Tower Financial Corporation Reports Third Quarter Net Income of $2.1 Million and Announces Dividend

FORT WAYNE, Ind., Oct. 24, 2013 (GLOBE NEWSWIRE) -- Tower Financial Corporation (Nasdaq:TOFC) reported net income of $2.1 million or $0.45 per diluted share for the third quarter of 2013, compared with net income of $1.6 million, or $0.32 per diluted share, reported for the third quarter of 2012. Year to date earnings through the first nine months of 2013 were $5.7 million, or $1.21 per diluted share, compared to $4.0 million, or $0.83 per diluted share, for the first nine months of 2012.

Our third quarter highlights include:

  • Our earnings of $2.1 million and $5.7 million for the quarter and year-to-date, respectively, represent records for us.
  • Our total assets were $701.9 million at September 30, 2013, our highest total since the first quarter of 2009. Our earning assets grew by $16.1 million during the quarter, led by loan growth of $12.9 million.
  • Our trust and brokerage quarterly fee income was the highest in its history at $1.1 million with assets under management of $719.4 million at September 30, 2013.
  • Our board declared a dividend of $0.08 per share to be paid on November 21, 2013 to all shareholders of record as of November 7, 2013. Total dividends paid since we reinstated dividends in August 2012 are $1.16 per common share.
  • Asset quality continues to improve, as our nonperforming assets to total assets are now 1.4 percent, a decrease from the 2.0 percent we reported in the second quarter.

Mike Cahill, President and Chief Executive Officer of Tower Financial Corporation stated, "Tower continues to benefit from the combination of our talented group of team members and our great customers and clients who believe in our team and mission. The numbers, which we believe are a lagging indicator, are now beginning to show our true capabilities. I am reminded, once again, how very fortunate I am to be able to be a part of Tower. This team truly humbles me."

Capital

During the third quarter of 2013, our tier 1 capital increased by $561,000 compared to the second quarter of 2013 as a result of net income for the quarter in the amount of $2.1 million offset by the payment of a quarterly dividend of $374,000, or $0.08 per share common diluted share and a special dividend in the amount of $1.2 million, or $0.25 per common diluted share. As of September 30, 2013, our regulatory capital ratios were 14.8 percent for tier 1 capital and 16.0 percent for total risk based capital. 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 was 15.1 percent at June 30, 2013 and 14.7 percent at December 31, 2012. Total risk-based capital was 16.4 percent at June 30, 2013 and 15.9 percent at December 31, 2012. Our leverage capital was 11.4 percent at September 30, 2013, more than double the regulatory requirement of 5 percent to be considered "well-capitalized."

The following table provides the current capital position as of September 30, 2013 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) 9/30/13 Excess
Tier 1 Capital / Risk Assets $31,799 $78,244 $46,445
Total Risk Based Capital / Risk Assets $52,999 $84,871 $31,872
Tier 1 Capital / Average Assets (Leverage) $34,335 $78,244 $43,909
Minimum Percentage Requirements Regulatory Tower
Minimum (Well-Capitalized) 9/30/13
Tier 1 Capital / Risk Assets 6% or more 14.76%
Total Risk Based Capital / Risk Assets 10% or more 16.01%
Tier 1 Capital / Quarterly Average Assets 5% or more 11.39%

Asset Quality

Our nonperforming assets were $9.9 million, or 1.41 percent of total assets compared to $13.3 million at June 30, 2013 and $18.8 million at December 31, 2012. Our net charge-offs were $134,000, or 0.1 percent of average loans outstanding, for the third quarter of 2013 compared to $172,000, or 0.2 percent of average outstanding loans, for the second quarter of 2013 and $1.1 million, or 0.95 percent of average outstanding loans, for the third quarter of 2012. During the third quarter of 2013, our loan loss provision resulted in a benefit of $850,000 compared to an expense in the amount of $300,000 for the second quarter of 2013 and an expense in the amount of $618,000 for the third quarter of 2012.

"We continue to make significant improvements in our asset quality metrics. While this quarter represents some of the best metrics we have experienced in many years, our team believes we can continue to make further improvements in this area, which are and will be reflected in our earnings performance," stated Mr. Cahill.

