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8-K - FORM 8-K - TOWER FINANCIAL CORPtofc_8k-012413.htm
 
Exhibit 99.1
FOR FURTHER INFORMATION:
 
FOR INVESTORS:  FOR MEDIA:  
Richard R. Sawyer Tina M. Farrington  
Chief Financial Officer  Executive Vice President  
260-427-7150  260-427-7155  
rick.sawyer@towerbank.net
tina.farrington@towerbank.net
 

TOWER FINANCIAL CORPORATION REPORTS ANNUAL NET INCOME OF $5.7 MILLION
 
FORT WAYNE, INDIANA – JANUARY 24, 2013 –Tower Financial Corporation (NASDAQ: TOFC) reported net income of $1.7 million or $0.36 per diluted share for the fourth quarter of 2012, compared with net income of $3.4 million, or $0.71 per diluted share, reported for the fourth quarter of 2011.  Year to date earnings for 2012 were $5.7 million, or $1.18 per diluted share, compared to $6.6 million, or $1.36 per diluted share for 2011.

Our fourth quarter and annual highlights include:

·
Our 2012 pre-tax earnings are the highest in our history. On a pre-tax basis our 2012 income was $1.9 million for the quarter and $7.4 million for the full year, compared to $966,000 for the fourth quarter of 2011 and $5.1 million for the full year.  During the fourth quarter of 2011, our net income was positively impacted by the reversal of our previously established net deferred tax asset (“DTA”) valuation allowance resulting in an income tax benefit of $2.5 million.

·
Our 2012 “Core” earnings of $10.6 million represent the highest in our history. Our annual “core” earnings have exceeded $10 million for the second consecutive year. We define core earnings as income before taxes, loan loss provision, and unusual items not related to day to day operations (primarily securities sales and other real estate owned (“OREO”) expenses)

·
Total assets grew by $34.5 million during the fourth quarter and were $684.0 million as of December 31, 2012.  The growth came in our investment portfolio, which grew by $39.3 million.

·
Trust assets under management grew by approximately $78 million, or 13 percent, during 2012 and gross revenue for Tower Trust Company exceeded $4.0 million for the first time in our history.
 
 
 

 
 
·
We reinstated our dividends in 2012, which included a total of $2.7 million in dividends paid to our shareholders during the fourth quarter.  The dividends came in the form of a quarterly dividend of $0.055 per share and a special dividend of $0.50 per share.

·
The Board of Directors approved a stock repurchase program for up to 250,000 shares of our common stock.  As of December 31 2012, we had repurchased 141,850 shares.

Mike Cahill, President and Chief Executive Officer of Tower Financial Corporation stated, “Last year, I noted that even in light of a record year of net income in 2011, Tower’s work was not complete, and we would continue to work to improve.  The 2012 results demonstrate the continued hard work by my team members. Excluding the DTA valuation in 2011, 2012 was a record year for Tower, exceeding last year’s pre-tax net income by over $2 million dollars. This increase in income allowed us to reinstate the quarterly dividend, pay a special dividend, and institute a share repurchase program in order to reward our loyal shareholders.

“I will reiterate what I said last year, we believe there is still more opportunity in the coming year for Tower. We are committed to retaining and expanding relationships with our existing clients, and we believe there are many opportunities with new clients to experience the ‘Tower’ difference.”

“We remain committed to the tasks of improving our credit metrics and operational efficiencies to deliver the best experience to our clients, community, and shareholders.”

Capital
During the fourth quarter of 2012, the Company issued dividends to its shareholders in the amount of $2.7 million.  Additionally, the Company repurchased 141,850 shares of its common stock at a cost of $1.7 million.  These reductions of capital along with an increase in total assets of $34.5 million caused a decrease in our regulatory capital ratios.   However, our 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 December 31, 2012 was 14.7 percent compared to 15.2 percent at September 30, 2012 and 13.9 percent at December 31, 2011.  Total risk-based capital at December 31, 2012 was 15.9 percent compared to 16.5 percent at September 30, 2012 and 15.2 percent at December 31, 2011.  Our leverage capital was 11.2 percent at December 31, 2012, more than double the regulatory requirement of 5 percent to be considered “well-capitalized”.
 
 
2

 

The following table provides the current capital position as of December 31, 2012 in both dollars and percentages, compared to the minimum amounts required per regulatory standards for “well-capitalized” institutions.
 
