FORT WAYNE, Ind., Oct. 26, 2007 (PRIME NEWSWIRE) -- Tower Financial Corporation (Nasdaq:TOFC) today announced a third quarter 2007 net loss of $2.2 million, or $0.54 per diluted share, compared with net income of $973,000, or $0.24 per share, for the year-ago quarter. For the first nine months of 2007, the net loss was $1.8 million, or $0.45 per diluted share, compared with net income of $2.9 million, or $0.70 per share, for the prior-year first nine months. Third quarter results reflect a $3.6 million charge related to certain residential development loans.
Donald F. Schenkel, chairman and chief executive officer of Tower Financial, commented: "Our $3.6 million third quarter charge reflects a conservative assessment of both overall credit conditions and the slowdown in the pace of retail sales in the residential real estate development marketplace we serve. In this regard, Tower is not alone, as other local and regional banking institutions have also adopted a more cautious view of near and mid-term market conditions."
Noting that Tower Financial's action was taken with respect to a particular block of loans, Schenkel added that he believed that Tower's actual experience and loan realizations on these loans should be better than reflected by the reduced carrying value of these loans. He further added: "This past quarter, and to a lesser extent, in the first and second quarters, we charged down and reserved for certain of these weakened loans, absent actual loan defaults, in order to reduce the level of carried risk in our loan portfolio. We have also taken this step so we can focus on the many initiatives in progress that should generate positive results by the fourth quarter, and in future quarters to come.
"Tower Private Advisors continues to gain reputation and market share. Loan growth over the past year has been nearly ten percent and our core deposit mix is improving. As we focus more on opportunities to serve our customers and strengthen relationships, we are confident that stronger performance will follow."
Third quarter highlights and initiatives include:
* Asset quality has remained the top priority. Tower elected to take a $3.6 million additional write-down of certain residential development loans. Nonperforming assets plus delinquencies were $7.8 million at September 30, 2007, or 1.10 percent of total assets. * Noninterest income of $1.4 million, up 11.9 percent from the year- ago quarter, continues to be a significant contributor to revenue. Trust and brokerage fees accounted for 56.1 percent of noninterest income for the quarter. Total assets under management by Tower Private Advisors were $618.0 million, an increase of 17.3 percent from the year-ago level. * Tower remains focused on expense control. Excluding one-time expenses during the 2007 second quarter, Tower decreased its operating expenses for each quarter year-to-date. Third quarter noninterest expense declined $362,000, or 6.8 percent, from the previous quarter. * Tower has slowed its 2007 loan growth to more sustainable levels. Loans grew $29.5 million (7.2 percent annualized) since year-end 2006, reaching $583.9 million. Residential real estate and commercial (C&I) loans were the primary contributors. * Tower has grown its core deposits as a percentage of total deposits. Core deposits now account for 59.4 percent of total deposits, up from 55.5 percent for the year-ago period.
Operating Statement
Total revenue, consisting of net interest income and noninterest income, was $6.9 million for the third quarter of 2007, an increase of 7.1 percent over the $6.4 million reported for the year-ago quarter. Net interest income grew 5.9 percent year-over-year, to $5.5 million, reflecting a 13.2 percent increase in average earning assets, partially offset by a 23 basis point decline in the net interest margin, to 3.31 percent. Compared with the linked quarter, net interest income decreased $95,000, or 1.7 percent; a 13 basis point decline in the net interest margin offset the 0.9 percent increase in average earning assets. Mr. Schenkel commented, "Increased funding costs were the largest factor in the third quarter margin decline, followed by the impact of asset quality. Our margin should stabilize going forward since our balance sheet is essentially neutral."
