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Tower Financial Corporation Reports First Quarter Earnings of $783,000

FORT WAYNE, Ind., April 28, 2011 (GLOBE NEWSWIRE) -- Tower Financial Corporation (Nasdaq:TOFC) reported net income of $783,000 or $0.16 per diluted share for the first quarter of 2011, compared with net income of $721,000, or $0.16 per diluted share, reported for the first quarter 2010.
/ Source: GlobeNewswire

FORT WAYNE, Ind., April 28, 2011 (GLOBE NEWSWIRE) -- Tower Financial Corporation (Nasdaq:TOFC) reported net income of $783,000 or $0.16 per diluted share for the first quarter of 2011, compared with net income of $721,000, or $0.16 per diluted share, reported for the first quarter 2010.

Our first quarter highlights include:

  • Net interest margin of 3.83 percent for the first quarter, representing continued improvement from the 3.66 percent and 3.73 percent reported for the first quarter 2010 and fourth quarter 2010, respectively.
  • "Core" earnings grew to $2.5 million, compared to $2.3 million for the fourth quarter 2010 and first quarter 2010, respectively. Core earnings are defined as income before taxes, loan loss provision, and unusual items not related to day to day operations (primarily securities sales and OREO ("other real estate owned") related expenses). 
  • Loans grew by $2.3 million for the quarter, represented our first quarterly growth in loans since the fourth quarter of 2008, while classified assets decreased by $4.1 million over the same time period.
  • Capital ratios continue to increase and remain well above the regulatory standards necessary to be considered "well-capitalized." As of March 31, 2011, our leverage ratio was 10.6 percent and our Total Risked Based Capital ratio was 14.5 percent, compared to regulatory requirements of 5.0 percent and 10.0 percent, respectively.
  • Investment portfolio growth of $13.5 million, reflecting our continued shift to a more structured balance sheet. Investments now comprise 18.6 percent of total assets.
  • Received regulatory approval to build a new branch facility on Illinois Road in southwest Fort Wayne. Construction is expected to begin this summer with completion anticipated in early 2012.

"We remain encouraged by our ability to grow our core earnings and capital levels through the continued expansion of our net interest margin and responsible growth of our balance sheet. We remain committed to the continuing and steady decline in the level of classified assets, which is a significant indication of improved asset quality results in the future. Our measured progress is allowing us to position ourselves to take advantage of new business opportunities and lines of business in our geographic region as they begin to arise." stated Mike Cahill, President and CEO.


The Company's regulatory capital ratios continue to remain above the "well-capitalized" levels of 6 percent for Tier 1 capital and 10 percent for risked-based capital. Tier 1 capital at March 31, 2011, increased to 13.3 percent, compared to 13.1 percent at December 31, 2010 and 11.1 percent at March 31, 2010. Total risked-based capital at March 31, 2011, increased to 14.5 percent, compared to 14.3 percent at December 31, 2010 and 12.7 percent at March 31, 2010. Leverage capital remained at 10.6 percent at March 31, 2011, 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, 2010 in both dollars and percentages, compared to the minimum amounts required per regulatory standards for "well-capitalized" institutions. 

Asset Quality

Nonperforming assets plus delinquencies were $22.9 million, or 3.4 percent of total assets as of March 31, 2011. This compares with $27.8 million, or 4.2 percent of total assets at December 31, 2010. Net charge-offs were $1.8 million for the first quarter 2011, or 1.49 percent of average loan outstandings for the quarter. This compares to net charge-offs of $789,000, or 0.61 percent of average loans for the first quarter 2010 and $332,000, or 0.27 percent of average loans for the fourth quarter of 2010. Loan loss provision through March 31, 2011 was $1.2 million compared to $1.3 million for the first quarter of 2010.  

