American Business Bank : 4th Quarter Report 2022

AMERICAN BUSINESS BANK REPORTS RECORD ANNUAL AND QUARTERLY EARNINGS

Core loans increased by $136 million or 24% annualized in the quarter

Full Year 2022 Highlights

• Total loans, excluding PPP loans, increased $496 million or 26% over prior year
• Non-interestbearing demand deposits were 53% of total deposits
• Cost of average deposits of 0.14%, an increase of 0.09% over prior year quarter
• Nonperforming assets to total assets of 0.18%
• Near nil delinquencies in 30-89 day loan category
• Record net income of $48.6 million
• Net interest income increased by $18 million or 17% over the prior year
• Continued status as well-capitalized,the highest regulatory category

Fourth Quarter 2022 Highlights

• Total core loans, excluding PPP loans, increased $136 million or 6% over prior quarter
• Net interest income increased 31%, excluding accelerated PPP fees, over prior year quarter
• Net interest margin increased to 3.6%, from 3.4% at September 30, 2022
• Net income increased $4.3 million or 44% over prior year quarter
• Tangible book value per share increased by $1.97 to $28.39 over prior quarter

Los Angeles, California, January 27, 2023. AMERICAN BUSINESS BANK(OTCQX: AMBZ) today reported net income of $14.0 million or $1.51 per fully diluted share for the fourth quarter of 2022 compared to $13.3 million or $1.44 per fully diluted share for the third quarter of 2022, an increase of 5%. For the quarter ended December 31, 2022, net income associated with the PPP program was $52 thousand or $0.01 per fully diluted share compared to $1.3 million or $0.14 per fully diluted share for the quarter ended December 31, 2021. For the year ending December 31, 2022, net income was $48.6 million or $5.28 per fully diluted share, compared to $39.2 million or $4.33 per fully diluted share for the year ended December 31, 2021. For the year ended December 31, 2022, net income associated with the PPP program was $2.9 million or $0.31 per fully diluted share compared to $12.4 million or $1.37 per fully diluted share for the year ended December 31, 2021.

"Our team is pleased to report record annual net income for 2022 as well as achieving a 1.46% return on average assets for the fourth quarter. These are wonderful milestones for our Bank, but many factors are changing quickly, especially interest rates over the past several months. In the last year, we have benefitted from rising interest rates, but this is starting to have an adverse effect as the government draws liquidity from the financial system at super competitive rates. As a result, at year end 2022, our deposits decreased $207 million or 6% from a year ago, and we are borrowing overnight to fill that gap. We continue to be a strong core deposit franchise and will be leaning into that strength, focusing on gathering core deposits to replace those borrowings.

Core loans grew at a healthy pace in the quarter. With a continued focus on outstanding credit quality, the loan pipeline remains solid but has been impacted by the higher rate environment and slowing economy.

We look forward to 2023 and continuing to deliver superior service and solutions throughout the entire economic cycle for small to mid-size businesses in Southern California," commented Leon Blankstein, ABB's President, CEO, and Director.

For the quarter ending December 31, 2022, net interest income was $34.6 million, a 7% increase over the third quarter of 2022. Interest income on loans increased by $2.9 million due to core loan growth and higher interest rates. For the quarter ending December 31, 2022, the cost of deposits was 0.14% representing an increase of 0.09% compared to the quarter ending September 30, 2022 and December 31, 2021.

The provision for loan losses was $1.2 million in the quarter commensurate with core loan growth. The allowance for loan losses as a percentage of loans, excluding PPP loans, was 1.22% at December 31, 2022.

For the full year 2022, the increase in net income over 2021 was primarily due to a $12.2 million increase in interest income on loans and a $6.2 million increase in interest on investment securities. This was offset by a $2.6 million increase in provision for loan losses commensurate with core loan growth and a $1.8 million increase in salary expense.

Net Interest Margin

Net interest margin for the fourth quarter of 2022 was 3.60% compared to 3.40% in the third quarter of 2022 and 2.82% in the fourth quarter of 2021 reflecting the higher yield on earning assets. Excluding the impact of PPP loans, the net interest margin was 3.60% for the fourth quarter of 2022 compared to 3.38% for the third quarter of 2022. As of December 31, 2022, 62% of the loan portfolio was fixed rate. Of the variable rate loans, approximately half are indexed to prime of which $393 million are adjustable within 90 days of a change in prime.

Net Interest Income

For the quarter ended December 31, 2022, net interest income increased by $2.3 million, or 7%, compared to the third quarter of 2022 and increased by $7.0 million, or 26%, compared to the quarter ended December 31, 2021. This is the result of the Bank's strong core loan growth and increases in market rates on loans and investment securities offset by the reduction in PPP loan income.

For the year ended December 31, 2022, net interest income was $125.1 million compared to $107.1 million for the year ended December 31, 2021. The increase of $18 million or 17% is due to additional interest on core loans of $25.7 million and additional interest on investment securities of $6.2 million offset by the $13.5 million reduction in PPP loan income.

