American Business Bank Reports First Quarter 2020 Net Income

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $4.8 million or $0.60 per fully diluted share for the first quarter of 2020 as compared to $5.4 million or $0.67 per fully diluted share for the first quarter of 2019, a decrease of 10%. Net interest income increased $1.2 million or 6% due to strong loan growth funded by core deposit growth. However, provision for loan losses increased $1.3 million primarily as a result of loan growth during the quarter, as well as higher qualitative factors in the allowance methodology in response to the macro-economic changes.

“The Bank’s strong growth in 2020 was a continuation of the record setting 2019 performance. Then COVID-19 and a monumental economic disruption affected our customers and our staff. We very early on enabled over 95% of our staff to work remotely even before schools shut down to ensure they were safe and healthy to provide our high level of service through technology. This allowed us to act nimbly to participate in the SBA Paycheck Protection Program (PPP) as the window opened to help our customers who are the employers in our communities,” said Leon Blankstein, AMBZ’s President, CEO and Director.

“As a Preferred SBA Lender, our SBA team with our talented bankers worked tirelessly to start accepting PPP applications, working round the clock to process in the early morning hours of Friday, April 3, 2020, when the SBA officially opened its portal for submission. Our expertise and experience in SBA lending has proven to be invaluable to our clients as we help them navigate this emergency funding. I’m extremely proud of our entire Bank’s efforts to meet the needs of those who rely on us to succeed. Our responsiveness with our fortress balance sheet will resonate with prospects as we navigate to the other side of this historic event,” continued Mr. Blankstein.

For the quarter ending March 31, 2020, net income was $4.8 million or $0.60 per fully diluted share, compared with net income of $6.0 million or $0.74 per fully diluted share for the fourth quarter of 2019. Net interest income for the first quarter was similar to the fourth quarter of 2019 as solid loan growth was offset by the effect of much lower interest rates, while the cost of deposits declined three basis points to 0.21%. The decrease in net income was further impacted by a $633,000 increase in provision for loan losses, a $1.0 million decrease in Bank/Corporate Owned Life Insurance income offset by a $786,000 decrease in salaries and employee benefits. The allowance for loan losses as a percentage of loans increased from 1.40% at December 31, 2019 to 1.42% at March 31, 2020.

Net Interest Margin

The Bank’s net interest margin for the first quarter of 2020 was 3.47% compared to 3.62% in the first quarter of 2019, representing a decrease of 0.15%. The decrease was primarily due to a total reduction of 225 basis points in prime as well as Treasury rates since August 2019. The Bank’s prime rate was adjusted from 5.50% in the first quarter of 2019 to 3.25% in the first quarter of 2020. However, the impact of the rate cuts is offset by average loans being a higher percentage of average earnings assets in the first quarter of 2020 than in the first quarter of 2019. The loan to deposit ratio increased to 68% for the first quarter of 2020 from 64% for the first quarter of 2019. As of March 31, 2020, approximately 47% of the Bank’s variable-rate loans are indexed to prime and 71% of these loans are at or above their floor.

The Bank’s net interest margin for the first quarter of 2020 was 3.47% compared to 3.43% in the fourth quarter of 2019, representing an increase of 0.04%. This was mainly driven by average loans being a higher percentage of average earnings assets in the first quarter of 2020 than in the fourth quarter of 2019.

Net Interest Income

Net interest income increased for the first quarter of 2020 compared to the first quarter of 2019 by $1.2 million, or 6%, due to a significant increase in average outstanding loans offset by lower yields on all interest earning assets for the periods compared. The yield on average loans decreased to 4.57% for the first quarter of 2020 compared to 4.89% for the first quarter of 2019. The Bank’s core funding continues to be a strength with the cost of deposits at 0.21% for the same periods compared.

