American Business Bank Reports First Quarter Earnings of $9.9 Million

Core loans increased by $163 million or 34% annualized in the quarter

First Quarter 2022 Highlights

• Total core loans, excluding PPP loans, increased $163 million or 8% over prior quarter
• Net interest income increased 24%, excluding accelerated PPP fees, over prior year quarter
• Net income increased $1.0 million or 11% over prior year quarter
• Total PPP loans outstanding of $89 million with $2.2 million of net deferred processing fees
• Nonperforming assets to total assets of 0%
• Non-interest bearing demand deposits were 54% of total deposits
• Net interest income includes accelerated PPP fees of $1.4 million on loan forgiveness
• Cost of average deposits of 0.04%, a decline of 0.02% over prior year quarter
• Continued status as well capitalized, the highest regulatory standard

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $9.9 million or $1.08 per fully diluted share for the first quarter of 2022 compared to $9.7 million or $1.06 per fully diluted share for the fourth quarter of 2021, an increase of 3%. For the quarter ended March 31, 2022, net income associated with the PPP program was $1.3 million or $0.14 per fully diluted share the same as the fourth quarter of 2021.

“The highlight for the quarter was generating $163 million in core loan growth (non-PPP) matching our record increase from the fourth quarter of 2021. As a result of this growth, loan interest income has increased meaningfully in the first quarter of 2022 over 2021. Our overall loan growth from the second half of 2021 through the first quarter of 2022 has enabled the Bank to replace and surpass the significant income generated from PPP that was essential to bridge the pandemic rate shock. Despite a challenging environment that includes now rapidly rising interest rates, a labor shortage and high inflation, we continue to execute on serving small to middle-market business customers with superior service while maintaining outstanding credit quality,” commented Leon Blankstein, ABB’s President, CEO, and Director.

For the quarter ending March 31, 2022, net interest income was $28.2 million, a 2% increase over the fourth quarter of 2021 as loan interest income increased by $1.0 million as the average loan portfolio, excluding PPP, increased by $160 million. This increase was offset by the $0.5 million decrease in interest income on securities due to a non-recurring prepayment penalty of $470 thousand received during the fourth quarter of 2021. For the quarter ending March 31, 2022, the cost of deposits decreased to 0.04% compared to 0.05% in the previous quarter.

For the quarter ending March 31, 2022, the provision for loan losses was $1.5 million commensurate with the growth in core loans. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.27% at March 31, 2022.

Net Interest Margin

Net interest margin for the first quarter of 2022 was 3.00% compared to 2.82% in the fourth quarter of 2021 and 2.92% in the first quarter of 2021. Excluding the impact of PPP loans, the net interest margin was 2.89% for the first quarter of 2022 compared to 2.75% for the fourth quarter of 2021 reflecting the higher percentage of core loans to assets. Without the acceleration of fees on forgiveness, the yield on PPP loans was 1.65% for the first quarter of 2022. As of March 31, 2022, 37% of the loan portfolio had variable rates, with approximately half of the Bank’s variable-rate loans indexed to prime and 81% of these loans are at or above interest rate floors by 48 bps.

Net Interest Income

For the quarter ending March 31, 2022, net interest income increased by $586,000, or 2%, compared to the fourth quarter of 2021 and increased by $3.7 million, or 15%, compared to the quarter ending March 31, 2021. The increase is a result of the Bank’s strong core loan growth offset by the decrease in the accelerated realization of net deferred PPP processing fees and decrease in interest income on securities.

As of April 25, 2022, approximately 98% of PPP loans originated in 2020 and 72% of PPP loans originated in 2021 have been forgiven. Of the remaining PPP loans originated in 2020 and 2021, approximately 23% are in the forgiveness review or submission process.

Non-Interest Income

The decrease in non-interest income from the prior quarter and the same quarter a year ago are primarily due to the decline in the value of the Bank/Corporate owned life insurance (BOLI) that are invested in mutual funds.

Non-Interest Expense

For the quarter ending March 31, 2022, total non-interest expense decreased $349 thousand compared to the fourth quarter of 2021 primarily due to donations paid in the fourth quarter of 2021 fulfilling the Bank’s PPP Grant Program benefiting minority and women-owned businesses. The efficiency ratio decreased to 50% compared to 52% for the fourth quarter of 2021.

Non-interest expense increased $771 thousand for the quarter ended March 31, 2022 compared to the first quarter of 2021. This was driven by an increase in salaries and employee benefits. The efficiency ratio declined to 50% for the first quarter of 2022 compared to 54% for the first quarter of 2021.

There were 198 full time equivalent employees at March 31, 2022 compared to 192 a year ago and 203 at December 31, 2021. In March of 2022, Suzanne Dondanville, EVP/Chief Operations Officer, departed from the Bank. “We thank Suzanne for her contributions to our success,” commented ABB’s Executive Vice President and Chief Financial Officer. The Bank has 38 relationship managers in eight offices representing an increase of four from a year ago and an increase of one from the prior quarter.

Balance Sheet

From December 31, 2021 to March 31, 2022, total core loans, excluding PPP loans, increased $163 million, or 8%. During the first quarter of 2022, CRE loans, primarily owner-occupied, increased by $125 million, and C&I loans increased by $49 million. At March 31, 2022, the utilization rate for the Bank’s commercial lines of credit remained unchanged at 30% compared to December 31, 2021. Investment securities decreased from the fourth quarter of 2021 to $1.46 billion. On January 3, 2022, $307 million of Available-for-Sale securities, net of $3.7 million of unrealized losses, were transferred to Held-to-Maturity securities. As of March 31, 2022, the duration of the securities portfolio increased to 5.7 years from 4.5 years as of December 31, 2021 as market interest rates increased.

During the first quarter of 2022, total assets decreased $85 million, or 2%, and total deposits decreased by $63 million.

At March 31, 2022, the tangible common equity ratio was 6.7%, as the benefit of first quarter net income was more than offset by a larger Accumulated Other Comprehensive Loss, reflecting the impact of higher rates on net unrealized securities losses. The loan growth over the last year has increased risk-weighted assets resulting in a decrease in those capital ratios, which remain well above regulatory requirements.

Asset Quality

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

As of March 31, 2021, the Bank had no specific reserve related to two impaired loan relationships.

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. 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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