Tower Financial Corporation Reports First Quarter Net Income of $1.1 Million

FORT WAYNE, Ind., April 26, 2012 (GLOBE NEWSWIRE) -- Tower Financial Corporation (Nasdaq:TOFC) reported quarterly net income of $1.1 million or $0.22 per diluted share for the first quarter of 2012, compared with net income of $783,000 or $0.16 per diluted share, reported for the first quarter of 2011.

Our first quarter highlights include:

• Fourth consecutive quarter with earnings in excess of $1.0 million.
   
• Our tangible capital grew to $63.4 million, an increase of 2.1 percent. Our tangible book value is now $13.06 per share, which represents the highest total in our history.
   
• Trust and brokerage assets under management grew by $45 million, or 7.6 percent; and were $639.6 million as of March 31, 2012.
   
• Health Savings Accounts ("HSA's") grew by $15.5 million, or 23.8 percent during the first quarter and were $80.6 million as of March 31, 2012. The number of accounts has grown to approximately 45,000, an increase of 23.5 percent from March 31, 2011.

"We continue to be encouraged by the growing consistency of our earnings, the improvement in asset quality and related costs, and our overall performance across all business units. As a result, we can now focus on building our core earnings and once again consider pursuing growth opportunities," stated Michael D. Cahill, President and CEO.

Capital

The Company's regulatory capital ratios continue to remain significantly above the "well-capitalized" levels of 6 percent for tier 1 capital and 10 percent for total risk-based capital. Tier 1 capital at March 31, 2012, increased to 14.7 percent, compared to 13.9 percent at December 31, 2011. Total risk-based capital at March 31, 2012, increased to 15.99 percent, compared to 15.2 percent at December 31, 2011. Our leverage capital grew to 11.1 percent at March 31, 2012, more than double the regulatory requirement of 5 percent to be considered "well-capitalized". 

The following table shows the current capital position as of March 31, 2012 in both dollars and percentages, compared to the minimum amounts required per regulatory standards for "well-capitalized" institutions. 

Asset Quality

Our nonperforming assets were $18.5 million, or 2.8 percent of total assets as of March 31, 2012. This compares with $ 16.0 million, or 2.3 percent of total assets at December 31, 2011 and $22.9 million, or 3.4 percent of total assets at March 31, 2011. Our net charge-offs were $1.0 million for the first quarter of 2012, or 0.9 percent of average loan outstandings for the quarter. This compares to net charge-offs of $1.6 million, or 1.4 percent of average loans for the fourth quarter of 2011 and $1.8 million, or 1.5 percent of average loans for the first quarter of 2011. Net charge-offs during the first quarter related primarily to one loan relationship. Our loan loss provision for the first quarter of 2012 was $750,000 compared to $975,000 for the fourth quarter of 2011 and $1.2 million for the first quarter of 2011.  

The current and historical breakdown of our non-performing assets is as follows:

The two loan relationships that were classified as a trouble-debt restructure ("TDR") in the fourth quarter of 2011 were all taken to non-accrual status during the first quarter and are included in the non-accrual loan balances shown above. 

Our delinquencies greater than 90 days have decreased by $1.1 million from the fourth quarter of 2011. The decrease is primarily due to a residential real estate loan of $1.2 million and a $145,000 commercial real estate loan moving to non-accrual. The category consists of two commercial loans totaling $341,000, three residential first mortgages totaling $450,000, and several consumer loans totaling $111,000.

Our non-accrual commercial and industrial loan category increased by $2.2 million during the first quarter of 2012. The primary reason for the increase was the addition of five new loans totaling $2.4 million offset by payments received of $180,000. Of the five new loans, one loan made up 75% of the total. At March 31, 2012, there were thirteen relationships within this category, and five of those relationships comprised 79.6 percent of the total.

Our non-accrual commercial real estate category increased by $538,000 during the first quarter due to the addition of two new relationships totaling $633,000 offset by payments received of $95,000. This category was comprised of five relationships as of March 31, 2012, of which three relationships comprised 82.0 percent of the balance.

Our non-accrual acquisition and development category increased by $1.1 million during the first quarter of 2012. The increase was due to the addition of two relationships totaling $1.3 million, which were previously on the classified asset list. The additions were offset by payments of $180,000. There are five relationships in this category as of December 31, 2011 with three relationships making up 74.1 percent of the total.