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

($000's omitted) 9/30/13 6/30/13 3/31/13 12/31/12 9/30/12
Non-Accrual loans
Commercial $ 4,269 $ 5,792 $ 7,758 $ 8,897 $ 7,112
Acquisition & Development 1,123 2,064 3,912 2,789 2,175
Commercial Real Estate 734 738 749 753 764
Residential Real Estate 444 2,190 2,124 2,447 2,032
Home Equity 192 194 82 82 --
Total Non-accrual loans 6,762 10,978 14,625 14,968 12,083
Trouble-debt restructured (TDR) * -- -- 446 1,645 1,557
OREO & Other impaired assets 2,402 1,759 1,922 2,038 2,375
Delinquencies greater than 90 days 743 559 133 110 913
Impaired Securities -- -- -- -- 317
Total Non-Performing Assets $ 9,907 $ 13,296 $ 17,126 $ 18,761 $ 17,245
Allowance for Loan Losses (ALLL) $ 6,808 $ 7,792 $ 7,664 $ 8,289 $ 8,539
ALLL / Non-accrual loans 100.7% 71.0% 52.4% 55.4% 70.7%
* Non-performing TDR's

The $3.4 million decrease in nonperforming assets during the third quarter of 2013 was primarily the result of pay-offs and principal payments totaling $1.6 million, the sale of an acquisition and development loan in the amount of $800,000, the sale of various other real estate owned ("OREO") properties totaling $1.3 million, and charge-offs on nonaccrual loans of $137,000. These decreases were offset by the addition of one commercial loan in the amount of $444,000 to nonaccrual status, which had previously been categorized as a classified asset at June 30, 2013. OREO activity for the quarter included the addition of three properties totaling $2.0 million from the nonaccrual loan category. Prior to the end of the quarter, one of the properties was sold in the amount of $576,000, which resulted in a gain on the sale. Furthermore, there were three other property sales from OREO totaling $766,000 during the quarter. All four properties sold from OREO during the quarter resulted in gains totaling $325,000.

When a loan has deteriorated to the point that it is classified as impaired and/or placed on nonaccrual status, a specific reserve or charge-off is recommended utilizing one of three impairment measurement methods (present value of expected cash flows, fair value of the collateral or observable market price). A charge-off will be taken in the place of a specific reserve at the point when facts and recent events support a reliable estimate of the extent and probability of loss. As a result of recent pay-offs on a couple of larger credits without additional charge-offs, our ALLL to nonaccrual ratio has increased to 100.7 percent. The remaining nonaccrual loan balance of $6.8 million at September 30, 2013 has already experienced approximately $1.5 million of charge-offs.

The following table represents the change in principal loan balances within the non-performing asset categories during the third quarter of 2013:

Balance Resolutions/ Balance
($ in thousands) 6/30/13 Additions Paydowns Other 9/30/13
Non-accrual Loans
Commercial $ 5,792 $ 444 $ (1,009) $ (958) $ 4,269
Acquisition & Development 2,064 -- (941) -- 1,123
Commercial Real Estate 738 -- (4) -- 734
Residential Real Estate 2,190 38 (747) (1,037) 444
Home Equity 194 -- (2) -- 192
Total Non-accrual loans 10,978 482 (2,703) (1,995) 6,762
Troubled Debt Restructured -- -- -- -- --
OREO & Other impaired assets 1,759 1,985 (1,342) -- 2,402
Delinquencies Greater than 90 days 559 592 (370) (38) 743
Total Non-Performing Assets $ 13,296 $ 3,059 $ (4,415) $ (2,033) $ 9,907

The following table represents the change in total relationships within the non-performing asset categories during the third quarter of 2013:

6/30/13 Additions Subtractions 9/30/13
Non-accrual Loans
Commercial 11 1 (4) 8
Acquisition & Development 4 -- (1) 3
Commercial Real Estate 3 -- -- 3
Residential Real Estate 7 1 (4) 4
Home Equity 3 -- -- 3
Total Non-accrual loans 28 2 (9) 21
Troubled Debt Restructured -- -- -- --
OREO & Other impaired assets 12 3 (4) 11
Delinquencies Greater than 90 days 5 7 (3) 9
Impaired Securities -- -- -- --
Total Non-Performing Assets 45 12 (16) 41

