American Business Bank Reports First Quarter Earnings of $8.9 Million

Bank originated $225 million in second round of PPP loans

First Quarter 2021 Highlights

• Total loans, excluding PPP loans, increased $40 million or 3% over prior quarter
• Total PPP loans outstanding of $642 million with $13 million of net deferred processing fees
• Total deposits including estimated deposits related to PPP loans, increased $248 million or 8% from prior quarter
• Non-interest bearing demand deposits were 54% of total deposits
• Net interest income includes accelerated PPP fees of $2.8 million on loan forgiveness
• Efficiency ratio of 54% improved from 59% over prior year quarter
• Net income increased $4 million or 84% over prior year quarter
• Continued status as well-capitalized, the highest regulatory category

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $8.9 million or $1.09 per fully diluted share for the first quarter of 2021 compared to $9.3 million or $1.14 per fully diluted share for the fourth quarter of 2020, a decrease of 4%. For the quarter ended March 31, 2021 net income associated with the PPP program was $3.6 million or $0.43 per fully diluted share, a decrease of $292,000 or 8% compared to $3.8 million or $0.47 per fully diluted share for the fourth quarter of 2020.

“The Bank experienced strong core loan growth in the first quarter of 2021 primarily in owner occupied commercial real estate. Typically our borrowers possess strong liquidity, but in the last year their liquidity has increased causing a meaningful decline in C&I line utilization from 35% to 24%. Our loan pipeline remains strong as we expect volume to act as a buffer to net interest income in this low rate environment.”

“Participation in the second round of PPP was significant to not only the Bank but also for our customer base providing them added confidence. Fees related to the second round of PPP averaged 3.31% as compared to 2.27% in the first round. Our expectation is to have 80% of the first round of PPP loans forgiven in the first half of 2021, as we have reached 39% by the end of March. This new found income has enabled us to step up our community support further with our plan to participate in a small business grant program for the benefit of minority and women-owned businesses. We have excelled in the pandemic storm and eagerly anticipate the expansion of our economy to grow with our clients, prospects, shareholders, employees and our market,” said Leon Blankstein, ABB’s President, CEO and Director.

Net interest income for the first quarter of 2021 was $24.5 million, a 3% decrease over the fourth quarter of 2020 as interest and realized deferred fees on PPP loans decreased by $402,000 driven by a decrease in PPP loan forgiveness. Additionally, interest income on the securities portfolio decreased by $236,000 in the first quarter of 2021 compared to the fourth quarter of 2020 as investment securities have decreased by $26 million. For the quarters ending March 31, 2021 and December 31, 2020, the cost of deposits was 0.06%. For the quarter ending March 31, 2021 and December 31, 2020, there was no provision for loan losses as the economy recovered. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.48% at March 31, 2021.

Net Interest Margin

Net interest margin for the first quarter of 2021 was 2.92% compared to fourth quarter of 2020 at 3.00% and 3.47% for the first quarter of 2020. Excluding the impact of PPP loans, the net interest margin was 2.82% for the first quarter of 2021 and 2.90% for the fourth quarter of 2020. Without the acceleration of fees on forgiveness, the yield on PPP loans was 1.44% for the first quarter of 2021 and 1.42% for fourth quarter of 2020. 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 42% of the Bank’s variable-rate loans are indexed to prime and 73% of these loans are at or above interest rate floors.

Net Interest Income

Net interest income increased for the first quarter of 2021 compared to the first quarter of 2020 by $4.5 million, or 22.4%, and decreased compared to the fourth quarter of 2020 by $806,000, or 3.2%. This was primarily due to the accelerated realization of net deferred PPP processing fees as 18% and 20% of PPP loans originated in 2020 were forgiven for the first quarter of 2021 and the fourth quarter of 2020, respectively. The Bank’s core funding continues to be a strength with the cost of deposits at 0.06% for the first quarter of 2021 compared to 0.23% for same quarter a year ago.

