LOS ANGELES--(BUSINESS WIRE)--

today reported record net income of $6.7 million or $0.83 per fully diluted share for the second quarter of 2020 compared to $5.3 million or $0.66 per fully diluted share for the second quarter of 2019. The increase was primarily due to significant PPP loan originations during the quarter which increased net interest income but reduced net interest margin.

“Although much uncertainty exists from the pandemic, we are confident for the future based upon the resilience and financial strength of our outstanding customer base. Additionally our significant participation in the PPP program makes us hopeful our clients received the economic boost to move forward in a positive manner, making the proper adjustment to not only survive but to flourish. The program provided unprecedented liquidity in April to our customers who did not know what the new normal would look like. Most of our customers did not shut down but adapted to remote work like the Bank. We have taken an aggressive stance in downgrading credits, but a vast amount of our customers are proactive and are good managers of their businesses and are taking the necessary steps to survive. This is reflected in the continued strong credit metrics of the Bank and is a result of our prudent lending approach in our evaluation of businesses.”

“Furthermore, the Bank is providing the same responsiveness and service we demonstrated in the PPP origination process by assisting clients with a professional accounting firm to ensure our customers meet the SBA requirements to maximize loan forgiveness. At PPP loan payoff, the Bank stands to earn a noteworthy amount of fees to offset the effects of the lower interest rate environment we find ourselves in. Another reason I’m optimistic is the strong pipeline of new business for the Bank as our PPP performance has attracted prospects at a time when our high touch service is appreciated more than ever,” said Leon Blankstein, ABB’s President, CEO and Director.

For the quarter ending June 30, 2020, net income was $6.7 million or $0.83 per fully diluted share, compared to net income of $4.8 million or $0.60 per fully diluted share for the first quarter of 2020. Net interest income for the second quarter was $21.7 million, or 9% higher than the first quarter of 2020 as PPP loan interest of $3 million was partially offset by lower rates on earning assets, while the cost of deposits declined 13 basis points to 0.08%. The increase in net income was also attributable to a $1.7 million increase in Bank/Corporate Owned Life Insurance income offset by a $1.2 million increase in salaries and employee benefits. Furthermore, as outstanding loans excluding PPP declined in the second quarter the provision for loan loss was $680,000 compared to $1.4 million recorded in the first quarter. The allowance for loan losses as a percentage of loans, excluding PPP loans, increased from 1.42% at March 31, 2020 to 1.54% at June 30, 2020.

Net income was $11.6 million or $1.43 per fully diluted share for the six months ended June 30, 2020, compared to $10.7 million or $1.32 per fully diluted share for the six months ended June 30, 2019. The increase was primarily due to significant loan growth between periods, partially offset by lower interest margin resulting in increased net interest income. The provision for loan losses increased $1.1 million primarily as a result of loan growth between periods, as well as a higher level of allowance in response to uncertainty caused by the COVID-19 pandemic.

PPP loans represent 45% of total loans as of March 31, 2020 with the participation of 46% of our customer base. These efforts helped to protect approximately 50,000 jobs in the business community served by the Bank. This influx of cash to the Bank’s existing commercial customers has helped to alleviate any deterioration in their operations for the time being. The following table shows the details of the PPP loans originated during the second quarter of 2020:

Net Interest Margin

The Bank’s net interest margin for the second quarter of 2020 was 2.88% compared to 3.61% in the second quarter of 2019, and 3.47% in the first quarter of 2020. Excluding the impact of PPP loans, net interest margin for the second quarter of 2020 was 3.02%. The decrease was primarily due to a reduction in market interest rates while the mix of non-interest bearing deposits to total deposits remains at 50% or more. The loan to deposit ratio increased to 70% for the second quarter of 2020 compared to 68% for the first quarter of 2020 and 66% for the second quarter of 2019. Despite the contraction in the Bank’s net interest margin, there continues to be a shift to higher earning assets. As of June 30, 2020, approximately 44% of the Bank’s variable-rate loans are indexed to prime and 69% of these loans are at or above their floor.

Net Interest Income

Net interest income increased for the second quarter of 2020 compared to the second quarter of 2019 by $2.7 million, or 14%, and compared to the first quarter of 2020 by $1.7 million, or 9%. These increases were due to an increase in average outstanding loans offset by lower yields on all interest earning assets for the periods compared. Included in interest income for the second quarter of 2020 is the accretion of net deferred processing fees of $1.5 million for PPP loans. The Bank’s core funding continues to be a strength with the cost of deposits at 0.08% for the second quarter of 2020 compared to 0.24% for same period a year ago.

On a year-to-date basis, net interest income was $41.8 million for the six months ended June 30, 2020, compared to $37.9 million for the same period a year ago. The increase was primarily due to significant loan growth between periods, partially offset by a lower net interest margin.

Non Interest Income

Non-interest income in the second quarter of 2020 was $1.8 million, representing an increase of $454,000, or 34% from the quarter a year ago, and an increase of $1.4 million compared to the first quarter of 2020. The increase from the second quarter of 2019 was attributable to an increase in Bank/Corporate owned life insurance income of $753,000, which is driven by the increase in the value of the policies that are invested in mutual funds. This increase was partially offset by a $161,000 decline in gains on sale of SBA loans as the Bank started to portfolio more SBA loans to add to its interest earning asset base since 2019. Compared to the first quarter of 2020, non-interest income also increased primarily due to a $1.7 million increase in Bank/Corporate owned life insurance income, offset by an $184,000 net loss on the sale of SBA investment securities realized in the recent quarter. On a year-to-date basis, Deposit and International Fees increased $224,000 from the period a year ago due to growth in commercial business customers. For the second quarter of 2020, International Fees declined due to the impact of the pandemic.

