Record Annual and Quarterly Net Income from Robust SBA PPP Program

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01/28/2021 - 09:05 AM

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $9.3 million or $1.14 per fully diluted share for the fourth quarter of 2020 compared to $6.0 million or $0.74 per fully diluted share for the fourth quarter of 2019 primarily due to increased net interest income as a result of PPP loans outstanding and forgiven during the quarter. For the quarter ended December 31, 2020 net income associated with the PPP program was $3.8 million or $0.47 per fully diluted share. For the year ending December 31, 2020, net income was $28.8 million or $3.54 per fully diluted share, compared to $22.1 million or $2.73 per fully diluted share for the year ended December 31, 2019. For the year ended December 31, 2020 net income associated with the PPP program was $8.7 million or $1.07 per fully diluted share.

“Our record earnings for the fourth quarter and year were realized despite the pandemic and a challenging economic environment. Our commitment, year in and year out, is to continue disciplined loan underwriting while serving our clients. The success of this strategy is represented by solid credit results at year end as reflected in no past dues, low classified loans and only 0.02% of net loan charge-offs for the year. Net non-PPP loan volumes increased in the fourth quarter at an annualized rate of 6% after being sluggish for most of the year. Deposits continued to exhibit very strong growth finishing the year up $1 billion or 46%. In the fourth quarter deposits increased at an annualized rate of 16%, while PPP was the primary driver, a significant number of new client relationships in 2020 also contributed to this robust growth. Our pipeline of new business is strong as we enter 2021.”

“Participation in PPP was significant in 2020 to not only the Bank but also for our customer base who were able to retain an estimated 50,000 employees. Our expectation is to have 80% of current PPP loans forgiven in the first half of 2021, additionally we are already accepting applications for PPP2 loans. Income related to PPP will help bridge net income from the pressure on the net interest margin until higher interest rates are realized. Nonetheless, growth in quality loans will contribute to solid and sustainable core earnings increasing over the long term no matter the interest rate environment,” said Leon Blankstein, ABB’s President, CEO and Director.

For the quarter ending December 31, 2020, net income was $9.3 million or $1.14 per fully diluted share, compared to net income of $7.9 million or $0.97 per fully diluted share for the third quarter of 2020. Net interest income for the fourth quarter was $25.3 million, an 8% increase over the third quarter of 2020 as interest and realized deferred fees on PPP loans increased by $1.6 million driven by PPP loan forgiveness. This was partially offset by lower rates on non-PPP loans. For the quarter ending December 31, 2020, the cost of deposits was 0.06%, representing a 0.01% decline from the third quarter of 2020. Additionally, interest income on the securities portfolio increased by $310,000 in the fourth quarter of 2020 compared to the third quarter of 2020 as excess liquidity was deployed into investment securities. For the quarter ending December 31, 2020, there was no provision for loan losses compared with $450,000 in the prior quarter. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.52% at December 31, 2020, representing a 0.02% decline from September 30, 2020.

Net Interest Margin

Net interest margin for the fourth quarter of 2020 was 3.00% compared to 2.89% for the third quarter of 2020 and 3.44% for the fourth quarter of 2019. Excluding the impact of PPP loans, the net interest margin was 2.90% for the fourth quarter of 2020 and 3.06% for the third quarter of 2020. Early in the fourth quarter, the PPP loan portfolio was converted to a five year contractual life with the remaining deferred fees amortized over the adjusted remaining life. Without the acceleration of fees on forgiveness, the yield on PPP loans was 1.42% for the fourth quarter. The reduction in the net interest margin compared to the prior year is due to lower market interest rates and the impact of PPP loans. As of December 31, 2020, approximately 43% of the Bank’s variable-rate loans are indexed to prime and 76% of these loans are at or above interest rate floors.

Net Interest Income

Net interest income increased for the fourth quarter of 2020 compared to the fourth quarter of 2019 by $5.1 million, or 25.4%, and compared to the third quarter of 2020 by $1.9 million, or 8.3%. This was primarily due to the accelerated realization of net deferred PPP processing fees in the fourth quarter as 20% of PPP loans were forgiven compared to the third quarter of 2020 where the fee was being amortized over the shorter two year contractual life. The Bank’s core funding continues to be a strength with the cost of deposits at 0.06% for the fourth quarter of 2020 compared to 0.24% for same period a year ago.

On a year-to-date basis, net interest income was $90.4 million for the year ended December 31, 2020, compared to $78.3 million for the same period a year ago. The increase was primarily due to participation in PPP which generated pre-tax income of $12.3 million in 2020.