Our non-accrual residential category increased by $1.1 million during the first quarter of 2012 due to the addition of one loan. Offsetting the increase was a charge-off of $30,000 on one note and another note totaling $65,000 moved back to accrual status as a result of payments becoming current. This category is comprised of six relationships with one relationship being 72.0 percent of the total.

Our non-accrual home equity category increased by $748,000 and is comprised of two home equity loans that were added to non-accrual status during the first quarter of 2012.

Our Other Real Estate Owned ("OREO") decreased by $251,000 during the first quarter primarily due to valuation adjustments resulting from updated appraisals on three properties.

Classified assets are comprised of substandard and non-accrual loans, along with impaired investments and OREO. While we had a large increase in non-accrual loans during the first quarter, our total classified assets only increased by $651,000, as the majority of our new non-accruals were already on the classified list at December 31, 2011. Classified assets totaled $28.8 million at March 31, 2012, and now comprise 35.2 percent of Tier 1 capital plus ALLL.

The allowance for loan losses decreased $300,000 during the first quarter of 2012 and was 1.99 percent of total loans at March 31, 2012, a decrease from 2.03 percent at December 31, 2011 and from 2.43 percent at March 31, 2011. The decrease from December 31, 2011was the net result of loan loss provision of $750,000, offset by $1.1 million of net charge-offs.

Balance Sheet

Company assets were $649.3 million at March 31, 2012, a decrease of $51.3, or 7.3 percent from December 31, 2011. The significant decrease stems from two large December short-term deposits that increased our balance sheet by approximately $48 million as of the end of the year. As described in our fourth quarter earnings release and annual report on form 10-K, these deposits were short-term in nature and, as expected, left the Bank by the end of January 2012. Taking these short-term deposits into account, our assets decreased by approximately $3.3 million during the first quarter of 2012. The decrease was primarily the result of a $5.3 million decrease in our loans outstanding, offset by an increase of $1.5 million in residential mortgage loans held for sale.

Our total loans at March 31, 2012 were $457.3 million, compared to $462.6 million at December 31, 2011. The decrease in loans came in almost all categories, as the commercial & industrial portfolio decreased by $1.8 million, the commercial real estate portfolio decreased by $2.3 million, the consumer portfolio decreased by $1.3 million, and the home equity portfolio decreased by $944,000. These decreases were offset by an increase of $1.0 million in our residential mortgage portfolio. 

Our securities available for sale at March 31, 2012 were $129.1 million, a slight increase of $517,000 from December 31, 2011. Sales within our investment portfolio generated $35,000 of gains during the first quarter of 2012. Securities available for sale now comprise 19.9 percent of total assets as we continue to expand our investment portfolio to enhance liquidity and yield opportunities, bring more structure to our balance sheet asset allocation, and offset loan growth challenges within the local economy.

Our total deposits at March 31, 2012 were $552.2 million compared to $602.0 million at December 31, 2011. As described above, we received two large, short-term, deposits of approximately $48 million in December 2011 that increased our deposit totals. Therefore, our adjusted deposits at December 31, 2011 were approximately $554.0 million. Excluding these short-term deposits, our deposit portfolio decreased by approximately $1.8 million during the first quarter. The decrease was due to the $19.3 million decrease in brokered certificates of deposit, a $6.0 million decrease in local certificates of deposits, and a $21.8 million decrease in non-interest bearing checking accounts. These decreases were offset by an increase in interest-bearing checking accounts of $40.0 million, led by our Health Savings Accounts increases of $15.5 million and $24.0 million that were transferred from non-interest bearing checking to our new interest-bearing business checking account product; a $2.3 million increase in savings accounts, and a $2.9 million increase in money market accounts. Our core deposits at March 31, 2012 were $445.6 million and comprised 80.7 percent of total deposits. Our cost of interest-bearing deposits was 0.88 percent for the first quarter of 2012, a reduction from the 0.92 percent posted for the fourth quarter of 2011. 

Our borrowings were $27.5 million at March 31, 2012 and were comprised of $17.5 million in trust preferred debt and $10.0 million in fixed term borrowings from the Federal Home Loan Bank of Indianapolis ("FHLBI"). We paid off $2.0 million of term debt with the FHLBI during the first quarter. Another $5.0 million matures in May 2012, while the remainder doesn't mature until 2013. 

