American Perspective Bank Announces First Quarter 2011 Financial Results

SAN LUIS OBISPO, Calif., April 21, 2011 /PRNewswire/ -- American Perspective Bank (OTC Bulletin Board: APBA) (the "Bank") today announced first quarter financial results through March 31, 2011.  Net income during the first quarter of 2011 was $474 thousand, equivalent to $0.11 diluted earnings per share.  This compares to:  (i) net income of $165 thousand during the fourth quarter of 2010 (the immediately preceding quarter), equivalent to $0.04 diluted earnings per share; and (ii) net income of $147 thousand during the first quarter of 2010, equivalent to $0.03 diluted earnings per share.

The Bank reported record levels of total assets, net loans, and deposits as of March 31, 2011.  Total assets rose from $228.9 million at December 31, 2010 to $240.8 million at March 31, 2011, supported by ongoing inflows of deposits.  Net loans increased from $164.5 million at December 31, 2010 to $169.0 million at March 31, 2011, as both the gradually improving economy and the Bank's continuing efforts to attract clients from competing financial institutions contributed to the increase.  Total deposits rose from $176.0 million at December 31, 2010 to $194.1 million at March 31, 2011, with the rise concentrated in money market and demand deposit accounts.

The Bank opened its new loan production office in Paso Robles (north San Luis Obispo County) earlier this month.  The office is managed by Greg Chilina, an experienced Relationship Manager and Commercial Loan Officer.  The office is located at 720 10th Street in downtown Paso Robles, a community of approximately 29,000 residents.  The office offers a full range of the Bank's loan products, including commercial lines of credit for equipment, inventory, and accounts receivable financing; income property real estate loans; and various government sponsored loan programs, including those associated with the U.S. Small Business Administration and the U.S. Department of Agriculture.  Once the Bank expands its client base in north San Luis Obispo County, identifies a preferred location, and obtains regulatory approval, it plans to convert the Paso Robles loan production office into a full service branch that can accept deposits and provide a comprehensive range of the Bank's products and services.

At March 31, 2011, the Bank's:  (i) Tier One Leverage regulatory capital ratio was 17.42%; (ii) Tier One Risk-Based regulatory capital ratio was 22.31%; and (iii) Total Risk-Based regulatory capital ratio was 23.56%.  All of these ratios were significantly in excess of the levels required to be categorized in the highest regulatory capital classification of "well capitalized".  The Bank's capital ratio profile continues to be one of the strongest for banks headquartered in San Luis Obispo and Santa Barbara counties.

Financial Condition Analysis

Cash and cash equivalents increased from $2.4 million at December 31, 2010 to $5.6 million at March 31, 2011.  This increase was caused in part by deposit inflows towards the end of the first quarter that were not yet reinvested into loans or securities.  In addition, the Bank seasonally builds its on-balance sheet liquidity at the end of the first quarter and in early April of each year in preparation for client payments of income and property taxes.

Total securities available for sale increased from $52.6 million at December 31, 2010 to $58.8 million at March 31, 2011.  During the first quarter of 2011, the Bank invested excess liquidity arising from strong deposit inflows into hybrid AAA rated Agency mortgage backed securities in order to augment yield while awaiting investment of the funds into loans.  These mortgage backed securities are fixed rate for an initial period and then become floating rate at a margin over the 1 year LIBOR index, subject to lifetime and periodic caps.  The fair value of the Bank's $58.8 million in securities at March 31, 2011 exceeded its amortized cost basis by $525 thousand.

The Bank concluded the first quarter of 2011 with a very strong liquidity profile, including a significant volume of on-balance sheet liquid assets and available securities and over $95 million in off-balance sheet borrowing capacity.

Net loans increased from $164.5 million at December 31, 2010 to $169.0 million at March 31, 2011.  

