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Tower Financial Corporation Reports Annual Net Income Of $5.7 Million

Stocks in this article: TOFC

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 restructured (TDR) *  1,645  1,557  360  --   1,805
OREO & Other impaired assets  2,038  2,375  2,562  2,878  3,129
Delinquencies 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          

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 9/30/12 Additions Resolutions/ Paydowns Other Balance 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 Restructured  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 Restructured  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

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. 

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