American Business Bank Reports Record Quarterly Core Loan Growth

Record Full Year 2021 Net Income of $39 million 

Full Year 2021 Highlights

• Total loans, excluding PPP loans, increased $424 million or 28% over prior year
• Total deposits increased $425 million or 13% from a year ago
• Non-interest bearing demand deposits were 54% of total deposits
• Cost of average deposits of 0.05%, a decline of 0.05% over prior year
• Nonperforming assets to total assets of 0.01%, excluding PPP loans
• No delinquencies in 30-89 day loan category
• Net interest income increased by $17 million or 18% over the prior year
• Tangible book value per share increased by $3.17 to $31.54 from a year ago
• Continued status as well-capitalized, the highest regulatory category

Fourth Quarter 2021 Highlights

• Total loans, excluding PPP loans, increased $163 million or 9% over prior quarter
• Total PPP loans outstanding of $147 million with $3.8 million of net deferred processing fees
• Net interest income includes accelerated PPP fees of $1.1 million on loan forgiveness
• Net interest income increased 20%, excluding accelerated PPP fees, over prior year quarter
• Net income increased $338 thousand or 4% over prior year quarter

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $9.7 million or $1.06 per fully diluted share for the fourth quarter of 2021 compared to $11.5 million or $1.29 per fully diluted share for the third quarter of 2021, a decrease of 16%. For the quarter ended December 31, 2021, net income associated with the PPP program was $1.3 million or $0.14 per fully diluted share, a decrease of 62% compared to $3.3 million or $0.37 per fully diluted share for the third quarter of 2021. For the year ending December 31, 2021, net income was $39.2 million or $4.33 per fully diluted share, compared to $28.8 million or $3.22 per fully diluted share for the year ended December 31, 2020. For the year ended December 31, 2021, net income associated with the PPP program was $12.4 million or $1.37 per fully diluted share compared to $8.7 million or $0.97 per fully diluted share for the year ended December 31, 2020.

“Our record earnings for the year and record core loan growth (non-PPP) for the quarter finishes an exceptional period in the history of ABB. Despite a challenging environment, our employees thrived, delivered a high level of service to customers and generated outstanding results for shareholders. We continue to execute on serving small to middle-market business customers with loan growth in the quarter concentrated in C&I and owner occupied commercial real estate. Core loan growth, annualized at 37% in the fourth quarter, will transition the Bank from a heavy reliance on PPP income and meaningfully increase core net interest income in 2022. We are confident in our ability to grow loans and begin 2022 with a robust loan pipeline. This will help us continue to deploy liquidity into higher yielding earning assets with the backdrop of historical outstanding credit quality. Our new client solicitations are well received, continuing our tradition of being a trusted advisor,” commented Leon Blankstein, ABB’s President, CEO, and Director.

For the quarter ending December 31, 2021, net interest income was $27.6 million, a 1% decrease over the third quarter of 2021 as interest income including fees on PPP loans decreased by $3 million. This decrease was offset by a $1.4 million increase in interest income on securities as the average balance of the investment portfolio increased by $198 million. Additionally, interest income on loans increased by $1.1 million to help offset the decline in PPP income. The Bank’s strong “core,” excluding PPP, loan growth increased the average balance of the loan portfolio by $126 million compared to the third quarter of 2021. For the quarters ending December 31, 2021 and September 30, 2021, the cost of deposits was 0.05%.

For the quarter ending December 31, 2021, the provision for loan losses was $1.5 million commensurate with the record core loan growth in the quarter. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.30% at December 31, 2021.

For the full year 2021, the increase in net income over 2020 was primarily due to an $8.4 million increase in acceleration of net deferred PPP processing fees on forgiven PPP loans and a $6.2 million increase in interest on investment securities. This additional income was offset by a $2 million nonrecurring legal settlement and a $2.5 million increase in salary and bonus expenses.

