Adverse Economic Conditions Continue to Affect Appalachian Bancshares


ELLIJAY, Ga., April 30, 2009 (GLOBE NEWSWIRE) -- Appalachian Bancshares, Inc. (Nasdaq:APAB), holding company for Appalachian Community Bank, Appalachian Community Bank, F.S.B., and Appalachian Real Estate Holdings, Inc. reported consolidated total assets of $1.2 billion, at March 31, 2009, compared to $1.0 billion at March 31, 2008, an increase of 21.0%. Total loans net of unearned income were $883.0 million at March 31, 2009, an increase of $37.5 million, or 4.4%, when compared with $845.6 million at March 31, 2008. Deposits grew to $1.1 billion at March 31, 2009, an increase of $218.0 million, or 25.8%, when compared to $846.1 million at March 31, 2008.

Tracy Newton, President and Chief Executive Officer, stated that, "The challenges of the fourth quarter of 2008 continued during the recent quarter. Volatile financial events continue to promote an environment of fear and uncertainty causing a continued lack of consumer confidence and conservative spending in our markets. Although, our team remains determined with a 'Together We Can' attitude, as we continue to focus on building liquidity, lowering wholesale funding, identifying and providing proper reserves for problem assets, and maintaining a strong capitalized position. We are well poised to re-price many of our interest bearing deposits in the second half of 2009. This should give us much needed relief on our net interest margin in the months to come."

Net loss for the first quarter of 2009 was $1.8 million, or $(0.32) per diluted share, which is a 254.4% decrease in net income when compared to $1.1 million, or $0.21 per diluted share, for the same quarter in 2008. Our decrease in net income for the first quarter 2009 was primarily due to our provision for loan losses of $3.7 million, which represent an increase of $2.8 million when compared to the same period in 2008. A decreasing net interest margin in the first quarter of 2009 compared to 2008 also contributed to our net losses. Our net interest margin was 2.70% for the quarter ended March 31, 2009, compared to 4.29% the same quarter in 2008. We reversed interest, due to placing loans on non-accrual, during the first quarter of 2009, which represents an 11 basis point decrease of our margin compared to only a 6 basis point reduction during the same period in 2008. In addition, we sold investment securities and took a $1.0 million net gain in the first quarter 2009 compared to only a $9 thousand net gain for the same period in 2008. We reinvested the sales proceeds in shorter term securities with lesser risk weights to improve our total risk based capital position.

Return on average shareholders' equity was (9.71%) annualized for the first quarter of 2009, compared to 6.10% for the same period in 2008. Return on average assets was (0.59%) annualized for the first quarter of 2009, compared to 0.46% for the same period in 2008.

Mr. Newton commented that, "Our non-performing assets to total assets ratio increased to 5.69% at March 31, 2009, from 3.50% at December 31, 2008 and from 0.59% at March 31, 2008. Our non-performing loans to total loans ratio was 5.76% at March 31, 2009, compared to 3.18% at December 31, 2008 and 0.50% at March 31, 2008. Our net charge-off ratio was 0.46% for first quarter 2009, compared to 0.58% for the fourth quarter 2008 and 0.07% for the quarter ended March 31, 2008. Considering increasing risks in our loan portfolio and our timely approach that allows us to quickly identify troubled loans, we believe that our loan loss reserves of 1.60% of gross loans outstanding at March 31, 2009, compared to 1.21% of gross loans outstanding at March 31, 2008, adequately prepares us for identified potential future losses. As always, if conditions continue to worsen, additional loan loss reserve provisions will be provided."

Total revenue, net of interest expense, was $8.9 million for the first quarter of 2009 and $11.0 million for the first quarter 2008, a decrease of 19.2%. The decrease in total revenue, net of interest expense, is primarily due to the decrease in our net interest margin, which was partially offset by the $1 million gain on the sale of securities.

Book value per share stood at $12.86 at March 31, 2009, compared to $14.14 per share at March 31, 2008, a decrease of approximately 9.1%.

Conference Call

The Company will hold a conference call on Thursday, April 30, 2009 at 11:00 a.m. ET, to discuss its financial results and strategic initiatives and to entertain questions. Listeners will be able to participate in the question-and-answer session. The telephone number for the conference call is 1-800-860-2442. The conference call will also be available by webcast through the Company's website, www.apab.com, by clicking on the Investor Relations' section. A replay of the call will be archived on the Company's website for one year.

