American Business Bank Announces Third Quarter Net Income Increases 31% Over Prior Year

Loans and Deposits increase at double-digit annualized growth rates

Third Quarter 2019 Highlights

• Total loans increased $291 million or 26% from a year ago
• Total loans increased $105 million or 32% annualized from prior quarter
• Total deposits increased $184 million or 10% from a year ago
• Non-interest bearing demand deposits were 52% of total deposits
• Nonperforming assets to total assets negligible at 0.07%
• Net interest income increased by $2.8 million or 16% 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 $5.4 million or $0.67 per fully diluted share for the third quarter of 2019 as compared to $4.1 million or $0.53 per fully diluted share for the third quarter of 2018. The increase was primarily due to significant loan and core deposit growth over the last year resulting in increased net interest income.

"We are pleased to announce continued growth in earnings, loans, and deposits. While the increase in loan growth exceeded our expectations, it reflects our long-term commitment to meet the needs of and grow with our many new customers; on a go-forward basis, we expect loan growth to still be robust but in the low double digits annually. The shift to higher earning assets, while maintaining our credit quality, has allowed us to drive continued revenue growth to offset the effects of lower interest rates," said Leon Blankstein, ABB's President, CEO and Director.

For the quarter ended September 30, 2019, net income was $5.4 million or $0.67 per fully diluted share, compared with net income of $5.3 million or $0.65 per fully diluted share for the second quarter of 2019. The increase in net income was mainly due to a $1.2 million increase in net interest income, offset by a $532,000 increase in provision for loan losses and a $409,000 increase in non-interest expense. The higher provision for loan losses was the result of a $105 million increase in loans during the third quarter of 2019 while maintaining the allowance for loan losses at 1.4% of loans.

Net interest income increased for the third quarter of 2019 compared to the third quarter of 2018 by $2.8 million or 16% due to an increase in average outstanding loans and a higher yield on loans for the periods compared. The yield on average loans increased to 4.88% for the third quarter of 2019 compared to 4.71% for the third quarter of 2018. The yield on average loans for the third quarter of 2019 was impacted positively by five basis points from non-accrual loan payoffs. The Bank's cost of deposits remains low at 0.24% for the third quarter of 2019, an increase of seven basis points over the quarter a year ago.

Net interest income increased by $1.2 million for the third quarter of 2019 compared to the second quarter of 2019. For the third quarter of 2019, loan interest income increased $1.0 million or 26% annualized due to an increase in average outstanding loans offset by a decrease in loan yields. The yield on average loans decreased to 4.88% for the third quarter of 2019 compared to 4.91% for the second quarter of 2019. The new loan production weighted average coupon was 4.38% in the quarter compared to 4.98% in the prior quarter.

The Bank's net interest margin for the third quarter of 2019 was 3.66% which was positively impacted by non-accrual loan payoffs; excluding this non-recurring item, the net interest margin would have been 3.63%. This compares to 3.46% in the third quarter of 2018 and 3.61% for the second quarter of 2019 representing an increase of 20 basis points and an increase of five basis points, respectively. The increase from the third 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 a reduction of the amortization periods for its municipal securities held at a premium to the earliest call date. Thus, the premium amortization was higher which contributed to a lower average yield on the municipal portfolio compared to the third quarter of 2018. The Bank's net interest margin increased from the second quarter of 2019 primarily due to a higher average loan balance offset by lower loan yields.

On a year-to-date basis, net income was $16.1 million or $1.99 per fully diluted share for the nine months ended September 30, 2019, compared to $10.3 million or $1.31 per fully diluted share for the nine months ended September 30, 2018. The increase was primarily due to significant loan growth between periods, coupled with a higher yield on loans and a low deposit cost resulting in increased net interest income. The shift to higher earning assets can be seen in the increase in the Bank's loan to deposit ratio from 59% for the third quarter of 2018 to 68% for the third quarter of 2019. The net interest margin was 3.63% for the first nine months of 2019, a 26 basis point expansion from 3.37% for the same period a year ago.

Non Interest Income

Non-interest income in the third quarter of 2019 was $1.3 million. This compares to $1.1 million in the third quarter of 2018 and $1.3 million for the second quarter of 2019. The increase from the third quarter of 2018 was due to a $148,000 increase in Deposit and International Fees as a result of growth in commercial business customers and a reduction in realized losses on the sale of investment securities. The increases to non-interest income are offset by a decline in the gain on sale of SBA loans while other non-interest income remained flat. The Bank has started to portfolio certain SBA loans to add to its interest earning asset base.

