FORT WAYNE, Ind., July 20, 2007 (PRIME NEWSWIRE) -- Tower Financial Corporation (Nasdaq:TOFC) today announced second quarter 2007 net income of $217,000 and diluted earnings per share of $0.05, compared with $912,000 and $0.22, respectively, for the year-ago quarter. For the first six months of 2007, net income was $394,000, or $0.09 per diluted share, compared with $1.9 million, or $0.46 per share, for the prior-year six months.
Commenting upon these results, Donald F. Schenkel, Chairman and Chief Executive Officer, stated that: "While on a quarter to quarter and six month to six month comparison with 2006, these results are disappointing, it should be noted that the primary cause of our earnings decrease was almost exclusively related to our decision during the second quarter to defer further efforts to establish an Indianapolis de novo bank, and our decision to make an additional provision for possible commercial loan losses."
Noting further that total revenue, both net interest income and non-interest income, was actually substantially up, period over period from 2006, Schenkel further observed: "We believe that these management decisions were necessary to properly reflect management's commitment to centralize our energy into growing the core business in the Fort Wayne-area marketplace, to focus that effort on building and maintaining asset quality through conservative lending practices, and, in that regard, to continually evaluate and further reserve for several existing loan relationships that, while still current and performing, are considered problem loans. Our message, however, remains positive."
Second quarter highlights include:
* For the six months ending June 30, 2007, loan growth has leveled off to an annualized rate of 11.4 percent compared with FY 2006's loan growth of 22.2 percent, reflecting management's focus on asset quality. Commercial and residential real estate were the primary contributors to 2007 loan growth of $31.3 million year to date. As loan growth has leveled, net interest margin has also begun to move upwards, increasing two basis points over the first quarter of 2007, to 3.44 percent. A 3.52 percent net interest margin for the month of June represents the second consecutive month of margin improvement. * Core deposits increased $12.5 million, up 3.7 percent since year- end 2006, comprising 58.6 percent of total deposits at June 30, 2007. * Non-interest income remains a significant contributor to revenue, increasing 30.4 percent from the second quarter of 2006. Year to date, fee income rose 17.9 percent. Trust and brokerage fees were the primary contributors. For the second quarter of 2007, trust fees grew 19.1 percent to $0.72 million and accounted for 56.8 percent of fee income. Total assets under management by Tower Private Advisors now exceed $600 million, an increase of 19.0 percent over the year-ago level. * Asset quality has had a major impact on earnings year to date. Net loan charge-offs increased by $1.4 million, to 1.36 percent of average loans, and non-performing assets plus delinquencies reduced from $6.5 million last quarter-end to $5.7 million for the current quarter-end. As previously noted, Tower continues to prudently reserve against previously identified loan weaknesses and has further reserved for problem loans related to the borrowing relationships identified and discussed during the first quarter. * Tower Financial closed its Indianapolis loan production office this quarter and decided to defer the opening of a de novo bank. Despite receipt of new charter approval by the regulators, the decision to defer this project was prompted by a re-assessment of what management believes are currently adverse industry and market conditions affecting the Indianapolis market for de novo banks. For the six months year-to-date, net expenses associated with the opening of the office and obtaining approval for the de novo bank totaled $426,000, of which $259,000 was generated in the second quarter. * Implementation of new FDIC insurance premium assessments began this quarter, impacting recent de novo banks in particular. Due to the timing of FDIC invoicing, however, Tower was charged during the second quarter for the quarterly $100,000 first quarter fee and was also required to accrue an additional $100,000 for the current quarter. Going forward, the quarterly fee of approximately $100,000 will apply.
Operating Statement
Total revenue, consisting of net interest income and non-interest income, was $7.0 million for the second quarter of 2007, an increase of 15.7 percent over the $6.1 million reported for the prior-year second quarter. Year over year, net interest income grew 12.4 percent to $5.6 million, reflecting a 17.7 percent increase in average earning assets, partially offset by a 14 basis point decline in the net interest margin to 3.44 percent. The Company's net interest margin has been improving over the course of the second quarter; on a monthly basis, the margin was 3.34 percent, 3.46 percent and 3.52 percent, respectively, for April, May and June. The improvement was largely due a lower average cost of funds, which was 4.10 percent for the first quarter of 2007, compared with 3.97 percent for the current quarter, a decline of thirteen basis points.