Non Interest Expense

Non-interest expense increased $1.6 million for the quarter ended June 30, 2020 compared to the same quarter a year ago. The increase was predominantly due to an $810,000 increase in salaries expense, a $431,000 increase in professional services expense and a $533,000 increase in other non-interest expense. The increase in salaries expense is primarily due to higher deferred compensation plan (DCP) cost as a result of better market performances on other mutual fund measurement balances, and higher full time equivalent employees at June 30, 2020 over the prior year. In other non-interest expense, the provision for off-balance-sheet commitments increased $687,000 due to reduced utilization percentages. The efficiency ratio declined to 59% for the second quarter of 2020 compared to 60% for the second quarter of 2019.

Compared to the first quarter of 2020, non-interest expense increased $1.9 million primarily due to a $1.2 million increase in salaries and employee benefits expense and a $635,000 increase in other non-interest expense. The increase in salaries expense is mainly due to the following:

• Higher DCP cost as a result of better market performances on other mutual fund measurement balances, resulting in an $894,000 DCP expense recorded in the recent quarter compared to an $837,000 DCP benefit recorded in the prior quarter;
• Higher overtime and bonus expenses associated with PPP originations net of related deferred costs for PPP origination activities.

In other non-interest expense, the provision for off-balance sheet commitments increased $706,000 due to reduced utilization percentages, and deposit insurance assessments increased $117,000 as the Bank received a Small Bank Assessment Credit of the same amount from the FDIC during the first quarter of 2020 to offset regular deposit insurance assessments. The Bank did not receive such credit in the recent quarter. The efficiency ratio was 59% for the second and first quarters of 2020.

On a year-to-date basis, non-interest expense for the six months ended June 30, 2020 increased $654,000 or 3% compared to the same period a year ago, predominantly due to higher professional services expense. The efficiency ratio was 59% and 62% for the six months ended June 30, 2020 and 2019, respectively.

Full time equivalent employees at June 30, 2020 were 195 compared to 191 a year ago, and the same as March 31, 2020. The Bank has 30 relationship managers in seven offices.

Balance Sheet

Total assets increased $893 million, or 37% from year-end December 31, 2019 to $3.3 billion, with 76% of the increase attributable to PPP originations during the recent quarter. Total loans, excluding PPP loans, decreased $32 million, or 2%, to $1.46 billion from year-end as the Bank primarily focused its resources to participate in the PPP program and C&I line utilization declined. As of June 30, 2020 and March 31, 2020, the utilization rates for the Bank’s commercial lines of credit were 27% and 35%, respectively.

During the first six months of 2020, total deposits grew by $860 million with a majority of the increase attributable to the proceeds of PPP loans. In addition, existing customers became more liquid as the economy slowed and receivables were converted to cash as well as new relationships to the Bank contributed to the significant growth in deposits during the first half of 2020. At June 30, 2020, the tangible common equity ratio was 6.89%; excluding PPP loans, the tangible common equity ratio was 8.67%.

Asset Quality

During the second quarter of 2020, non-performing assets declined from $4.5 million on March 31, 2020 to $2.8 million on June 30, 2020, representing 0.11% of total assets (excluding PPP loans). The Bank continues to have no Other Real Estate Owned (OREO). At June 30, 2020, the Bank’s level of past due, criticized and classified loans represented 0.26%, 6.55% and 1.22% of total loans (excluding PPP loans), respectively. As of June 30, 2020 the Bank has one $2.6 million commercial loan on non-accrual status with a specific allowance. There are four other relationships that are impaired totaling $1.6 million with a specific allowance. At the end of the quarter, the allowance for loan losses stood at $22.4 million, or 1.54% of total loans (excluding PPP loans); compared to 1.4% at December 31, 2019. All PPP loans are 100% guaranteed by the SBA and as such, no allowance for loan losses is allocated to these loans. The Bank is required to adopt CECL, or Current Expected Credit Loss, on January 1, 2023. For the first six months of 2020, the Bank recorded a total of $538,000 in net charge-offs on two commercial loans, representing annualized net charge offs of 0.06%.

In response to the COVID-19 pandemic, the Bank established a loan payment deferment program to assist its customers who are experiencing short-term, temporary financial or operational problems. During the second quarter of 2020, loan payment deferrals were granted on 38 loans with a total principal balance of $94 million, or 4% of total loans; 68% of the deferrals granted were in the owner occupied and 24% were in non-owner occupied commercial real estate loans. Those loans were originally underwritten with a 53% average loan to value ratio. All payment deferrals granted to-date meet applicable requirements to continue accruing interest.

At June 30, 2020, loans to customers in the hotel, restaurant, entertainment, and recreation industries represented 5% of the loan portfolio. Retail and hospitality related loans, collateralized by commercial real estate, comprised 7% of the loan portfolio that was originally underwritten with a 55% average loan to value ratio. The Bank has no exposure to the oil and gas industry.

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. The COVID-19 pandemic is adversely affecting the national economy; the ultimate length and severity of its impact on the Bank’s customers are uncertain. 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.