Our classified assets, defined as substandard, non-accrual loans, impaired investments, and OREO, decreased by $2.0 million during the third quarter to $26.6 million at September 30, 2013 compared to $28.6 million at June 30, 2013 and $35.9 million at December 31, 2012. Our classified assets were 32.2 percent of tier 1 capital plus ALLL (classified assets ratio) as of September 30, 2013 compared to 34.6 percent at June 30, 2013. In addition to the decreases on nonperforming assets noted above, we received payments and/or pay-offs on substandard loans totaling $479,000 and we sold one substandard loan in the amount of $1.5 million at a 3% discount. Offsetting these decreases was the addition of one commercial loan relationship to our substandard risk category in the amount $3.9 million. This loan has been rated substandard in the past and was downgraded this quarter based on its recent financial performance.

Our total "watch list" loans were $30.0 million compared to $43.7 million at June 30, 2013 and $39.4 million at December 31, 2012. The $13.7 million decrease from the second quarter of 2013 to the third quarter of 2013 is primarily due to reasons noted above and the resolution of loan exceptions on a $4.2 million watch rated commercial loan warranting an upgrade to a pass rating. Watch list loans now comprise 6.65 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:

9/30/2013 6/30/2013 3/31/2013 12/31/2012 9/30/2012
Watch $ 1,695 $ 7,294 $ 1,871 $ 1,232 $ 1,001
Special mention 4,848 10,690 4,641 5,493 6,706
Total non-classified loans 6,543 17,984 6,512 6,725 7,707
Substandard 17,304 15,119 13,645 18,293 21,651
Doubtful/Loss* 6,200 10,599 14,418 14,393 12,177
Total classified loans 23,504 25,718 28,063 32,686 33,828
Total watch list loans $ 30,047 $ 43,702 $ 34,575 $ 39,411 $ 41,535
Watchlist loan/total loans 6.65% 9.96% 7.86% 8.75% 9.07%
Total classified assets $ 26,625 $ 28,641 $ 30,931 $ 35,894 $ 37,145
*All loans in this risk rating are non-accrual.

The allowance for loan losses was $6.8 million at September 30, 2013 compared to $7.8 million at June 30, 2013 and $8.3 million at December 31, 2012. Impacting the allowance during the quarter were net charge-offs of $134,000 and a loan loss benefit of $850,000. The allowance for loan losses was 1.51 percent of total loans at September 30, 2013. This was a decrease from 1.78 percent at June 30, 2013 and from 1.84 percent at December 31, 2012. The allowance for loan losses was 100.7 percent of non-accrual loans as of September 30, 2013 compared to 71.0 percent at June 30, 2013.

Subsequent to quarter end, we received a pay-off on a substandard loan with a principal balance of $3.6 million at September 30, 2013. This transaction closed on October 11, 2013. We continue to carry an unsecured note to the borrower in the amount of $300,000.

Balance Sheet

Our assets were $701.9 million at September 30, 2013, an increase of $17.9 million, or 2.6 percent, from December 31, 2012. The increase is the result of an $11.2 million increase in long-term investments, an additional investment of $2.0 million in low-income housing tax credits, and the purchase of additional bank owned life insurance policies for $2.8 million.

Our total loans were $451.5 million at September 30, 2013. This was a $1.0 million increase from $450.5 million at December 31, 2012 and a $12.9 million increase from $438.6 million at June 30, 2013. Throughout 2013, we have experienced an increase in loan prepayments as a result of heightened mortgage refinancing due to low loan rates and our clients having excess cash to pay down their lines of credit as a result of a lack of investment alternatives. The increase in prepayments caused our total loans to decrease approximately $12.0 million from December 2012 to June 2013. During the third quarter of 2013, we were able to change that trend by increasing our loans by $12.9 million from June 30, 2013. The increase was due to a combination of new local commercial loan originations and loan participations requested by other smaller financial institutions, which are subject to our underwriting standards prior to the purchase. Offsetting the increase was the resolution of several nonperforming loans in the form of payment, sale, or the transfer to OREO, as described above. The $1.0 million increase in total loans from December 31, 2012 was the result of increases in commercial loans of $8.8 million and commercial real estate loans of $5.5 million offset by decreases in residential real estate loans, home equity loans, and consumer loans of $7.3 million, $4.7 million, and $1.0 million, respectively.

