Alaska Pacific Announces First Quarter Results.

Business Editors

JUNEAU, Alaska--(BUSINESS WIRE)--May 5, 2003

Alaska Pacific Bancshares, Inc. (OTCBB:AKPB), the parent company of Alaska Pacific Bank, announced net income of $85,000 ($.14 per diluted share), for the first quarter of 2003.

This follows record net income of $972,000 ($1.61 per diluted share) for the fourth quarter of 2002 and $294,000 ($.50 per diluted share) for the first quarter of 2002. However, comparability with prior quarters was affected by (1) a nonrecurring loss on the sale of an office building in the first quarter of 2003 of $85,000 ($51,000 after tax) and (2) a "normal" tax provision in the first quarter following recognition in the fourth quarter of the full benefit of remaining tax net operating loss carryforwards ("NOLs"). For several years prior to the fourth quarter of 2002, the Company recognized no income tax expense, thereby recognizing the benefit of the NOLs only to the extent of current income in each period.

Pre-tax income before nonrecurring items was $227,000 for the first quarter of 2003, compared with $380,000 for the fourth quarter of 2002 and $294,000 for the first quarter of 2002. The 23% drop in pre-tax income from the first quarter last year is largely the result of rapid loan prepayments, particularly in mortgages, during this period of low interest rates. Management has chosen to sell new mortgages rather than keep the low-yielding fixed-rate loans in the portfolio. As a result, growth in revenues, net interest income in particular, has slowed and is not able to keep up with the growth in expenses necessary to continue with the Company's long-term strategic plan. "The problem is easily repaired over several months," according to Roger K. White, Senior Vice President and CFO, "simply by keeping more newly originated mortgages in the portfolio. Now that the bulk of the refinance boom is nearing an end, we plan to keep a greater portion of our mortgage production for the rest of 2003, funded at least in part by fixed-rate borrowings and certificates of deposit to help control interest-rate risk."

Gains on sale of mortgage loans for the first quarter were $182,000, compared with just $28,000 for the same quarter a year ago, but were down $15,000 from the $197,000 in the fourth quarter of 2002. Other noninterest income continued strong at $244,000 for the quarter, up 17% from $209,000 for the first quarter of 2002, due primarily to increased emphasis on deposit and other services to small business customers.

Noninterest expense for the first quarter of 2003, excluding the loss on the building sold, increased $219,000, or 14%, from the first quarter of 2002, reflecting continued emphasis on improvements in staff, systems and facilities to enable planned growth over the next several years. "It was tempting to delay our improvement plans while feeling the effects of unprecedented mortgage prepayments," said Craig E. Dahl, President and CEO, "but we felt it was in the shareholders' best interests to continue our long-term strategy."

In addition to continued emphasis on growth in serving small business and consumers, Alaska Pacific Bank has recently acquired leased facilities near its headquarters in Juneau that will house the Bank's mortgage lending division. It is planned to open in those facilities under the name "Alaska Pacific Mortgage."

As previously announced, the Company declared an increase in its regular quarterly dividend to $.07 per share, payable May 16, 2003, to shareholders of record as of May 5, 2003.

Forward-Looking Statements 

Certain matters in this news release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among others, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding the Company's mission and vision. These forward-looking statements are based upon current management expectations, and may, therefore, involve risks and uncertainties. The Company's actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements due to a wide range of factors including, but not limited to, the general business environment, interest rates, the economy in Southeast Alaska, the real estate market, competitive conditions between banks and non-bank financial services providers, regulatory changes, and other risks detailed in the Company's reports filed with the Securities and Exchange Commission.

Alaska Pacific Bancshares, Inc.
Financial Highlights (Unaudited)
First Quarter 2003
(dollars in thousands, except per-share amounts)


                                            Three Months Ended
                                     ---------------------------------
                                      March 31, December 31, March 31,
                                         2003        2002       2002
                                     ---------------------------------
Condensed Income Statement:
 Interest income                         $2,175       $2,276   $2,361
 Interest expense                          (521)        (562)    (685)
                                     ---------------------------------
   Net interest income                    1,654        1,714    1,676
 Provision for loan losses                  (75)         (75)     (60)
 Gain on sale of mortgage loans             182          197       28
 Other noninterest income                   244          250      209
 Nonrecurring loss on sale of
  building                                  (85)           -        -
 Other noninterest expense               (1,778)      (1,706)  (1,559)
                                     ---------------------------------
   Income before income tax                 142          380      294
 Income tax (expense) or  benefit           (57)         592        -
                                     ---------------------------------
   Net income                               $85         $972     $294
                                     =================================

Earnings per share:
 Basic                                     $.15        $1.69     $.52
 Diluted                                    .14        $1.61      .50

Performance Ratios:
 Return on average equity                  2.28%       26.89%    8.96%
 Return on average assets                  0.22         2.56     0.82
 Yield on average earning assets           6.06         6.41     6.97
 Cost of average interest-bearing
  liabilities                              1.72         1.87     2.34
 Interest rate spread                      4.34         4.54     4.63
 Net interest margin on:
   Average earning assets                  4.61         4.82     4.94
   Average total assets                    4.32         4.51     4.66
 Efficiency ratio (a)                     98.16        86.86    82.71

Average balances:
 Loans                                 $107,096     $113,495 $113,166
 Earning assets                         143,527      142,117  135,592
 Assets                                 153,227      152,045  144,007
 Deposits                               127,383      132,635  121,955
 Interest-bearing liabilities           121,290      120,315  117,204
 Shareholders' equity                    14,926       14,460   13,132

Average shares outstanding:
 Basic                                  581,454      574,311  570,378
 Diluted                                615,613      602,967  582,264



                                      March 31, December 31, March 31,
                                        2003        2002       2002
                                      --------------------------------
Balance sheet data:
 Total assets                          $156,660     $154,339 $141,347
 Loans, net                             102,411      106,122  112,804
 Total deposits                         129,753      132,681  120,712
 Federal Home Loan Bank advances          9,883        5,000    5,000
 Shareholders' equity                    14,885       14,967   13,273

Shares outstanding (b)                  623,132      623,132  623,132

Book value per share                     $23.89       $24.02   $21.30

Asset quality:
 Allowance for loan losses               $1,200       $1,152      999
 Allowance as a percent of loans           1.16%        1.07%    0.88%
 Nonaccrual loans                         $1599       $1,777   $1,369
 Total nonperforming assets               1,889        1,966    1,465
 Net chargeoffs (recoveries) for
  quarter                                    27           24        -


(a) Noninterest expense divided by the sum of net interest income and
    noninterest income, excluding gains on sale of loans or
    securities.

(b) Excludes only treasury stock.