Net interest income declined slightly for the first quarter of 2020 compared to the fourth quarter of 2019 by $163,000, or 3% annualized, even with a $76 million increase in average outstanding loans. The slight decline was the result of one less day in the first quarter of 2020 coupled with prime rate cuts of 150 basis points in March 2020. The yield on average loans decreased to 4.57% for the first quarter of 2020 compared to 4.67% for the fourth quarter of 2019. The Bank’s cost of deposits decreased 3 basis points over the prior quarter.

Non-Interest Income

Non-interest income in the first quarter of 2020 was $411,000, a decrease of $1.1 million, or 72% from the quarter a year ago and a decrease of $1.2 million, or 74% compared to the fourth quarter of 2019. This was mainly attributable to a decrease in Bank/Corporate Owned Life Insurance income of over $1 million, which is driven by the decrease in the value of the policies that are invested in mutual funds. The Bank sold one municipal bond with a realized gain of $47,000 in the first quarter of 2020. Additionally, Deposit and International fees increased due to growth in commercial business customers.

Non-Interest Expense

Non-interest expense decreased $975,000 for the quarter ended March 31, 2020 compared to the quarter a year ago. The decrease was predominantly due to a $1.2 million decrease in salaries and employee benefits expense. That decrease was attributable to a $925,000 deferred compensation plan (DCP) expense recorded in the first quarter of 2019 primarily related to the increase in the Bank’s stock price, compared to an $837,000 DCP benefit related to the other mutual fund measurement balances recorded in the first quarter of 2020. As of June 1, 2019, the Bank is no longer required to mark-to-market its DCP obligation related to the AMBZ stock fund. Additionally, occupancy and equipment expense decreased $101,000 in the first quarter of 2020 versus the first quarter of 2019 as the lease for the Bank’s former Los Angeles headquarters expired in June 2019. Professional Services fees increased $285,000 compared to the quarter a year ago primarily due to higher legal services expense. In other non-interest expense, the Bank received a Small Bank Assessment Credit of $117,000 from the FDIC in the first quarter of 2020 to offset regular deposit insurance assessments. The Bank did not receive such credit in the first quarter of 2019. The efficiency ratio was 59% for the first quarter of 2020.

Compared to the fourth quarter of 2019, non-interest expense decreased $739,000 due to a $786,000 decrease in salaries and employee benefits, primarily as a result of an $837,000 DCP benefit related to the other measurement funds recorded in the first quarter of 2020, compared to a $275,000 DCP expense recorded in the fourth quarter of 2019. The decrease is offset by a $389,000 increase in employee benefits and seasonally higher payroll tax expense. The efficiency ratio remained at 59% compared to the prior quarter.

Full time equivalent employees at March 31, 2020 were 195 compared to 189 a year ago, and the same as December 31, 2019. The Bank has 30 relationship managers in seven offices.

Balance Sheet

Total assets increased $136 million, or 6% from year-end December 31, 2019 to $2.54 billion. Total loans increased $59 million to $1.5 billion, or 4% from year-end primarily in commercial and industrial loans and non-owner occupied real estate loans. In the first quarter of 2020, the Bank grew loans by $59 million and deposits by $124 million. New relationships to the Bank contributed to the significant first quarter growth in deposits. At March 31, 2020, non-interest bearing deposits represented 51% of total deposits.

Outstanding unused loan commitments consist primarily of commercial lines of credit which have not been fully disbursed. As of March 31, 2020, the Company’s commercial and industrial line of credit utilization is 28%.