Our investment securities at September 30, 2013 were $185.6 million, an increase of $11.2 million from December 31, 2012. Investment securities comprise 26.4 percent of total assets. We have been strategically increasing the size of our investment portfolio to help preserve our net interest income as prudently as possible. The increase in the portfolio will help maintain net interest income, but has resulted in the further compression of our net interest margin and an increase in our overall assets. Due to the pending merger transaction with Old National Bank, we will not grow our investment portfolio for the remainder of 2013. Any purchases we make will be short-term in duration and will be made only in the event we have excess liquidity. The portfolio will most likely decline during the fourth quarter.

Our total deposits increased $29.2 million, or 5.2 percent, to $590.2 million at September 30, 2013 compared to $561.0 million at December 31, 2012. Health Savings Accounts ("HSAs") continue to be the primary driver of deposit growth with an increase of $15.3 million from December 31, 2012. As expected in January of 2013, we received annual employer-funded contributions to HSAs, which is the primary reason for the increase in this deposit category annually. Brokered certificates of deposit, money market and savings accounts also increased by $9.5 million, $6.8 million, and $4.6 million, respectively; while interest bearing checking accounts decreased $8.8 million.

The increase in brokered deposits was strategic in order to fund the remaining portion of the $25.0 million municipal bond leverage strategy. As described in our 2012 Annual Report filed on Form 10-K, this strategy was implemented in the fourth quarter of 2012 to help supplement net interest income. This strategy will provide approximately $250,000 annually to our net interest income, but has caused a decrease in our net interest margin.

Our borrowings were $44.3 million at September 30, 2013 and were comprised of $17.5 million in trust preferred debt and $26.8 million in borrowings from the Federal Home Loan Bank of Indianapolis ("FHLBI"). This represents a decrease of $10.6 million from our borrowings at the FHLBI at December 31, 2012, as we utilized excess cash from deposit growth to reduce our borrowings. Of the borrowings at September 30, 2013, $21.3 million were short-term in duration with variable rates. Due to the pending merger transaction with Old National Bank, any liquidity needs we have during the fourth quarter will be handled through sales from the investment portfolio and short-term borrowings on our FHLBI line of credit.

Our shareholders' equity was $62.0 million at September 30, 2013, a decrease of 2.6 percent from the $63.7 million reported at December 31, 2012. The primary reason for the decrease was a decrease in the unrealized gains, net of tax, on our investment portfolio in the amount of $4.5 million from December 31, 2012. This decrease relates primarily to market value fluctuations in our fixed rate municipal bond investments as a result of an increase in long-term interest rates. Additionally, we paid three quarterly dividends totaling $0.22 per common share, or $1.0 million, one special dividend of $0.25 per common share, or $1.2 million, and used $862,000 of capital to repurchase 70,000 shares of our common stock at average price of $12.32 per share during the first quarter of 2013. Offsetting the decreases in shareholders' equity was net income of $5.7 million. Currently, we have 4,672,521 common shares outstanding. Tangible book value at September 30, 2013 was $13.27 per common share, a decrease of 1.4 percent from the $13.46 reported at December 31, 2012.

Income Statement

Our total revenue, consisting of net interest income and noninterest income, was $7.3 million for the third quarter of 2013 compared to $7.5 million for the second quarter of 2013 and $7.8 million for the third quarter of 2012. The $192,000 decrease from the prior quarter consisted of a decreases in both net interest income and noninterest income of $57,000 and $135,000, respectively.

