American Business Bank Reports Record Quarterly Income

Third Quarter Earnings of $11.5 million increases 46% over Prior Year Quarter

Third Quarter 2021 Highlights

• Total loans, excluding PPP loans, increased $103 million or 6% over prior quarter
• Total PPP loans outstanding of $188 million with $5 million of net deferred processing fees
• Cost of average deposits of 0.05%, a decline of 0.02% over prior year quarter
• Non-interest bearing demand deposits were 53% of total deposits
• Net interest income includes accelerated PPP fees of $3.6 million on loan forgiveness
• Net interest income increased, excluding accelerated PPP fees, 4.0% over prior year quarter
• Net income increased $3.7 million or 46% over prior year quarter
• Nonperforming assets to total assets of 0.01%, excluding PPP loans
• Continued status as well-capitalized, the highest regulatory category
• Opened new loan production office in Long Beach, California

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $11.5 million or $1.29 per fully diluted share for the third quarter of 2021 compared to $9.1 million or $1.00 per fully diluted share for the second quarter of 2021, an increase of 27%. For the quarter ended September 30, 2021 net income associated with the PPP program was $3.3 million or $0.37 per fully diluted share, a decrease of 23% compared to $4.3 million or $0.47 per fully diluted share for the second quarter of 2021.

“The third quarter of 2021 was characterized by significant core loan and deposit growth, increased net interest income, tangible book value growth and continued strong credit quality. We are pleased with our results as we near $4 billion in assets, going above and beyond for our business customers.

“The Bank experienced significant core loan growth, excluding PPP loans, of 23% on an annualized basis in the third quarter of 2021, including growth in its commercial real estate and commercial and industrial lending portfolios. Growth was particularly strong in the commercial loan portfolio due to new customer relationships and an increase in line of credit utilization. This double digit growth is following last quarter’s record core loan growth. We are confident that we can continue to grow loans given our robust loan pipeline and diversified production efforts across all our regional offices.

“Net interest income increased by $0.9 million in the third quarter of 2021, excluding PPP accelerated fees, compared to the prior year quarter primarily due to core loan growth. This demonstrates that our strategy of providing market leading service to businesses continues to resonate in the market with prospective customers as new relationships join the Bank to replace PPP loans. Especially noteworthy this quarter was the increase in the net interest margin, excluding accelerated PPP fees and second quarter non-recurring interest benefits. The balance sheet remains asset sensitive which should allow net interest income and net interest margin to benefit from future increases in interest rates.

“Our grant program to benefit minority and women-owned businesses started in September with educational business classes sponsored by the Bank with additional grant money to be disbursed later this year.

“We are focused on taking advantage of market opportunities to prudently deploy excess liquidity into core loan relationships supplemented by investment securities while remaining cognizant of the potential impact of changes to interest rates,” commented Leon Blankstein, ABB's President, CEO, and Director.

For the quarter ending September 30, 2021, net interest income was $27.9 million, a 3% increase over the second quarter of 2021 as interest income on the securities portfolio increased by $1.1 million as the securities portfolio increased by an average of $217 million. Interest income on core loans increased by $1 million in the third quarter of 2021 compared to the second quarter of 2021 as core loans increased by an average of $112 million. Interest income on PPP loans decreased by $1.4 million in the third quarter of 2021 compared to the second quarter of 2021 as PPP loans and associated fees declined. For the quarter ending September 30, 2021, the cost of deposits was 0.05% representing a decrease of 0.01% compared to the quarter ending June 30, 2021.

For the quarter ending September 30, 2021, the provision for loan losses was $468,000. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.33% at September 30, 2021.

For the nine months ending September 30, 2021, net income was $29.5 million or $3.27 per fully diluted share, compared to $19.5 million or $2.18 per fully diluted share for the nine months ended September 30, 2020. The increase was primarily due to $10.5 million of acceleration of net deferred PPP processing fees on forgiven PPP loans and a $3.4 million increase in interest on investment securities. This additional income was offset by a $2 million nonrecurring legal settlement and a $2 million increase in salary and bonus expenses.