On a year-to-date basis, non-interest income for the nine months ended September 30, 2019 was $4.1 million, an increase of $872,000, or 27%, from $3.3 million for the same period a year ago. The increase is mainly attributable to a $394,000 increase in Deposits and International Fees due to growth in commercial business customers and a $286,000 reduction in realized losses on the sale of investment securities. Additionally, interchange income from credit cards, which is included in other non-interest income, increased by $146,000 from the same period a year ago. These increases were offset by a $417,000 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 $218,000 or 2% for the quarter ended September 30, 2019 compared to the same quarter a year ago. The increase was predominantly due to a $904,000 increase in professional services expense, offset by a $516,000 decrease in salaries and employee benefits expense. The decrease in salaries expense is attributable to a $405,000 deferred compensation plan (DCP) expense related to the ABB stock fund recorded in the third quarter of 2018, compared to no expense in 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. The efficiency ratio declined to 59% for the third quarter of 2019 compared to 67% for the third quarter of 2018.

Compared to the second quarter of 2019, non-interest expense increased $409,000 primarily due to a $750,000 increase in professional services expense, offset by a $130,000 decrease in salaries and employee benefits expense and a $159,000 decrease in occupancy and equipment expense. The decrease in salaries and employee benefits expense was attributable to a decrease in DCP expense by the amount of $147,000 related to the ABB stock fund and other measurement funds. The overall decrease in occupancy and equipment expense was due to a $265,000 decrease in lease expense as the lease term of the former Los Angeles headquarters ended in June 2019, offset by a $98,000 increase in depreciation expense related to fixed assets at the new headquarters. The efficiency ratio declined to 59% for the third quarter of 2019 compared to 60% for the second quarter of 2019.

On a year-to-date basis, non-interest expense for the nine months ended September 30, 2019 increased $2.1 million compared to the same period a year ago, due to a $951,000 increase in professional services expense, a $746,000 increase in salaries and employee benefits expense and a $495,000 increase in occupancy and equipment expense. Salaries and employee benefits expense, excluding a one-time $979,000 early retirement payment made to a former executive officer in the first quarter of 2018, increased $1.5 million and was attributable to a larger workforce. The increase in occupancy and equipment expense was mainly due to lease expense recorded for the new Los Angeles headquarters for the first six months of 2019 as required under US GAAP. The Bank relocated its Los Angeles headquarters in June 2019. The efficiency ratio was 61% and 69% for the nine months ended September 30, 2019 and 2018, respectively.

Full time equivalent employees at September 30, 2019 were 195, an increase of seven employees or 4% higher than a year ago, and four more than at June 30, 2019. The Bank now has 29 relationship managers in seven offices.

Wes Schaefer, Executive Vice President and Chief Investment Officer, announced his retirement effective October 31, 2019. Wes was one of the original organizers and founders of American Business Bank. "Wes' good nature, infectious attitude, and relentless sense of humor will be missed at the Bank," stated Founder, Director, Chairman Emeritus, Robert Schack. "After so many years of dedicated service, he deserves more time to enjoy life."

Balance Sheet

Total assets increased $174 million, or 8% from year-end December 31, 2018 to $2.33 billion. Total loans increased $179 million to $1.4 billion, or 14% from year-end primarily in owner occupied real estate. This resulted in an increase in the loan to deposit ratio to 68% from 63% during the year. In the third quarter of 2019, the Bank grew loans by $105 million and deposits by $99 million. At September 30, 2019, non-interest bearing deposits represented 52% of total deposits.

From a year ago, total assets increased $235 million or 11%, from September 30, 2018. This was driven by an increase in deposits of $184 million, or 10% over the twelve months. Total loans increased $291 million, or 26% from a year ago. This resulted in an increase in the loan to deposit ratio to 68% from 59% a year ago.

Asset quality at September 30, 2019 remains excellent with non-performing assets to total assets of 0.07%, $1.5 million in non-performing loans, and no Other Real Estate Owned (OREO). The one non-accrual loan is fully secured by real estate with no specific allowance. At the end of the quarter, the allowance for loan losses stood at $20.0 million, or 1.4% of total loans. For the first nine 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.