Net interest income decreased $57,000 from the second quarter of 2013 due to a decrease of 6 basis points in our net interest margin to 3.46 percent, coupled with a slight decrease of $607,000 in average earning assets from the second quarter of 2013. While our margin did decrease slightly, it has stabilized over the past few quarters at around 3.50 percent, following several quarters of compression due to the low interest rate environment and our municipal bond leverage strategy. While we don't expect much change in our net interest margin over the next couple of quarters, we do expect an increase in our average earning assets; and therefore, an increase in our net interest income, in the fourth quarter as a result of a $12.9 million increase in loans, with the majority of the loans funding toward the end of the third quarter of 2013.

Noninterest income was $2.2 million for the third quarter of both 2013 and 2012, compared to $2.3 million for the second quarter of 2013. The primary reason for the $135,000 decrease from the second quarter of 2013 was the combination of decreases in mortgage banking income, gain on the sale of securities, and net debit card interchange income of $63,000, $33,000, and $22,000 respectively. We also experienced a decrease of $94,000 in other fees in the third quarter of 2013 compared to the second quarter of 2013, which was led by a decrease in letter of credit income of $37,000 and the stabilization of the fair value of an equity investment causing a decrease in income from the second quarter by $22,000. These decreases were offset by an increase in trust and brokerage fees during the third quarter compared to the second quarter of 2013 by $45,000, which was the result of an $8.2 million increase in assets under management from June 30, 2013 and a $47.1 million increase from December 31, 2012. Trust and brokerage assets under management were $719.4 million at September 30, 2013.

Noninterest expenses were $5.3 million for the third quarter of 2013 compared to $5.1 million for the second quarter of 2013 and $5.0 million for the third quarter of 2012. The $227,000 increase from the second quarter of 2013 was a direct result of $279,000 of professional fees related to the pending transaction with Old National Bank. In addition, salaries and benefits increased $246,000 from the second quarter of 2013. This increase was primarily due to an increase of $128,000 in the accrual for our profit sharing plan due to continued improvement in our financial results. The Other Expense category also increased $108,000 from the second quarter of 2013. The second quarter Other Expense category was unusually low due to receiving a partial recovery from a fraud loss recorded in the first quarter of 2013 in the amount of $176,000. The positive variance in OREO expense of $302,000 from the second quarter of 2013 to the third quarter of 2013 was a result of the sale of four OREO properties at gains totaling $325,000 offset by expenses of $61,000. For the quarter, our OREO expense category was income of $264,000 compared to expense of $38,000 for the second quarter of 2013. All other expenses were within $50,000 of those recorded in the second quarter of 2013.

Income tax expense was $774,000 in the third quarter of 2013 compared to $529,000 in the second quarter of 2013 and $617,000 in the third quarter of 2012. Our effective tax rate increased from 24.9 percent in the second quarter of 2013 to 27.1 percent in the third quarter. The increase in our effective tax rate is the result of a decrease in our tax exempt income in comparison to our taxable income from the second quarter of 2013.

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.