                   
Minimum Dollar Requirements
 
Regulatory
   
Tower
       
($000's omitted)
 
Minimum (Well-Capitalized)
   
12/31/12
   
Excess
 
Tier 1 Capital / Risk Assets
  $ 31,000     $ 75,670     $ 44,670  
                         
Total Risk Based Capital / Risk Assets
  $ 51,666     $ 82,151     $ 30,485  
                         
Tier 1 Capital / Average Assets (Leverage)
  $ 33,847     $ 75,670     $ 41,823  
 
Minimum Percentage Requirements
 
Regulatory
   
Tower
         
   
Minimum (Well-Capitalized)
   
12/31/12
         
Tier 1 Capital / Risk Assets
 
6% or more
      14.65 %        
                         
Total Risk Based Capital / Risk Assets
 
10% or more
      15.90 %        
                         
Tier 1 Capital / Quarterly Average Assets
 
5% or more
      11.18 %        

Asset Quality
Our nonperforming assets were $18.8 million, or 2.7 percent of total assets as of December 31, 2012. This compares with $17.2 million at September 30, 2012 and $16.0 million at December 31, 2011.  Our net charge-offs were $451,000 for the fourth quarter of 2012, or 0.4 percent of average outstanding loans for the quarter.  This compares to net charge-offs of $1.1 million, or 1.0 percent of average loans for the third quarter of 2012 and $1.6 million, or 1.4 percent of average loans for the fourth quarter of 2011.  Net charge-offs for 2012 were $3.6 million, or 0.8 percent of average loans, compared to $7.3 million, or 1.5 percent of average loans during 2011.  Our loan loss provision for the fourth quarter of 2012 was $200,000 compared to $618,000 for the third quarter of 2012 and $975,000 for the fourth quarter of 2011.  Loan loss provision for 2012 was $2.5 million compared to $4.2 million for 2011.

The current and historical breakdown of our non-performing assets is as follows:
 
($000's omitted)
 
12/31/12
   
9/30/12
   
6/30/12
   
3/31/12
   
12/31/11
 
Non-Accrual loans
                             
Commercial
  $ 8,897     $ 7,112     $ 6,988     $ 7,213     $ 5,020  
Acquisition & Development
    2,789       2,175       3,176       3,268       2,134  
Commercial Real Estate
    753       764       948       1,515       977  
Residential Real Estate
    2,462       2,032       2,163       1,630       551  
Home Equity
    67       -       -       748       -  
Total Non-accrual loans
    14,968       12,083       13,275       14,374       8,682  
Trouble-debt restructered (TDR) *
    1,645       1,557       360       -       1,805  
OREO & Other impaired assets
    2,038       2,375       2,562       2,878       3,129  
Deliquencies greater than 90 days
    110       913       472       902       2,007  
Impaired Securities
    -       317       307       314       331  
                                         
Total Non-Performing Assets
  $ 18,761     $ 17,245     $ 16,976     $ 18,468     $ 15,954  
                                         
Allowance for Loan Losses (ALLL)
  $ 8,289     $ 8,539     $ 9,032     $ 9,108     $ 9,408  
                                         
ALLL / Non-accrual loans
    55.4 %     70.7 %     68.0 %     63.4 %     108.4 %
                                         
* Non-performing TDR's
                                       

 
3

 

The $1.5 million increase in our nonperforming assets relates primarily to one loan relationship totaling approximately $2.9 million that was taken to non-accrual status during the quarter.  Previously this relationship was rated as substandard.  This addition was offset by numerous reductions in balances and resolutions during the fourth quarter 2012, as shown in more detail on the tables below:


   
Balance
         
Resolutions/
         
Balance
 
   
9/30/12
   
Additions
   
Paydowns
   
Other
   
12/31/12
 
Non-accrual Loans
                             
Commercial
  $ 7,112     $ 3,207     $ (1,200 )   $ (222 )   $ 8,897  
Acquisition & Development
    2,175       642       (28 )     -       2,789  
Commercial Real Estate
    764       -       (11 )     -       753  
Residential Real Estate
    2,032       615       (38 )     (163 )     2,446  
Home Equity
    -       83       -       -       83  
Total Non-accrual loans
    12,083       4,547       (1,277 )     (385 )     14,968  
Troubled Debt Restructered
    1,557       446       (358 )     -       1,645  
OREO & Other impair assets
    2,375       20       (178 )     (179 )     2,038  
Delinquencies Greater than 90 days
    913       52       (786 )     (69 )     110  
Impaired Securities
    317       -       (317 )     -       -  
                                         
