percent, virtually unchanged from 13.0 percent for the year-ago quarter, despite the inception of a $0.04 quarterly cash dividend last year, which was subsequently raised by 10 percent last quarter. Period-end shares outstanding were 4,072,332.
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 been approved for a state charter to form a de novo bank to serve the Greater Indianapolis market. FDIC approval is pending. 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 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
First Quarter 2007
(unaudited)
Quarterly
-----------------------------------------------------
($ in thousands 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
except for 2007 2006 2006 2006 2006
share data) --------- --------- --------- --------- ---------
EARNINGS
Net interest
income $ 5,251 5,347 5,182 4,944 4,773
Provision for
loan loss $ 1,425 500 645 475 575
NonInterest
income $ 1,529 1,380 1,259 1,118 1,391
NonInterest
expense $ 5,162 5,227 4,417 4,343 4,100
Net income $ 177 810 973 912 993
Basic earnings
per share $ 0.04 0.20 0.24 0.23 0.25
Diluted
earnings
per share $ 0.04 0.20 0.24 0.22 0.24
Average
shares
outstanding 4,065,657 4,068,657 4,022,071 4,017,254 4,008,000
Average
diluted
shares
outstanding 4,163,169 4,163,169 4,123,773 4,128,151 4,105,496
PERFORMANCE
RATIOS
Return on
average
assets * 0.11% 0.49% 0.62% 0.61% 0.72%
Return on
average
common
equity * 1.41% 6.41% 7.92% 7.58% 8.42%
Net interest
margin
(fully-tax
equivalent) * 3.43% 3.52% 3.54% 3.58% 3.74%
Efficiency
ratio 76.14% 77.70% 68.58% 71.64% 66.52%
Full-time
equivalent
employees 191.75 186.25 180.50 167.50 155.50
CAPITAL
Equity to
assets 7.52% 7.59% 7.75% 7.92% 8.37%
Regulatory
leverage
ratio 10.28% 10.46% 9.92% 10.24% 10.76%
Tier 1
capital
ratio 11.81% 11.93% 11.23% 11.52% 11.88%
Total
risk-based
capital
ratio 12.97% 13.05% 12.35% 12.62% 13.00%
Book value
per share $ 12.62 12.60 12.39 12.02 11.96
Cash dividend
per share $ 0.044 0.04 0.04 0.04 0.04
ASSET QUALITY
Net
charge-offs $ 632 210 238 364 158
Net
charge-offs
to average
loans * 0.47% 0.15% 0.18% 0.30% 0.14%
Allowance for
loan losses $ 7,663 6,870 6,581 6,174 6,062
Allowance for
loan losses
to total
loans 1.35% 1.25% 1.23% 1.22% 1.28%
Nonperforming
loans $ 5,239 3,977 4,034 3,118 1,833
Other real
estate
owned (OREO) $ 744 370 465 430 509
Nonperforming
assets (NPA) $ 5,983 4,347 4,499 3,548 2,342
90+ Day
delinquencies $ 564 487 23 1,304 1,380
NPAs plus 90
Days
delinquent $ 6,547 4,834 4,522 4,852 3,722
NPAs to Total
assets 0.88% 0.65% 0.70% 0.58% 0.41%
NPAs+90 to
Total assets 0.96% 0.72% 0.70% 0.80% 0.65%
NPAs to
Loans + OREO 1.05% 0.79% 0.84% 0.70% 0.49%
END OF PERIOD
BALANCES
Total assets $ 683,032 671,155 643,725 609,781 572,632
Total earning
assets $ 651,077 637,491 607,114 574,053 539,187
Total loans $ 568,481 550,450 533,057 506,077 473,998
Total deposits $ 589,802 586,780 554,335 510,235 472,178
Stockholders'
equity $ 51,386 50,958 49,895 48,319 47,951
AVERAGE
BALANCES
Total assets $ 664,026 650,721 621,597 596,293 556,479
Total earning
assets $ 633,569 612,944 591,632 563,858 526,423
Total loans $ 551,000 540,227 520,260 491,533 458,642
Total deposits $ 575,389 567,469 528,961 501,012 459,803
Stockholders'
equity $ 50,779 50,117 48,731 48,232 47,846
Year-To-Date
----------------------------
($ in thousands except for share data) 2007 2006
------------ ------------
EARNINGS
Net interest income $ 5,251 4,773
Provision for loan loss $ 1,425 575
NonInterest income $ 1,529 1,391
NonInterest expense $ 5,162 4,100
Net income $ 177 993
Basic earnings per share $ 0.04 0.25
Diluted earnings per share $ 0.04 0.24
Average shares outstanding 4,065,657 4,008,000
Average diluted shares outstanding 4,163,169 4,105,496
PERFORMANCE RATIOS
Return on average assets * 0.11% 0.72%
Return on average common equity * 1.41% 8.42%
Net interest margin (fully-tax
equivalent) * 3.43% 3.74%
Efficiency ratio 76.14% 66.52%
Full-time equivalent employees 191.75 155.50
CAPITAL
Equity to assets 7.52% 8.37%
Regulatory leverage ratio 10.28% 10.76%
Tier 1 capital ratio 11.81% 11.88%
Total risk-based capital ratio 12.97% 13.00%
Book value per share $ 12.62 11.96
Cash dividend per share $ 0.044 0.04
ASSET QUALITY
Net charge-offs $ 632 158
Net charge-offs to average loans * 0.47% 0.14%
Allowance for loan losses $ 7,663 6,062
Allowance for loan losses to total
loans 1.35% 1.28%
Nonperforming loans $ 5,239 1,833
Other real estate owned (OREO) 744 509
Nonperforming assets (NPA) $ 5,983 2,342
90+ Day delinquencies $ 564 1,380
