Tower Financial Corporation Reports Annual Net Income Of $5.7 Million

FORT WAYNE, Ind., Jan. 24, 2013 (GLOBE NEWSWIRE) -- 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. 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". 

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  ($000's omitted) Regulatory Minimum (Well-Capitalized) Tower 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 Minimum (Well-Capitalized) Tower 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 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. 

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. 

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.

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.

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.

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, respectively  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
 
 
Tower Financial Corporation
Consolidated Statements of Operations
For the three and twelve months ended December 31, 2012 and 2011
(unaudited 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  $ -- 
 
 
Tower Financial Corporation
Consolidated Financial Highlights
                     
(unaudited)                    
  Quarterly Year-To-Date
($ in thousands except for share data) 4th Qtr 2012 3rd Qtr 2012 2nd Qtr 2012 1st Qtr 2012 4th Qtr 2011 3rd Qtr 2011 2nd Qtr 2011 1st Qtr 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                    
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.net

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