American Business Bank Announces Second Quarter Net Income Increases 41% Over Prior Year

Year-to-date Net Income increases 73% over prior year

Second Quarter 2019 Highlights

• Total loans increased $231 million or 21% from a year ago
• Total loans increased $67 million or 21% annualized from prior quarter
• Total deposits increased $192 million or 11% from a year ago
• Non-interest bearing demand deposits were 49% of total deposits
• Nonperforming assets to total assets negligible at 0.06%
• Net interest income increased by $3.2 million or 20% over the prior year quarter
• Continued status as well-capitalized, the highest regulatory category

AMERICAN BUSINESS BANK (OTC Pink: "AMBZ" or the "BANK") today reported net income of $5.3 million or $0.65 per fully diluted share for the second quarter of 2019 as compared to $3.7 million or $0.48 per fully diluted share for the second quarter of 2018. The increase was primarily due to significant loan and deposit growth over the last year resulting in increased net interest income.

"The growth in the second quarter of 2019 was centered in the core of our business banking model where we focus on C&I and owner-occupied commercial real estate loans. Furthermore, this growth was spread across our seven strategic locations in the Southern California market we serve. We continue to win new relationships from the larger banks by providing solutions with the client's best interest at heart backed up by our superior service. With our increased earnings over last year, the Bank continues to improve its efficiency by leveraging technology in the back office. Furthermore, we made a small change to one of our benefit plans that created capital in the quarter that benefits all our stakeholders," said Leon Blankstein, ABB's President, CEO and Director.

For the quarter ended June 30, 2019, net income was $5.3 million or $0.65 per fully diluted share, compared with net income of $5.4 million or $0.67 per fully diluted share for the first quarter of 2019. The slight decrease in net income was mainly due to an $838,000 increase in provision for loan losses offset by an $870,000 decrease in salaries and employee benefits. The higher provision for loan losses was the result of a $67 million increase in loans during the second quarter of 2019 which maintained the allowance for loan losses at 1.4% of loans. The decrease in salaries and employee benefits expense was mainly attributable to a $698,000 decrease in deferred compensation plan (DCP) charge, of which $465,000 was related to the DCP ABB stock fund. As of May 31, 2019, the Bank reclassified $6.2 million of DCP liability to equity as a result of plan amendments that limit settlement of deferrals in the ABB stock fund to issuance of ABB common stock.

Net interest income increased for the second quarter of 2019 compared to the second quarter of 2018 by $3.2 million or 20% due to an increase in average outstanding loans and a higher yield on loans and a low deposit beta for the periods compared. The yield on average loans increased to 4.91% for the second quarter of 2019 compared to 4.55% for the second quarter of 2018. The Bank's deposit beta remains low with the cost of deposits at 0.24% for the second quarter of 2019, an increase of 10 basis points over the quarter a year ago.

Net interest income increased by $222,000 for the second quarter of 2019 compared to the first quarter of 2019. For the second quarter of 2019, loan interest income increased $767,000 or 20% annualized due to an increase in average outstanding loans and a higher yield on loans. The yield on average loans increased to 4.91% for the second quarter of 2019 compared to 4.89% for the first quarter of 2019. The new loan production weighted average coupon was 5.05% in the quarter. The Bank's cost of deposits was at 0.24% for the most recent quarter, an increase of only 3 basis points over the prior quarter.

The Bank's net interest margin for the second quarter of 2019 was 3.61%. This compares to 3.35% in the second quarter of 2018 and 3.62% for the first quarter of 2019 representing an increase of 0.26% and a negligible decrease of 0.01%, respectively. The increase from the second quarter of 2018 was primarily due to average loans being a higher percentage of average earnings assets as well as expansion in average loan yields, offset by a decrease in the average yield on investment securities. The Bank adopted a new accounting standard on January 1, 2019 that required the Bank to shorten the amortization periods for its municipal securities held at a premium to the earliest call date. Thus, the amount of premium amortization was accelerated which contributed to a lower average yield on the municipals portfolio compared to the second quarter of 2018. The Bank's net interest margin decreased from the first quarter of 2019 primarily due to a decrease in the average yields on the investment securities portfolio resulting from higher pay downs primarily on the SBA securities. Average loan yields expanded slightly by 0.02% from the first quarter of 2019. The Bank's core funding continues to be a strength with the cost of deposits of 0.24% and 0.21% for the second quarter and first quarter of 2019, respectively.

On a year-to-date basis, net income was $10.7 million or $1.32 per fully diluted share for the six months ended June 30, 2019, compared to $6.2 million or $0.79 per fully diluted share for the six months ended June 30, 2018. The increase was primarily due to significant loan growth between periods, coupled with a higher yield on loans and a low deposit beta resulting in increased net interest income. The shift to higher earning assets is represented by the consecutive increases in the Bank's loan to deposit ratio, from 60% for the second quarter of 2018 to 64% for the first quarter of 2019, to 66% for the second quarter of 2019. Net interest margin was 3.62% for the first six months of 2019, a 30 basis point expansion from 3.32% for the same period a year ago.