Tower Financial Corporation
Consolidated Balance Sheets
At September 30, 2013 and December 31, 2012
(unaudited)
September 30 December 31
2013 2012
ASSETS
Cash and due from banks $ 13,325,821 $ 11,958,507
Short-term investments and interest-earning deposits 243,521 159,866
Federal funds sold 2,638,726 2,727,928
Total cash and cash equivalents 16,208,068 14,846,301
Interest bearing deposits 453,713 457,000
Trading Securities, at fair value 230,300 --
Securities available for sale, at fair value 185,393,296 174,383,499
FHLBI and FRB stock 3,807,700 3,807,700
Loans Held for Sale 2,886,621 4,933,299
Loans 451,515,862 450,465,610
Allowance for loan losses (6,808,338) (8,288,644)
Net loans 444,707,524 442,176,966
Premises and equipment, net 8,669,365 8,904,214
Accrued interest receivable 2,654,861 2,564,503
Bank owned life insurance (BOLI) 20,896,663 17,672,783
Other real estate owned (OREO) 2,351,694 1,908,010
Prepaid FDIC insurance -- 925,337
Other assets 13,615,607 11,393,469
Total assets $ 701,875,412 $ 683,973,081
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 110,828,555 $ 108,147,229
Interest-bearing 479,406,946 452,860,109
Total deposits 590,235,501 561,007,338
Short-term borrowings 10,303,828 9,093,652
Federal Home Loan Bank advances 16,500,000 28,300,000
Junior subordinated debt 17,527,000 17,527,000
Accrued interest payable 106,669 107,943
Other liabilities 5,211,474 4,191,237
Total liabilities 639,884,472 620,227,170
STOCKHOLDERS' EQUITY
Common stock and paid-in-capital, no par value, 6,000,000 shares authorized; 4,949,371 and 4,941,994 shares issued at September 30, 2013 and December 31, 2012; and 4,672,521 and 4,735,144 shares outstanding at September 30, 2013 and December 31, 2012, respectively 44,908,295 44,834,605
Retained earnings 21,367,593 17,880,539
Accumulated other comprehensive income (loss), net of tax of ($413,790) at September 30, 2013 and $1,880,433 at December 31, 2012 (803,240) 3,650,253
Treasury stock, at cost, 276,850 and 206,850 shares at September 30, 2013 and December 31, 2012, respectively (3,481,708) (2,619,486)
Total stockholders' equity 61,990,940 63,745,911
Total liabilities and stockholders' equity $ 701,875,412 $ 683,973,081
Tower Financial Corporation
Consolidated Statements of Operations
For the three and nine months ended September 30, 2013 and 2012
(unaudited) (unaudited)
For the Three Months Ended For the Nine Months ended
September 30 September 30
2013 2012 2013 2012
Interest income:
Loans, including fees $ 4,777,786 $ 5,525,196 $ 14,561,821 $ 16,764,224
Securities - taxable 311,638 441,669 859,883 1,466,914
Securities - tax exempt 730,943 486,401 2,128,056 1,465,887
Other interest income 4,867 6,696 12,038 36,533
Total interest income 5,825,234 6,459,962 17,561,798 19,733,558
Interest expense:
Deposits 575,796 714,875 1,794,187 2,516,593
Fed Funds Purchased 2 158 3 256
FHLB advances 21,468 40,469 88,529 117,234
Trust preferred securities 80,504 89,854 241,275 366,799
Total interest expense 677,770 845,356 2,123,994 3,000,883
Net interest income 5,147,464 5,614,606 15,437,804 16,732,674
Provision for loan losses (850,000) 618,000 (825,000) 2,293,000
Net interest income after provision for loan losses 5,997,464 4,996,606 16,262,804 14,439,674
Noninterest income:
Trust and brokerage fees 1,106,810 998,715 3,226,726 2,866,570
Service charges 282,985 257,509 835,893 828,370
Mortgage banking income 249,807 477,319 892,208 1,082,140