Total Non-Performing Assets
  $ 17,245     $ 5,065     $ (2,916 )   $ (633 )   $ 18,761  
 

The following table represents the change in total relationships within the non-performing asset categories during the fourth quarter of 2012:
 
   
9/30/12
   
Additions
   
Subtractions
   
12/31/12
 
Non-accrual Loans
                       
Commercial
    12       2       (2 )     12  
Acquisition & Development
    4       1       -       5  
Commercial Real Estate
    3       -       -       3  
Residential Real Estate
    6       3       (1 )     8  
Home Equity
    -       2       -       2  
Total Non-accrual loans
    25       8       (3 )     30  
Troubled Debt Restructered
    2       1       (1 )     2  
OREO & Other impair assets
    13       1       (4 )     10  
Delinquencies Greater than 90 days
    30       1       (28 )     3  
Impaired Securities
    1       -       (1 )     -  
                                 
Total Non-Performing Assets
    71       11       (37 )     45  

 
4

 

Our classified assets, defined as substandard, non-accrual loans, impaired investments, and OREO, decreased by $1.3 million during the fourth quarter and totaled $35.9 million at December 31, 2012.  Our classified assets were 44.8 percent of tier 1 capital plus ALLL (classified assets ratio) as of December 31, 2012.  Our classified assets ratio at September 30, 2012 was 44.0 percent and was 35.0 percent at December 31, 2011.  Classified assets increased by $7.8 million during 2012.  The increase relates primarily to previously identified loans that were downgraded from special mention to substandard during the third quarter of 2012, including one relationship totaling $5.5 million.  Our total “watch list” loans was $39.4 million at December 31, 2012, a decrease of $2.1 million from the third quarter and a $14.5 million decrease from December 31, 2011.  Watch list loans now comprise 8.7 percent of the total loan portfolio.  The watch list comprises all non “pass” rated credits.  The following table presents the watch list by risk category:
 
   
12/31/2012
   
9/30/2012
   
6/30/2012
   
3/31/2012
   
12/31/2011
 
Watch
  $ 1,232     $ 1,001     $ 3,951     $ 7,123     $ 9,086  
Special mention
    5,493       6,706       14,889       20,365       20,852  
Total non-classified loans
    6,725       7,707       18,840       27,488       29,938  
                                         
Substandard
    18,293       21,651       13,505       7,433       15,456  
Doubtful/Loss*
    14,393       12,177       13,191       14,361       8,489  
Total classified loans
    32,686       33,828       26,696       21,794       23,945  
                                         
Total watch list loans
  $ 39,411     $ 41,535     $ 45,536     $ 49,282     $ 53,883  
                                         
Watchlist loan/total loans
    8.75 %     9.07 %     9.82 %     10.78 %     11.65 %
                                         
Total classified assets
  $ 35,894     $ 37,145     $ 30,368     $ 28,759     $ 28,108  
*All loans in this risk rating are non-accrual.
                                 

The allowance for loan losses was $8.3 million at December 31, 2012, a decrease of $250,000 from the $8.5 million reported at September 30, 2012.  The quarterly decrease was the net result of loan loss provision of $200,000, offset by $450,000 of net charge-offs.  The year to date loan loss provision was $2.5 million, offset by $3.6 million in net charge-offs. The allowance for loan losses was 1.84 percent of total loans at December 31, 2012, a decrease from 1.87 percent at September 30, 2012 and from 2.03 percent at December 31, 2011.

Balance Sheet
Company assets were $684.0 million at December 31, 2012, a decrease of $16.7 million, or 2.4 percent from December 31, 2011.  The significant decrease stems from two large December short-term deposits that increased our assets by approximately $48 million as of the end 2011.  As described in our fourth quarter 2011 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 deposit reductions into account, our adjusted assets increased by approximately $31.3 million during 2012.

Our total loans at December 31, 2012 were $450.5 million, compared to $462.6 million at December 31, 2011.  The decrease of $12.1 million, or 2.6 percent, was comprised of decreases in our commercial loan, commercial real estate loan, home equity loan and consumer loan categories, which decreased by $4.4 million, $4.8 million, $1.5 million, and $2.4 million respectively.  These decreases were offset by an increase of $1.3 million in residential mortgage loans.
 