Asset Quality

At March 31, 2020 non-performing assets to total assets was 0.18%, with $4.2 million in non-performing loans, and no Other Real Estate Owned (OREO). Furthermore, at March 31, 2020, the Bank’s level of past due loans, criticized loan and classified loans remain low at 1.32%, 3.28% and 0.31% of total loans, respectively. There are two non-accrual loans at March 31, 2020: one commercial real estate loan that is fully secured by real estate with no specific allowance and one commercial loan with a specific allowance. At the end of the quarter, the allowance for loan losses stood at $21.9 million, or 1.42% of total loans. The Bank is required to adopt CECL, or Current Expected Credit Loss, on January 1, 2023. For the first three months of 2020, the Bank had one commercial loan charge off for $374,000. The Bank has had minimal requests for three-month payment deferrals at this time but they meet applicable requirements to continue accruing interest. At March 31, 2020, loans to customers in the hotel, restaurant, entertainment, and recreation industries represented 5% of the loan portfolio. Retail related loans, collateralized by commercial real estate, comprised 5% of the loan portfolio that was originally underwritten with a 55% average loan to value ratio.

Shareholder Meeting

Traditionally, the Bank’s shareholder meeting has been held by May following the calendar year end. Due to the California Governor’s Order to stay home, we have delayed the Bank’s meeting at this time to do our part to preserve public health and safety.

ABOUT AMERICAN BUSINESS BANK

American Business Bank, headquartered in downtown Los Angeles, offers a wide range of financial services to the business marketplace. Clients include wholesalers, manufacturers, service businesses, professionals and non-profits. American Business Bank has six Loan Production Offices in strategic locations including: North Orange County in Anaheim, Orange County in Irvine, South Bay in Torrance, San Fernando Valley in Woodland Hills, Riverside County in Corona and Inland Empire in Ontario.

FORWARD-LOOKING STATEMENTS

This communication contains certain forward-looking information about American Business Bank that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on information available at the time of this communication and are based on current beliefs and expectations of the Bank’s management and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those set forth in the forward-looking statements due to a variety of factors, including various risk factors. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

American Business Bank
Figures in $000, except share and per share amounts
BALANCE SHEETS (unaudited)
		March				December				March
		2020				2019				2019
Assets:
Cash and Due from Banks		$	36,539			$	31,673			$	54,418
Interest Earning Deposits in Other Financial Institutions			149,654				45,202				28,428
Investment Securities:
US Agencies			265,758				284,032				415,682
Mortgage Backed Securities			286,122				292,126				181,978
State and Municipals			75,240				78,520				80,914
US Treasuries			10,116				10,009				9,878
Corporate Bonds			20,068				19,805				1,972
Securities Available-for-Sale, at Fair Value			657,304				684,492				690,424
State and Municipals Securities Held-to-Maturity, at Amortized Cost			86,499				86,707				87,325
Federal Home Loan Bank Stock, at Cost			10,356				10,356				10,356
Total Investment Securities			754,159				781,555				788,105
Loans Receivable:
Commercial Real Estate			1,009,731				982,070				836,069
Commercial and Industrial			454,838				423,868				359,548
Residential Real Estate			76,083				76,481				58,340
Installment and Other			5,337				4,959				3,715
Total Loans Receivable			1,545,989				1,487,378				1,257,672
Allowance for Loan Losses			(21,888	)			(20,824	)			(17,608	)
Loans Receivable, Net			1,524,101				1,466,554				1,240,064
Furniture, Equipment and Leasehold Improvements, Net			8,833				9,023				3,044
Bank/Corporate Owned Life Insurance			25,698				26,448				25,775
Other Assets			38,650				41,456				50,728
Total Assets		$	2,537,634			$	2,401,911			$	2,190,562
Liabilities:
Non-Interest Bearing Demand Deposits		$	1,164,965			$	1,083,705			$	988,196
Interest Bearing Transaction Accounts			214,967				215,730				187,838
Money Market and Savings Deposits			872,908				827,713				722,043
Certificates of Deposit			36,044				37,712				81,934
Total Deposits			2,288,884				2,164,860				1,980,011
Federal Home Loan Bank Advances / Other Borrowings			-				-				-
Other Liabilities			33,526				30,386				36,678
Total Liabilities		$	2,322,410			$	2,195,246			$	2,016,689
Shareholders' Equity:
Common Stock		$	164,456			$	163,872			$	155,448
Retained Earnings			51,624				46,784				30,108
Accumulated Other Comprehensive Income / (Loss)			(856	)			(3,991	)			(11,683	)
Total Shareholders' Equity		$	215,224			$	206,665			$	173,873
Total Liabilities and Shareholders' Equity		$	2,537,634			$	2,401,911			$	2,190,562
Standby Letters of Credit		$	38,614			$	39,513			$	38,106
Per Share Information:
Common Shares Outstanding			7,870,120				7,850,171				7,745,979
Book Value Per Share		$	27.35			$	26.33			$	22.45
Tangible Book Value Per Share		$	27.35			$	26.33			$	22.45

