LOS ANGELES--(BUSINESS WIRE)--

(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.

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