 
5

 

Our securities available for sale at December 31, 2012 were $174.4 million, an increase of $45.8 million from December 31, 2011.  Securities available for sale now comprise 25.5 percent of total assets. We have been strategically increasing the size of our investment portfolio to help combat margin compression and focus on preserving our net interest income as prudently as possible.  The increase in the portfolio will help preserve net interest income, but will most likely result in the further compression of our net interest margin and an increase in our overall assets.  The investment purchases were primarily funded with overnight borrowings in anticipation of our January 2013 Health Savings Account funding.

Our total deposits at December 31, 2012 were $561.0 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 increased by approximately $7.0 million during 2012.  Interest-bearing checking accounts increased by $55.1 million, the result of increases of $14.2 million in our Health Savings Accounts and the movement of approximately $28 million of noninterest-bearing account balances to our new interest-bearing checking account for commercial customers.  As a result of this movement between accounts and the departure of the short-term deposits discussed above, non-interest bearing accounts decreased $61.6 million from December 31, 2011.  Other categories reporting declines in balances during the year include in-market CD’s of $20.9 million, brokered certificates of deposit of $12.4 million, and money market accounts of $7.7 million.

Our borrowings were $54.9 million at December 31, 2012 and were comprised of $17.5 million in trust preferred debt and $37.4 million in borrowings from the Federal Home Loan Bank of Indianapolis (“FHLBI”).

Shareholders' equity was $63.7 million at December 31, 2012, an increase of 2.7 percent from the $62.1 million reported at December 31, 2011.  Affecting the year to date increase in stockholders’ equity was net income of $5.7 million, $292,000 of additional paid in capital from the accounting treatment for restricted stock vesting and issuance of shares related to the long-term incentive plan, treasury stock purchases of $1.7 million, shareholders dividends of $2.9 million, and an increase of $282,000 in unrealized gains, net of tax, on securities available for sale.  Currently, we have 4,735,144 common shares outstanding.  Tangible book value at December 31, 2012 was $13.46 per common share.

Income Statement
Our total revenue, consisting of net interest income and noninterest income, was $7.6 million for the fourth quarter of 2012, a decrease of $175,000 from the third quarter 2012.  Total revenue for 2012 was $30.7 million, down by $188,000, or 0.6 percent, from the record results posted for 2011.  Net interest income for the fourth quarter of 2012 was $5.5 million, a decrease of $143,000 from the third quarter of 2012, while 2012 annual net interest income was $22.2 million, a decrease of approximately $550,000, or 2.4 percent, from 2011.  The quarter over quarter decrease in our net interest income was primarily the result of a 22 basis point decline in our net interest margin.  This reduction in our margin came from yield compression on earning assets.  Our yield on loans dropped to 4.63 percent during the fourth quarter from the 4.74 percent reported for the third quarter, while the yield on our investment portfolio dropped to 2.99 percent from 3.61 percent quarter over quarter.  This was offset slightly by our continued reduction in our cost of funds, which decreased to 0.64 percent for the fourth quarter 2012 from the 0.73 percent reported for the third quarter.  The reduction in net interest margin was offset by an increase of $25.3 million in average earning assets for the quarter. Total earning assets were $636.9 million at December 31, 2012, compared to $607.5 million at September 30, 2012 and $606.9 million at December 31, 2011.  Due to the extended low interest rate environment and the margin compression that is impacting the entire industry, we have shifted our focus to net interest income versus the net interest margin.  We expect this trend to continue as we move into 2013.
 
 
6

 

Non-interest income was $2.2 million for the fourth quarter of 2012, which represented 28.4 percent of total revenue.  This is a slight decrease of $32,000 from the third quarter of 2012 and an increase of $111,000 from the fourth quarter of 2011.  The quarter over quarter decrease relates primarily to a $37,000 decrease in trust and brokerage fees related primarily to brokerage volume.  Mortgage loan fees were negatively impacted by a reduction of $106,000 in the fair value of rate locks on mortgage loans with the intention of selling in the secondary market. These decreases were offset by an increase of $64,000 in gains on securities sales and an increase in mortgage loan fees on closed loans of $24,000.  All other fee categories remained relatively flat quarter over quarter.