American Business Bank
Figures in $000, except share and per share amounts
INCOME STATEMENTS (unaudited)
		For the three months ended:
		March				December			March
		2020				2019			2019
Interest Income:
Interest and Fees on Loans		$	17,295			$	17,021		$	15,078
Interest on Investment Securities			3,913				3,942			4,273
Interest on Interest Earning Deposits in Other Financial Institutions			54				530			503
Total Interest Income			21,262				21,493			19,854
Interest Expense:
Interest on Interest Bearing Transaction Accounts			105				154			104
Interest on Money Market and Savings Deposits			968				1,114			807
Interest on Certificates of Deposits			41				45			105
Interest on Federal Home Loan Bank Advances and Other Borrowings			131				-			-
Total Interest Expense			1,245				1,313			1,016
Net Interest Income			20,017				20,180			18,838
Provision for Loan Losses			1,434				801			90
Net Interest Income after Provision for Loan Losses			18,583				19,379			18,748
Non-Interest Income:
Deposit Fees			615				562			503
International Fees			282				319			259
Gain (Loss) on Sale of Investment Securities, Net			47				-			-
Gain on Sale of SBA Loans, Net			19				65			79
Bank/Corporate Owned Life Insurance Income (Expense)			(750	)			338			447
Other			198				290			185
Total Non-Interest Income			411				1,574			1,473
Non-Interest Expense:
Salaries and Employee Benefits			8,219				9,005			9,444
Occupancy and Equipment			920				982			1,021
Professional Services			1,482				1,426			1,197
Promotion Expenses			366				425			264
Other			1,058				946			1,094
Total Non-Interest Expense			12,045				12,784			13,020
Earnings before income taxes			6,949				8,169			7,201
Income Tax Expense			2,110				2,179			1,800
NET INCOME		$	4,839			$	5,990		$	5,401
Add back:
After-Tax Gain (Loss) on Sale of Investment Securities, Net		$	(33	)		$	-		$	-
After-Tax DCP ABB Stock Expense (Benefit)		$	-			$	-		$	402
Core Net Income		$	4,806			$	5,990		$	5,803
Per Share Information:
Earnings Per Share - Basic		$	0.60			$	0.75		$	0.70
Earnings Per Share - Diluted		$	0.60			$	0.74		$	0.67
Core Earnings Per Share - Diluted		$	0.59			$	0.74		$	0.72
Weighted Average Shares - Basic			8,036,255				8,019,772			7,722,461
Weighted Average Shares - Diluted			8,122,355				8,117,068			8,033,433

