American Perspective Bank Announces Second Quarter 2011 Financial Results; Record Loan, Deposit, and Asset Levels

SAN LUIS OBISPO, Calif., July 21, 2011 /PRNewswire/ -- American Perspective Bank (OTC Bulletin Board: APBA) (the "Bank") today announced second quarter and year to date financial results through June 30, 2011.  Net income during the second quarter of 2011 was $446 thousand, equivalent to $0.10 diluted earnings per share.  This compared favorably to net income of $142 thousand during the second quarter of 2010, equivalent to $0.03 diluted earnings per share.  Net income during the first quarter of 2011 (the immediately preceding quarter) was $474 thousand, equivalent to $0.11 diluted earnings per share.

Net income for the first six months of 2011 was $920 thousand, or $0.21 diluted earnings per share.  This compares favorably to net income of $289 thousand during the first six months of 2010, equivalent to $0.07 diluted earnings per share.

The Bank reported record levels of net loans, deposits, and total assets as of June 30, 2011.  Net loans increased from $164.5 million at December 31, 2010 to $174.0 million at June 30, 2011, fostered by:  (i) the gradually improving economy; (ii) the Bank's continuing efforts to attract clients from competing financial institutions; and (iii) the Bank's expanding both its array of loan products and its primary geographic lending market.  Total deposits rose from $176.0 million at December 31, 2010 to $196.5 million at June 30, 2011, with increases in checking, money market, and certificate of deposit accounts.  Total assets rose from $228.9 million at December 31, 2010 to $243.9 million at June 30, 2011, supported by the inflow of deposits.

As previously announced, S. Brett Whitaker joined the Bank's Board of Directors on July 19, 2011.  Mr. Whitaker is a well known local businessman with extensive ties to the north San Luis Obispo County market.  Commenting on his appointment as a director, Mr. Whitaker stated:  "I look forward to contributing to the positive momentum enjoyed by the Bank over the past several years and to effectively representing our shareholders.  In particular, I look forward to working with Greg Chilina, the manager of the Bank's new Paso Robles loan production office, to build the Bank's client base in north San Luis Obispo County.  Once that client base expands sufficiently and regulatory approval is obtained, we plan to relocate and convert the Paso Robles loan production office into a full service branch that can accept deposits and directly provide a comprehensive range of the Bank's products and services."

At June 30, 2011, the Bank's:  (i) Tier One Leverage regulatory capital ratio was 16.91%; (ii) Tier One Risk-Based regulatory capital ratio was 21.84%; and (iii) Total Risk-Based regulatory capital ratio was 23.09%.  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 $6.8 million at June 30, 2011.  This increase was caused in part by:  (i) deposit inflows towards the end of the second quarter that were not yet reinvested into loans or securities; and (ii) the Bank's opening additional correspondent bank accounts in conjunction with an expansion of its correspondent network.

Total securities available for sale increased from $52.6 million at December 31, 2010 to $55.7 million at June 30, 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 $55.7 million in securities at June 30, 2011 exceeded its amortized cost basis by $682 thousand.

The Bank concluded the second quarter of 2011 with a very strong liquidity profile, including a significant volume of on-balance sheet liquid assets (including cash & cash equivalents and securities available for sale) and over $110 million in off-balance sheet borrowing capacity.

Net loans increased from $164.5 million at December 31, 2010 to $174.0 million at June 30, 2011.  Factors impacting loan portfolio growth during the first half of 2011 included:

• 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 $2.1 million increase in residential 1 to 4 unit real estate loans outstanding during the first half of 2011.
• 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 half of 2011.
• The Bank's extending a $1.3 million loan in support of its Community Reinvestment Act Program.  This loan will facilitate enhanced safety and security for the residents of a senior care facility located in the Bank's primary market area.
• 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 $3.3 million during the first half of 2011.
• Ongoing origination of commercial real estate loans, with the Bank's continuing to focus upon relationship borrowers in the Bank's primary market area.  Commercial real estate loans outstanding increased by $3.7 million during the first half of 2011.

At June 30, 2011, the Bank had $5.5 million in outstanding loan balances that were guaranteed under various programs administered by the U.S. Small Business Administration, the U.S. Department of Agriculture, or other similar guarantors.  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 half 2011 lending activity, Mark A. Crawford, the Bank's President, Chief Executive Officer, and Chief Credit Officer, stated:  "We are very pleased with the growth in the loan portfolio at a time when many financial institutions are reporting declining loan balances.  The $9.8 million increase in gross loans outstanding during the first half of the year was achieved while maintaining high credit quality and despite the continuing trend for certain borrowers to deleverage given the events and patterns in the economy."  Mr. Crawford then continued:  "The Bank concluded the second 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 and as the Bank actively markets our new back to back interest rate swap products, which provide qualified borrowers with access to longer term fixed rate financing."