Non-interest income for 2012 was $8.5 million, an increase of 4.5 percent from the $8.2 million we reported for 2011.  The $363,000 increase was primarily the net result of increases in trust & brokerage fees of $274,000, mortgage brokerage fees of $452,000, and interchange income of $113,000, offset by a reduction in gains on securities sales of $628,000.  In 2012, the mortgage department topped the $100 million mark in loans closed for the first time in our history.

Non-interest expenses were $5.6 million for the fourth quarter 2012, compared to $5.0 million for the third quarter 2012 and $5.8 million for the fourth quarter 2011.  The increase from the third quarter of $556,000 relates primarily to business development expenses, processing expenses and legal & professional expenses which increased by $101,000, $151,000 and $136,000 respectively.  More than 50 percent, $55,000, of the increase in business development expenses relates to year-end contributions, while another $6,000 relates to annual membership dues normally paid in the fourth quarter.  The remainder relates to increase business development efforts by our calling officers.  Of the $151,000 increase in data processing from the prior quarter, approximately $65,000 relates to projects specific to 2012 for increasing efficiency and enhancing revenue in the future.  Of the remaining increase, approximately $32,000 was related to the timing of the bulk purchase of debit cards plastics that are typically purchased once or twice a year for deployment to new and existing customers as needed.  Legal & professional expenses increased from the prior quarter as a result of additional costs of approximately $55,000 associated with increased loan closings, costs of approximately $76,000 associated with miscellaneous consulting and advisory services.

Non-interest expenses for 2012 were of $20.9 million, a decrease of 3.5 percent from the $21.6 million reported for 2011.  The decrease from 2011 relates primarily to a reduction in FDIC insurance premiums of $703,000, which is a result of the termination of our formal agreement with the banking regulators.  We also saw a reduction of $416,000 in OREO related expenses and $115,000 in legal expenses, related primarily to asset quality.  These savings were offset by an increase of $157,000 in employment related costs, primarily for commissions on brokerage and mortgage fees, along with increases in occupancy costs associated with our increase real estate taxes on our branch network, processing costs associated with our expanding business in H.S.A. accounts, and marketing/business development expenses.

 
7

 

Income tax expense decreased $479,000 from the third quarter and increased from the fourth quarter of 2011 by $2.6 million.  The decrease in the fourth quarter of 2012 from the prior quarter was the result of reversing the federal and state valuation allowances on the impairment previously recorded on one other-than-temporarily-impaired security.  This security was sold during the fourth quarter of 2012 resulting in the reversal of the valuation allowance of approximately $375,000.  In the fourth quarter of 2011, we reversed the valuation allowance on our state deferred tax asset due to the liquidation our real estate investment trust that had previously created a state net operating loss.  The reversal of the state valuation allowance in 2011 created a tax benefit of $2.5 million in the fourth quarter of 2011 compared to the tax expense of $138,000 recorded in the fourth quarter of 2012.

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 50 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.
 
 
8

 
 
Tower Financial Corporation
Consolidated Balance Sheets
At December 31, 2012 and December 31, 2011
 
   
(unaudited)
       
   
December 31
2012
   
December 31
2011
 
ASSETS
           
Cash and due from banks
  $ 11,958,507     $ 60,753,268  
Short-term investments and interest-earning deposits
    159,866       3,260,509  
Federal funds sold
    2,727,928       3,258,245  
Total cash and cash equivalents
    14,846,301       67,272,022  
                 
Interest bearing deposits
    457,000       450,000  
Debt Securities available for sale, at fair value
    173,480,599       128,619,951  
Equity Securities available for sale, at fair value
    902,900       -  
FHLBI and FRB stock
    3,807,700       3,807,700  
Loans Held for Sale
    4,933,299       4,930,368  
                 
Loans
    450,465,610       462,561,174  
Allowance for loan losses
    (8,288,644 )     (9,408,013 )
Net loans
    442,176,966       453,153,161  
                 
Premises and equipment, net
    8,904,214       9,062,817  
Accrued interest receivable
    2,564,503       2,675,870  
Bank Owned Life Insurance
    17,672,783       17,084,858  
Other Real Estate Owned
    1,908,010       3,129,231  
Prepaid FDIC Insurance
    925,337       1,551,133  
Other assets
    11,393,469       8,944,145  
                 
Total assets
  $ 683,973,081     $ 700,681,256  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
LIABILITIES
               
Deposits:
               
