Prepare Oven and Pan: Position your oven rack on the lower third level, just beneath the center, and preheat the oven to 350°F (177°C). Lightly grease a 9×5-inch loaf pan with nonstick spray or butter to prevent sticking.
Combine Apples with Sugar and Spices: In a medium bowl, toss the diced apples with brown sugar and cinnamon until the pieces are well coated and release some juice. Set this aside to infuse while you prepare the batter.
Mix Dry Ingredients: In a large bowl, whisk together the flour, cinnamon, nutmeg, baking powder, baking soda, and salt. This ensures the spices and leaveners are evenly distributed throughout the flour.
Cream Butter and Sugar: Using an electric mixer fitted with a paddle or whisk attachment, beat the softened butter and granulated sugar on high speed until the mixture is light, creamy, and smooth—approximately 2 minutes.
Incorporate Eggs and Flavorings: Add the eggs one at a time, mixing on medium speed after each addition until fully combined. Scrape down the sides of the bowl as needed. Then blend in the applesauce and vanilla extract, mixing gently until just combined. The batter may look slightly curdled or chunky, which is normal.
Combine Wet and Dry Ingredients: Slowly add the dry ingredients to the wet mixture in batches. While mixing on low speed, gradually pour in the milk to create a thick, sticky batter. Avoid overmixing; use a whisk or spatula to ensure no dry flour remains.
Assemble the Loaf: Spread half of the batter evenly into the prepared loaf pan. Spoon the apple mixture, including any sugary juices, evenly over the batter. Pour the remaining batter on top, smoothing it out and scraping the bowl clean. Use a knife to gently swirl the batter through the apples for a marbled effect.
Bake with Care: Place the pan in the oven and bake for 60 to 75 minutes. After 30 minutes, loosely cover the top with aluminum foil to prevent over-browning. Check doneness starting at 60 minutes by inserting a toothpick into the center; it should come out clean or with a few moist crumbs.
Cool Completely Before Slicing: Remove the bread from the oven and let it cool fully in the pan placed on a wire rack. Slicing should be done only once the loaf has cooled to prevent crumbling.
Store Properly: Keep the bread covered at room temperature for up to two days or refrigerate for up to one week to maintain freshness.