Non-interest income remains an important component of revenue, accounting for approximately 20 percent of total revenue for the second quarter of 2007. Non-interest income for the quarter was $1.4 million, up 30.5 percent from the $1.1 million reported in the second quarter of 2006, but $100,000 below the first quarter of this year. Trust and brokerage fees contributed $718,600, up $115,100 or 19.1 percent, from the year-ago quarter. Second quarter trust fees were $127,300 lower than first quarter due to annual account fees that were collected during the first quarter, along with a one-time estate settlement fee. Tower Private Advisors currently manages $601.4 million in combined trust and brokerage assets compared with $505.5 million in combined assets a year ago, an increase of 19.0 percent. Also contributing to year-over-year fee income growth were service fees, up $79,300 or 56.2 percent, and other fees (debit cards, lockbox accounts, and ACH accounts), up $87,200 or 25.2 percent increase in other fees.
The provision for loan losses was $1.5 million this quarter, up $1.0 million from the 2006 second quarter and $350,000 from the first quarter of 2007.
Control of operating expenses is one of Tower's primary goals. Non-interest expense for the second quarter of 2007 was $5.3 million, a relatively modest $141,000, or 2.7 percent increase, from the $5.2 million reported for the linked quarter, and a 22.1 percent increase over the $4.3 million reported for the prior-year second quarter. Excluding one-time expenses related to the closing of the Indianapolis loan production office of $100,000 and the $100,000 FDIC insurance expense for the first quarter, second quarter non-interest expense would have been $5.1 million, a decline of $160,000 from the first quarter. Going forward, Tower will save approximately $50,000 per month without the expense of the Indianapolis office.
Salaries and benefits expense was stable from the previous quarter. The head count for the quarter was only one full-time equivalent employee higher than the first quarter, but approximately 25 FTEs higher than second quarter of last year. The efficiency ratio for the second quarter of 2007 was 75.60 percent compared with 71.64 percent for the prior-year second quarter, and 76.23 percent for the first quarter of 2007.
Asset Quality
Non-performing assets plus delinquencies rose to a high point of $6.5 million in the first quarter of this year, representing 0.96 percent of assets. According to Mr. Schenkel, "This level was unacceptably high. During the second quarter, we charged off the majority of loans that had been specifically reserved for, and upon reevaluating the borrowing relationships we identified in the first quarter, we increased the reserve accordingly." Net loan charge-offs increased to $2.0 million for the quarter, or 1.36 percent of average loans on an annualized basis, compared with $633,000 or 0.46 percent of average loans for the first quarter of 2007, and $333,000, or 0.32 percent of average loans, for the year-ago quarter. Mr. Schenkel continued, "We wanted to maintain our reserves at an appropriate level, so we increased our loan loss provision this quarter to reflect our commitment to resolving and reducing non-performing assets." Non-performing assets plus delinquencies were $5.7 million, or 0.81 percent of total assets at June 30, 2007, a decrease of $877,000, or 13.4 percent from the linked quarter. Tower's allowance for loan losses was 1.23 percent of total loans at June 30, 2007.
Balance Sheet
Assets at quarter-end totaled $701.0 million, a $91.2 million or 15.0 percent increase over the $609.8 million reported twelve months ago. Loans outstanding grew by $75.7 million, or 15.0 percent, reaching $581.8 million at period end. Since year-end 2006, loan growth has slowed to a more sustainable pace: 11.4 percent annualized. Loan growth was primarily driven by commercial (C&I) loans and residential real estate, up $14.1 million and $17.0 million, respectively, since December 31, 2006. The $9.5 million of loans booked in the Indianapolis market were being held for sale at second quarter-end; a definitive agreement has been signed and is expected to close during the third quarter.
Deposits grew $85.4 million, or 16.7 percent, over the past twelve months, reaching $595.6 million. Core deposits (excluding wholesale CDs) now comprise 58.6 percent of total deposits, compared with 57.4 percent for the second quarter of 2006. The major growth area was NOW accounts, paying an average rate of 1.49 percent; the $8.4 million increase has moderated Tower's overall cost of funds for the period. Total funding costs declined by 13 basis points from the linked quarter, while the loan yield remained unchanged at 7.59 percent.
Shareholders' equity was $50.1 million at June 30, 2007, an increase of 3.7 percent from the $48.3 million reported twelve months ago. Tower continues to meet the requirements for a "well-capitalized" bank with total risk-based capital ratio of 12.50 percent. Period-end shares outstanding were 4,063,647, after the repurchase of 14,735 shares during the quarter, at a weighted average purchase price of $15.20 per share under Tower's recently announced share repurchase program. The share repurchase program authorizes Tower to buy back up to an aggregate of 65,000 shares of its common stock.