Noninterest-bearing
  $ 108,147,229     $ 169,757,998  
Interest-bearing
    452,860,109       432,278,838  
Total deposits
    561,007,338       602,036,836  
                 
Fed Funds Purchased
    -       -  
Short-term borrowings
    9,093,652       -  
Federal Home Loan Bank advances
    28,300,000       12,000,000  
Junior subordinated debt
    17,527,000       17,527,000  
Accrued interest payable
    107,943       2,148,424  
Other liabilities
    4,191,237       4,871,924  
Total liabilities
    620,227,170       638,584,184  
                 
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; 4,941,994 and 4,918,136 shares issued at December 31, 2012 and December 31, 2011, respectively; and 4,735,144 and 4,853,136 shares outstanding at December 31, 2012 and December 31, 2011, respectivley
    44,834,605       44,542,795  
Treasury stock, at cost, 206,850 and 65,000 shares at December 31, 2012 and December 31, 2011, respectively
    (2,619,486 )     (884,376 )
Retained earnings
    17,880,539       15,070,115  
Accumulated other comprehensive income (loss), net of tax of $1,880,434 at December 31, 2012 and $1,735,307 at December 31, 2011
    3,650,253       3,368,538  
Total stockholders' equity
    63,745,911       62,097,072  
                 
Total liabilities and stockholders' equity
  $ 683,973,081     $ 700,681,256  
 
 
9

 
 
Tower Financial Corporation
Consolidated Statements of Operations
For the three and twelve months ended December 31, 2012 and 2011
(unaudted for 2012)
   
For the Three Months Ended
December 31
   
For the Twelve Months ended
December 31
 
   
2012
   
2011
   
2012
   
2011
 
Interest income:
                       
Loans, including fees
  $ 5,299,343     $ 5,990,191     $ 22,063,567     $ 24,828,298  
Securities - taxable
    371,045       547,198       1,837,958       2,295,838  
Securities - tax exempt
    561,244       490,300       2,027,131       1,730,535  
Other interest income
    9,026       13,436       45,559       39,041  
Total interest income
    6,240,658       7,041,125       25,974,215       28,893,712  
Interest expense:
                               
Deposits
    640,929       1,076,737       3,157,522       5,090,715  
Fed Funds Purchased
    131       26       388       638  
FHLB advances
    43,602       45,501       160,836       230,713  
Trust preferred securities
    84,466       211,745       451,265       816,852  
Total interest expense
    769,128       1,334,009       3,770,011       6,138,918  
                                 
Net interest income
    5,471,530       5,707,116       22,204,204       22,754,794  
Provision for loan losses
    200,000       975,000       2,493,000       4,220,000  
                                 
Net interest income after provision for loan losses
    5,271,530       4,732,116       19,711,204       18,534,794  
                                 
Noninterest income:
                               
Trust and brokerage fees
    961,721       1,048,264       3,828,291       3,553,965  
Service charges
    261,658       278,968       1,090,028       1,092,260  
Mortgage banking income
    396,346       227,937       1,478,486       1,026,711  
Gain/(Loss) on sale of securities
    73,289       -       149,098       776,753  
Net debit card interchange income
    161,631       158,469       725,564       612,143  
Bank owned life insurance income
    146,353       147,028       587,925       568,070  
Impairment on AFS securities
    -       -       (688 )     (149,045 )
Other fees
    169,338       198,749       655,210       670,294  
Total noninterest income
    2,170,336       2,059,415       8,513,914       8,151,151  
                                 
Noninterest expense:
                               
Salaries and benefits
    2,827,700       3,145,882       11,342,508       11,185,034  
Occupancy and equipment
    707,018       677,006       2,598,996       2,494,913  
Marketing
    176,386       100,095       483,573       431,833  
Data processing
    452,775       322,892       1,444,309       1,335,034  
Loan and professional costs
    478,396       370,687       1,497,000       1,612,321  
Office supplies and postage
    42,200       58,264       202,565       228,281  
Courier service
    56,505       58,061       232,179       224,987  
Business Development
    191,817       138,379       522,964       464,807  
Communication Expense
    49,666       49,131       217,901       192,520  
FDIC Insurance Premiums
    143,061       249,209       664,770       1,367,622  
OREO Expenses
    192,168       419,370       641,190       1,057,503  
Other expense
    257,489       236,616       1,020,558       1,023,585  
Total noninterest expense
    5,575,181       5,825,592       20,868,513       21,618,440  
                                 