(Figures in $000s, except per share amounts)	As of or For the year ended:		As of or For the three months ended:
(Figures in $000s, except per share amounts)	December 2020		December 2020		September 2020
PPP Loans, net	$	551,190	$	551,190	$	688,336

1% Coupon Interest	$	4,744	$	1,604	$	1,759
Amortized fees		4,332		640		2,078
Accelerated fees		3,198		3,198		-
Total PPP loan income	$	12,274	$	5,442	$	3,837
Total PPP loan income after tax	$	8,677	$	3,847	$	2,712
Total PPP loan income after tax per share - diluted	$	1.07	$	0.47	$	0.33

As of January 23, 2021, approximately 22% of PPP loan balances originated in 2020 have been forgiven, approximately 21% of balances are in the forgiveness review or submission process and approximately 56% of balances have yet to apply for forgiveness.

Non Interest Income

Non-interest income in the fourth quarter of 2020 was $1.9 million, representing an increase of $428,000 or 30% compared to the third quarter of 2020 and an increase of $288,000 or 18% from the quarter a year ago. This was primarily due to the fluctuation in Bank/Corporate owned life insurance income as a result of the increase/decrease in the value of the policies that are invested in mutual funds.

For the year, deposit fees increased $491,000 from a year ago due to growth in commercial business customers and lower earnings credit. For the year ended December 31, 2020, Non-interest income decreased as a result of a decline in gains on sale of SBA loans. Since mid-2019, the Bank has added most SBA loan originations to its loan portfolio.

Non Interest Expense

Non-interest expense increased $1.8 million for the quarter ended December 31, 2020 compared to the same quarter a year ago. This was primarily due to increases in salaries and employee benefits of $1.2 million for the year as a result of increased bonus payments reflecting PPP forgiveness, expenses related to the deferred compensation plan (DCP) as a result of the market performance of DCP investment balances, and higher base salaries. The efficiency ratio declined to 54% for the fourth quarter of 2020 compared to 59% for the fourth quarter of 2019.

For the fourth quarter of 2020, total non-interest expense increased $948,000 compared to the third quarter of 2020. For the quarter, non-interest expense increased primarily due to an increase in salaries and employee benefits of $721,000 and an increase in professional services of $355,000. This was offset by a decrease in the FDIC assessment of $138,000. The efficiency ratio declined to 54% for the fourth quarter of 2020 compared to 55% for the third quarter of 2020.

For the year ending December 31, 2020, total non-interest expense increased $3.4 million or 7% compared to the same period a year ago, primarily due to increased salaries and employee benefits and professional services which includes the services of an accounting firm to assist clients with PPP forgiveness. The efficiency ratio declined to 56% for 2020 compared to 60% for 2019.

Full time equivalent employees at December 31, 2020 were 194 compared to 195 a year ago. Full time equivalent employees were 193 at September 30, 2020. For 2020, the average number of full time equivalent employees has increased by three over the prior year. The Bank has 33 relationship managers in seven offices, an increase over year end of two and the prior quarter of one. The higher mix of relationship managers to back office personnel is from the benefit of technology implementations that continue in 2021.

Balance Sheet

From December 31, 2019 to December 31, 2020, total assets increased $1.1 billion, or 44%, to $3.5 billion, with the majority of the increase attributable to PPP. Total loans, excluding PPP loans, increased $22 million, to $1.5 billion from prior year-end as CRE loans increased by $114 million which was offset by a $103 million decline in C&I line utilization. At December 31, 2020, the utilization rate for the Bank’s commercial lines of credit was 25% compared to 27% at September 30, 2020 and 35% at December 31, 2019.

The Bank purchased $184 million of securities consisting mainly of municipal and U.S. Agency mortgage-backed securities during the fourth quarter with an estimated weighted average yield of 1.64%. The duration of the securities portfolio increased from 2.4 to 3.3 years from December 31, 2019 to December 31, 2020.

During 2020, total deposits grew by $1 billion with a majority of the increase attributable to the proceeds of PPP loans and new deposit relationships of approximately $266 million. At December 31, 2020, the tangible common equity ratio was 7.17%; excluding PPP loans, the tangible common equity ratio was 8.54%.