American Business Bank
Figures in $000
QUARTERLY AVERAGE BALANCE SHEETS AND YIELD ANALYSIS (unaudited)
		For the three months ended:
		March 2020									December 2020
		Average			Interest			Average			Average			Interest			Average
		Balance			Inc/Exp			Yield/Rate			Balance			Inc/Exp			Yield/Rate
Interest Earning Assets:
Interest Earning Deposits in Other Financial Institutions		$	27,556		$	54		0.79	%		$	123,977		$	530		1.73	%
Investment Securities:
US Agencies			277,854			677		0.98	%			297,971			774		1.04	%
Mortgage Backed Securities			287,295			1,742		2.43	%			258,469			1,700		2.63	%
State and Municipals			166,727			1,121		2.69	%			163,437			1,094		2.68	%
US Treasuries			10,025			37		1.48	%			10,032			37		1.46	%
Corporate Bonds			19,947			150		3.00	%			19,942			151		3.02	%
Securities Available-for-Sale and Held-to-Maturity			761,848			3,727		1.96	%			749,851			3,756		2.00	%
Federal Home Loan Bank Stock			10,356			186		7.16	%			10,356			186		7.18	%
Total Investment Securities			772,204			3,913		2.03	%			760,207			3,942		2.07	%
Loans Receivable:
Commercial Real Estate			1,005,413			11,345		4.54	%			969,700			11,232		4.60	%
Commercial and Industrial			436,183			5,024		4.63	%			399,926			4,839		4.80	%
Residential Real Estate			76,302			886		4.67	%			72,137			894		4.92	%
Installment and Other			5,649			40		2.88	%			5,413			56		4.11	%
Total Loans Receivable			1,523,547			17,295		4.57	%			1,447,176			17,021		4.67	%
Total Interest Earning Assets		$	2,323,307		$	21,262		3.62	%		$	2,331,360		$	21,493		3.61	%
Liabilities:
Non-Interest Bearing Demand Deposits			1,104,594			-		0.00	%			1,118,736			-		0.00	%
Interest Bearing Transaction Accounts			202,250			105		0.21	%			216,134			154		0.28	%
Money Market and Savings Deposits			807,134			968		0.48	%			823,561			1,114		0.54	%
Certificates of Deposit			36,427			41		0.46	%			38,339			45		0.47	%
Total Deposits			2,150,405			1,114		0.21	%			2,196,770			1,313		0.24	%
Federal Home Loan Bank Advances / Other Borrowings			31,714			131		1.66	%			-			-		0.00	%
Total Interest Bearing Deposits and Borrowings			1,077,525			1,245		0.46	%			1,078,034			1,313		0.48	%
Total Deposits and Borrowings		$	2,182,119		$	1,245		0.23	%		$	2,196,770		$	1,313		0.24	%
Net Interest Income					$	20,017								$	20,180
Net Interest Rate Spread								3.39	%								3.37	%
Net Interest Margin								3.47	%								3.43	%
American Business Bank
Figures in $000
QUARTERLY AVERAGE BALANCE SHEETS AND YIELD ANALYSIS (unaudited)
		For the three months ended:
		March 2020									March 2019
		Average			Interest			Average			Average			Interest			Average
		Balance			Inc/Exp			Yield/Rate			Balance			Inc/Exp			Yield/Rate
Interest Earning Assets:
Interest Earning Deposits in Other Financial Institutions		$	27,556		$	54		0.79	%		$	82,027		$	503		2.49	%
Investment Securities:
US Agencies			277,854			677		0.98	%			433,799			1,757		1.62	%
Mortgage Backed Securities			287,295			1,742		2.43	%			148,059			1,118		3.02	%
State and Municipals			166,727			1,121		2.69	%			172,411			1,161		2.69	%
US Treasuries			10,025			37		1.48	%			10,052			37		1.48	%
Corporate Bonds			19,947			150		3.00	%			2,000			18		3.63	%
Securities Available-for-Sale and Held-to-Maturity			761,848			3,727		1.96	%			766,321			4,091		2.14	%
Federal Home Loan Bank Stock			10,356			186		7.16	%			10,356			182		7.03	%
Total Investment Securities			772,204			3,913		2.03	%			776,677			4,273		2.20	%
Loans Receivable:
Commercial Real Estate			1,005,413			11,345		4.54	%			831,259			9,656		4.71	%
Commercial and Industrial			436,183			5,024		4.63	%			353,660			4,599		5.27	%
Residential Real Estate			76,302			886		4.67	%			59,928			788		5.33	%
Installment and Other			5,649			40		2.88	%			4,685			35		3.01	%
Total Loans Receivable			1,523,547			17,295		4.57	%			1,249,532			15,078		4.89	%
Total Interest Earning Assets		$	2,323,307		$	21,262		3.62	%		$	2,108,236		$	19,854		3.77	%
Liabilities:
Non-Interest Bearing Demand Deposits			1,104,594			-		0.00	%			996,040			-		0.00	%
Interest Bearing Transaction Accounts			202,250			105		0.21	%			198,809			104		0.21	%
Money Market and Savings Deposits			807,134			968		0.48	%			736,155			807		0.44	%
Certificates of Deposit			36,427			41		0.46	%			64,601			105		0.66	%
Total Deposits			2,150,405			1,114		0.21	%			1,995,605			1,016		0.21	%
Federal Home Loan Bank Advances / Other Borrowings			31,714			131		1.66	%			-			-		0.00	%
Total Interest Bearing Deposits and Borrowings			1,077,525			1,245		0.46	%			999,565			1,016		0.41	%
Total Deposits and Borrowings		$	2,182,119		$	1,245		0.23	%		$	1,995,606		$	1,016		0.21	%
Net Interest Income					$	20,017								$	18,838
Net Interest Rate Spread								3.39	%								3.56	%
Net Interest Margin								3.47	%								3.62	%