ABOUT THE COMPANY
Headquartered in Fort Wayne, Indiana, Tower Financial Corporation is a financial services holding company with 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 through its six full-service financial centers in Fort Wayne (and a seventh in Angola), and a business development office in Warsaw, Indiana. Tower Financial Corporation's common stock is listed on the NASDAQ Global Market under the symbol "TOFC." For further information, 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 Litigation 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; 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 described in the Corporation's Annual Report on Form 10-k and in other filings made by the Corporation from time to time with the Securities and Exchange Commission (SEC) and available on the SEC's website at www.sec.gov. 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 2007
(unaudited)
Quarterly
-----------------------------------------------------------
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
2007 2007 2006 2006 2006 2006
--------- --------- --------- --------- --------- ---------
($ in thousands except for share data)
EARNINGS
Net
interest
income $ 5,583 5,251 5,347 5,182 4,966 4,773
Provision
for
loan
loss $ 1,500 1,425 500 645 475 575
NonInterest
income $ 1,430 1,489 1,380 1,259 1,096 1,391
NonInterest
ex-
pense $ 5,303 5,162 5,227 4,417 4,343 4,100
Net
income $ 217 177 810 973 912 993
Basic
earnings
per
share $ 0.05 0.04 0.20 0.24 0.23 0.25
Diluted
earnings
per
share $ 0.05 0.04 0.20 0.24 0.22 0.24
Average
shares
outstand-
ing 4,073,678 4,065,657 4,030,081 4,022,071 4,017,254 4,008,000
Average
diluted
shares
outstand-
ing 4,146,386 4,163,169 4,129,774 4,123,773 4,128,151 4,105,496
PERFORMANCE
RATIOS
Return on
average
assets * 0.12% 0.11% 0.49% 0.62% 0.61% 0.72%
Return on
average
common
equity * 1.69% 1.41% 6.41% 7.92% 7.58% 8.42%
Net interest
margin
(fully-tax
equiva-
lent)* 3.44% 3.43% 3.52% 3.54% 3.60% 3.74%
Efficiency
ratio 75.62% 76.59% 77.70% 68.58% 71.64% 66.52%
Full-time
equivalent
employ-
ees 192.75 191.75 186.25 180.50 167.50 155.50
CAPITAL
Equity
to
assets 7.20% 7.52% 7.59% 7.75% 7.92% 8.37%
Regulatory
leverage
ratio 9.91% 10.28% 10.46% 9.92% 10.24% 10.76%
Tier 1
capital
ratio 11.37% 11.81% 11.93% 11.23% 11.52% 11.88%
Total
risk-
based
capital
ratio 12.47% 12.97% 13.05% 12.35% 12.62% 13.00%
Book
value
per
share $ 12.44 12.62 12.60 12.39 12.02 11.96
Cash
dividend
per
share $ 0.044 0.044 0.04 0.04 0.04 0.04
ASSET
QUALITY
Net
charge-
offs $ 1,987 633 210 238 364 158
Net
charge-
offs
to
average
loans * 1.36% 0.47% 0.15% 0.18% 0.30% 0.14%
Allowance
for
loan
losses $ 7,176 7,663 6,870 6,581 6,174 6,062
Allowance
for
loan
losses
to total
loans 1.23% 1.35% 1.25% 1.23% 1.22% 1.28%
Nonperforming
loans $ 4,845 5,239 3,977 4,034 3,118 1,833
Other real
estate
owned
(OREO) $ 744 744 370 465 430 509
Nonperforming
assets
(NPA) $ 5,589 5,983 4,347 4,499 3,548 2,342
90+ Day
delinquen-
cies $ 81 564 487 23 1,304 1,380
NPAs plus
90 Days
delin-
quent $ 5,670 6,547 4,834 4,522 4,852 3,722
NPAs to
Total
assets 0.80% 0.88% 0.65% 0.70% 0.58% 0.41%
NPAs+90
to
Total
assets 0.81% 0.96% 0.72% 0.70% 0.80% 0.65%
NPAs to
Loans
+ OREO 0.96% 1.05% 0.79% 0.84% 0.70% 0.49%
END OF
PERIOD
BALANCES
Total
assets $ 701,641 683,032 671,155 643,725 609,781 572,632
Total
earning
assets $ 673,032 651,077 637,491 607,114 574,053 539,187
Total
loans $ 581,783 568,481 550,450 533,057 506,077 473,998
Total
depos-
its $ 595,558 589,802 586,780 554,335 510,235 472,178
Stockholders'
equity $ 50,536 51,386 50,958 49,895 48,319 47,951
AVERAGE
BALANCES
Total
assets $ 697,117 664,026 650,721 621,597 596,293 556,479
Total