Non Interest Income

Non-interest income in the second quarter of 2019 was $1.3 million. This compares to $1.4 million in the second quarter of 2018 and $1.5 million for the first quarter of 2019. The decrease from the second quarter of 2018 was due to a $330,000 decline in gain on sale of SBA loans as the Bank has started to portfolio certain SBA loans to add to its interest earning asset base. Compared to the first quarter of 2019, non-interest income also decreased primarily due to a $145,000 net loss on the sale of investment securities realized in the recent quarter, as a result of repositioning the investment securities portfolio to lengthen the duration to protect from downward pressure on net interest income.

On a year-to-date basis, non-interest income for the six months ended June 30, 2019 was $2.8 million, an increase of $606,000, or 27%, from $2.2 million for the same period a year ago. The increase is mainly attributable to a positive $176,000 increase in the value of corporate owned life insurance (COLI) and a $200,000 reduction in realized losses on the sale of investment securities. The change in COLI value is offset by a corresponding non-cash charge (credit) to compensation and benefits expense, which is included in non-interest expense. Additionally, Deposit and International Fees increased $246,000 from the period a year ago due to growth in commercial business customers. These increases were offset by a $357,000 decline in gain on sale of SBA loans as the Bank has started to portfolio certain SBA loans to add to its interest earning asset base in 2019.

Non Interest Expense

Non-interest expense increased $829,000 for the quarter ended June 30, 2019 compared to the same quarter a year ago. The increase was predominantly due to a $612,000 increase in salaries expense and a $194,000 increase in occupancy and equipment expense. The increase in salaries expense is directionally consistent with higher full time equivalent employees at June 30, 2019 over the prior year. Additionally, occupancy and equipment expense primarily increased due to the lease agreement for the new Los Angeles headquarters and the relocation that took place in June 2019. The previous headquarters lease expired in June 2019. The efficiency ratio declined to 60% for the second quarter of 2019 compared to 66% for the second quarter of 2018.

Compared to the first quarter of 2019, non-interest expense decreased $721,000 primarily due to an $870,000 decrease in salaries and employee benefits expense. The DCP liability decreased during the most recent quarter and resulted in a $698,000 reduction to salaries and employee benefits expense, of which $465,000 of the reduction was related to the DCP ABB stock fund. The decrease in the Bank's stock price resulted in a credit to DCP expense of $465,000 during the first two months of the most recent quarter. Beginning in June of 2019, the Bank is no longer required to mark-to-market its DCP obligation related to the ABB stock fund under US GAAP. An additional credit to DCP expense is correlated to the negative change in COLI value of $247,000 in the second quarter of 2019. The remaining decrease in salaries and employee benefits expense was due to lower employer payroll taxes paid in the second quarter of 2019.

On a year-to-date basis, non-interest expense for the six months ended June 30, 2019 increased $1.9 million compared to the same period a year ago, predominantly due to a $1.3 million increase in salaries and employee benefits expense. The DCP liability increased during the six months ended June 30, 2019 and resulted in a $798,000 charge to salaries and employee benefits expense, of which $543,000 of the increase was related to the DCP ABB stock fund. The remaining increase in salaries and employee benefits expense is attributable to a larger workforce. The efficiency ratio was 62% and 70% for the six months ended June 30, 2019 and 2018, respectively.

Full time equivalent employees at June 30, 2019 were 191, an increase of seven employees or 4% higher than a year ago, but only two more than at March 31, 2019. The Bank now has 29 relationship managers in seven offices.

Balance Sheet

Total assets increased $64 million, or 6% annualized from year-end December 31, 2018 to $2.2 billion. Total loans increased $75 million to $1.3 billion, or 12% annualized growth from year-end primarily in owner occupied real estate. This resulted in an increase in the loan to deposit ratio to 66% from 63% during the year. In the second quarter of 2019, the Bank grew loans by $67 million and deposits by $20 million. At June 30, 2019, non-interest bearing deposits represented 49% of total deposits.

From a year ago, total assets increased $200 million or 10%, from June 30, 2018. This was driven by an increase in deposits of $192 million, or 11% over the twelve months. Total loans increased $231 million, or 21% from a year ago. This resulted in an increase in the loan to deposit ratio to 66% from 60% a year ago.

Asset quality at June 30, 2019 remains excellent with non-performing assets to total assets of 0.06%, $1.0 million in non-performing loans, and no Other Real Estate Owned (OREO). The largest nonaccrual loan is fully secured by real estate. At the end of the quarter, the allowance for loan losses stood at $18.5 million, or 1.4% of total loans. For the first six months of 2019, 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. 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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