Noninterest income continues to account for approximately 20 percent of total revenue. For the third quarter, noninterest income was $1.41 million, up 11.9 percent from the $1.26 million reported in the third quarter of 2006. Trust and brokerage fees of $790,000 accounted for 56.1 percent of third quarter noninterest income; they grew 10.1 percent year-over-year. "Tower Private Advisors remains a stellar performer," added Schenkel. "Managed assets have grown every year since inception in 2000, generating stronger fee income and good cross-sell opportunities with Tower Bank." Currently, Tower Private Advisors manages $618.0 million in combined trust and brokerage assets, an increase of 17.3 percent above the $526.7 million of combined assets reported for the year-ago quarter. Service charges for the Bank were $234,700, up $59,700 or 34.1 percent, above the 2006 third quarter. Other noninterest fees, including debit cards, lockbox accounts, ACH accounts, purchase receivables fees, and loss on securities sales remained relatively flat
The provision for loan losses was $5.2 million for the current quarter, compared with $645,000 for the year-ago quarter, and $1.5 million for the previous quarter. The increased provision was related to certain residential real estate development loans. Although all but one borrower was current on planned interest payments, we elected to take a $3.6 million charge-down to align the carrying value of these development loans with more currently appraised valuations of the underlying collateral.
Third quarter 2007 noninterest expense declined $362,000, or 6.8 percent, from the $5.3 million reported for the linked quarter. Approximately $200,000 of the decrease was attributable to the second quarter closing of the Indianapolis office, including severance and legal costs. Mr. Schenkel commented, "We remain highly focused on improving operating efficiency, and we will continue implementing additional cost-saving initiatives throughout the fourth quarter of 2007." The efficiency ratio for the third quarter of 2007 was 71.65 percent compared with 68.58 percent for the prior-year third quarter, and 75.62 percent for the second quarter of 2007.
Asset Quality
Nonperforming assets plus delinquencies at period end were $7.8 million, or 1.10 percent of assets; this compares with $4.5 million, or 0.70 percent of assets, for the year-ago period, and $5.7 million, or 0.81 percent of assets, for the linked quarter. Mr. Schenkel commented, "The majority of our nonaccruing loans are concentrated in five relationships totaling $5.5 million; they account for 71 percent of nonperforming assets. Approximately $3.3 million is secured by residential real estate and has been adversely affected by the slowdown in Tower's local real estate market. The remaining $2.2 million consists of commercial (C&I) and commercial real estate loans; legal proceedings have been initiated, and we are in the process of collection. We believe we are adequately reserved for the risks we have identified in our loan portfolio. The substantial provision we took this quarter, coupled with our significant charge-downs, reflects the reality of current economic and credit conditions in our region." Net charge-offs were $5.2 million for the quarter, or an annualized 3.54 percent of average loans, compared with net charge-offs of $2.0 million, or 1.36 percent of average loans, and net charge-offs of $238,000, or 0.18 percent of average loans, for the linked and year-ago quarters, respectively. Tower's allowance for loan losses was 1.24 percent of total loans at September 30, 2007.
Balance Sheet
Assets were $706.9 million at September 30, 2007, a $63.2 million, or 9.8 percent, increase over the $643.7 million reported twelve months ago. Loans outstanding grew by $46.8 million, or 8.8 percent, reaching $579.9 million for the same twelve-month period. Year-to-date loan growth of $29.5 million, or 5.4%, is consistent with our plan to moderate our growth to a more measured pace. Year to date loan growth was primarily driven by residential real estate and C&I loans, up $20.5 million and $12.2 million, respectively. Commercial real estate loans, which comprised 30.3 percent of the portfolio at September 30, reduced by $3.6 million during the first nine months of 2007.
Deposits increased $38.5 million, or 6.9 percent, over the past twelve months, reaching $592.9 million. Compared with the year-ago quarter, core deposits (excluding wholesale and brokered CDs) increased as a percent of total deposits; as of September 30, 2007, they comprised 59.4 percent of deposits compared with 55.5 percent for the year-ago quarter. Since year end 2006, net deposits have increased by $6.1 million. Total in-market deposits (core and wholesale deposits), however, increased by $38.9 million, allowing us to reduce brokered deposits by $32.8 million. Interest-bearing checking accounts, up $8.9 million since year-end 2006, accounted for the largest increase in core deposits.