About Appalachian Bancshares, Inc.

The Company is based in Ellijay, Georgia, and is the holding company of Appalachian Community Bank, a Georgia state-chartered bank, Appalachian Community Bank, F.S.B., a federally-chartered thrift and Appalachian Real Estate Holdings, Inc. The Company, through Appalachian Community Bank (which also operates in Gilmer County, Georgia, under the trade name of Gilmer County Bank) and Appalachian Community Bank, F.S.B., provides a full range of community banking services to individuals and to small and medium-sized businesses, through its thirteen banking offices, located in Ellijay, East Ellijay, Blue Ridge, Blairsville, Chatsworth, Dawsonville, McCaysville, Dahlonega and Dalton, Georgia, and in Ducktown, Tennessee, and Murphy, North Carolina. The Company's common stock trades on the NASDAQ Global Market under the symbol APAB. For more information, please visit the Company's website at www.apab.com.

Certain statements in this news release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes, and other risks and uncertainties described in our company's filings with the Securities and Exchange Commission. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by our company or any person that the future events, plans, or expectations contemplated by our company will be achieved. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.


             APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
                 SELECTED CONSOLIDATED FINANCIAL DATA
                              (Unaudited)
                 (in thousands, except per share data)

                                                Three Months Ended
                                                     March 31,
                                             ------------------------
                                                2009          2008
                                             ----------    ----------

 Summary Results of Operations Data:
   Interest income                           $   15,670    $   18,643
   Interest expense                               9,007         8,929
                                             ----------    ----------
   Net interest income                            6,663         9,714
   Provision for loan losses                      3,726           955
                                             ----------    ----------
   Net interest income after provision
    for loan losses                               2,937         8,759
   Noninterest income                             2,208         1,265
   Noninterest expense                            8,165         8,362
                                             ----------    ----------
   Income (loss) before taxes                    (3,020)        1,662
   Income tax expense (benefit)                  (1,264)          525
                                             ----------    ----------
   Net income (loss)                         $   (1,756)   $    1,137
                                             ==========    ==========

 Per Share Data:
   Net income (loss), basic                  $    (0.32)   $     0.21
   Net income (loss), diluted                     (0.32)         0.21
   Book value                                     12.86         14.14

 Weighted average number of shares
  outstanding:
     Basic                                    5,452,769     5,348,966
     Diluted                                  5,452,769     5,348,966

 Performance Ratios:
   Return on average assets(1)                    -0.59%         0.46%
   Return on average equity(1)                    -9.71%         6.10%
   Net interest margin(1) (2)                      2.70%         4.29%
   Efficiency ratio(3)                           104.01%        76.23%

 Growth Ratios and Other Data:
   Percentage change in net income              -254.44%
   Percentage change in diluted
    net income per share                        -253.35%



             APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
                 SELECTED CONSOLIDATED FINANCIAL DATA
                              (Unaudited)
                 (in thousands, except per share data)

                                                    At March 31,
                                             ------------------------
                                                2009          2008
                                             ----------    ----------
 Summary Balance Sheet Data:
   Assets                                    $1,234,348    $1,020,048
   Average earning assets                     1,011,451       918,345
   Securities available-for-sale                206,119        75,732
   Restricted equity securities                   5,225         4,494
   Loans, held for sale                           9,055         6,406
   Loans                                        883,016       845,558
   Allowance for loan losses                     14,149        10,254
   Deposits                                   1,064,140       846,123
   Short-term borrowings                         10,330        24,710
   Accrued interest                               2,324         1,929
   Federal Home Loan Bank advances               72,000        62,250
   Subordinated long-term
    capital notes                                12,511         6,186
   Other liabilities                              2,640         2,895
   Shareholders' equity                          70,403        75,955

 Asset Quality :
   Asset Quality Ratios
     Nonperforming loans to total loans            5.76%         0.50%
     Nonperforming assets to total assets          5.69%         0.59%
     Allowance for loan losses to
      nonperforming loans                         27.82%       243.56%
     Allowance for loan losses to total loans      1.60%         1.21%


