SAN LUIS OBISPO, Calif., July 29 /PRNewswire-FirstCall/ -- American Principle Bank (OTC Bulletin Board: APBA) (the "Bank") today announced second quarter and year to date financial results through June 30, 2009. Net income during the second quarter of 2009 was $56 thousand, or $0.01 diluted earnings per share. This compared favorably to a net loss of $309 thousand during the second quarter of 2008, equivalent to $0.07 diluted loss per share. Net income for the first six months of 2009 was $260 thousand, or $0.06 diluted earnings per share. This represented a significantly improved performance compared to the first six months of 2008, when the Bank reported a loss of $808 thousand, equivalent to $0.19 diluted loss per share. The Bank, a de novo financial institution, opened for business on October 15, 2007.
Net income during the second quarter of 2009 benefitted from record quarterly net interest income (up 15.1% on a sequential quarterly basis), but was constrained by:
- an increase in the ratio of allowance for loan losses to loans outstanding from 1.54% at March 31, 2009 to 1.70% at June 30, 2009, which in turn led to a $149 thousand increase in loan loss provision expense from the first quarter to the second quarter of 2009;
- $67 thousand in expense for the FDIC Special Assessment; and
- elevated legal expenses (discussed below).
Total assets at June 30, 2009 were $175.7 million, representing a slight decrease from $176.3 million at March 31, 2009, but above the $158.8 million at December 31, 2008. The Bank's asset mix shifted favorably during the second quarter of 2009, with net loans increasing from 67.5% of total assets at March 31, 2009 to 73.2% of total assets at June 30, 2009. Net loans rose from $114.9 million at December 31, 2008 to $118.9 million at March 31, 2009 to $128.6 million at June 30, 2009.
The Bank had two loans (both commercial) on non-accrual status at June 30, 2009, a $52 thousand loan and a $2.96 million loan. The $2.96 million loan is secured by multiple real estate parcels in the Bank's primary market area, and is subject to personal guarantees by the principals. The title company that processed the escrow for this loan failed to perform the correct real estate recording; i.e. not all of the proper real estate parcels were transferred and encumbered. In response to this situation, over the past six months, the Bank has taken the following sequential action steps: (i) worked with the title company to correct the error; (ii) filed a claim against the subject title insurance policy; and (iii) filed a lawsuit against the title company seeking to enforce their performance under the title insurance policy.
The Bank recently obtained an updated appraisal for the subject real estate associated with the $2.96 million non-accrual loan that places the market value in excess of the Bank's loan amount. This appraisal assumes that all of the originally intended real estate parcels are properly encumbered. The Bank intends to continue to vigorously pursue the title company to rectify its error or hold the Bank financially harmless from the result of the error, such as by purchasing the Bank's note.
Other than the two aforementioned non-accrual commercial loans, the Bank had no other loans that were on non-accrual status or were 30 or more days delinquent at June 30, 2009. The Bank owned no foreclosed real estate and no repossessed assets as of June 30, 2009. The Bank has never conducted sub-prime lending, and does not issue credit cards. All of the Bank's securities as of June 30, 2009 were AAA rated mortgage backed securities or collateralized mortgage obligations issued and guaranteed by government agencies.
In recent periods, the interest rate paid on excess balances at the Federal Reserve has exceeded that available to the Bank through the federal funds market. As a result, federal funds sold decreased from $2.7 million at December 31, 2008 to $140 thousand at June 30, 2009; and interest bearing deposits in other financial institutions rose from $104 thousand at December 31, 2008 to $4.1 million at June 30, 2009.
Total securities available for sale increased from $35.0 million at December 31, 2008 to $37.2 million at June 30, 2009. Deposit inflows during the first half of 2009 that were not used to fund loans or build short term liquidity were primarily invested into LIBOR based agency mortgage backed securities.