Net Interest Margin

Net interest margin for the third quarter of 2021 was 2.94% compared to 3.00% in the second quarter of 2021 and 2.89% in the third quarter of 2020. Excluding the impact of PPP loans, the net interest margin was 2.64% for the third quarter of 2021 and 2.75% for the second quarter of 2021. Without the acceleration of fees on forgiveness, the yield on PPP loans was 1.54% for the third quarter of 2021. The recovery of interest on nonaccrual/charged off loans in the second quarter benefitted that quarter’s net interest margin by 0.04% and the loan yield by 0.06%. As of September 30, 2021, approximately 46% of the Bank’s variable-rate loans are indexed to prime and 79% of these loans are at or above interest rate floors.

Net Interest Income

For the quarter ending September 30, 2021, net interest income increased by $750,000, or 3%, compared to the second quarter of 2021 and $4.5 million, or 19%, compared to the quarter ending September 30, 2020. This was primarily due to growth in core loans and investment securities supplemented by the accelerated realization of net deferred PPP processing fees.

As of September 30, 2021, approximately 96% of PPP loans originated in 2020 and 30% of PPP loans originated in 2021 have been forgiven. Of the remaining PPP loans originated in 2020 and 2021, approximately 6% are in the forgiveness review or submission process.

For the nine months ended September 30, 2021, net interest income was $79.5 million compared to $65.1 million for the same period a year ago. The increase of $14.3 million, or 22%, is primarily due to the acceleration of $10.5 million of net deferred PPP processing fees and a $3.4 million increase in interest on investment securities.

Non Interest Income

The increases in non-interest income for the quarter and year-to-date periods are primarily due to deposit fees as a result of new commercial business customers and lower earnings credit. On a year-to-date basis, Bank/Corporate owned life insurance (BOLI) income increased by $241,000 as a result of the increase in the value of the policies that are invested in mutual funds.

Non Interest Expense

For the quarter ending September 30, 2021, total non-interest expense decreased $3.1 million compared to the prior quarter primarily due to a $2 million legal settlement and higher bonus expenses tied to loan production that were recorded in the second quarter. Total non-interest expense decreased by $271,000 in the third quarter of 2021 compared to the third quarter of 2020 reflecting reimbursed legal fees of $257,000 in the third quarter of 2021. The efficiency ratio, excluding PPP accelerated fees, decreased to 52% for the third quarter compared to 67% for the second quarter of 2021 and 55% for the third quarter of 2020.

There were 202 full time equivalent employees at September 30, 2021 compared to 193 a year ago and 192 at June 30, 2021. The Bank has 37 relationship managers in eight offices representing an increase of five from a year ago and two from the prior quarter. Other increases in FTE are primarily to support the growing loan portfolio.

For the nine months ending September 30, 2021, non-interest expense increased $4.2 million or 10.5% compared to the same period a year ago primarily due to the $2 million legal settlement and higher bonus expenses tied to loan production and PPP1 forgiveness that were recorded in the first half of the year.

Balance Sheet

From June 30, 2021 to September 30, 2021, total assets increased $171 million, or 5%, total deposits increased $156 million, or 5% and total loans, excluding PPP loans, increased $103 million, or 6%. During the third quarter of 2021, CRE loans, primarily owner-occupied, increased by $67 million, C&I loans benefitting from higher line utilization increased by $26 million and residential real estate loans increased by $9 million. At September 30, 2021, the utilization rate for the Bank’s commercial lines of credit was 29% compared to 27% at June 30, 2021. Investment securities increased by $232 million from the second quarter of 2021 to $1.5 billion. As of September 30, 2021, the duration of the securities portfolio declined to 4.4 years.

At September 30, 2021, the tangible common equity ratio was 7.0%; excluding PPP loans, the tangible common equity ratio was 7.36%.

Asset Quality

The following table presents asset quality overview as of the dates indicated:

As of September 30, 2021, the Bank had total specific reserve of $11,000 related to one $350,000 impaired SBA loan relationship.

The following table represents the allowance for loan losses as of and for the dates and periods indicated:

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 the third quarter of 2021, the Bank recorded loan charge-offs with the largest related to the prior quarter TDR. There are no loans on a loan payment deferment program.

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 seven 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, Inland Empire in Ontario and LA Coastal in Long Beach.

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.