American Business Bank : 2nd Quarter Report 2022

AMERICAN BUSINESS BANK REPORTS SECOND QUARTER EARNINGS OF $11.4

MILLION

Core loans increased by $129 million or 25% annualized in the quarter

Second Quarter 2022 Highlights

• Total core loans, excluding PPP loans, increased $129 million or 6% over prior quarter
• Net interest income increased 23%, excluding accelerated PPP fees, over prior year quarter
• Net income increased $2.4 million or 26% over prior year quarter
• Total PPP loans outstanding of $23 million with $588 thousand of net deferred processing fees
• Nonperforming assets to total assets of 0.03%
• Non-interestbearing demand deposits were 53% of total deposits
• Net interest income includes accelerated PPP fees of $1.5 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

Los Angeles, California, July 28, 2022. AMERICAN BUSINESS BANK(OTCQX: AMBZ) today reported net income of $11.4 million or $1.24 per fully diluted share for the second quarter of 2022 compared to $9.9 million or $1.08 per fully diluted share for the first quarter of 2022, an increase of 15%. For the quarter ended June 30, 2022, net income associated with the PPP program was $1.2 million or $0.14 per fully diluted share, a decrease of 6% compared to $1.3 million or $0.14 per fully diluted share for the first quarter of 2022.

"The highlight for the quarter was again generating strong core loan growth (non-PPP) which continues a shift in our assets from investments to quality loans serving the needs of our community. As a result of the loan growth the last twelve months, loan interest income (non-PPP) has increased meaningfully in the second quarter of 2022 over 2021. Core loan growth from the second half of 2021 through the second 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. The strength of the Bank's balance sheet coupled with our disciplined approach to business banking has enabled us to capitalize on opportunities. Although, core loan production has slowed somewhat from recent record highs, the pipeline remains robust with the addition of new relationship managers this year," commented Leon Blankstein, ABB's President, CEO, and Director.

For the quarter ending June 30, 2022, net interest income was $29.9 million, a 6% increase over the first quarter of 2022, as interest income on loans increased by $2.1 million as the average loan portfolio, (excluding PPP), grew by $159 million. This increase was offset by a decline of $0.4 million in interest income on securities mainly due to a non-recurring prepayment penalty. For the quarters ending June 30, 2022 and March 31, 2022, the cost of deposits remained at 0.04%. The provision for loan losses was $1.0 million in the quarter commensurate with the growth in core loans. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.24% at June 30, 2022.

For the six months ended June 30, 2022, net income was $21.4 million or $2.33 per fully diluted share compared to $18.0 million or $1.98 per fully diluted share for the six months ended June 30, 2021. The increase was primarily due to an increase in interest on investment securities of $4.2 million as a result of an increase in average investment securities and an increase in interest on loans of $2.1 million as a result of core loan growth. This additional income was partially offset by the $2.5 million provision for loan losses recorded in the first half of 2022.

Net Interest Margin

Net interest margin for the second quarter of 2022 was 3.21% compared to 3.00% in the first quarter of 2022 and 3.00% in the second quarter of 2021. Excluding the impact of PPP loans, the net interest margin was 3.06% for the second quarter of 2022 compared to 2.89% for the first quarter of 2022 reflecting the higher percentage of core loans to assets. As of June 30, 2022, 63% of the loan portfolio was fixed rate, of the variable rate loans, approximately half are indexed to prime and 81% of these loans are at or above interest rate floors.

Net Interest Income

For the quarter ending June 30, 2022, net interest income increased by $1.7 million, or 6%, compared to the first quarter of 2022 and increased by $2.8 million, or 10% compared to the quarter ended June 30, 2021. The increase is a result of the Bank's strong core loan growth and rising interest rates offset by the decrease in the accelerated realization of net deferred PPP processing fees and decrease in interest income on securities. The increase is a result strong core loan growth and increase in investment securities offset by the decrease in the accelerated realization of net deferred PPP processing fees.

			As of or For the				As of or For the
			Six Months Ended:			Three Months Ended:
(Figures in $000s, except per share amounts)			June 2022		June 2021			June 2022		March 2022		June 2021
PPP loans - first round, net	$	4,877	$	152,827	$	4,877	$	6,391	$	152,827
PPP loans - second round, net		18,054		233,561			18,054		79,997		233,561
PPP Total Loans, net	$	22,931	$	386,388	$	22,931	$	86,388	$	386,388
1% Coupon Interest	$	422	$	2,930	$	145	$	277	$	1,403
Amortized fees		254		1,288			82		171		620
Accelerated fees		2,962		6,891			1,535		1,427		4,046
Total PPP loan income		$	3,637	$	11,109		$	1,762	$	1,875	$	6,069
Total PPP loan income after tax	$	2,565	$	7,835	$	1,242	$	1,322	$	4,280
Total PPP loan income after tax per
share - diluted	$	0.28	$	0.86	$	0.14	$	0.14	$	0.47

As of July 12, 2022, approximately 98% of PPP loans originated in 2020 and 95% of PPP loans originated in 2021 have been forgiven. Of the remaining PPP loans originated in 2020 and 2021, approximately 21% are in the forgiveness review or submission process.