earning
assets $ 663,411 633,569 612,944 591,632 563,858 526,423
Total
loans $ 585,480 551,000 540,227 520,260 491,533 458,642
Total
depos-
its $ 597,806 575,389 567,469 528,961 501,012 459,803
Stockholders'
equity $ 51,579 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 $ 10,834 9,739
Provision for loan loss $ 2,925 1,050
NonInterest income $ 2,919 2,487
NonInterest expense $ 10,465 8,443
Net income $ 394 1,905
Basic earnings per share $ 0.09 0.48
Diluted earnings per share $ 0.09 0.46
Average shares outstanding 4,071,181 4,012,652
Average diluted shares outstanding 4,152,975 4,115,682
PERFORMANCE RATIOS
Return on average assets * 0.12% 0.67%
Return on average common equity * 1.55% 8.00%
Net interest margin (fully-tax
equivalent) * 3.43% 3.63%
Efficiency ratio 76.09% 69.06%
Full-time equivalent employees 192.75 167.50
CAPITAL
Equity to assets 7.20% 7.92%
Regulatory leverage ratio 9.91% 10.24%
Tier 1 capital ratio 11.37% 11.52%
Total risk-based capital ratio 12.47% 12.62%
Book value per share $ 12.44 12.02
Cash dividend per share $ 0.044 0.04
ASSET QUALITY
Net charge-offs $ 2,620 522
Net charge-offs to average loans * 0.93% 0.22%
Allowance for loan losses $ 7,176 6,174
Allowance for loan losses to total
loans 1.23% 1.22%
Nonperforming loans $ 4,845 3,118
Other real estate owned (OREO) $ 744 430
Nonperforming assets (NPA) $ 5,589 3,548
90+ Day delinquencies $ 81 1,304
NPAs plus 90 Days delinquent $ 5,670 4,852
NPAs to Total assets 0.80% 0.58%
NPAs+90 to Total assets 0.81% 0.80%
NPAs to Loans + OREO 0.96% 0.70%
END OF PERIOD BALANCES
Total assets $ 701,641 609,781
Total earning assets $ 673,032 574,053
Total loans $ 581,783 506,077
Total deposits $ 595,558 510,235
Stockholders' equity $ 50,536 48,319
AVERAGE BALANCES
Total assets $ 680,572 576,386
Total earning assets $ 648,490 545,139
Total loans $ 568,240 475,086
Total deposits $ 586,597 480,407
Stockholders' equity $ 51,179 48,039
* annualized for quarterly data
Tower Financial Corporation
Consolidated Statements of Operations
For the three and six months ended June 30, 2007 and 2006
(unaudited)
For the For the
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
2007 2006 2007 2006
----------------- ------------------------ ------------------------
Interest income:
Loans, including
fees $11,088,346 $ 9,076,121 $21,406,436 $17,221,565
Securities -
taxable 668,747 524,597 1,331,162 1,015,161
Securities -
tax exempt 195,166 169,863 395,941 317,255
Other interest
income 21,574 162,912 240,653 307,915
------------------------ ------------------------
Total interest
income 11,973,833 9,933,493 23,374,192 18,861,896
Interest expense:
Deposits 5,712,457 4,389,514 11,388,342 7,983,268
Fed Funds
Purchased 516 -- 516 --
FHLB advances 397,313 369,069 589,057 721,249
Trust preferred
securities 279,957 209,230 561,606 418,461
------------------------ ------------------------
Total interest
expense 6,390,243 4,967,813 12,539,521 9,122,978
------------------------ ------------------------
Net interest
income 5,583,590 4,965,680 10,834,671 9,738,918
Provision for
loan losses 1,500,000 475,000 2,925,000 1,050,000
------------------------ ------------------------
Net interest
income after
provision for
loan losses 4,083,590 4,490,680 7,909,671 8,688,918
Noninterest
income:
Trust and
brokerage fees 718,607 603,542 1,564,490 1,394,498
Service charges 220,494 141,182 489,525 319,864
Loan broker fees 57,093 4,409 82,590 35,028
Other fees 433,839 346,630 782,505 737,674
------------------------ ------------------------
Total
noninterest
income 1,430,033 1,095,763 2,919,110 2,487,064
Noninterest
expense:
Salaries and
benefits 2,976,922 2,564,673 5,972,423 5,067,656
Occupancy and