The Bank's investment in the capital stock of the Federal Home Loan Bank ("FHLB") increased from $179 thousand at December 31, 2008 to $757 thousand at June 30, 2009 due to the standard asset-based investment requirement applicable to FHLB members. The Bank did not have any advances from the FHLB outstanding at either December 31, 2008 or June 30, 2009.
Deposits increased from $112.1 million at December 31, 2008 to $129.1 million at March 31, 2009, and then decreased slightly to $128.0 million at June 30, 2009. As expected, certain clients made significant income tax payments in April 2009 using funds from their Bank deposit accounts. The Bank was successful in replacing almost all of such deposits during the second quarter, with over 200 new deposit accounts opened from April 1, 2009 through June 30, 2009. Deposit growth during the first half of 2009 was concentrated in noninterest-bearing demand deposit accounts ("DDA") and certificates of deposit. The rise in DDA was supported by the Bank's ongoing marketing to local businesses and professionals. The rise in certificate of deposit balances during the first half of 2009 was supported by:
- the Bank's initial product focused print advertising campaign during the first quarter of 2009;
- client interest in certificates of deposit as a conservative investment during a period of volatility in the stock market and real estate values;
- increased "public funds" deposits from cities, counties, and other municipal entities; and
- a $5.1 million increase in deposits from financial institutions seeking a higher return than the current 0.00% to 0.25% target rate for overnight federal funds.
Stockholders' equity increased from $40.1 million at December 31, 2008 to $40.8 million at June 30, 2009. This rise was generated by the net income earned during the first half of 2009, capital generated through the Bank's Restricted Share Plan, and an increase in the accumulated other comprehensive income associated with the unrealized gain on securities available for sale.
Nominal and tangible book values per share were $9.61 at June 30, 2009, having increased from $9.44 per share at December 31, 2008.
Total shares of common stock outstanding increased by 800 during the first half of 2009 in conjunction with the vesting of awards under the Restricted Share Plan. The Bank grants restricted share awards to employees as a means of encouraging an ownership orientation and aligning employee interests with the generation of stockholder value. In addition, during March 2009, the Board of Directors issued the initial restricted share awards to outside directors. These awards vest after one year, and are the first remuneration of any type paid to outside directors since the organization of the Bank. The initial restricted share awards for outside directors were the primary factor which caused director expenses to increase from $1 thousand during the first quarter of 2009 to $47 thousand during the second quarter of 2009.
Net interest income increased 89.8% from $915 thousand during the second quarter of 2008 to $1.7 million during the second quarter of 2009. Both a greater average spread on total assets and a larger average balance sheet contributed to this rise. Similarly, net interest income for the first six months of 2009 totaled $3.2 million, a 106.1% increase from the $1.6 million in net interest income generated during the first six months of 2008. The Bank's balance sheet has matured over the past year, as the Bank evolved from a new de novo financial institution with primarily capital and short term investments into a more mature financial institution with a diversified loan portfolio and a much expanded deposit base. On a sequential quarter basis, net interest income increased from $1.5 million during the first quarter of 2009 to $1.7 million during the second quarter of 2009, supported by both a rise in average assets and an enhanced spread. The expanded spread was achieved in part through the Bank's reducing its weighted average cost of funding, as the Bank took advantage of reduced pricing competition for deposits and also availed itself of a limited amount of low cost wholesale funding.
Provision for loan losses was $364 thousand during the second quarter of 2009, versus $349 thousand during the second quarter of 2008. Provision for loan losses for the first six months of 2009 totaled $579 thousand, down from $654 thousand during the first six months of 2008. Provision for loan losses was $215 thousand during the first quarter of 2009. This sequential rise in provision for loan losses was a significant factor in the lower net income reported for the second quarter of 2009 compared to the preceding quarter.