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

The troubled-debt restructured ("TDR") category consists of one loan. This loan has a balance of approximately $2.1 million and is considered a TDR because the loan was modified to take additional collateral of approximately $900,000 in order to improve the structure and collectability of the loan. As of March 31, 2011 this loan was current and paying according to the modified terms. Based on the new accounting rules this loan will go to "performing" status after six continuous months of keeping with the modified terms. Two loans came off the non-performing TDR list during the quarter because they continue to keep current and perform according to the modified terms.

Delinquencies greater than 90 days have remained relatively flat from the fourth quarter 2010. This category is comprised of five loan relationships. As discussed in previous press releases, included in this category is an accruing $1.8 million loan that has matured. The Bank has elected not to renew the loan and is seeking collection via legal process. The loan remains in accruing status because it is further supported by the unlimited guaranty of a third party whose guaranty is fully secured by a mortgage on a performing commercial real estate property that is unrelated to the borrower's enterprise. This loan is expected to remain technically nonperforming during the pendency of our legal collection efforts but ultimate collection from the guarantor is not currently in doubt. 

Our non-accrual commercial and industrial loan category increased by $1.1 million during the first quarter. Five new relationships totaling $3.2 million were added to this category, while one large relationship of $1.9 million was sold along with some other minor reductions totaling $200,000. As of March 31, 2011, there were eighteen relationships within this category, with three relationships comprising 55 percent of the total.

Our non-accrual commercial real estate category decreased by $961,000 during the first quarter, the result of one relationship totaling $961,000 moving to OREO after being foreclosed upon. The category is currently comprised of a single relationship, which we anticipate being resolved during the second or third quarter of 2011.

Our non-accrual acquisition and development category decreased during the quarter from minor pay downs on the existing relationships within this category. As of March 31, 2011, the category was comprised of four relationships, with one relationship making up 58 percent of the balance. A resolution to this large relationship is pending and is expected to close early in the second quarter of 2011.

Our non-accrual residential category decreased by $191,000 during the quarter. This was the net result of one large loan being brought to resolution, along with the addition of two smaller loans to the category. In total there are eight relationships that comprise this category..

Classified assets are comprised of substandard and non-accrual loans, along with impaired investments and OREO. Classified assets reached their peak at the end of the second quarter of 2009 at $63.0 million. We have made steady progress to reduce these assets by $17.0 million, or 26.9 percent. As of March 31, 2011, classified assets comprised 58.1 percent of Tier 1 capital plus the Allowance for Loan Losses ("ALLL").

The allowance for loan losses decreased $581,000 during the first quarter of 2011 and was 2.43 percent of total loans at March 31, 2011, a decrease from 2.56 percent at December 31, 2010 and an increase from 2.32 percent at March 31, 2010. The allowance for loan losses has decreased by $581,000 from December 31, 2010, as a result of loan provision of $1.2 million, offset by $1.8 million of net charge-offs.

Balance Sheet

Company assets were $664.1 million at March 31, 2011, an increase of $4.2 million, or 0.6 percent from December 31, 2010. While the increase in total assets was minimal, we utilized $13.8 million of excess cash to increase our long-term investments by $13.5 million, purchase $3.0 million in additional bank owned life insurance ("BOLI"), and increase loans by $2.3 million. The net interest margin increased as a result of turning these non-earning assets into earning assets during the quarter. 

Total loans at March 31, 2011 were $489.2 million, compared to $486.9 million at December 31, 2010. The increase in loans came primarily from the Commercial and Industrial (C&I) and Commercial Real Estate categories, which grew by $2.0 and $2.6 million respectively. Residential mortgage loans also grew by $1.6 million. This growth was offset by a reduction in Home Equity and Consumer loan outstandings of $2.7 million and $1.1 million respectively.

Long term investments at March 31, 2010 were $123.6 million, an increase of $13.5 million from December 31, 2010.  Long-term investment now comprise 18.6 percent of total assets as we continue to expand our investment portfolio to enhance liquidity and yield opportunities in light of fewer lending opportunities in the local economy. This is a continued purposeful change in asset allocation driven by profitability and liquidity targets, current economic conditions, and capital management guidelines.