The ratio of allowance for loan losses to loans outstanding increased from 1.46% at December 31, 2010 to 1.51% at June 30, 2011.  At both December 31, 2010 and June 30, 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.  A relatively small number of changes in credit quality ratings within the loan portfolio were the primary factor that led to the increase in the ratio of allowance for loan losses to loans outstanding during the first six months of 2011.

The Bank's investment in the capital stock of the Federal Home Loan Bank ("FHLB") increased from $1.1 million at December 31, 2010 to $1.2 million at June 30, 2011 due to the standard asset-based investment requirement applicable to FHLB members.

Premises and equipment, net, decreased from $1.7 million at December 31, 2010 to $1.4 million at June 30, 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 $2.4 million at June 30, 2011.  The Bank did not foreclose upon any real estate during the first half of 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.  During the second quarter of 2011, the Bank recognized a $154 thousand post-acquisition valuation allowance on the single piece of foreclosed real estate owned as of June 30, 2011.  This property is located in the Bank's primary market area.

Non-interest bearing demand deposit balances increased from $23.1 million at December 31, 2010 to a record $29.2 million at June 30, 2011.  Demand deposit balances during the first half of 2011 benefited from the Bank's opening a significant number of new accounts for local businesses and professionals.  Interest bearing checking accounts increased from $1.9 million at December 31, 2010 to $2.1 million at June 30, 2011.

Savings deposits decreased from $733 thousand at December 31, 2010 to $660 thousand at June 30, 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 $105.0 million at June 30, 2011.  Money market deposit balances during the first half 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;
• 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 increased from $55.2 million at December 31, 2010 to $59.5 million at June 30, 2011.  An inflow of public funds deposits during the second quarter of 2011 was more than sufficient to offset 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 Chief Banking Officer, stated:  "We are very pleased with the $2.4 million rise in total deposits during the second quarter of 2011, as the second quarter is seasonally the most challenging period for the Bank to increase its deposit base due to substantial outflows associated with client payments of income and property taxes."  Mr. Strait then added:  "Although our Paso Robles facility is currently a loan production office rather than a full service branch, the Bank is well positioned to augment its deposit base in north San Luis Obispo County through a variety of delivery channels, including online deposit (check scanning), bank by mail, courier service, online banking, and the ability of qualifying commercial clients to make deposits to their APB accounts at correspondent bank branches.  With the local north San Luis Obispo County banking market undergoing change, we believe we have an opportunity to introduce more Paso Robles, Templeton, and Atascadero residents and businesses to the unique customization and concierge service offered by the Bank."

Borrowings decreased from $12.0 million at December 31, 2010 to $5.3 million at June 30, 2011.  The reduction was primarily due to the Bank's using deposit inflows during the first half of 2011 to repay short term borrowings from the FHLB that were outstanding at the end of 2010.

Stockholders' equity rose from $39.9 million at December 31, 2010 to $41.1 million at June 30, 2011.  The increase was due to:  (i) the 2011 year to date net income; (ii) the capital generated through the Bank's Restricted Share Plan; and (iii) a rise in the accumulated other comprehensive income associated with the unrealized gain on securities available for sale.  Nominal and tangible book values were $9.45 per share at June 30, 2011 versus $9.20 per share at December 31, 2010.  Shares of common stock outstanding rose by 9,615 during the first half 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.

Operating Results Analysis

Net interest income before the provision for loan losses increased from $2.14 million during the first quarter of 2011 (the immediately preceding quarter) to $2.34 million during the second quarter of 2011.  This increase was generated by both a rise in average interest earning assets and a wider net interest margin.  Net interest income before the provision for loan losses of $2.34 million during the second quarter of 2011 also compared favorably to net interest income before the provision for loan losses of $1.86 million during the second quarter of 2010.  The ratio of annualized net interest income to average total assets expanded significantly from 3.58% during the second quarter of 2010 to 3.88% during the second quarter of 2011.

Net interest income before the provision for loan losses increased 22.7% from $3.65 million during the first half of 2010 to $4.48 million during the first half of 2011.  This increase was also supported by both a larger average balance of interest earning assets and an enhanced net interest margin.

The Bank enjoyed a significant sequential quarterly increase in net interest margin during the second quarter of 2011.  The ratio of annualized net interest income to average total assets rose from 3.71% during the first quarter of 2011 to 3.88% during the second quarter of 2011 primarily due to:

• a 17.3% increase in average demand deposit account balances, which led to an increase in the proportion of non-interest bearing funding;
• a 15.1% decrease in average non-interest earning assets, primarily stemming from the Bank's sale of two foreclosed properties during the first quarter of 2011;
• increased yields on both the security and the loan portfolios; and
• the Bank's continuing to decrease its weighted average cost of interest bearing deposits, which fell from 1.18% during the first quarter of 2011 to 1.11% during the second quarter of 2011.