Shareholders' equity was $48.8 million at September 30, 2007, a decrease of 2.1 percent from the $49.9 million reported for the year-ago period. Tower's Tier 1 and risk-based capital ratios remain above "well-capitalized" levels, decreasing only slightly from last year to 11.03 percent and 12.15 percent, respectively. Period-end common shares outstanding were 4,071,069.
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 community bank headquartered in Fort Wayne; 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 one each in Angola and 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 local real estate values; changes in the national and local economy; and other factors, including various risk factors identified and described in the Corporation's Annual Report on Form 10-K, quarterly reports of Form 10-Q and in other periodic reports we file from time to time with the Securities and Exchange Commission. These reports are available on the Commission's website at www.sec.gov, as well as on our website at www.towerbank.net.
Tower Financial Corporation
Consolidated Balance Sheets
At September 30, 2007, December 31, 2006, and September 30, 2006
(unaudited) (unaudited)
September 30 December 31 September 30
2007 2006 2006
------------------------------------------------------ ------------
ASSETS
Cash and due from banks $ 12,475,451 $ 14,393,790 $ 17,722,973
Short-term investments and
interest-earning deposits 7,286,505 8,863,112 5,251,446
Federal funds sold 6,290,981 5,608,064 5,903,441
------------ ------------ ------------
Total cash and cash
equivalents 26,052,937 28,864,966 28,877,860
Securities available for
sale, at fair value 69,046,042 69,491,806 59,668,043
FHLBI and FRB stock 3,454,700 3,078,400 3,233,800
Loans Held for Sale 4,007,123 -- --
Loans 579,902,194 550,450,313 533,057,067
Allowance for loan losses (7,180,424) (6,870,442) (6,580,761)
------------ ------------ ------------
Net loans 572,721,770 543,579,871 526,476,306
Premises and equipment, net 8,914,857 5,870,699 5,856,732
Accrued interest receivable 3,609,815 3,620,368 3,341,940
Bank Owned Life Insurance 11,153,097 10,851,519 10,752,278
Other assets 7,953,438 5,797,183 5,517,567
------------ ------------ ------------
Total assets $706,913,779 $671,154,812 $643,724,526
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 74,708,805 $ 77,772,481 $ 77,229,926
Interest-bearing 518,145,021 508,997,823 477,105,510
------------ ------------ ------------
Total deposits 592,853,826 586,770,304 554,335,436
------------ ------------ ------------
Federal Home Loan Bank
advances 43,400,000 11,200,000 23,700,000
Junior subordinated debt 17,527,000 17,527,000 11,856,000
Accrued interest payable 1,816,374 1,716,994 1,533,680
Other liabilities 2,486,349 2,982,675 2,404,201
------------ ------------ ------------
Total liabilities 658,083,549 620,196,973 593,829,317
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 39,469,478 38,536,406 38,308,319
Treasury stock, at cost,
14,735 shares at June 30,
2007 (634,119) --
Retained earnings 10,172,045 12,523,750 11,839,994
Accumulated other
comprehensive income
(loss), net of tax of
$(349,791.66) at June 30,
2007, $53,785 at December
31, 2006 (177,174) (102,317) (253,104)
------------ ------------ ------------