The Bank experienced no charge-offs and no recoveries during the first half of 2009. The ratio of allowance for loan losses to loans outstanding rose from 1.41% at December 31, 2008 to 1.54% at March 31, 2009 to 1.70% at June 30, 2009. The rise in this ratio over the past six months has been associated with:
- providing increased reserves for the aforementioned non-accrual loans;
- increasing reserves for certain credits downgraded during 2009 due to softening real estate collateral valuations and / or declining net cash flows;
- the ongoing general decline in values for many types of real estate in the Bank's primary market area; and
- the impacts of the continuing recession and increased unemployment on the Bank's business customers, resulting in flat to lower revenues for certain commercial entities.
Non-interest income increased from $7 thousand during the second quarter of 2008 to $17 thousand during the second quarter of 2009; and from $14 thousand during the first six months of 2008 to $33 thousand during the first six months of 2009. The Bank's expanded client and account base was the primary factor contributing to these increases. In addition, the Bank implemented a revised fee and service charge schedule effective June 1, 2009 that bolstered second quarter 2009 fee income and which is projected to have a greater financial effect during the second half of 2009.
Non-interest expense increased from $0.9 million during the second quarter of 2008 to $1.3 million during the second quarter of 2009. Non-interest expense rose from $1.7 million during the first six months of 2008 to $2.4 million during the first six months of 2009.
Compensation and employee benefits expense increased from $469 thousand during the second quarter of 2008 to $634 thousand during the second quarter of 2009; and from $1.0 million during the first six months of 2008 to $1.2 million during the first six months of 2009. During the second quarter of 2009, the Bank hired Cole W. Minnick, Jr. as Interim Chief Executive Officer, following David R. Booker's transition to the position of Senior Executive Vice President / Business Development and Retention. The additional executive officer contributed to the rise in compensation and benefits expense.
Regulatory fees and assessments increased from $10 thousand during second quarter of 2008 to $120 thousand during the second quarter of 2009, and from $16 thousand during the first six months of 2008 to $173 thousand during the first six months of 2009. Factors contributing to these increases included:
- $67 thousand for the FDIC Special Assessment during the second quarter of 2009;
- the FDIC's implementation of higher base insurance rates effective April 1, 2009;
- the growth in the Bank's deposit portfolio; and
- the Bank's participation in the FDIC's Transaction Account Guarantee Program, whereby checking accounts receive unlimited FDIC insurance coverage in exchange for the payment of additional FDIC insurance premiums.
Accounting, legal, and consulting expenses increased from $75 thousand during the second quarter of 2008 to $161 thousand during the second quarter of 2009; and from $147 thousand during the first six months of 2008 to $276 thousand during the first six months of 2009. Factors contributing to these increases included:
- consultant expenses associated with new technology and product implementations (largely completed as of June 30, 2009);
- higher internal audit expenses associated with an enhanced internal audit program now that the Bank has progressed and developed a more complex balance sheet and product set;
- legal fees associated with credit collection, primarily related to the aforementioned non-accrual loans; and
- legal fees related to the Bank's responding to a complaint regarding alleged trademark infringement associated with the name of the Bank.
The Bank continues to defend itself in regard to the alleged trademark infringement, with the Bank's general liability insurance carrier paying certain defense costs. The case is currently nearing the conclusion of the discovery phase, whereby the plaintiff and the Bank are exchanging information. At this time, the Bank cannot predict the outcome of this matter.
Various other categories of non-interest expense continue to increase as the Bank expands its balance sheet, opens additional client accounts, and processes a higher volume of transactions. The Bank had 26 full-time equivalent employees at June 30, 2009, compared to 24 full-time equivalent employees at December 31, 2008.
Commenting on the results for the first half of 2009, Cole W. Minnick, Jr., the Bank's Interim Chief Executive Officer, stated: "We are pleased to have reported our second consecutive profitable quarter, which is just our sixth full quarter of operation since opening for business. This result is particularly impressive given the financial headwinds of the FDIC Special Assessment and the challenging economic, interest rate, and credit environments in which we are operating. The expansion in our ratio of net interest income to average total assets to over 4.00% was a key achievement. The Bank entered the third quarter with a strong pipeline of both loan and deposit business, as commercial entities and professionals in our target market area become increasingly aware of the Bank, our strong capital position, and our customizable and high tech delivery platform."