Income/(loss) before income taxes/(benefit)
    1,866,685       965,939       7,356,605       5,067,505  
Income taxes expense/(benefit)
    137,869       (2,456,540 )     1,612,439       (1,552,031 )
                                 
Net income/(loss)
  $ 1,728,816     $ 3,422,479     $ 5,744,166     $ 6,619,536  
Less: Preferred Stock Dividends
    -       -       -       -  
Net income/(loss) available to common shareholders
  $ 1,728,816     $ 3,422,479     $ 5,744,166     $ 6,619,536  
                                 
Basic earnings/(loss) per common share
  $ 0.36     $ 0.71     $ 1.18     $ 1.37  
Diluted earnings/(loss) per common share
  $ 0.36     $ 0.71     $ 1.18     $ 1.36  
Average common shares outstanding
    4,855,557       4,853,645       4,859,155       4,824,514  
Average common shares and dilutive potential common shares outstanding
    4,855,557       4,853,645       4,859,155       4,853,015  
                                 
Total Shares outstanding at end of period
    4,735,144       4,853,136       4,735,144       4,853,136  
Dividends declared per common share
  $ 0.555     $ -     $ 0.610     $ -  
 
 
10

 
 
Tower Financial Corporation
Consolidated Financial Highlights
(unaudited)
 
 
Quarterly
   
Year-To-Date
 
   
4th Qtr
   
3rd Qtr
   
2nd Qtr
   
1st Qtr
   
4th Qtr
   
3rd Qtr
   
2nd Qtr
   
1st Qtr
             
($ in thousands except for share data)
 
2012
   
2012
   
2012
   
2012
   
2011
   
2011
   
2011
   
2011
   
2012
   
2011
 
                                                             
EARNINGS
                                                           
Net interest income
  $ 5,472       5,615       5,706       5,412       5,707       5,684       5,721       5,643       22,205       22,755  
Provision for loan loss
  $ 200       618       925       750       975       900       1,125       1,220       2,493       4,220  
NonInterest income
  $ 2,170       2,202       2,126       2,016       2,059       2,372       2,072       1,647       8,514       8,150  
NonInterest expense
  $ 5,575       5,019       5,025       5,249       5,826       5,408       5,292       5,093       20,868       21,619  
Net income/(loss)
  $ 1,729       1,563       1,365       1,088       3,422       1,325       1,090       783       5,745       6,620  
Basic earnings per share
  $ 0.36       0.32       0.28       0.22       0.71       0.27       0.23       0.16       1.18       1.37  
Diluted earnings per share
  $ 0.36       0.32       0.28       0.22       0.71       0.27       0.22       0.16       1.18       1.36  
Average shares outstanding
    4,855,557       4,874,660       4,853,136       4,853,136       4,853,645       4,852,761       4,835,510       4,754,892       4,859,155       4,824,514  
Average diluted shares outstanding
    4,855,557       4,874,660       4,853,136       4,853,136       4,853,645       4,852,761       4,853,035       4,852,759       4,859,155       4,853,015  
                                                                                 
PERFORMANCE RATIOS
                                                                               
Return on average assets *
    1.01 %     0.96 %     0.84 %     0.65 %     2.02 %     0.80 %     0.66 %     0.48 %     0.87 %     1.00 %
Return on average common equity *
    10.24 %     9.43 %     8.53 %     6.92 %     23.22 %     9.24 %     7.92 %     5.92 %     8.80 %     11.81 %
Net interest margin (fully-tax equivalent) *
    3.65 %     3.87 %     3.98 %     3.76 %     3.90 %     3.80 %     3.83 %     3.83 %     3.81 %     3.84 %
Efficiency ratio
    72.95 %     64.21 %     64.16 %     70.67 %     75.02 %     67.13 %     67.91 %     69.85 %     67.93 %     69.95 %
Full-time equivalent employees
    155.25       154.50       157.00       158.00       151.00       158.50       157.00       150.75       155.25       150.75  
                                                                                 