Gain/(Loss) on sale of securities -- 9,110 441,396 75,809
Net debit card interchange income 189,462 162,432 635,298 563,933
Bank owned life insurance income 172,387 150,082 473,880 441,572
Impairment on AFS securities -- -- -- --
Other fees 174,429 147,104 678,513 485,184
Total noninterest income 2,175,880 2,202,271 7,183,914 6,343,578
Noninterest expense:
Salaries and benefits 3,161,101 2,867,136 9,000,527 8,514,808
Occupancy and equipment 618,172 640,569 1,876,445 1,891,978
Marketing 112,976 111,882 395,310 307,187
Data processing 423,927 301,914 1,247,606 991,534
Loan and professional costs 602,700 342,182 1,308,918 1,018,604
Office supplies and postage 33,684 51,360 128,276 160,365
Courier service 51,301 58,341 163,533 175,674
Business Development 152,166 90,535 396,667 331,147
Communication Expense 42,060 62,489 136,773 168,235
FDIC Insurance Premiums 115,561 138,754 385,010 521,709
OREO Expenses (263,841) 15,123 (243,431) 449,022
Other expense 265,213 338,926 834,374 763,069
Total noninterest expense 5,315,020 5,019,211 15,630,008 15,293,332
Income/(loss) before income taxes/(benefit) 2,858,324 2,179,666 7,816,710 5,489,920
Income taxes expense/(benefit) 774,232 617,028 2,133,618 1,474,570
Net income/(loss) $ 2,084,092 $ 1,562,638 $ 5,683,092 $ 4,015,350
Less: Preferred Stock Dividends -- -- -- --
Net income/(loss) available to common shareholders $ 2,084,092 $ 1,562,638 $ 5,683,092 $ 4,015,350
Basic earnings/(loss) per common share $ 0.45 $ 0.32 $ 1.21 $ 0.83
Diluted earnings/(loss) per common share $ 0.45 $ 0.32 $ 1.21 $ 0.83
Average common shares outstanding 4,672,496 4,874,660 4,678,824 4,860,363
Average common shares and dilutive potential common shares outstanding 4,672,673 4,874,660 4,680,035 4,860,363
Total Shares outstanding at end of period 4,672,521 4,876,994 4,672,521 4,876,994
Dividends declared per common share $ 0.330 $ 0.055 $ 0.470 $ 0.055
Tower Financial Corporation
Consolidated Financial Highlights
(unaudited)
Quarterly Year-To-Date
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
($ in thousands except for share data) 2013 2013 2013 2012 2012 2012 2012 2011 2011 2013 2012
EARNINGS
Net interest income $ 5,147 5,205 5,086 5,472 5,615 5,706 5,412 5,707 5,684 15,438 16,733
Provision for loan loss $ (850) 300 (275) 200 618 925 750 975 900 (825) 2,293
NonInterest income $ 2,176 2,311 2,697 2,170 2,202 2,126 2,016 2,059 2,372 7,184 6,344
NonInterest expense $ 5,315 5,088 5,227 5,575 5,019 5,025 5,249 5,826 5,408 15,630 15,293
Net income/(loss) $ 2,084 1,599 2,000 1,729 1,563 1,365 1,088 3,422 1,325 5,683 4,016
Basic earnings per share $ 0.45 0.34 0.43 0.36 0.32 0.28 0.22 0.71 0.27 1.21 0.82
Diluted earnings per share $ 0.45 0.34 0.43 0.36 0.32 0.28 0.22 0.71 0.27 1.21 0.82
Average shares outstanding 4,672,496 4,667,807 4,696,432 4,855,557 4,874,660 4,853,136 4,853,136 4,853,645 4,852,761 4,678,824 4,860,363
Average diluted shares outstanding 4,672,673 4,668,104 4,696,432 4,855,557 4,874,660 4,853,136 4,853,136 4,853,645 4,852,761 4,680,035 4,860,363
PERFORMANCE RATIOS
Return on average assets * 1.20% 0.94% 1.19% 1.01% 0.96% 0.84% 0.65% 2.02% 0.80% 1.11% 0.81%
Return on average common equity * 13.64% 10.04% 12.75% 10.24% 9.43% 8.53% 6.92% 23.22% 9.24% 12.12% 8.31%
Net interest margin (fully-tax equivalent) * 3.46% 3.52% 3.49% 3.65% 3.87% 3.98% 3.76% 3.90% 3.80% 3.55% 3.87%
Efficiency ratio 72.58% 67.70% 67.16% 72.95% 64.21% 64.16% 70.67% 75.02% 67.13% 69.09% 66.27%