Mark R. Andino, the Bank's Chief Financial Officer and Chief Operating Officer, added: "During the second quarter, we converted many of our clients to the newest version of our online deposit product, which allows commercial clients to deposit checks from their places of business via a Bank provided scanner. During the third quarter of 2009, we plan to introduce extended online transaction history access for all our clients. In addition, we recently upgraded our online banking platform to be even easier to use. Our clients continue to comment favorably on the Bank's combination of advanced technology and personalized service."
Eric J. Schwefler, the Bank's Chairman of the Board, commented: "The Board of Directors devoted countless hours to the Bank during the second quarter of 2009, working on the identification of a strong candidate for the Chief Executive Officer position, the evaluation of several sites for the planned Santa Maria branch, and the generation of significant business referrals. We have identified a preferred candidate for the Chief Executive Officer position, who is currently pending regulatory review and approval. In addition, we hosted the Bank's second Annual Meeting of Shareholders in late May and continued our focus on high quality corporate governance and the generation of shareholder value. Looking forward to the third quarter of 2009, we anticipate contributing to the continued growth in the Bank's loan and deposit portfolios."
The Bank's target markets are commercial enterprises, professionals, real estate investors, family business entities, and residents in San Luis Obispo County and northern Santa Barbara County. The Bank serves these markets through a customizable delivery platform that includes online deposit via scanners located at customers' facilities, remote branch deposit, and sophisticated cash management services. Clients are also served through the Bank's custom facility, which was designed to emphasize client convenience, confidentiality, and a concierge approach to conducting financial transactions. The Bank's officers are easily reached via public cell phone numbers, and the Bank maintains a 24 / 7 "banker on call" service for its clients.
The Bank is located at 4051 Broad Street, Suite 140, San Luis Obispo, California, near the intersection of Broad Street (Highway 227) and Tank Farm Road. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable legal limits. The Bank participates in the FDIC's Transaction Account Guarantee Program. Under that Program, through December 31, 2009, all non-interest bearing checking accounts, as defined under the Program, are fully guaranteed by the FDIC for the entire amount of the account. Coverage under the Program is in addition to and separate from the coverage available under the FDIC's general deposit insurance rules.
Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words or phrases such as "believe", "expect", "anticipate", "intend", "estimate", "target", "plans", "may increase", "may fluctuate", "may result in", "are projected", and similar expressions. The Bank's actual results may differ materially from those included in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the economic, business, and real estate market conditions in the Bank's market areas, the interest rate environment, competition, regulatory and legislative actions, the possibility that the Bank will not be successful in achieving its strategic objectives, the performance and contributions of employees and directors, and other factors. The Bank does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
This news release is available at the www.americanprinciplebank.com Internet site for no charge.