equipment 660,552 511,668 1,348,745 991,845
Marketing 99,380 124,290 178,422 296,636
Data processing 230,228 177,644 458,177 323,611
Loan and
professional
costs 367,022 328,998 725,835 549,784
Office supplies
and postage 117,458 122,457 240,842 229,096
Courier service 94,962 86,939 195,771 179,645
Business
Development 183,996 138,511 341,748 243,455
Other expense 572,056 288,294 1,002,908 561,632
------------------------ ------------------------
Total
noninterest
expense 5,302,576 4,343,474 10,464,871 8,443,360
------------------------ ------------------------
Income before
income taxes 211,047 1,242,969 363,910 2,732,622
Income taxes
expense (6,065) 330,990 (29,815) 827,690
------------------------ ------------------------
Net income $ 217,112 $ 911,979 $ 393,725 $ 1,904,932
======================== ========================
Basic earnings
per common
share $ 0.05 $ 0.23 $ 0.10 $ 0.47
Diluted earnings
per common share $ 0.05 $ 0.22 $ 0.09 $ 0.46
Average common
shares
outstanding 4,073,678 4,017,254 4,071,181 4,012,652
Average common
shares and
dilutive
potential
common shares
outstanding 4,146,386 4,128,151 4,152,975 4,115,682
Dividends
declared per
share $ 0.044 $ 0.040 $ 0.088 $ 0.080
Tower Financial Corporation
Consolidated Balance Sheets
At June 30, 2007, December 31, 2006, and June 30, 2006
(unaudited) (unaudited)
June 30 December 31 June 30
2007 2006 2006
---------------------------------------------------- ------------
ASSETS
Cash and due from banks $ 6,977,240 $ 14,393,790 $ 17,128,235
Short-term investments
and interest-earning
deposits 154,569 8,863,112 570,783
Federal funds sold 10,631,456 5,608,064 7,607,458
-------------------------- ------------
Total cash and cash
equivalents 17,763,265 28,864,966 25,306,476
Securities available for
sale, at fair value 67,895,093 69,491,806 56,376,624
FHLBI and FRB stock 3,112,500 3,078,400 3,421,300
Loans Held for Sale 9,455,115 -- --
Loans 581,782,504 550,450,313 506,077,120
Allowance for loan losses (7,175,809) (6,870,442) (6,173,559)
-------------------------- ------------
Net loans 574,606,695 543,579,871 499,903,561
Premises and equipment,
net 6,782,316 5,870,699 5,805,145
Accrued interest
receivable 3,779,111 3,620,368 3,096,079
Bank Owned Life Insurance 11,047,397 10,851,519 10,654,906
Other assets 7,199,385 5,797,183 5,217,017
-------------------------- ------------
Total assets $701,640,877 $671,154,812 $609,781,108
========================== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 76,035,017 $ 77,772,481 $ 69,668,932
Interest-bearing 519,523,019 508,997,823 440,565,925
-------------------------- ------------
Total deposits 595,558,036 586,770,304 510,234,857
Federal Home Loan Bank
advances 33,850,000 11,200,000 36,200,000
Junior subordinated debt 17,527,000 17,527,000 11,856,000
Accrued interest payable 1,623,428 1,716,994 1,251,100
Other liabilities 2,546,390 2,982,675 1,920,190
-------------------------- ------------
Total liabilities 651,104,854 620,196,973 561,462,147
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 - 4,063,647
shares at June 30, 2007
and 4,043,882 shares at
December 31, 2006 39,053,685 38,536,406 38,210,903
Treasury stock, at cost,
14,735 shares at
June 30, 2007 (224,655) -- --
Retained earnings 12,559,285 12,523,750 11,062,884
Accumulated other
comprehensive income
(loss), net of tax of
$(349,791.66) at
June 30, 2007, $53,785
at December 31, 2006 (852,292) (102,317) (954,826)
-------------------------- ------------
Total stockholders'
equity 50,536,023 50,957,839 48,318,961
-------------------------- ------------
Total liabilities and
stockholders' equity $701,640,877 $671,154,812 $609,781,108
========================== ============