Net Interest Margin

Net interest margin for the fourth quarter of 2021 was 2.82% compared to 2.94% in the third quarter of 2021 and 3.00% in the fourth quarter of 2020. Excluding the impact of PPP loans, the net interest margin was 2.75% for the fourth quarter of 2021 compared to 2.64% for the third quarter of 2021. Without the acceleration of fees on forgiveness, the yield on PPP loans was 1.66% for the fourth quarter of 2021. As of December 31, 2021, 37% of the loan portfolio had variable rates, with approximately half of the Bank’s variable-rate loans indexed to prime and 79% of these loans are at or above interest rate floors by 52 bps.

Net Interest Income

For the quarter ending December 31, 2021, net interest income decreased by $256,000, or 1%, compared to the third quarter of 2021 and increased by $2.3 million, or 9%, compared to the quarter ending December 31, 2020. Despite growth in core loans and investment securities, the accelerated realization of net deferred PPP processing fees was less in the fourth quarter compared to the third quarter of 2021 and is the primary reason for the current quarter decline.

For the year ended December 31, 2021, net interest income was $107.1 million compared to $90.4 million for the year ended December 31, 2020 primarily due to a $6.2 million increase in interest income on the investment portfolio which increased by an average balance of $427 million in 2021 compared to 2020. In addition, participation in PPP generated pre-tax income of $17.6 million in 2021 compared to $12.3 million in 2020.

As of January 20, 2022, approximately 98% of PPP loans originated in 2020 and 53% of PPP loans originated in 2021 have been forgiven. Of the remaining PPP loans originated in 2020 and 2021, approximately 2% are in the forgiveness review or submission process.

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. For the year ending December 31, 2021, Bank/Corporate owned life insurance (BOLI) income decreased by $177,000 as a result of the decline in the value of the policies that are invested in mutual funds compared to the year ending December 31, 2020.

Non-Interest Expense

For the quarter ending December 31, 2021, total non-interest expense increased $1.7 million compared to the prior quarter primarily due to higher bonus expense tied to loan production. Total non-interest expense increased by $469,000 in the fourth quarter of 2021 compared to the fourth quarter of 2020 primarily due to donations fulfilling the Bank’s PPP Grant Program benefiting minority and women-owned businesses in the fourth quarter of 2021. The efficiency ratio decreased to 51.8% compared to 52.0% for the third quarter compared to 56.4% for the fourth quarter of 2021.

There were 203 full time equivalent employees at December 31, 2021 compared to 194 a year ago and 202 at September 30, 2021. The Bank has 37 relationship managers in eight offices representing an increase of four from a year ago and remained the same from the prior quarter. Other increases in FTE are primarily to support the growing loan portfolio.

For the year ending December 31, 2021, non-interest expense increased $4.6 million or 9% compared to the same period a year ago primarily due to the $2 million legal settlement and higher bonus expense tied to loan production and higher net income.

Balance Sheet

From September 30, 2021 to December 31, 2021, total core loans, excluding PPP loans, increased $164 million, or 9%. During the fourth quarter of 2021, CRE loans, primarily owner-occupied, increased by $110.6 million, and C&I loans increased by $54 million, benefiting from higher line utilization. At December 31, 2021, the utilization rate for the Bank’s commercial lines of credit was 30% compared to 29% at September 30, 2021. Investment securities increased by $36 million from the third quarter of 2021 to $1.5 billion. As of December 31, 2021, the duration of the securities portfolio increased to 4.5 years from 4.4 years as of September 30, 2021.

During 2021, total assets increased $458 million, or 13%, and total deposits grew by $426 million, (with a majority of the increase attributable to the proceeds of PPP loans), and new deposit relationships of approximately $133 million. Total loans, excluding PPP loans, grew $424 million or 28%.

At December 31, 2021, the tangible common equity ratio was 7.1%.

Asset Quality

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

As of December 31, 2021, the Bank had total specific reserve of $3,000 related to one $338,000 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 2021, the Bank recorded loan charge-offs of $278 thousand with the largest related to a TDR and received $457 thousand of recoveries for the year. 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.

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