On a year-to-date basis, net interest income was $58.1 million for the six months ended June 30, 2022, compared to $51.6 million for the same period a year ago. The increase of $6.5 million or 13% is primarily due to an increase in interest on core loans of $9.6 million due to strong core loan growth and an increase in interest on investment securities of $4.2 million as a result of an increase in the average balance of investment securities. These increases were offset by the decrease in PPP loan income of $7.5 million.

Non-Interest Income

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

Non-Interest Expense

For the quarter ending June 30, 2022, total non-interest expense decreased $685 thousand compared to the first quarter of 2022 primarily due to a decrease in salaries and employee benefits. The efficiency ratio decreased to 45% compared to 50% for the first quarter of 2022.

Non-interest expense decreased $2.5 million for the quarter ended June 30, 2022 compared to the second quarter of 2021. This was driven by a decrease in salaries and employee benefits related to less expense for the deferred compensation plan associated with the decline in BOLI that are invested in mutual funds. The efficiency ratio declined to 45% for the second quarter of 2022 compared to 58% for the second quarter of 2021.

There were 205 full time equivalent employees at June 30, 2022 compared to 192 a year ago and 198 at March 31, 2022. The Bank has 41 relationship managers in eight offices representing an increase of six from a year ago and an increase of three from the prior quarter.

On a year-to-date basis, non-interest expense for the six months ended June 30, 2022 decreased $1.7 million or 6% compared to the same period a year ago, mainly due to the settlement of a legal matter which occurred in the second quarter of 2021.

Balance Sheet

From March 31, 2022 to June 30, 2022, total core loans, excluding PPP loans, increased $129 million, or 6%. During the second quarter of 2022, CRE loans increased by $104 million, primarily due to increases of $73 million in non-owner-occupied and $23 million in owner-occupied CRE.

		June 30,			March 31,
		2022			2022
(Figures in $000s)
RE - Owner Occupied	$	928,248	$	903,372
RE - Non Owner Occupied		600,180			526,898
Multifamily		10,157			11,327
Construction & Land		61,910			55,087
Total CRE Loans	$	1,600,494	$	1,496,684

In addition, C&I loans increased by $17 million during the second quarter of 2022, benefitting from higher line utilization. At June 30, 2022, the utilization rate for the Bank's commercial lines of credit increased to 32% from 30% at March 31, 2022.

Investment securities decreased from the first quarter of 2022 to $1.36 billion. As of June 30, 2022, the duration of the securities portfolio increased to 6.5 years from 5.7 years as of March 31, 2022 as market interest rates increased. Accumulated other comprehensive loss increased to $67.6 million as of June 30, 2022 from $39.6 million as of March 31, 2022 due to the increase in net unrealized loss on the available- for-sale securities portfolio.

During the second quarter of 2022, total assets decreased $50 million, or 1%, and total deposits decreased by $71 million.

At June 30, 2022, the tangible common equity ratio was 6.3%, as the benefit of second 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:

		June 30,			March 31,
		2022			2022
(Figures in $000s)
Non-performing assets (NPA)	$	1,208	$	-
Loans 90+ Days Past Due and Still Accruing		-			-
Total NPA	$	1,208		$	-
NPA as a % of total assets, excluding PPP		0.03%			0.00%
Past Due as a % of total Loans, excluding PPP		0.00%			0.00%
Criticized as a % of total Loans, excluding PPP		2.41%			2.49%
Classified as a % of total Loans, excluding PPP		0.20%			0.14%

As of June 30, 2022, the Bank had $30 thousand specific reserve related to two C&I impaired loan relationships.

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

				Three Months Ended						Six Months Ended
				June 30,						March 31,						June 30,						June 30,
				2022						2022						2022						2021
(Figures in $000s)
Beginning Balance	$	26,561	$	25,062	$	25,062	$	22,931
Charge-offs				-						-						-						-
Recoveries				23						13						36						410
Net (charge-offs) / recoveries		$	23			$	13			$	36			$	410
Provision				1,024						1,486						2,510						-
Ending Balance		$	27,608			$	26,561			$	27,608			$	23,341
Allowance as a % of total assets, excluding PPP				1.24%						1.27%						1.24%						1.40%

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.

Contact: Karen Schoenbaum

EVP/CFO

1. 430-4000
   www.americanbb.bank