Factors impacting loan portfolio growth during the first quarter of 2011 included:

• A number of loan payoffs, including construction loans on projects that were completed and which obtained outside permanent financing.  This contributed to the $1.2 million decline in construction loans outstanding during the first quarter of 2011.
• The Bank's extending $1.5 million in financing for the sale of one of the two foreclosed properties sold during the first quarter of 2011.  This financing:  (i) was in conformity with the Bank's normal credit criteria, including the required level of down payment; and (ii) contributed to the increase in commercial real estate loans outstanding recorded during the first quarter of 2011.
• The Bank's originating loans to several clients who took advantage of market opportunities to acquire residential rental properties at historically attractive terms, resulting in strong levels of debt service coverage.  This accounted for the $1.4 million increase in residential real estate loans outstanding during the first quarter of 2011.
• The Bank's continuing to pursue additional multifamily lending in light of that real estate sector's relatively strong performance in recent periods and in conjunction with the Bank's credit concentration diversification objectives.  Multifamily loans outstanding rose by $2.9 million during the first quarter of 2011.

At March 31, 2011, the Bank had $5.0 million in outstanding loan balances that were guaranteed under various programs administered by either the U.S. Small Business Administration or the U.S. Department of Agriculture.  The Bank currently has a number of loans in the pipeline under these programs, which help to provide earlier stage and / or longer term financing to various profiles of businesses than might otherwise be available.

Commenting on the first quarter 2011 lending activity, Mark A. Crawford, the Bank's President, Chief Executive Officer, and Chief Credit Officer, stated:  "The Bank continues to achieve enhanced visibility in its local communities and thereby attract an increasing number of businesses, professionals, and family commercial entities as clients.  The Bank concluded the first quarter of 2011 with a strong pipeline of potential business, which we anticipate to expand further as the new Paso Robles loan production office becomes better known.  Our vision is to convert the Paso Robles loan production office into a full service branch once we identify a quality site, attain a sufficient volume of local business to render the branch office cost effective, and obtain regulatory approval for the new branch."

The ratio of allowance for loan losses to loans outstanding was 1.46% at both December 31, 2010 and March 31, 2011.  At both December 31, 2010 and March 31, 2011, the Bank had:  (i) no loans which were 30 or more days delinquent; (ii) no loans on non-accrual status; and (iii) a single troubled debt restructured loan with a principal balance of less than $50 thousand.  Changes in credit quality ratings within the loan portfolio were limited during the first quarter of 2011, in aggregate resulting in relatively little change in reserve requirements.  The Bank recorded no charge-offs or recoveries during the first quarter of 2011.

Premises and equipment, net, decreased from $1.7 million at December 31, 2010 to $1.5 million at March 31, 2011, as the effect of periodic depreciation and amortization was larger than the impact of a relatively small volume of new fixed asset purchases.

Other real estate owned decreased from $4.5 million at December 31, 2010 to $2.6 million at March 31, 2011.  During the first quarter of 2011, the Bank sold two of the three foreclosed properties owned at December 31, 2010, in aggregate generating no gain or loss on sale.  At March 31, 2011, the Bank owned a single piece of foreclosed real estate.  This remaining foreclosed property is the subject of a title insurance claim and a lawsuit by the Bank against the title insurance company in response to issues with the processing of the subject escrow and the title insurance policy issued to the Bank.  A legal action is in process to address the intervening liens associated with the prior owner that were not removed through the foreclosure and other actions.  A Bank subsidiary has sole ownership of the subject property (4 parcels comprising approximately 237 acres, including one house), subject to the remaining intervening liens.  The Bank intends to continue to vigorously pursue the title insurance company to hold the Bank financially harmless from errors that occurred through the escrow process.

Non-interest bearing demand deposit balances increased from $23.1 million at December 31, 2010 to a record $28.8 million at March 31, 2011.  Demand deposit balances during the first quarter of 2011 benefited from:

• the Bank's opening a significant number of new accounts for local businesses and professionals;
• a seasonal rise in demand deposit balances as clients prepare to pay income and property taxes in April; and
• certain clients completing asset sales during the first quarter of 2011 and then retaining the funds in their demand deposit accounts pending longer term utilization of the money.

Interest bearing checking accounts increased from $1.9 million at December 31, 2010 to $2.2 million at March 31, 2011.  Part of this increase was also seasonal based upon upcoming income and property tax payments.

Savings deposits decreased from $733 thousand at December 31, 2010 to $655 thousand at March 31, 2011.  This decrease was primarily associated with a single client's transfer of funds.

