American Business Bank Reports Record Quarterly Earnings of $13.3 Million

Core loans increased by $69 million or 12% annualized in the quarter

Third Quarter 2022 Highlights

• Total core loans, excluding PPP loans, increased $69 million or 3% over prior quarter
• Net interest income increased 32%, excluding accelerated PPP fees, over prior year quarter
• Net income increased $1.7 million or 15% over prior year quarter
• Total PPP loans outstanding of $10 million with $266 thousand of net deferred processing fees
• Nonperforming assets to total assets of 0.06%
• Non-interest bearing demand deposits were 54% of total deposits
• Cost of average deposits of 0.05%, no change over prior year quarter
• Continued status as well capitalized, the highest regulatory standard

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $13.3 million or $1.44 per fully diluted share for the third quarter of 2022 compared to $11.4 million or $1.24 per fully diluted share for the second quarter of 2022, an increase of 16%. For the quarter ended September 30, 2022, net income associated with the PPP program was $251 thousand or $0.03 per fully diluted share, a decrease of 80% compared to $1.2 million or $0.14 per fully diluted share for the second quarter of 2022.

“Our team is pleased to report achieving a 1.39% return on average assets for the third quarter. Core loans grew at a healthy pace of 12% annualized in the quarter with a continued focus on outstanding credit quality. Net interest margin expanded as we continue to benefit from both an improving mix of earning assets and rising rates. The loan pipeline remains strong despite the higher rate environment. Although the cost of deposits remains at historically low levels, there is a need to address rates on interest bearing deposits as the U.S. government drains liquidity from the economy. We continue to deliver superior service to remain the premier relationship-banking franchise for small to mid-size businesses in Southern California,” commented Leon Blankstein, ABB’s President, CEO, and Director.

For the quarter ending September 30, 2022, net interest income was $32.3 million, an 8% increase over the second quarter of 2022. Interest income on loans increased by $1.1 million due to core loan growth and higher interest rates as well as interest income on investment securities increased by $0.9 million. For the quarter ending September 30, 2022, the cost of deposits was 0.05% representing an increase of 0.01% compared to the quarter ending June 30, 2022.

The provision for loan losses was $0.8 million in the quarter commensurate with core loan growth. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.24% at September 30, 2022.

For the nine months ended September 30, 2022, net income was $34.6 million or $3.77 per fully diluted share compared to $29.5 million or $3.27 per fully diluted share for the nine months ended September 30, 2021. This was primarily due to an increase in interest on investment securities of $5.7 million as a result of a larger investment portfolio and an increase in interest on loans of $4.9 million as a result of core loan growth. This was partially offset by an increase in the provision for loan losses of $3.3 million for the nine months ended September 30, 2022 which was higher by $2.9 million.

Net Interest Margin

Net interest margin for the third quarter of 2022 was 3.40% compared to 3.21% in the second quarter of 2022 and 2.94% in the third quarter of 2021. Excluding the impact of PPP loans, the net interest margin was 3.38% for the third quarter of 2022 compared to 3.06% for the second quarter of 2022 reflecting the higher yield on earning assets. As of September 30, 2022, 63% of the loan portfolio was fixed rate. Of the variable rate loans, approximately half are indexed to prime of which $388 million are adjustable within 90 days of a change in prime.

Net Interest Income

For the quarter ending September 30, 2022, net interest income increased by $2.4 million, or 8%, compared to the second quarter of 2022 and increased by $4.5 million, or 16% compared to the quarter ended September 30, 2021. The increases are a result of the Bank’s strong core loan growth, increase in market rates and an increase in the rate on investment securities offset by the decrease in the accelerated realization of net deferred PPP processing fees.

As of October 4, 2022, approximately 99% of PPP loans have been forgiven. Of the remaining PPP loans of which there are seventeen, four are in the forgiveness review or submission process.

On a year-to-date basis, net interest income was $90.4 million for the nine months ended September 30, 2022, compared to $79.5 million for the same period a year ago. The increase of $11 million or 14% is primarily due to additional interest on core loans of $16.7 million and additional interest on investment securities of $5.7 offset by an $11.8 million reduction in PPP loan income.

Non-Interest Income

For the quarter ending September 30, 2022, non-interest income increased compared to the prior quarter primarily due to the increase in the value of Bank/Corporate owned life insurance (COLI). The increase over the same quarter a year ago is primarily related to fees from cash management services. The decrease in non-interest income for the nine months ended September 30, 2022 compared to the same period a year ago is primarily due to the decline in the valuation of COLI policies that are invested in mutual funds.

Non-Interest Expense

For the quarter ending September 30, 2022, total non-interest expense increased $1.6 million and $2.3 million compared to the second quarter of 2022 and the third quarter of 2021, respectively. These increases are primarily due to salaries and employee benefits related to additional employees and increase in expense for the deferred compensation plan associated with the increase in COLI that are invested in mutual funds. The efficiency ratio remained unchanged at 45% for the third quarter of 2022, the prior year quarter and second quarter of 2022.

For the nine months ended September 30, 2022 non-interest expenses increased $590 thousand or 1% compared to the same period a year ago, mainly due to increases in salaries and employee benefits offset by the decrease in settlement expense related to a legal matter which occurred in the second quarter of 2021.

There were 211 full time equivalent employees at September 30, 2022 compared to 202 a year ago and 205 at June 30, 2022. The Bank has 40 relationship managers in eight offices representing an increase of three from a year ago and a decrease of one from the prior quarter.

Balance Sheet

From June 30, 2022 to September 30, 2022, total core loans, excluding PPP loans, increased $69 million, or 3%. During the third quarter of 2022, Commercial Real Estate (CRE) loans increased by $43 million, primarily due to an increase of $31 million in owner-occupied CRE.

In addition, Residential Real Estate loans increased by $42 million with the largest component to a long time borrower of the Bank. This was offset by a $15 million decline in C&I loans during the third quarter of 2022 due to a reduction in line utilization. At September 30, 2022, the utilization rate for the Bank’s commercial lines of credit decreased to 30% from 32% at June 30, 2022.

Investment securities decreased during the third quarter to $1.3 billion. As of September 30, 2022, the duration of the available-for-sale securities portfolio increased to 5.6 years from 5.5 years as of June 30, 2022. Accumulated other comprehensive loss increased to $84.7 million as of September 30, 2022 from $67.6 million as of June 30, 2022 due to the increase in net unrealized loss on the available-for-sale securities portfolio as market rates increased.

During the third quarter of 2022, total assets increased $6 million, or 0.2%, and total deposits increased by $46 million.

At September 30, 2022, the tangible common equity ratio was 6.2%, as the benefit of third quarter net income was more than offset by a larger Accumulated Other Comprehensive Loss. Loan growth over the last year has increased risk-weighted assets resulting in a decline in risk-based capital ratios, which remain well above regulatory requirements.

Asset Quality

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

As of September 30, 2022, the Bank had $54 thousand specific reserve related to three C&I impaired loan relationships. The Bank charged off a consumer credit card loan in the third quarter of 2022.

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.