Tower Bancorp Inc. of Harrisburg, Pa., reported a surprising fourth-quarter loss Wednesday.

It came from a spike in Tower's loan-loss provision, along with expenses tied to its December purchase of the struggling First Chester County Corp.

The $2.7 billion-asset company swung to a loss of $4.3 million, or 54 cents a share, from a profit of $2.5 million, or 35 cents a share, a year earlier. Analysts had expected Tower to earn 14 cents a share, according to Thomson Reuters.

The estimates did not factor in all of the quarter's activity, including a big merger, a capital raise, and plansment that it would close First Chester's home loan division, said Matthew Clark, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "That's a fair amount of noise that we fully had expected, but didn't really have embedded in our numbers," he said.

The $4.1 million provision, which was nearly triple what Tower had a quarter earlier, included a $2.5 million reserve for a commercial loan that the borrower plans to refinance this quarter, Tower said.

Tower said last month that it would close the American Home Bank division by June 30. The plan resulted in a significant decrease in revenue generation at the division, which had a $1.4 million operating loss in the fourth quarter.

Tower's full-year earnings fell 65.7%, to $1.3 million. Tower stressed during a conference call that operating income, excluding merger-related costs and restructuring charges, was consistent with a year earlier, at $5.9 million.

Andrew Samuel, Tower's chief executive, said he was "pleased" with the results excluding special charges and the loss tied to the home loan division. "For the year we experienced excellent loan growth, continued ... margin expansion, continued superior loan quality, and increased noninterest income," he said.

"We anticipate continued momentum in 2011," he added.

Delinquencies rose $23.3 million in the fourth quarter, including $6.9 million from First Chester that did not have specific reserves marked against them. Nonperforming assets rose 43.2% from a quarter earlier, $6.9 million.

Samuel said those risks were factored into the price — Tower paid $15.1 million less than it originally expected as a result of First Chester's deteriorating credit — and the loan portfolio had been marked down to fair value.

"We continue to believe ... that the combined franchise will achieve the same level of earnings accretion that was originally projected with this transaction," Samuel said.

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