Shareholders' equity was $63.4 million at March 31, 2012, an increase of 2.1 percent from the $62.1 million reported at December 31, 2011. Affecting the year to date increase in stockholders' equity was net income of $1.1 million, $8,000 of additional paid in capital from the accounting treatment for stock options and restricted stock vesting, and an increase of $181,000 in unrealized gains, net of tax, on securities available for sale. Currently, we have 4,853,136 common shares outstanding.

Operating Statement

Our total revenue, consisting of net interest income and noninterest income, was $7.4 million for the first quarter of 2012, a decrease of $340,000 from the fourth quarter of 2011. First quarter of 2012 net interest income was $5.4 million a decrease of $300,000 from the fourth quarter of 2011. The decrease in our net interest income was the result of a 14 basis point decline in our net interest margin. The decrease in net interest income was the result of the acceleration of $94,000 of prepaid fees due to the prepayment of $9.8 million in brokered certificates of deposit. We utilized excess cash on our balance sheet to retire these brokered certificates of deposit early, and will save approximately $20,000 per month in interest expense on these funds. Additionally, we placed $6.2 million of loans on non-accrual status during the quarter, which resulted in the reversal of $120,000 in interest income during the first quarter of 2012. Without the interest reversals and prepaid fees mentioned above, the net interest margin for the first quarter would have been 3.89 percent. The yield on earnings assets for the first quarter of 2012 was 4.6 percent, compared to 4.8 percent for the fourth quarter of 2011.  The cost of funds for the first quarter of 2012 was 1.02 percent, compared to 1.07% for the fourth quarter of 2012. On March 1, 2012, our $9.0 million trust preferred note converted to a floating rate, which currently saves us approximately $34,000 of interest expense per month. Both of our trust preferred notes now carry floating rates.

Non-interest income was $2.0 million for the first quarter of 2012, which represented 27.1 percent of total revenue. This is a decrease of $43,000 from the fourth quarter of 2011.  The decrease is the net result of a $103,000 decrease in trust and brokerage fees, offset by an increase of $60,000 in merchant card and other fees. The decrease in trust fees relates primarily to the timing of estate fees that were earned during the fourth quarter of 2011 versus levels billed in the first quarter of 2012. Trust and brokerage assets under management grew from $594.6 million at December 31, 2011, to $639.6 million at March 31, 2012, an increase of 7.6 percent. All other fee categories remained relatively flat quarter over quarter.

Non-interest expenses were $5.3 million, a decrease of $580,000 from the fourth quarter of 2011. The decrease was primarily the result of the declines in the following categories; employment expenses declined by $354,000, occupancy and equipment declined by $49,000, business development declined by $17,000, professional expenses declined by $40,000, and OREO expenses declined by $161,000. These decreases were offset slightly by an increase in processing expense of $48,000 stemming from normal one-time annual charges that typically occur during the first quarter of each year. $245,000 of the $354,000 decrease in employment expenses relates to the Long-term incentive plan accrual that was earned and recorded during the fourth quarter of 2011. Salary expenses declined by $35,000 from the fourth quarter of 2011. 

 ABOUT THE COMPANY

Headquartered in Fort Wayne, Indiana, Tower Financial Corporation is a financial services holding company with one subsidiary; Tower Bank & Trust Company (Tower Bank), a community bank headquartered in Fort Wayne. 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 in Warsaw, Indiana. Tower Bank has a wholly-owned subsidiary, Tower Trust Company, which is a state-chartered wealth services firm doing business as Tower Private Advisors. Tower Bank also markets under the HSA Authority brand, which provides Health Savings Accounts to clients in 48 states. 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.towerbank.net

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements that, by their nature, are predictive and are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about our company.

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, speak only as of this date, and involve risks and uncertainties related to our banking business, or to general business and economic conditions that may affect our business, which may cause actual results to turn out differently. More detailed information about such risks and uncertainties may be found in our most recent Annual Report on Form 10-K, or, if applicable, in subsequently filed Forms 10-Q quarterly reports, under the captions "Forward-Looking Statements" and "Risk Factors," which 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.