		As of or For the				As of or For the
		Twelve Months Ended:			Three Months Ended:
		December		December			December		September		December
(Figures in $000s, except per share amounts)		2022		2021			2022		2022		2021
PPP Total Loans, net	$	9,505	$	143,584	$	9,505	$	10,066	$	143,584
1% Coupon Interest	$	482	$	4,086	$	26	$	35	$	418
Amortized fees		298		1,924			20		25		254
Accelerated fees		3,286		11,589			28		297		1,118
Total PPP loan income	$	4,066	$	17,599	$	73	$	356	$	1,789
Total PPP loan income after tax	$	2,867	$	12,413	$	52	$	251	$	1,262
Total PPP loan income after tax per
share - diluted	$	0.31	$	1.37	$	0.01	$	0.03	$	0.14

As of January 19, 2023, approximately 99% of PPP loans have been forgiven. Of the thirteen remaining

1. loans, four are in the forgiveness review or submission process. Non-InterestIncome

Other non-interest income increased for the quarter and year-to-date periods primarily due to fees for cash management services. The increase in total non-interest income for the year ended December 31, 2022 compared to the year ended December 31, 2021 is primarily due to the increase in fees from deposit and cash management services offset by the decline in the valuation of COLI policies that are invested in mutual funds.

Non-Interest Expense

For the quarter ending December 31, 2022, total non-interest expense increased $0.8 million and $1.3 million compared to the third quarter of 2022 and the fourth quarter of 2021, respectively. These increases are primarily due to salaries related to additional employees. Bonuses and commissions have fluctuated with actual results between the periods. In addition other increases are due to an increase in legal costs and non recurring software expenses. The efficiency ratio was 45% for the fourth and third quarter of 2022, compared to 51% for the fourth quarter of 2021.

For the year ended December 31, 2022, non-interest expense increased $1.9 million or 3% compared to the prior year, mainly due to increases in salaries and employee benefits and professional services offset by the decrease in settlement expense related to a legal matter which occurred in the second quarter of 2021.

There were 225 full time equivalent employees at December 31, 2022 compared to 204 a year ago and 211 at September 30, 2022. The Bank has 40 relationship managers in eight offices representing an increase of three from a year ago and remains unchanged from the prior quarter. The Bank has invested in back office personnel commensurate with the increase in core loans over the last two years.

Balance Sheet

From September 30, 2022 to December 31, 2022, total core loans, excluding PPP loans, increased $136 million, or 6%. During the fourth quarter of 2022, Commercial Real Estate (CRE) loans increased by $78 million, primarily due to an increase of $52 million in owner-occupied CRE and $44 million in non-owner- occupied CRE offset by a decrease of $18 million in Construction & Land loans mainly due to three loan payoffs.

		December 31,			September 30,
		2022			2022
(Figures in $000s)
RE - Owner Occupied	$	1,011,913	$	959,677
RE - Non Owner Occupied		660,600			616,271
Construction & Land		49,398			67,833
Total CRE Loans	$	1,721,911	$	1,643,780

In addition, Residential Real Estate loans increased by $28 million due to $18 million in loan growth and a reclassification of $10 million from CRE. C&I loans increased by $20 million due to an increase in line utilization. At December 31, 2022, the utilization rate for the Bank's commercial lines of credit increased to 31% from 30% at September 30, 2022.

Investment securities decreased during the fourth quarter to $1.3 billion. As of December 31, 2022, the duration of the available-for-sale securities portfolio decreased to 5.4 years from 5.6 years as of September 30, 2022. Accumulated other comprehensive loss decreased to $81.2 million as of December 31, 2022 from $84.7 million as of September 30, 2022 as market rates relevant to securities pricing decreased. The duration on the held-to-maturity portfolio which holds a significant amount of municipal securities is 7.7 years.

During 2022, total assets decreased $71.5 million, or 1.8%, total deposits decreased by $207 million, or 5.8% and overnight borrowings grew by $162 million. Total loans, excluding PPP loans, grew $496 million, or 26%.

At December 31, 2022, the tangible common equity ratio increased from September 30, 2022 to 6.6%, benefitting from fourth quarter net income and a lower 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:

	December 31,		September 30,
		2022			2022
(Figures in $000s)
Non-performing assets (NPA)	$	6,927	$	2,337
Loans 90+ Days Past Due and Still Accruing		-			-
Total NPA	$	6,927		$	2,337
NPA as a % of total assets, excluding PPP		0.18%			0.06%
Past Due as a % of total Loans, excluding PPP		0.00%			0.00%
Criticized as a % of total Loans, excluding PPP		1.59%			2.33%
Classified as a % of total Loans, excluding PPP		0.42%			0.35%

During the fourth quarter, NPA increased by $4.6 million to $6.9 million with the addition of three C&I loan relationships in unrelated industries. As of December 31, 2022, the NPA had a $487 thousand specific reserve related to six C&I impaired loan relationships of which the majority have a partial guarantee by the state or the SBA. There were no charge offs in the fourth quarter of 2022 and only one during the year.

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

		Three Months Ended			Twelve Months Ended
	December 31,		September 30,		December 31,		December 31,
		2022			2022			2022			2021
(Figures in $000s)
Beginning Balance	$	28,439	$	27,608	$	25,062	$	22,931
Charge-offs		-			(23)			(23)			(278)
Recoveries		27			18			81			456
Net (charge-offs) / recoveries	$	27		$	(5)		$	58		$	178
Provision		1,169			836			4,515			1,953
Ending Balance	$	29,635		$	28,439		$	29,635		$	25,062
Allowance as a % of total assets, excluding PPP		1.21%			1.24%			1.21%			1.30%

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 and preliminary analysis will likely result in a decrease to the Allowance for Loan Losses. 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