American Principle Bank Q2 net loss at $309 thousand

American Principle Bank (OTC Bulletin Board: APBA) (the “Bank”) has 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 .

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 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.

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.

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