NPAs plus 90 Days delinquent $ 6,547 3,722
NPAs to Total assets 0.88% 0.41%
NPAs+90 to Total assets 0.96% 0.65%
NPAs to Loans + OREO 1.05% 0.49%
END OF PERIOD BALANCES
Total assets $ 683,032 572,632
Total earning assets $ 651,077 539,187
Total loans $ 568,481 473,998
Total deposits $ 589,802 472,178
Stockholders' equity $ 51,386 47,951
AVERAGE BALANCES
Total assets $ 664,026 556,479
Total earning assets $ 633,569 526,423
Total loans $ 551,000 458,642
Total deposits $ 575,389 459,803
Stockholders' equity $ 50,779 47,846
* annualized for quarterly data
Tower Financial Corporation
Consolidated Statements of Operations
For the three months ended March 31, 2007 and 2006
(unaudited)
For the Three Months Ended
March 31
----------------------------
2007 2006
------------------------------------- ----------------------------
Interest income:
Loans, including fees $ 10,318,089 $ 8,145,444
Securities - taxable 662,415 490,564
Securities - tax exempt 200,775 147,392
Other interest income 219,080 145,002
----------------------------
Total interest income 11,400,359 8,928,402
Interest expense:
Deposits 5,675,885 3,593,755
FHLB advances 191,744 352,179
Trust preferred securities 281,649 209,230
----------------------------
Total interest expense 6,149,278 4,155,164
----------------------------
Net interest income 5,251,081 4,773,238
Provision for loan losses 1,425,000 575,000
----------------------------
Net interest income after
provision for loan losses 3,826,081 4,198,238
Noninterest income:
Trust and brokerage fees 845,883 790,956
Service charges 265,331 178,681
Loan broker fees 29,195 30,620
Other fees 348,669 391,045
----------------------------
Total noninterest income 1,489,078 1,391,302
Noninterest expense:
Salaries and benefits 2,995,501 2,502,982
Occupancy and equipment 688,194 480,177
Marketing 79,043 172,346
Data processing 227,949 145,968
Loan and professional costs 358,813 220,786
Office supplies and postage 123,385 106,639
Courier service 100,810 92,706
Business Development 157,753 104,944
Other expense 430,848 273,338
----------------------------
Total noninterest expense 5,162,296 4,099,886
----------------------------
Income before income taxes 152,863 1,489,654
Income taxes expense (23,750) 496,700
----------------------------
Net income $ 176,613 $ 992,954
============================
Basic earnings per common share $ 0.04 $ 0.25
Diluted earnings per common share $ 0.04 $ 0.24
Average common shares outstanding 4,068,657 4,008,000
Average common shares and dilutive
potential common shares outstanding 4,163,169 4,105,496
Tower Financial Corporation
Consolidated Balance Sheets
At March 31, 2007 and December 31, 2006
(unaudited)
March 31 December 31
2007 2006
---------------------------------------------------------------------
ASSETS
Cash and due from banks $ 12,314,116 $ 14,393,790
Short-term investments and
interest-earning deposits 6,039,915 8,863,112
Federal funds sold 5,581,358 5,608,064
----------------------------
Total cash and cash equivalents 23,935,389 28,864,966
Securities available for sale,
at fair value 67,896,768 69,491,806
FHLBI and FRB stock 3,078,400 3,078,400
Loans 568,480,656 550,450,313
Allowance for loan losses (7,662,831) (6,870,442)
----------------------------
Net loans 560,817,825 543,579,871
Premises and equipment, net 6,339,101 5,870,699
Accrued interest receivable 3,610,898 3,620,368
Bank Owned Life Insurance 10,948,708 10,851,519
Other assets 6,404,917 5,797,183
----------------------------
Total assets $683,032,006 $671,154,812
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 71,218,960 $ 77,772,481
Interest-bearing 518,582,788 508,997,823
----------------------------
Total deposits 589,801,748 586,770,304
Federal Home Loan Bank advances 20,200,000 11,200,000
Junior subordinated debt 17,527,000 17,527,000
Accrued interest payable 1,795,388 1,716,994
Other liabilities 2,321,695 2,982,675
----------------------------
Total liabilities 631,645,831 620,196,973
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 -
4,072,332 shares at March 31, 2007
and 4,043,882 shares at
December 31, 2006 38,939,159 38,536,406
Retained earnings 12,521,265 12,523,750
Accumulated other comprehensive
income (loss), net of tax of
$(34,183) at March 31, 2007,
$(53,785) at December 31, 2006 (74,249) (102,317)
----------------------------
Total stockholders' equity 51,386,175 50,957,839
----------------------------
Total liabilities and stockholders'
equity $683,032,006 $671,154,812
============================