American Business Bank
Figures in $000
SUPPLEMENTAL DATA (unaudited)
		March				December				March
		2020				2019				2019
Performance Ratios:
Quarterly:
Return on Average Assets (ROAA)			0.80	%			0.99	%			0.99	%
Core Return on Average Assets (ROAA)			0.79	%			0.99	%			1.06	%
Return on Average Equity (ROAE)			9.15	%			11.74	%			12.88	%
Core Return on Average Equity (ROAE)			9.09	%			11.74	%			13.84	%
Efficiency Ratio			59.10	%			58.77	%			64.10	%
Core Efficiency Ratio			59.10	%			58.77	%			61.46	%
Year-to-Date
Return on Average Assets (ROAA)			0.80	%			0.97	%			0.99	%
Core Return on Average Assets (ROAA)			0.79	%			1.00	%			1.06	%
Return on Average Equity (ROAE)			9.15	%			11.80	%			12.88	%
Core Return on Average Equity (ROAE)			9.09	%			12.15	%			13.84	%
Efficiency Ratio			59.10	%			60.29	%			64.10	%
Core Efficiency Ratio			59.10	%			59.57	%			61.46	%
Capital Adequacy:
Total Risk Based Capital Ratio			13.71	%			13.82	%			14.15	%
Common Equity Tier 1 Capital Ratio			12.46	%			12.57	%			12.90	%
Tier 1 Risk Based Capital Ratio			12.46	%			12.57	%			12.90	%
Tier 1 Leverage Ratio			8.91	%			8.66	%			8.46	%
Tangible Common Equity / Tangible Assets			8.48	%			8.60	%			7.94	%
Asset Quality Overview
Non-Performing Loans		$	4,225			$	1,855			$	1,222
Loans 90+ Days Past Due and Still Accruing			-				-				-
Total Non-Performing Loans			4,225				1,855				1,222
Restructured Loans			225				227				233
Other Real Estate Owned			-				-				-
ALLL / Loans Receivable			1.42	%			1.40	%			1.40	%
Non-Performing Loans / Total Loans Receivable *			0.29	%			0.14	%			0.12	%
Non-Performing Assets / Total Assets *			0.18	%			0.09	%			0.07	%
Net Charge-Offs (Recoveries) quarterly		$	370			$	(8	)		$	(15	)
Net Charge-Offs (Recoveries) year-to-date		$	370			$	(41	)		$	(15	)
Net Charge-Offs (Recoveries) year-to-date / Average			0.02	%			(0.00	%)			(0.00	%)
Loans Receivable

*

Includes non-accrual loans, accruing loans past due 90+ days and Troubled Debt Restructurings (TDRs).

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200429005209/en/