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

• 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; and
• the continued growth of the Bank's interest earning assets.

The provision for loan losses was $168 thousand during the second quarter of 2011, compared to $333 thousand during the second quarter of 2010 and $56 thousand during the first quarter of 2011 (the immediately preceding quarter).  The provision for loan losses during the first half of 2011 totaled $224 thousand, compared to $595 thousand during the first half of 2010.  The Bank recorded $837 thousand in net charge-offs during the first half of 2010 (primarily associated with legacy loans from the Bank's initial period of operation), versus no net charge-offs during the first half of 2011.  The loan loss provision during the second quarter of 2011 primarily arose from:  (i) increased reserve requirements stemming from the growth in the loan portfolio; and (ii) greater reserve requirements for a small number of loans that were downgraded (primarily to "Watch" status) during the quarter.

The Bank did not sell any securities during the first half of 2011.  The Bank realized a gain of $88 thousand on the sale of one mortgage backed security during the second quarter of 2010.

During the second quarter of 2010, the Bank benefitted from the recognition of $40 thousand in excess payments (over associated costs) received in conjunction with its name change.

Other non-interest income increased slightly from $28 thousand during the three months ended June 30, 2010 to $29 thousand during the three months ended June 30, 2011.  Other non-interest income decreased from $53 thousand during the six months ended June 30, 2010 to $40 thousand during the six months ended June 30, 2011 due to $14 thousand in losses on the sale of loans in the first quarter of 2011 that were incurred in order to accommodate the needs of certain clients with substantial and profitable aggregate relationships with the Bank.

The Bank has continued to augment its inventory of fee based services and the volume of clients for those services.  Effective August 1 , 2011, the Bank will be implementing a new Fee & Service Charge schedule that introduces some additional services (e.g. certain Automated Clearinghouse ("ACH") transactions and consumer online deposit for qualified clients) while increasing certain fees in light of competitor pricing.  Commenting on the ongoing enhancement of the Bank's cash management products and technology platform, Kenneth E. Long, the Bank's Chief Information Officer, stated:  "During the second quarter of 2011, the Bank significantly upgraded its electronic bill payment services to a state of the art system and also enhanced its online banking service.  Later this year, we plan to further augment our already robust ACH products.  The Bank continues to differentiate itself among our local competitors by providing a highly customized set of solutions that leverages our advanced technology platform."

The operation of other real estate owned generated $23 thousand in net income during the second quarter of 2011, compared to $46 thousand in net expense during the second quarter of 2010.  The operation of other real estate owned produced net income of $2 thousand during the first six months of 2011, versus $72 thousand in net income during the first six months of 2010.  During most of the first half of 2010, the Bank operated, through a management company, a foreclosed motel which was sold in June 2010.  The motel enjoyed peak seasonal results during the first quarter of 2010, but generated an operating loss during the seasonally slower second quarter of 2010.  A $78 thousand post-acquisition valuation allowance was established for the motel during the first quarter of 2010.  The sale of the motel during the second quarter of 2010 generated a loss of $105 thousand.  During the second quarter of 2011, the Bank received a $39 thousand payment associated with a claim pursued in conjunction with the operation of the motel during the period of the Bank's ownership.

The single foreclosed property owned by the Bank at June 30, 2011 is projected to generate a small operating loss until it is sold, as rental income from the home and crop income from the farmland is forecast to be insufficient to offset insurance, property taxes, and other related costs.

Non-interest expense (excluding other real estate owned expense) increased from $1.4 million and $2.8 million during the three and six months ended June 30, 2010, respectively, to $1.6 million and $3.2 million during the three and six months ended June 30, 2011, respectively.  Most of the increased costs in 2011 arose from the operation and promotion of the Santa Maria Branch (which opened in July 2010) and the Paso Robles loan production office (which opened in March 2011).

Compensation and benefits expenses rose from $712 thousand and $1.4 million during the three and six months ended June 30, 2010, respectively, to $834 thousand and $1.7 million during the three and six months ended June 30, 2011, respectively.  These increases reflected:

• an incentive compensation accrual of $20 thousand per month during the first six months of 2011, versus none during the first half of 2010, as the Board of Directors has approved an Incentive Compensation Plan for 2011;
• employee base salary increases effective January 1, 2011;
• two employees being hired for the Paso Robles loan production office in 2011;
• the hire of three other new positions during the first half 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 decreased from $152 thousand and $327 thousand during the three and six months ended June 30, 2010, respectively, to $126 thousand and $269 thousand during the three and six months ended June 30, 2011, respectively.  This decline primarily resulted from:  (i) lower legal collection expenses during the 2011 periods; and (ii) the Bank's shifting from external (consulting) to internal human resources functions in 2011.  These factors were partially offset by higher consulting expenses in 2011 in support of business generation, including for the Paso Robles loan production office.