CAPITAL
                                                                               
Equity to assets
    9.32 %     10.34 %     9.97 %     9.76 %     8.86 %     8.80 %     8.47 %     8.19 %     9.32 %     8.86 %
Regulatory leverage ratio
    11.18 %     12.00 %     11.71 %     11.13 %     10.97 %     11.09 %     10.82 %     10.59 %     11.18 %     10.97 %
Tier 1 capital ratio
    14.65 %     15.20 %     14.87 %     14.74 %     13.91 %     14.02 %     13.66 %     13.27 %     14.65 %     13.91 %
Total risk-based capital ratio
    15.90 %     16.46 %     16.13 %     15.99 %     15.16 %     15.28 %     14.92 %     14.53 %     15.90 %     15.16 %
Book value per share
  $ 13.46       13.77       13.38       13.06       12.79       11.97       11.54       11.11       13.46       12.79  
Cash dividend per share
  $ 0.555       0.055       0.000       0.000       0.000       0.000       0.000       0.000       0.610       0.000  
                                                                                 
ASSET QUALITY
                                                                               
Net charge-offs
  $ 451       1,111       1,001       1,050       1,632       2,852       1,015       1,802       3,613       7,301  
Net charge-offs to average loans *
    0.39 %     0.95 %     0.86 %     0.91 %     1.38 %     2.34 %     0.84 %     1.49 %     0.78 %     1.51 %
Allowance for loan losses
  $ 8,289       8,539       9,032       9,108       9,408       10,065       12,017       11,908       8,289       9,408  
Allowance for loan losses to total loans
    1.84 %     1.86 %     1.95 %     1.99 %     2.03 %     2.14 %     2.46 %     2.43 %     1.84 %     2.03 %
Other real estate owned (OREO)
  $ 1,908       2,245       2,562       2,878       3,129       3,827       3,729       4,741       1,908       3,129  
Non-accrual Loans
  $ 14,968       12,083       13,275       14,375       8,682       9,913       9,663       12,738       14,968       3,129  
90+ Day delinquencies
  $ 110       913       472       902       2,007       1,028       2,123       2,873       110       8,682  
Restructured Loans
  $ 4,683       4,242       3,692       1,802       1,805       1,810       1,822       2,120       4,683       1,805  
Total Nonperforming Loans
    16,723       14,553       14,107       15,277       12,494       12,751       13,608       17,731       16,723       12,494  
Impaired Securities (Market Value)
    0       317       307       314       331       332       386       402       0       331  
Other Impaired Assets (Dougherty)
    130       130       -       -       -       -       -       -       130       0  
Total Nonperforming Assets
    18,761       17,245       16,976       18,469       15,954       16,910       17,723       22,874       18,761       15,954  
NPLs to Total loans
    3.71 %     3.18 %     3.04 %     3.34 %     2.70 %     2.71 %     2.78 %     3.62 %     3.71 %     2.70 %
NPAs (w/o 90+) to Total assets
    2.73 %     2.51 %     2.53 %     2.71 %     1.99 %     2.41 %     2.36 %     3.01 %     2.73 %     1.99 %
NPAs+90 to Total assets
    2.74 %     2.66 %     2.61 %     2.84 %     2.28 %     2.56 %     2.68 %     3.44 %     2.74 %     2.28 %
                                                                                 
END OF PERIOD BALANCES
                                                                         
Total assets
  $ 683,973       649,466       651,239       649,343       700,681       659,725       661,015       664,117       683,973       700,681  
Total earning assets
  $ 636,935       607,484       601,014       601,190       606,888       602,291       621,981       621,273       636,935       606,438  
Total loans
  $ 450,466       457,865       463,833       457,260       462,561       470,877       488,694       489,250       450,466       462,561  
Total deposits
  $ 561,007       530,278       551,486       552,191       602,037       565,937       547,896       575,525       561,007       602,037  
Stockholders' equity
  $ 63,746       67,140       64,934       63,374       62,097       58,071       56,015       54,413       63,746       62,097  
                                                                                 
AVERAGE BALANCES
                                                                               
Total assets
  $ 678,885       647,999       650,713       671,686       671,384       656,408       660,860       664,564       662,321       663,304  
Total earning assets
  $ 628,333       603,004       603,119       605,429       606,775       616,024       620,723       618,266       609,971       615,447  
Total loans
  $ 454,925       464,046       464,802       462,661       467,932       483,442       486,360       489,999       461,609       481,933  
Total deposits
  $ 565,105       544,142       550,441       572,134       576,898       559,615       558,198       577,654       557,956       568,091  
Stockholders' equity
  $ 67,168       65,927       64,180       63,021       58,468       56,914       55,213       53,662       65,074       56,064  
 
* annualized for quarterly data
 
 
11