Money market deposits increased from $95.0 million at December 31, 2010 to a record $107.8 million at March 31, 2011.  Money market deposit balances during the first quarter of 2011 benefited from:

• low (often, near zero) interest rates being paid on brokerage accounts and money market mutual funds, thereby encouraging clients to transfer their funds to higher yielding and FDIC insured accounts;
• seasonal buildup of liquid balances by clients in advance of April property and income tax payments;
• the conversion of certain deposits from certificates of deposit to money market accounts given the limited yield differential between the products in the current interest rate environment;
• the Bank's offering tiered pricing on its money market accounts, whereby clients receive a higher interest rate on their entire account balance as each successively higher balance tier level is attained; and
• strong inflows into the Bank's public funds money market product.

Certificates of deposit decreased slightly from $55.2 million at December 31, 2010 to $54.7 million at March 31, 2011.  This decline was primarily due to transfers from certain maturing certificates of deposit into money market accounts.

Commenting on the Bank's recent deposit performance, Thomas R. Strait, the Bank's Director of Retail Banking, stated:  "Our relationship focused approach to client service continued to attract new customers during the first quarter of 2011.  We have been particularly pleased with the volume of referral business initiated by our current clients and shareholders."  Mr. Strait then added:  "An increasing number of local community organizations are taking advantage of the Bank's offering its facilities for their use.  This includes a number of non-profit entities in the Santa Maria Valley who have found the Santa Maria branch both convenient and very functional for a wide range of meetings and events.  Making our facilities available is just one of many ways we seek to contribute to our local communities."

Borrowings decreased from $12.0 million at December 31, 2010 to $5.3 million at March 31, 2011.  The reduction was primarily due to the Bank's using strong deposit inflows during the first quarter of 2011 to repay short term borrowings from the Federal Home Loan Bank that were outstanding at the end of 2010.

Shareholders' equity rose from $39.9 million at December 31, 2010 to $40.4 million at March 31, 2011.  The increase was due to the 2011 net income and the capital generated through the Bank's Restricted Share Plan.  These factors more than offset a small decline in the accumulated other comprehensive income associated with the unrealized gain on securities available for sale.  Nominal and tangible book values were $9.31 per share at March 31, 2011 versus $9.20 per share at December 31, 2010.  Shares of common stock outstanding rose by 4,240 during the first quarter of 2011 in conjunction with the vesting of awards under the Restricted Share Plan.  The Bank grants restricted share awards to directors and employees as a means of aligning their interests with the generation of shareholder value.

In March 2011, the Board of Directors approved the issuance of a total of 32,000 restricted share awards to the independent outside directors.  These awards will vest in March 2012, as long as the directors are then continuing to serve the Bank.  This is only the second award of restricted shares to the outside directors since the organization of the Bank, with directors Spencer and Viborg receiving their initial compensation of any type for their service on the Board.  The Bank's outside directors have never received cash director fees or any other type of compensation other than restricted shares.

Operating Results Analysis

Net interest income before the provision for loan losses increased from $2.06 million during the fourth quarter of 2010 (the immediately preceding quarter) to $2.14 million during the first quarter of 2011.  This increase:  (i) was generated through both a larger average balance sheet and a wider net interest margin; and (ii) occurred despite the first quarter of 2011 having two fewer days than the fourth quarter of 2010.  Net interest income before the provision for loan losses of $2.14 million during the first quarter of 2011 also compared favorably to net interest income before the provision for loan losses of $1.79 million during the first quarter of 2010.

The ratio of annualized net interest income to average total assets rose from 3.67% during the fourth quarter of 2010 to 3.71% during the first quarter of 2011 primarily due to:

• net loans receivable held for investment, the Bank's highest yielding assets, increasing from 69.5% to 71.0% of quarterly average total assets; and
• the Bank's continuing to decrease its weighted average cost of deposits, which fell from 1.09% during the fourth quarter of 2010 to 1.01% during the first quarter of 2011.

Net interest income during the second quarter of 2011 is projected to benefit from:

• the conversion of $1.9 million in other real estate owned to interest earning assets during the first quarter of 2011;
• the investment of excess cash equivalent balances into Agency hybrid mortgage backed securities, which occurred towards the end of the first quarter of 2011; and
• further, although moderate, forecasted declines in weighted average funding costs:
  • as maturing certificates of deposit rollover to lower interest rates;
  • in response to limited competitive pricing pressure for deposits stemming in part from the significant volume of liquidity available in the capital markets and the low yields offered by money market mutual funds; and
  • because the Federal Deposit Insurance Corporation ("FDIC") continues to impose deposit rate caps on troubled institutions, thereby limiting their ability to pay above market interest rates.

