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On Sep 14, Zacks Investment Research upgraded Tower Financial Corporation to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Tower Financial has been witnessing rising earnings estimates following the announcement of robust second-quarter 2013 results. Moreover, this Midwest regional bank has delivered positive earnings surprises in the last 4 quarters, with an average beat of 23.1%. Additionally, the company’s strong capital deployment activities added to the upside.

On Sep 4, the company paid a special cash dividend of 25 cents per share on its common stock. Earlier, on Aug 22, 2013, the company’s board of directors paid a dividend of 8 cents per share, rising 14.3% from the prior quarter’s payout.

Tower Financial reported second-quarter 2013 results on Jul 25. Earnings per share of 34 cents surpassed the Zacks Consensus Estimate by a nickel. Results benefited from growth in non-interest income and lower provision for credit losses, partially offset by higher operating expenses and a drop in net interest income.

Non-interest income rose 9.0% to $2.3 million. On the flip side, non-interest expense crept up 1.0% from the prior-year quarter to $5.1 million. Additionally, net interest income declined 9.0% year over year to $5.2 million.

Further, asset quality improved in the quarter. Provision for loan losses was $0.3 million, down 68% year over year. Net charge-offs were $0.2 million, down substantially by 80% from $1.0 million in the year-ago quarter. Further, nonperforming loans declined 18.0% to $11.5 million. Similarly non-performing assets declined 22% to $13.3 million.

Additionally, following the earnings release, the Zacks Consensus Estimate for 2013 increased 10.0% to $1.43 per share over the last 60 days. Positive earnings surprises and favorable estimate revisions stimulated the rank upgrade.

Other Stocks to Consider

While we prefer Tower Financial, other stocks with a Zacks Rank #1 include German American Bancorp Inc. (GABC - Snapshot Report), First Interstate Bancsystem Inc. (FIBK - Snapshot Report) and Firstbank Corporation .

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