Asset Quality

Non-performing assets declined from $2.6 million at September 30, 2020 to $2.4 million at December 31, 2020, representing 0.08% of total assets (excluding PPP loans). The Bank continues to have no Other Real Estate Owned. Loans that were past due, criticized and classifieds represented 0.00%, 6.74%, and 0.92%, respectively of total loans at December 31, 2020 compared to 0.07%, 8.56%, and 1.32%, respectively of total loans at September 30, 2020 (excluding PPP loans in all periods). As of December 31, 2020 the Bank had one $2.4 million commercial loan on non-accrual status with a specific allowance and one impaired loan relationship with a $217,000 specific reserve. As of December 31, 2020, the allowance for loan losses totaled $22.9 million, or 1.52% 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. During 2020, the Bank recorded $548,000 of loan charge-offs on two commercial loans and recoveries of $91,000, representing 0.02% of net loan charge offs as a percentage of average loans. During the fourth quarter of 2020, the Bank realized no loan charge-offs.

In response to the COVID-19 pandemic, the Bank established a loan payment deferment program to assist its customers who are experiencing short-term financial or operational problems. As of December 31, 2020, there were four loans with a total principal balance of $5.6 million (0.3% of total loans) on a loan payment deferment program of which there is one loan that received a second deferral modification. As of September 30, 2020, there were six loans with a total principal balance of $19.8 million (0.9% of total loans) on a loan payment deferment program; the peak was June 30, 2020 with $94 million (4% of total loans) on the loan payment deferral program. At the time of origination, the loans currently granted deferrals were underwritten with a 53% average loan-to-value ratio. Two loans are backed by commercial real estate of which one is owner occupied. All payment deferrals granted to-date meet applicable requirements to continue accruing interest. As of December 31, 2020, all clients whose deferral concluded during the quarter resumed their scheduled payments.

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.

American Business Bank
Figures in $000, except share and per share amounts

BALANCE SHEETS (unaudited)



	December			September			December
	2020			2020			2019
Assets:
Cash and Due from Banks	$	44,334		$	69,786		$	31,673
Interest Earning Deposits in Other Financial Institutions		201,719			64,660			45,202

Investment Securities:
US Agencies		228,102			230,637			284,032
Mortgage Backed Securities		419,393			359,974			292,126
State and Municipals		279,045			243,933			78,520
US Treasuries		-			10,044			10,009
Corporate Bonds		12,725			12,480			19,805
Securities Available-for-Sale, at Fair Value		939,265			857,068			684,492
State and Municipals Securities Held-to-Maturity, at Amortized Cost		143,229			91,717			86,707
Federal Home Loan Bank Stock, at Cost		10,864			10,864			10,356
Total Investment Securities		1,093,358			959,649			781,555
Loans Receivable:
Commercial Real Estate		1,095,811			1,047,100			982,070
Commercial and Industrial		333,021			362,258			423,868
SBA Payroll Protection Program		551,190			688,336			-
Residential Real Estate		76,483			74,170			76,481
Installment and Other		4,405			4,131			4,959
Total Loans Receivable		2,060,910			2,175,995			1,487,378
Allowance for Loan Losses		(22,931	)		(22,910	)		(20,824	)
Loans Receivable, Net		2,037,979			2,153,085			1,466,554
Furniture, Equipment and Leasehold Improvements, Net		7,857			8,145			9,023
Bank/Corporate Owned Life Insurance		27,738			27,013			26,448
Other Assets		41,277			39,041			41,456
Total Assets	$	3,454,262		$	3,321,379		$	2,401,911

Liabilities:
Non-Interest Bearing Demand Deposits	$	1,686,091		$	1,658,673		$	1,083,705
Interest Bearing Transaction Accounts		258,950			228,585			215,730
Money Market and Savings Deposits		1,191,591			1,124,329			827,713
Certificates of Deposit		35,778			36,981			37,712
Total Deposits		3,172,410			3,048,568			2,164,860
Federal Home Loan Bank Advances / Other Borrowings		-			-			-
Other Liabilities		34,014			36,822			30,386
Total Liabilities	$	3,206,424		$	3,085,390		$	2,195,246

Shareholders' Equity:
Common Stock	$	166,263		$	165,789		$	163,872
Retained Earnings		75,557			66,233			46,784
Accumulated Other Comprehensive Income / (Loss)		6,018			3,967			(3,991	)
Total Shareholders' Equity	$	247,838		$	235,989		$	206,665
Total Liabilities and Shareholders' Equity	$	3,454,262		$	3,321,379		$	2,401,911

Standby Letters of Credit	$	33,469		$	35,131		$	39,513

Per Share Information:
Common Shares Outstanding		7,942,368			7,926,833			7,850,171
Book Value Per Share	$	31.20		$	29.77		$	26.33
Tangible Book Value Per Share	$	31.20		$	29.77		$	26.33