                                             At March 31,
                               --------------------------------------
                                      2009                2008
                               ------------------  ------------------
                                            % of                % of
                                           Total               Total
 Loans by Category              Amount     Loans    Amount     Loans
                               --------  --------  --------  --------
   Real estate - acquisition &
    development                $380,430     43.08% $409,903     48.48%
   Real estate - commercial     173,119     19.61%  165,798     19.61%
   Real estate - residential    221,974     25.14%  185,426     21.93%
   Commercial business           71,927      8.15%   48,735      5.76%
   Other loans                   35,566      4.02%   35,696      4.22%
                               --------            --------
   Total Loans                 $883,016            $845,558
                               ========            ========


                                             At March 31,
                               --------------------------------------
                                      2009                2008
                               ------------------  ------------------
                                           % of                % of
 Nonperforming assets                      Total               Total
  by category:                             Non-                Non-
   Loans                        Amount  performing  Amount  performing
                               --------  --------  --------  --------
     Real estate - acquisition
      & development            $ 31,495     44.82% $  1,556     25.86%
     Real estate - commercial     6,500      9.25%      669     11.12%
     Real estate - residential   10,040     14.29%    1,353     22.49%
     Commercial business          2,683      3.82%      492      8.18%
     Other loans                    149      0.21%      140      2.33%
   Other Real Estate
     Real estate - acquisition
      & development               8,658     12.32%      665     11.05%
     Real estate - commercial     5,127      7.30%      207      3.44%
     Real estate - residential    5,281      7.51%      845     14.05%
     Commercial business             84      0.11%       --      0.00%
   Other Repossessed Property
     Other loans                    258      0.37%       89      1.48%
                               --------            --------
       Total Nonperforming
        Assets                 $ 70,275            $  6,016
                               ========            ========



             APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
                 SELECTED CONSOLIDATED FINANCIAL DATA
                              (Unaudited)
                 (in thousands, except per share data)

                                             At March 31,
                               --------------------------------------
                                      2009                2008
                               ------------------  ------------------
                                            % of                % of
                                           Total               Total
 Quarterly Net Charge-Offs                Average             Average
  by Category                   Amount     Loans    Amount     Loans
                               --------  --------  --------  --------
   Real estate - acquisition
    & development              $  2,641      0.30% $    311      0.04%
   Real estate - commercial        (688)    -0.08%        7      0.00%
   Real estate - residential        908      0.10%       45      0.01%
   Commercial business            1,102      0.12%       28      0.00%
   Other loans                      123      0.02%      118      0.02%
                               --------            --------
     Total Net Charge-Offs     $  4,086      0.46% $    509      0.07%
                               ========            ========


                                 At
                              December 31,
 Growth Ratios and Other Data:   2008
                               --------
   Percentage change in assets    21.01%
   Percentage change in loans      4.43%
   Percentage change in
    deposits                      25.77%
   Percentage change in equity    -7.31%
   Loans to deposits ratio        82.98%

 -----------------------------
 (1) Annualized.
 (2) Taxable equivalent.
 (3) Computed by dividing noninterest expense by the sum of the net
     interest income and noninterest income excluding any realized
     gains/losses on securities.



            APPALACHIAN BANCSHARES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             (Unaudited)
                        (Dollars in thousands)

                                March 31,   December 31,    March 31,
                                  2009          2008          2008
                               ----------    ----------    ----------
 Assets
   Cash and due from banks     $   54,747    $   12,825    $   15,334
   Interest-bearing deposits
    with other banks                  171           731           191
   Federal funds sold               1,555       133,351        22,370
                               ----------    ----------    ----------
     Cash and Cash Equivalents     56,473       146,907        37,895

   Securities available-for-sale  206,119        79,308        75,732

   Restricted equity securities     5,225         4,932         4,494

   Loans, held for sale             9,055         2,783         6,406

   Loans, net of unearned income  883,016       885,374       845,558
   Allowance for loan losses      (14,149)      (14,510)      (10,254)
                               ----------    ----------    ----------
     Net Loans                    868,867       870,864       835,304