Total deposits at March 31, 2011 were $575.5 million compared to $576.4 million at December 31, 2010, a slight decrease of $831,000, or 0.2 percent. Core deposits decreased by $2.6 million, CD's greater than $100,000 decreased by $3.1 million, and Brokered CD's increased by $4.9 million. 

Shareholders' equity was $54.4 million at March 31, 2011, an increase of 2.4 percent from the $53.1 million reported at December 31, 2010. Affecting the increase in stockholders' equity was net income of $783,000, $12,000 of additional paid in capital from the FAS123R (Do we need to make a different reference now because of codification?) accounting treatment for stock options, and an increase of $490,000 in unrealized gains, net of tax, on securities available for sale. Current common shares outstanding are 4,827,843.

Operating Statement

Total revenue, consisting of net interest income and noninterest income, was $7.3 million for the first quarter 2011, a slight decrease of $55,000 from the fourth quarter 2010 and an increase of $129,000 from the first quarter 2010.  First quarter 2011 net interest income was $5.6 million an increase of $123,000, or 2.2 percent from the fourth quarter 2010 and an increase of $80,000, or 1.4 percent compared to the first quarter 2010. The increase from the fourth quarter was attributable to an increase in our net interest margin. The first quarter 2011 net interest margin of 3.83 percent represents an 10 basis point increase from the net interest margin of 3.73 percent posted for the fourth quarter 2010. The increase in our margin came primarily from a reduction in cost of funds, which was 1.27 percent for the first quarter, compared to 1.44 percent for the fourth quarter 2010. Cost of funds has decreased 39 basis points since the first quarter of 2010. Yields on earning assets have remained relatively flat.

Non-interest income was $1.6 million for the first quarter 2011, which represented 22.6 percent of total revenue. This is a decrease of 178,000 from the fourth quarter 2010 and an increase of $50,000 from the first quarter of 2010. The decrease from the fourth quarter is primarily from a reduction in mortgage loan brokerage fees, which decreased by $73,000. This is typical during the first quarter, as loan brokerage fees remained flat from the first quarter of 2010. Gains of securities sales also decreased from the fourth quarter. We recorded $175,000 of gains in the fourth quarter of 2010 compared to $59,000 during the first quarter of 2011. We also recorded $125,000 of Other Than Temporary Impairment ("OTTI") on two securities in our investment portfolio. While this is comparable to the fourth quarter OTTI, our Trust Preferred Investment is now written down to zero value, so we will have no OTTI in the future on this investment. The Trust Preferred Investment comprised $110,000, or 88 percent, of our OTTI charge for the quarter.

Non-interest expenses were $5.1 million, a decrease of $252,000 from the fourth quarter 2010 and an increase of $188,000 from the first quarter of 2010. $100,000 of the reduction from the fourth quarter came in our OREO category, while the remainder is primarily timing related. Beginning in the second quarter of 2011, we estimate a reduction in our FDIC premiums of approximately $125,000 per quarter due to a reduction in the assessment rates that goes into effect on April 1, 2011. The rates will decrease by 8 to 10 basis points. The estimated savings is based on our current deposit balances and will vary depending on growth or contraction in the portfolio. 


Headquartered in Fort Wayne, Indiana, Tower Financial Corporation is a financial services holding company with one subsidiary; Tower Bank & Trust Company, 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 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


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 banking regulation; changes in governmental and regulatory policy or enforcement; changes in the national and local economy; 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 tax laws; changes in prices; the impact of technological advances; the outcomes of contingencies, trends in customer behavior and their ability to repay loans; changes in local real estate values; 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 , as well as on our website at

CONTACT: FOR INVESTORS: Richard R. Sawyer Chief Financial Officer 260-427-7150 FOR MEDIA: Tina M. Farrington Executive Vice President 260-427-7155