Total stockholders'
equity 48,830,230 50,957,839 49,895,209
------------ ------------ ------------
Total liabilities and
stockholders' equity $706,913,779 $671,154,812 $643,724,526
============ ============ ============
Tower Financial Corporation
Consolidated Statements of Operations
For the three and nine months ended September 30, 2007 and 2006
(unaudited)
For the Three Months Ended For the Nine Months Ended
September 30 September 30
-------------------------- --------------------------
2007 2006 2007 2006
--------------- -------------------------- --------------------------
Interest income:
Loans,
including
fees $ 11,085,796 $ 10,040,721 $ 32,492,233 $ 27,264,488
Securities -
taxable 660,063 565,520 1,991,226 1,580,679
Securities -
tax exempt 202,210 181,699 598,151 498,954
Other interest
income 128,032 117,457 368,686 425,374
------------ ------------ ------------ ------------
Total
interest
income 12,076,101 10,905,397 35,450,296 29,769,495
Interest
expense:
Deposits 5,863,839 5,142,295 17,252,182 13,125,563
Fed Funds
Purchased 15 -- 532
FHLB advances 436,366 372,355 1,025,421 1,093,602
Trust preferred
securities 287,647 209,230 849,253 627,692
------------ ------------ ------------ ------------
Total
interest
expense 6,587,867 5,723,880 19,127,388 14,846,857
------------ ------------ ------------ ------------
Net interest
income 5,488,234 5,181,517 16,322,908 14,922,638
Provision for
loan losses 5,246,000 645,000 8,171,000 1,695,000
------------ ------------ ------------ ------------
Net interest
income after
provision for
loan losses 242,234 4,536,517 8,151,908 13,227,638
Noninterest
income:
Trust and
brokerage fees 790,002 717,772 2,354,492 2,112,270
Service charges 234,657 174,943 720,483 494,806
Loan broker fees 58,310 25,955 144,598 60,983
Other fees 325,410 340,015 1,107,914 1,077,690
-----------------------------------------------------
Total
noninterest
income 1,408,379 1,258,685 4,327,487 3,745,749
Noninterest
expense:
Salaries and
benefits 2,627,862 2,685,003 8,600,285 7,752,658
Occupancy and
equipment 676,222 555,323 2,024,966 1,547,168
Marketing 138,499 146,472 316,922 443,108
Data processing 230,508 177,223 688,684 500,834
Loan and
professional
costs 266,687 197,917 992,521 747,701
Office supplies
and postage 96,045 104,643 336,888 333,739
Courier service 97,204 91,687 292,975 271,332
Business
Development 174,503 146,947 516,253 390,402
Other expense 633,313 312,001 1,636,221 873,635
------------ ------------ ------------ ------------
Total
noninterest
expense 4,940,843 4,417,216 15,405,715 12,860,577
------------ ------------ ------------ ------------
Income before
income taxes (3,290,230) 1,377,986 (2,926,320) 4,112,810
Income taxes
expense (1,081,984) 405,020 (1,111,800) 1,232,710
------------ ------------ ------------ ------------
Net income $ (2,208,246) $ 972,966 $ (1,814,520) $ 2,880,100
============ ============ ============ ============
Basic earnings
per common
share $ (0.54) $ 0.24 $ (0.45) $ 0.72
Diluted
earnings
per common
share $ (0.54) $ 0.24 $ (0.45) $ 0.70
Average common
shares
outstanding 4,060,754 4,022,071 4,067,667 4,015,826
Average common
shares and
dilutive
potential
common
shares
outstanding 4,060,754 4,123,773 4,067,667 4,134,131