   Premises and equipment, net     40,594        39,638        33,378
   Accrued interest                 8,321         9,289        10,201
   Cash surrender value on
    life insurance                  9,197         9,140         8,865
   Intangibles, net                 1,992         1,992         2,043
   Foreclosed assets               19,408        13,323         1,806
   Other assets                     9,097         7,502         3,924
                               ----------    ----------    ----------

     Total Assets              $1,234,348    $1,185,678    $1,020,048
                               ==========    ==========    ==========


 Liabilities and
  Shareholders' Equity

 Liabilities
   Noninterest-bearing
    deposits                   $   52,825    $   50,035    $   54,831
   Interest-bearing deposits    1,011,315       963,241       791,292
                               ----------    ----------    ----------
     Total Deposits             1,064,140     1,013,276       846,123

   Short-term borrowings           10,330        10,604        24,710
   Accrued interest                 2,324         1,936         1,929
   Federal Home Loan Bank
    advances                       72,000        72,000        62,250
   Subordinated long-term
    capital notes                  12,511        12,511         6,186
   Other liabilities                2,640         2,913         2,895
                               ----------    ----------    ----------
     Total Liabilities          1,163,945     1,113,240       944,093
                               ----------    ----------    ----------

 Shareholders' Equity
   Preferred Stock, 20,000,000
    shares authorized, none
    issued                             --            --            --
   Common stock, par value
    $0.01 per share,
    20,000,000 shares
    authorized, 5,475,701,
    5,372,505 and 5,372,505
    shares issued at March 31,
    2009, December 31, 2008 and
    March 31, 2008, respectively       55            54            54
   Paid-in capital                 45,296        44,979        44,770
   Retained earnings               24,716        26,472        30,468
   Accumulated other
    comprehensive income              336           933           663
                               ----------    ----------    ----------
     Total Shareholders' Equity    70,403        72,438        75,955
                               ----------    ----------    ----------

     Total Liabilities and
      Shareholders' Equity     $1,234,348    $1,185,678    $1,020,048
                               ==========    ==========    ==========



             APPALACHIAN BANCSHARES, INC AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF INCOME
                              (Unaudited)
       (Dollars in thousands, except shares and per share data)

                                                Three Months Ended
                                                     March 31,
                                             ------------------------
                                                2009          2008
                                             ----------    ----------

 Interest Income
   Interest and fees on loans                $   14,784    $   17,659
   Interest on securities:                           --
     Taxable securities                             735           779
     Nontaxable securities                          131           160
   Interest on deposits with other banks             --             2
   Interest on federal funds sold                    20            43
                                             ----------    ----------
       Total Interest Income                     15,670        18,643
                                             ----------    ----------

 Interest Expense
   Interest on deposits                           8,028         8,116
   Interest on short-term borrowings                121           124
   Interest on Federal Home Loan Bank
    advances                                        597           580
   Interest on subordinated long-term
    capital notes                                   261           109
                                             ----------    ----------
       Total Interest Expense                     9,007         8,929
                                             ----------    ----------

 Net Interest Income                              6,663         9,714
   Provision for loan losses                      3,726           955
                                             ----------    ----------

 Net Interest Income After Provision
  for Loan Losses                                 2,937         8,759
                                             ----------    ----------

 Noninterest Income
   Customer service fees                            518           564
   Mortgage origination commissions                 436           446
   Net gains on sales of securities               1,021             9
   Other operating income                           233           246
                                             ----------    ----------
       Total Noninterest Income                   2,208         1,265
                                             ----------    ----------

 Noninterest Expenses
   Salaries and employee benefits                 4,136         4,991
   Occupancy, furniture and equipment expense     1,127         1,082
   Other operating expenses                       2,902         2,289
                                             ----------    ----------
       Total Noninterest expense                  8,165         8,362
                                             ----------    ----------

 Income (loss) before income taxes               (3,020)        1,662
 Income tax expense (benefit)                    (1,264)          525
                                             ----------    ----------

 Net Income (Loss)                           $   (1,756)   $    1,137
                                             ==========    ==========

 Earnings (Loss) Per Common Share
   Basic                                     $    (0.32)   $     0.21
   Diluted                                        (0.32)         0.21

 Cash Dividends Declared Per Common Share            --            --

 Weighted Average Shares Outstanding
   Basic                                      5,452,769     5,348,966
   Diluted                                    5,452,769     5,348,966


            

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