The provision for loan losses was $56 thousand during the first quarter of 2011, notably lower than $277 thousand during the fourth quarter of 2010 (the immediately preceding quarter) and $262 thousand during the first quarter of 2010.  Most of the loan loss provision expense during the first quarter of 2011 was associated with the increased size of the loan portfolio.  While there were a number of credit grade adjustments (up and down) during the first quarter of 2011, their aggregate impact upon required reserve levels was relatively minor.

The Bank did not sell any securities during the first quarter of 2011 or 2010.  The Bank realized a gain of $153 thousand on the sale of a mortgage backed security during the fourth quarter of 2010.

Other non-interest income totaled $11 thousand during the first quarter of 2011, down from $25 thousand during the first quarter of 2010.  This decline was primarily because of $14 thousand in losses on sales of loans during the first quarter of 2011.  The Bank incurred the losses on the sale of the loans in order to accommodate the needs of certain clients with substantial and profitable aggregate relationships with the Bank.

The operation of other real estate owned generated $21 thousand in net expense during the first quarter of 2011, compared to $118 thousand in net income during the first quarter of 2010.  During the first quarter of 2010, the Bank operated, via a management company, a foreclosed motel.  The first quarter of the year was the motel's peak seasonal period.  The motel was sold during the second quarter of 2010.  While the Bank collected rents from tenants at two of the foreclosed properties owned during the first quarter of 2011, such were insufficient to offset various operating costs including property taxes and insurance.  The Bank recorded a post-acquisition valuation allowance of $78 thousand during the first quarter of 2010, versus no similar expense during the first quarter of 2011.  The single foreclosed property owned by the Bank at March 31, 2011 is projected to generate a small operating loss until it is sold.

Non-interest expense (excluding other real estate owned expense) increased from $1.4 million during the first quarter of 2010 to $1.6 million during the first quarter of 2011.  This increase was concentrated in compensation and employee benefits, which rose from $710 thousand during the first quarter of 2010 to $865 thousand during the first quarter of 2011.  This increase reflected:

• an incentive compensation accrual of $60 thousand during the first quarter of 2011, versus none during the first quarter of 2010, as the Board of Directors has approved an Incentive Compensation Plan for 2011;
• employee base salary increases (other than for executive officers) effective January 1, 2011;
• the hire of three new positions during the first quarter of 2011 in conjunction with the Bank's continuing growth;
• higher medical insurance benefit costs, despite multiple steps implemented by the Bank to moderate the rate of increase in these expenses; and
• greater employer payroll taxes on the expanded salary base.

Accounting, legal, and consulting expenses totaled $143 thousand during the first quarter of 2011, down from $175 thousand during the first quarter of 2010.  While legal expenses associated with the collection of loans remained elevated during the first quarter of 2011, they declined from the level experienced during the first quarter of 2010.  Collection related legal expenses during the second quarter of 2011 are anticipated to primarily stem from the progress of the Bank's litigation against the title insurance company associated with the sole foreclosed property owned by the Bank at March 31, 2011.

Occupancy expense increased from $157 thousand during the first quarter of 2010 to $172 thousand during the first quarter of 2011.  This rise was due to higher costs in 2011 for the Santa Maria branch and the new Paso Robles loan production office.

Regulatory assessments increased from $75 thousand during the first quarter of 2010 to $93 thousand during the first quarter of 2011.  This was primarily due to the Bank's continuing rise in base FDIC insurance expense associated with the growth of the deposit portfolio.  The Bank will benefit from the new FDIC insurance assessment formula that became effective on April 1, 2011.  The new formula is based upon average consolidated assets less average tangible equity, while the prior formula was based upon deposits.  The combination of the Bank's strong capitalization and the new, nominally lower assessment rates (applied against a larger assessment base across the financial services industry) is projected to result in a prospective reduction in the Bank's FDIC insurance expense of approximately 35%, all else held constant.

Data and item processing expenses increased from $51 thousand during the first quarter of 2010 to $58 thousand during the first quarter of 2011.  This increase arose from the Bank's processing a greater number of accounts and transactions in 2011 and from the Bank's ongoing investment in new and enhanced technologies.  During the second quarter of 2011, the Bank plans to implement a significant enhancement to its electronic bill payment service.