Dividends
declared per
share $ 0.044 $ 0.040 $ 0.132 $ 0.120
Tower Financial Corporation
Consolidated Financial Highlights
Third Quarter 2007
(unaudited)
Quarterly
-----------------------------------
($ in thousands except for 3rd Qtr 2nd Qtr 1st Qtr
share data) 2007 2007 2007
------------------------- ---------
EARNINGS
Net interest income $ 5,488 5,583 5,251
Provision for loan loss $ 5,246 1,500 1,425
NonInterest income $ 1,408 1,430 1,489
NonInterest expense $ 4,941 5,303 5,162
Net income $ (2,208) 217 177
Basic earnings per share $ (0.54) 0.05 0.04
Diluted earnings per share $ (0.54) 0.05 0.04
Average shares outstanding 4,063,750 4,073,678 4,065,657
Average diluted shares
outstanding 4,063,750 4,146,386 4,163,169
PERFORMANCE RATIOS
Return on average assets * -1.25% 0.12% 0.11%
Return on average common equity * -17.52% 1.69% 1.41%
Net interest margin (fully-tax
equivalent) * 3.31% 3.44% 3.43%
Efficiency ratio 71.65% 75.62% 76.59%
Full-time equivalent employees 193.00 192.75 191.75
CAPITAL
Equity to assets 6.91% 7.20% 7.52%
Regulatory leverage ratio 9.34% 9.91% 10.28%
Tier 1 capital ratio 11.03% 11.37% 11.81%
Total risk-based capital ratio 12.15% 12.47% 12.97%
Book value per share $ 12.01 12.44 12.62
Cash dividend per share $ 0.044 0.044 0.044
ASSET QUALITY
Net charge-offs $ 5,241 1,987 633
Net charge-offs to average
loans * 3.54% 1.36% 0.47%
Allowance for loan losses $ 7,180 7,176 7,663
Allowance for loan losses to
total loans 1.24% 1.23% 1.35%
Nonperforming loans $ 7,116 4,845 5,239
Other real estate owned (OREO) $ 645 744 744
Nonperforming assets (NPA) $ 7,761 5,589 5,983
90+ Day delinquencies $ 14 81 564
NPAs plus 90 Days delinquent $ 7,775 5,670 6,547
NPAs to Total assets 1.10% 0.80% 0.88%
NPAs+90 to Total assets 1.10% 0.81% 0.96%
NPAs to Loans + OREO 1.34% 0.96% 1.05%
END OF PERIOD BALANCES
Total assets $ 706,914 701,641 683,032
Total earning assets $ 669,988 673,032 651,077
Total loans $ 579,902 581,783 568,481
Total deposits $ 592,854 595,558 589,802
Stockholders' equity $ 48,830 50,536 51,386
AVERAGE BALANCES
Total assets $ 702,538 697,117 664,026
Total earning assets $ 669,524 663,411 633,569
Total loans $ 587,531 585,480 551,000
Total deposits $ 596,140 597,806 575,389
Stockholders' equity $ 50,014 51,579 50,779
Quarterly
-------------------------------------------
($ in thousands except 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
for share data) 2006 2006 2006 2006
---------- ---------- ---------- ----------
EARNINGS
Net interest income $ 5,347 5,182 4,966 4,773
Provision for loan loss $ 500 645 475 575
NonInterest income $ 1,380 1,259 1,096 1,391
NonInterest expense $ 5,227 4,417 4,343 4,100
Net income $ 810 973 912 993
Basic earnings per
share $ 0.20 0.24 0.23 0.25
Diluted earnings per
share $ 0.20 0.24 0.22 0.24
Average shares
outstanding 4,030,081 4,022,071 4,017,254 4,008,000
Average diluted shares
outstanding 4,129,774 4,123,773 4,128,151 4,105,496
PERFORMANCE RATIOS
Return on average
assets * 0.49% 0.62% 0.61% 0.72%
Return on average common
equity * 6.41% 7.92% 7.58% 8.42%
Net interest margin
(fully-tax
equivalent) * 3.52% 3.54% 3.60% 3.74%
Efficiency ratio 77.70% 68.58% 71.64% 66.52%
Full-time equivalent
employees 186.25 180.50 167.50 155.50
CAPITAL