--- financial data follows ---
AMERICAN PRINCIPLE BANK
Financial Highlights
Unaudited
(Dollars In Thousands)
June 30, March 31, December 31,
Financial Condition Data 2009 2009 2008
-------- --------- -----------
Assets
------
Cash and due from banks $2,071 $2,253 $3,319
Federal funds sold 140 160 2,730
Interest bearing deposits in other
financial institutions 4,080 6,903 104
Securities available for sale, at
fair value:
Mortgage backed securities 25,720 27,148 16,557
Collateralized mortgage obligations 11,523 18,171 18,452
Loans receivable held for investment:
Residential one to four unit real
estate loans 618 - -
Home equity lines of credit 10,813 10,336 9,415
Multifamily real estate loans 7,417 7,438 4,919
Commercial and industrial real
estate loans 39,904 39,337 39,457
Construction loans 14,132 12,688 10,435
Land / lot loans 8,393 7,563 7,520
Farm real estate loans 3,601 3,601 3,600
Commercial business loans 41,880 37,246 37,235
Other loans 4,110 2,571 3,998
----- ----- -----
Gross loans held for investment,
net of deferred fees and costs 130,868 120,780 116,579
Less:
Allowance for loan losses (2,225) (1,861) (1,646)
------- ------- -------
Loans receivable held for
investment, net 128,643 118,919 114,933
Investment in capital stock of the
Federal Home Loan Bank, at cost 757 179 179
Premises and equipment, net 1,588 1,679 1,778
Accrued interest receivable 545 574 547
Other assets 620 322 245
---- ---- ----
Total assets $175,687 $176,308 $158,844
======== ======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Non-interest bearing demand
deposits $16,631 $17,148 $10,079
Interest bearing checking accounts 1,813 2,149 3,803
Savings accounts 55 64 116
Money market accounts 58,690 63,766 61,489
Certificates of deposit 50,853 45,963 36,652
------ ------ ------
Total deposits 128,042 129,090 112,139
Borrowings 5,513 5,542 5,571
Other liabilities 1,287 1,119 1,006
----- ----- -----
Total liabilities 134,842 135,751 118,716
------- ------- -------
Stockholders' equity 40,845 40,557 40,128
------ ------ ------
Total liabilities and stockholders'
equity $175,687 $176,308 $158,844
======== ======== ========
AMERICAN PRINCIPLE BANK
Financial Highlights, Continued
Unaudited
(Dollars In Thousands Except Per Share Amounts)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Operating Data 6/30/2009 6/30/2008 6/30/2009 6/30/2008
--------- --------- --------- ---------
Interest and dividend income $2,250 $1,196 $4,373 $2,068
Interest expense 513 281 1,127 493
----- ----- ----- -----
Net interest income
before provision for
loan losses 1,737 915 3,246 1,575
Provision for loan
losses 364 349 579 654
----- ----- ----- -----
Net interest income
after provision for
loan losses 1,373 566 2,667 921
----- --- ----- ---
Non-interest income 17 7 33 14
---- ---- ---- ----
Non-interest expense:
Compensation and
employee benefits 634 469 1,222 968
Accounting, legal, and
consulting 161 75 276 147
Occupancy 126 124 251 256
Regulatory assessments 120 10 173 16
Equipment 60 43 123 86
Data and item
processing 51 39 100 75
Director expenses 47 1 48 2
Supplies, printing,
courier, and postage 23 22 39 39
Advertising and
promotion 19 8 39 13
Provision for off
balance sheet
commitments 1 28 1 28
Other expenses 92 62 168 112
---- ---- ---- ----
Total non-interest expense 1,334 881 2,440 1,742
----- --- ----- -----
Income (loss) before
provision for income taxes 56 (308) 260 (807)
Provision for income taxes - 1 - 1
---- ---- ---- ----
Net income (loss) $56 $(309) $260 $(808)
==== ===== ==== =====
Weighted average
shares used in basic
income (loss) per share
calculation 4,251,630 4,224,285 4,251,412 4,224,285
Basic income (loss)
per share $0.01 $(0.07) $0.06 $(0.19)
===== ====== ===== ======
Weighted average
shares used in
diluted income
(loss) per share
calculation 4,260,653 4,224,285 4,256,318 4,224,285
Diluted income (loss)
per share $0.01 $(0.07) $0.06 $(0.19)
===== ====== ===== ======
Average total assets $172,357 $96,244 $168,024 $84,216
Annualized net
interest income /
average total assets 4.03% 3.80% 3.86% 3.74%
June 30, March 31, December 31,
Other Information 2009 2009 2008
---- ---- ----
Net loans / deposits 100.47% 92.12% 102.49%
Allowance for loan losses /
loans outstanding 1.70% 1.54% 1.41%
Nominal and tangible book
value per share $9.61 $9.54 $9.44
Shares of common stock
outstanding 4,251,630 4,251,630 4,250,830
