American Business Bank Announces Record Growth in 2018

Net Interest Income increases 23% over prior year

Full Year 2018 Highlights

• Total loans increased $330 million or 36%
• Total deposits increased $334 million or 20%
• Non-interest bearing demand deposits were 50% of total deposits
• Nonperforming assets to total assets negligible at 0.07%
• Continued status as well-capitalized, the highest regulatory category

Fourth Quarter 2018 Highlights

• Net interest income increased by $5.2 million or 38% over the prior year quarter
• Record net organic loan growth of $112 million or 39% annualized

AMERICAN BUSINESS BANK AMBZ today reported net income for the full year 2018 of $16.4 million or $2.09 per fully diluted share compared to net income of $8.3 million or $1.07 per fully diluted share for the full year 2017, an increase of 97%. The increase was related to record loan growth resulting in increased net interest income. The results for 2017 include a $5.1 million ($0.66 per fully diluted share) write-down of the net deferred tax asset due to the Tax Cuts and Job Acts of 2017 (Tax Reform Act). Comparing 2018 core net income of $16 million to 2017 core net income of $14.4 million, which excludes the write-down of the net deferred tax asset and gains/losses on securities and stock, results in an increase of 11%.

"The investment we made in hiring seasoned banking personnel in the fourth quarter of 2017 negatively affected earnings in the first half of 2018, that being said, the year has been transformational for the Bank. Despite our record growth, we remain true to our strategy of providing high touch business banking services to our customers. With our new relationship manager teams fully integrated, we expect loan and deposit growth to normalize to the low double digits in 2019," said Leon Blankstein, ABB's President, CEO and Director.

For the quarter ending December 31, 2018 net income was $6.1 million or $0.77 per fully diluted share, compared with a net loss of $2.5 million or $0.34 loss per fully diluted share for the fourth quarter of 2017 due to the effects of the Tax Reform Act signed in December of 2017. Another significant difference was net interest income increased $5.2 million or 38% due to the strong loan growth funded by core deposit growth.

Net income for the fourth quarter of 2018 was $6.1 million or $0.77 per fully diluted share, compared with net income of $4.1 million or $0.53 per fully diluted share for the third quarter of 2018. The increases were due to increased net interest income of $1.4 million with a decline in compensation and benefits of $3 million from the third quarter.

The Bank's net interest margin for 2018 was 3.41%, compared to 3.10% in the previous year, an increase of 0.31%. The Bank's net interest margin for the fourth quarter of 2018 was 3.53%, compared to 3.02% for the fourth quarter of 2017, an increase of 0.51%. The increases were primarily due to average loans being a higher percentage of average earnings assets in 2018 than in 2017, as well as expansion in average loan yields for the periods compared. The loan to deposit ratio increased to 63% from 56% during the year.

The Bank's net interest margin for the fourth quarter of 2018 was 3.53%, compared to 3.46% in the third quarter of 2018. The increase was primarily due to expansion in average loan yields while cost of deposits remained steady compared to the prior quarter.

Net interest income increased for the fourth quarter over the third quarter of 2018 by $1.4 million or 8%. For 2018, net interest income increased $12.4 million or 23% due to an increase in average outstanding loans, a higher yield on loans and a low deposit beta for the periods compared. The yield on average loans increased to 4.80% for the fourth quarter of 2018 compared to 4.71% for the third quarter of 2018. The new loan production weighted average coupon was 5.01% in the quarter. The Bank's core deposits continue to be a strength with the cost of deposits at 0.18% for the most recent quarter, an increase of only 1 basis point over the prior quarter.

Non-interest income in 2018 was $3.9 million, an increase of $174,000, or 5% from $3.7 million in the prior year. The Bank recorded a gain on sale of SBA loans of $886,000 generated by the new SBA group in 2018. Additionally, Deposit and International fees increased $411,000 from the prior year due to growth in commercial business customers.

Non-interest income was $646,000 for the fourth quarter of 2018, a decrease of $423,000 compared to the third quarter. Included in other non-interest income is a decline in the value of the Corporate owned life insurance (COLI) of $323,000 which is invested in mutual funds. Its decline in value is offset by a benefit related to the deferred compensation plan (DCP) for directors and senior management. As the correlated DCP investment declines in value, the expense related to DCP decreases, thereby resulting in a benefit that offsets compensation expense. In the third quarter of 2018, other non-interest income increased due to the positive change in COLI value.

Non-interest expense increased for the year ending December 31, 2018 compared to the prior year with the hiring of new personnel in the fourth quarter of 2017 and additional hires throughout 2018 to support the Bank's growth. Furthermore, two new loan production offices were opened in 2018 as well as the Irvine office relocated to a larger facility.

Non-interest expense decreased $3 million for the quarter ending December 31, 2018 compared to the prior quarter. This reduction was predominantly due to a non-cash decrease in compensation and benefits of $2 million. The decline in the Bank's stock price resulted in a benefit in DCP expense during the fourth quarter. An additional DCP benefit of $466,000 is correlated to the COLI decline of $323,000.

Full time equivalent employees at December 31, 2018 were 191, an increase of 22 employees or 13% higher than a year ago, but only 3 more than at September 30, 2018. The Bank now has 30 relationship managers in seven offices.

Total assets increased $284 million, or 15% from year end December 31, 2017 to $2.2 billion which was driven by an increase in deposits.

Asset quality at December 31, 2018 remains excellent with non-performing assets to total assets of 0.07%, $1.2 million in non-performing loans, and no Other Real Estate Owned (OREO). The largest nonaccrual is fully secured by real estate. At the end of the quarter, the allowance for loan losses stood at $17.5 million, or 1.4% of total loans. For 2018, the Bank had no charge offs.

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. The Bank has opened six Loan Production Offices in strategic areas including our North Orange County Office in Anaheim, our Orange County Office in Irvine, our South Bay Office in Torrance, our San Fernando Valley Office in the Warner Center, our Riverside County office in Corona and our Inland Empire Office 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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