Equity to assets 7.59% 7.75% 7.92% 8.37%
Regulatory leverage
ratio 10.46% 9.92% 10.24% 10.76%
Tier 1 capital ratio 11.93% 11.23% 11.52% 11.88%
Total risk-based
capital ratio 13.05% 12.35% 12.62% 13.00%
Book value per share $ 12.60 12.39 12.02 11.96
Cash dividend per share $ 0.04 0.04 0.04 0.04
ASSET QUALITY
Net charge-offs $ 210 238 364 158
Net charge-offs to
average loans * 0.15% 0.18% 0.30% 0.14%
Allowance for loan
losses $ 6,870 6,581 6,174 6,062
Allowance for loan
losses to total loans 1.25% 1.23% 1.22% 1.28%
Nonperforming loans $ 3,977 4,034 3,118 1,833
Other real estate
owned (OREO) $ 370 465 430 509
Nonperforming assets
(NPA) $ 4,347 4,499 3,548 2,342
90+ Day delinquencies $ 487 23 1,304 1,380
NPAs plus 90 Days
delinquent $ 4,834 4,522 4,852 3,722
NPAs to Total assets 0.65% 0.70% 0.58% 0.41%
NPAs+90 to Total assets 0.72% 0.70% 0.80% 0.65%
NPAs to Loans + OREO 0.79% 0.84% 0.70% 0.49%
END OF PERIOD BALANCES
Total assets $ 671,155 643,725 609,781 572,632
Total earning assets $ 637,491 607,114 574,053 539,187
Total loans $ 550,450 533,057 506,077 473,998
Total deposits $ 586,780 554,335 510,235 472,178
Stockholders' equity $ 50,958 49,895 48,319 47,951
AVERAGE BALANCES
Total assets $ 650,721 621,597 596,293 556,479
Total earning assets $ 612,944 591,632 563,858 526,423
Total loans $ 540,227 520,260 491,533 458,642
Total deposits $ 567,469 528,961 501,012 459,803
Stockholders' equity $ 50,117 48,731 48,232 47,846
Year-To-Date
----------------------------
($ in thousands except for share
data) 2007 2006
----------- -----------
EARNINGS
Net interest income $ 16,322 14,921
Provision for loan loss $ 8,171 1,695
NonInterest income $ 4,327 3,746
NonInterest expense $ 15,406 12,860
Net income $ (1,814) 2,878
Basic earnings per share $ (0.45) 0.72
Diluted earnings per share $ (0.45) 0.70
Average shares outstanding 4,068,677 4,015,826
Average diluted shares outstanding 4,068,677 4,134,131
PERFORMANCE RATIOS
Return on average assets * -0.35% 0.65%
Return on average common equity * -4.78% 7.97%
Net interest margin (fully-tax
equivalent) * 3.39% 3.62%
Efficiency ratio 74.61% 68.89%
Full-time equivalent employees 193.00 180.50
CAPITAL
Equity to assets 6.91% 7.75%
Regulatory leverage ratio 9.34% 9.92%
Tier 1 capital ratio 11.03% 11.23%
Total risk-based capital ratio 12.15% 12.35%
Book value per share $ 12.01 12.39
Cash dividend per share $ 0.132 0.12
ASSET QUALITY
Net charge-offs $ 7,861 760
Net charge-offs to average loans * 1.83% 0.21%
Allowance for loan losses $ 7,180 6,581
Allowance for loan losses to total
loans 1.24% 1.23%
Nonperforming loans $ 7,116 4,034
Other real estate owned (OREO) $ 645 465
Nonperforming assets (NPA) $ 7,761 4,499
90+ Day delinquencies $ 14 23
NPAs plus 90 Days delinquent $ 7,775 4,522
NPAs to Total assets 1.10% 0.70%
NPAs+90 to Total assets 1.10% 0.70%
NPAs to Loans + OREO 1.34% 0.84%
END OF PERIOD BALANCES
Total assets $ 706,914 643,725
Total earning assets $ 669,988 607,114
Total loans $ 579,902 533,057
Total deposits $ 592,854 554,335
Stockholders' equity $ 48,830 49,895
AVERAGE BALANCES
Total assets $ 687,918 591,456
Total earning assets $ 655,501 560,638
Total loans $ 574,670 490,145
Total deposits $ 589,814 496,592
Stockholders' equity $ 50,780 48,270
* annualized for quarterly data