Occupancy expense increased from $152 thousand and $309 thousand during the three and six months ended June 30, 2010, respectively, to $179 thousand and $351 thousand for the three and six months ended June 30, 2011, respectively.  These increases were primarily due to higher costs in 2011 for the Santa Maria branch and the Paso Robles loan production office.

Regulatory assessments decreased from $79 thousand and $154 thousand during the three and six months ended June 30, 2010, respectively, to $55 thousand and $148 thousand during the three and six months ended June 30, 2011, respectively, despite the growth of the Bank.  These declines arose from the Bank's benefiting 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) resulted in a significant reduction in the Bank's FDIC insurance expense.

Data and item processing expenses increased from $51 thousand and $102 thousand during the three and six months ended June 30, 2010, respectively, to $62 thousand and $120 thousand during the three and six months ended June 30, 2011, respectively.  These increases 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.

Director expenses increased from $1 thousand and $39 thousand during the three and six months ended June 30, 2010, respectively, to $55 thousand for the six months ended June 30, 2011, all of which occurred in the second quarter of 2011.  The final expense recognition for the initial award of restricted shares granted to outside directors occurred during the first quarter of 2010.  The outside directors then received no restricted share awards or any other type of compensation until the Board of Directors approved the issuance of a total of 32,000 restricted share awards to the independent directors in March 2011.  These awards will vest in March 2012, as long as the directors are then continuing to serve the Bank.  The March 2011 awards were only the second grant of restricted shares to the outside directors since the organization of the Bank.  The Bank's outside directors have never received cash director fees or any other type of compensation other than restricted shares.

Advertising and promotion expense increased from $52 thousand and $102 thousand during the three and six months ended June 30, 2010 to $82 thousand and $137 thousand during the three and six months ended June 30, 2011.  The Bank incurred greater advertising and promotion expenses during the 2011 periods in support of:  (i) the Santa Maria branch; (ii) the Paso Robles loan production office; (iii) introducing new officers and relationship managers to the market; (iv) increasing the Bank's involvement in and visibility at a wide range of local events; and (v) augmenting the Bank's support of a number of local organizations targeted toward enhancing the quality of life on the Central Coast, particularly in regards to health, education, and affordable housing.  Now that the Paso Robles loan production office has been open for a full calendar quarter, lower levels of advertising and promotion expenses are anticipated during the second half of 2011.

Commenting on the Bank's financial and operating results for the first half 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 second quarter of 2011 represented the Bank's seventh consecutive quarter of profitability, which is particularly impressive given the challenging economic, interest rate, and real estate environments over the past two years."  Mr. Madden then continued:  "The Bank concluded the second quarter of 2011 with strong liquidity and capital positions and a favorable credit profile.  With another local bank franchise about to experience consolidation, American Perspective Bank is well situated to continue growing and gaining market share."

Michael D. Bouquet, the Bank's Vice Chairman of the Board, added:  "The Bank held the second quarter Shareholders Advisory Circle meeting at our Santa Maria branch.  The speakers included the Mayor of the City of Santa Maria and the President & Chief Executive Officer of the Santa Maria Valley Chamber of Commerce.  The Bank's growing visibility in the Santa Maria market has been spearheaded by Mike Sell, the Senior Relationship Manager who manages the Santa Maria branch team."  Mr. Bouquet then added:  "We believe we offer the Santa Maria market an unparalleled combination of superior service, advanced technology, robust product set, extensive delivery channels, and an excellent facility.  We invite Santa Maria Valley businesses and residents to visit our branch team and learn how the Bank can assist them in attaining their financial objectives."

Paul S. Viborg, a director of the Bank and owner of Viborg Sand and Gravel, headquartered in north San Luis Obispo County, stated:  "Our grand opening for the Paso Robles loan production office exceeded expectations, with a large attendance and excellent visibility in the community.  We invite local businesses and professionals 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.

General communication:

[email protected]
www.AmericanPerspectiveBank.com

Phone:  (805) 547 - 2800 (San Luis Obispo Branch)
Facsimile:  (805) 547 - 2801 (San Luis Obispo Branch)

Phone:  (805) 354 - 7800 (Santa Maria Branch)
Facsimile:  (805) 354 - 7801 (Santa Maria Branch)

Phone:  (805) 226 - 5300 (Paso Robles Loan Production Office)
Facsimile:  (805) 226 - 5301 (Paso Robles Loan Production Office)

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SOURCE American Perspective Bank