Full-time equivalent employees 165.25 166.25 155.00 155.25 154.50 157.00 158.00 151.00 158.50 165.25 154.50
CAPITAL
Equity to assets 8.83% 9.03% 9.35% 9.32% 10.34% 9.97% 9.76% 8.86% 8.80% 8.83% 10.34%
Regulatory leverage ratio 11.39% 11.47% 11.25% 11.18% 12.00% 11.71% 11.13% 10.97% 11.09% 11.39% 12.00%
Tier 1 capital ratio 14.76% 15.14% 15.04% 14.65% 15.20% 14.87% 14.74% 13.91% 14.02% 14.76% 15.20%
Total risk-based capital ratio 16.01% 16.39% 16.29% 15.90% 16.46% 16.13% 15.99% 15.16% 15.28% 16.01% 16.46%
Book value per share $ 13.27 13.16 13.60 13.46 13.77 13.38 13.06 12.79 11.97 13.27 13.77
Cash dividend per share $ 0.330 0.070 0.070 0.555 0.055 0.000 0.000 0.000 0.000 0.470 0.055
ASSET QUALITY
Net charge-offs $ 134 172 350 451 1,111 1,001 1,050 1,632 2,852 656 3,162
Net charge-offs to average loans * 0.12% 0.16% 0.32% 0.39% 0.95% 0.86% 0.91% 1.38% 2.34% 0.20% 0.91%
Allowance for loan losses $ 6,808 7,792 7,664 8,289 8,539 9,032 9,108 9,408 10,065 6,808 8,539
Allowance for loan losses to total loans 1.51% 1.78% 1.74% 1.84% 1.86% 1.95% 1.99% 2.03% 2.14% 1.51% 1.86%
Other real estate owned (OREO) $ 2,352 1,709 1,833 1,908 2,245 2,562 2,878 3,129 3,827 2,352 2,245
Non-accrual Loans $ 6,762 10,978 14,625 14,968 12,083 13,275 14,375 8,682 9,913 6,762 12,083
90+ Day delinquencies $ 743 559 133 110 913 472 902 2,007 1,028 743 913
Restructured Loans $ 3,437 4,531 4,254 4,683 4,242 3,692 1,802 1,805 1,810 3,437 4,242
Total Nonperforming Loans 7,505 11,537 15,204 16,723 14,553 14,107 15,277 12,494 12,751 7,505 14,553
Impaired Securities (Market Value) -- -- -- -- 317 307 314 331 332 -- 317
Other Impaired Assets 51 51 88 130 130 -- -- -- -- 51 130
Total Nonperforming Assets 9,907 13,296 17,125 18,761 17,245 16,976 18,469 15,954 16,910 9,907 17,245
NPLs to Total loans 1.66% 2.63% 3.45% 3.71% 3.18% 3.04% 3.34% 2.70% 2.71% 1.66% 3.18%
NPAs (w/o 90+) to Total assets 1.31% 1.87% 2.50% 2.73% 2.51% 2.53% 2.71% 1.99% 2.41% 1.31% 2.51%
NPAs+90 to Total assets 1.41% 1.95% 2.52% 2.74% 2.66% 2.61% 2.84% 2.28% 2.56% 1.41% 2.66%
END OF PERIOD BALANCES
Total assets $ 701,875 680,941 679,069 683,973 649,466 651,239 649,343 700,681 659,725 701,875 649,466
Total earning assets $ 647,170 631,099 632,185 636,935 607,484 601,014 601,190 606,888 602,291 647,170 607,484
Total loans $ 451,516 438,565 440,075 450,466 457,865 463,833 457,260 462,561 470,877 451,516 457,865
Total deposits $ 590,236 581,591 585,277 561,007 530,278 551,486 552,191 602,037 565,937 590,236 530,278
Stockholders' equity $ 61,991 61,507 63,468 63,746 67,140 64,934 63,374 62,097 58,071 61,991 67,140
AVERAGE BALANCES
Total assets $ 688,776 679,649 680,645 678,885 647,999 650,713 671,686 671,384 656,408 683,023 656,799
Total earning assets $ 634,003 634,611 631,674 628,333 603,004 603,119 605,429 606,775 616,024 633,429 603,850
Total loans $ 438,312 439,076 438,959 454,925 464,046 464,802 462,661 467,932 483,442 438,782 463,836
Total deposits $ 589,039 575,801 581,480 565,105 544,142 550,441 572,134 576,898 559,615 582,107 555,572
Stockholders' equity $ 60,602 63,867 63,640 67,168 65,927 64,180 63,021 58,468 56,914 62,703 64,376
* annualized for quarterly data

CONTACT: FOR INVESTORS: Richard R. Sawyer Chief Financial Officer 260-427-7150 rick.sawyer@towerbank.net FOR MEDIA: Tina M. Farrington Executive Vice President 260-427-7155 tina.farrington@towerbank.netSource:Tower Financial Corporation