As of April 25, 2021, approximately 43% of PPP loan balances originated in 2020 have been forgiven, approximately 30% of balances are in the forgiveness review or submission process and approximately 27% of balances have yet to apply for forgiveness.

Non Interest Income

Non-interest income in the first quarter of 2021 was $1.5 million, representing a decrease of $335,000 or 18% compared to the fourth quarter of 2020 and an increase of $1.1 million or 272% from the same quarter a year ago. This was primarily due to the fluctuation in Bank/Corporate owned life insurance income as a result of the decrease/increase in the value of the policies that are invested in mutual funds.

Non Interest Expense

Non-interest expense increased $1.9 million for the quarter ended March 31, 2021 compared to the first quarter of 2020. This was driven by increases in salaries and employee benefits of $1.4 million for the quarter primarily due to increased expenses related to the deferred compensation plan (DCP) as a result of the market performance of DCP investment balances. Other increases included additional bonus expenses due to the PPP program and higher base salaries. The efficiency ratio declined to 54% for the first quarter of 2021 compared to 59% for the first quarter of 2020.

For the first quarter of 2021, total non-interest expense decreased $651,000 compared to the fourth quarter of 2020 primarily due to a decrease in salaries and employee benefits of $552,000 (DCP related) and a decrease in professional service expense of $315,000. This was offset by an increase in occupancy and equipment of $187,000 related to the headquarters. The efficiency ratio remained at 54% for the first quarter of 2021 compared to the fourth quarter of 2020.

Full time equivalent employees at March 31, 2021 were 192 compared to 195 a year ago. Full time equivalent employees were 194 at December 31, 2020. The Bank has 34 relationship managers in seven offices, an increase over a year of four 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

Total assets increased $250 million, or 7% from year-end December 31, 2020 to $3.7 billion. Total loans, excluding PPP loans, increased $40 million, to $1.5 billion from the fourth quarter of 2020 as CRE loans increased by $41.6 million offset by a $5.5 million decline in C&I line utilization. At March 31, 2021, the utilization rate for the Bank’s commercial lines of credit was 24% compared to 25% at December 31, 2020. Investment securities declined by $26 million from the fourth quarter of 2020 to $1.1 billion. The duration of the securities portfolio increased from 3.3 to 4.7 years from December 31, 2020 to March 31, 2021 commensurate with higher interest rates.

During the first quarter of 2021, total deposits grew by $248 million with a majority of the increase attributable to the proceeds of PPP loans and new deposit relationships of approximately $33 million. At March 31, 2021, the tangible common equity ratio was 6.7%; excluding PPP loans, the tangible common equity ratio was 8.1%.

Asset Quality

Non-performing assets declined from $2.4 million at December 31, 2020 to $2.2 million at March 31, 2021, 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%, 6.02%, and 0.98%, respectively of total loans at March 31, 2021 compared to 0.00%, 6.74%, and 0.92%, respectively of total loans at December 31, 2020 (excluding PPP loans in all periods). As of March 31, 2021, the Bank had total specific reserve of $197,000 related to one $2.1 million commercial loan on non-accrual status and one $216,000 impaired loan relationship. As of March 31, 2021, the allowance for loan losses totaled $22.9 million, or 1.48% of total loans (excluding PPP loans); compared to 1.52% at December 31, 2020 (excluding PPP loans). 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 first quarter of 2021, the Bank recorded no loan charge-offs and recoveries of $16,000.

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 March 31, 2021, there were five loans with a total principal balance of $11.2 million (0.5% of total loans) on a loan payment deferment program of which there are four loans that received a second deferral modification. 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. At the time of origination, the loans currently granted deferrals were underwritten with a 49% average loan-to-value ratio. One loan is C&I and four loans are backed by commercial real estate of which two are owner occupied. All payment deferrals granted to-date meet applicable requirements to continue accruing interest.

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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