Director expenses declined from $38 thousand during the first quarter of 2010 to none during the first quarter of 2011.  The director expenses during the first quarter of 2010 were primarily associated with the initial award of restricted shares ever granted to the outside directors.  That initial award vested in March 2010.  Director expenses are projected to total approximately $55 thousand during the second quarter of 2011 following the aforementioned award of new restricted shares.

Advertising and promotion expense increased from $50 thousand during the first quarter of 2010 to $55 thousand during the first quarter of 2011.  During 2011, the Bank plans to focus its marketing budget on the sponsorship of local community organizations and events, with a reduced percentage of expenditures allocated to general media.

The Bank's 2011 Annual Meeting of Shareholders (the "Meeting") will take place on Tuesday, June 7, 2011 in the Garden Room at the Madonna Inn in San Luis Obispo.  A social reception with appetizers and refreshments will commence at 5:30 PM Pacific Time, with the formal segment of the Meeting starting at 6:30 PM Pacific Time.  Shareholders of record at the close of business on April 11, 2011 will be entitled to attend and vote at the Meeting.  Shareholders are welcome to contact the Bank with any questions regarding the Meeting.

The 2011 Proxy Statement, Proxy Card, and 2010 Annual Report were mailed to shareholders of record as of April 11, 2011 on or about April 15, 2011.  Any shareholders who have not received these documents or who have any questions regarding the packages are welcome to contact the Bank.  The 2011 Proxy Statement and the 2010 Annual Report are also available at all of the Bank's locations and on its website.

Commenting on the Bank's financial and operating results for the first quarter of 2011, Thomas J. Madden, the Bank's Chairman of the Board, stated:  "We are very pleased to announce record levels of loans, deposits, and total assets.  The first quarter of 2011 represented the Bank's sixth consecutive quarter of profitability, which is particularly impressive given the challenging economic, interest rate, and real estate environments over the past two years.  We are also pleased to report the completed sale of two foreclosed properties during the first quarter of 2011, leaving the Bank with just one foreclosed property at March 31, 2011, along with no non-accrual loans."  Mr. Madden then continued:  "The Bank achieved an effective balance of current earnings and longer term investment during the first quarter of 2011.  The first quarter 2011 net income represented the highest quarterly earnings ever achieved by the Bank, and occurred despite the investments in people and facilities associated with the Paso Robles loan production office and commencing the infrastructure to support our planned Paso Robles branch."

Michael D. Bouquet, the Bank's Vice Chairman of the Board, added:  "The Bank concluded the first quarter of 2011 with very strong capital and liquidity positions, and is therefore well situated to continue expanding.  The Board of Directors remains steadfast in its focus on generating shareholder value, with outside directors again agreeing to be compensated in the Bank's common stock, rather than cash.  The Bank's first quarter 2011 net income reflected an accrual for incentive compensation, as we intend to utilize both incentive compensation and restricted share awards to encourage superior contributions by the Bank's employees."  Mr. Bouquet then commented in regards to the Santa Maria branch:  "The Santa Maria branch, under the leadership of Senior Relationship Manager Mike Sell, added several key clients during the first quarter of 2011.  With each passing quarter, the Santa Maria Valley community is becoming more aware of the Bank's excellent facility and service oriented team."

Paul S. Viborg, a director of the Bank and owner of Viborg Sand and Gravel, headquartered in north San Luis Obispo County, stated:  "The Paso Robles loan production office has been well received by the local community, with several loan applications already in process.  We invite local businesses and property owners to contact Greg Chilina ([email protected] or at 805.226.5300) to learn more about the broad array of credit products we have available to support economic growth, business expansion, balance sheet management, and real estate acquisition.  In addition, the Paso Robles loan production office can originate loans under multiple government lending programs, including those sponsored by the U.S. Small Business Administration and the U.S. Department of Agriculture."

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 San Luis Obispo branch office 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 Santa Maria branch office is located at 2646 Santa Maria Way, Suite 101, Santa Maria, California, near the intersection of Santa Maria Way and Broadway.  The Paso Robles loan production office is located at 720 10th Street in downtown Paso Robles.  The Bank's deposits are insured by the FDIC up to applicable legal limits.

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.AmericanPerspectiveBank.com Internet site for no charge.

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SOURCE American Perspective Bank