Company Announcements

Earnings Per Share Increases 11% over prior quarter

Full Year 2023 Highlights

• Total loans increased $139 million or 6% over prior year
• Total deposits increased $107 million or 3% over prior year
• Total borrowings decreased by 66% over prior year to $55 million
• Cost of average deposits of 0.82%, an increase of 0.75% over prior year
• Nonperforming assets to total assets of 0.20%
• Minimal delinquencies in the 30-89 day loan category
• Net income of $44 million
• Tangible book value per share of $34.73
• Continued status as well-capitalized, the highest regulatory category

Fourth Quarter 2023 Highlights

• Net income for the quarter increased over the prior quarter by 12% to $11.4 million
• Net interest margin expanded to 3.16% over prior quarter of 3.12%
• Total deposits decreased $5 million or 0.15%over prior quarter
• Cost of average deposits of 1.17%, an increase of 0.17% over the prior quarter
• Non-interest bearing demand deposits represent 49% of total deposits
• Total loans increased $69 million or 3% over prior quarter
• Total borrowings increased $15 million or 37.5% over prior quarter
• Net yield on interest earning assets increased 4 basis points over the prior quarter

LOS ANGELES--(BUSINESS WIRE)--Jan. 29, 2024-- AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $11.4 million or $1.23 per fully diluted share for the quarter ended December 31, 2023 compared to $10.2 million or $1.10 per fully diluted share for the quarter ended September 30, 2023, and $14.0 million or $1.51 per fully diluted share for the quarter ending December 31, 2022, representing an increase of 11% and a decline of 19%, respectively. This decline is primarily the result of the increase in the cost of deposits exceeding the increase in interest earned on assets.

For the year ending December 31, 2023, net income was $44.0 million or $4.76 per fully diluted share, compared to $48.6 million or $5.28 per fully diluted share for the year ended December 31, 2022. For the year ended December 31, 2023, net income associated with the PPP program was $0.1 million or $0.01 per fully diluted share compared to $2.9 million or $0.31 per fully diluted share for the year ended December 31, 2022.

“Despite the challenging interest rate and liquidity environments, both net interest margin and earnings increased over the prior quarter. This resulted in the Bank having its second best year of net income in its 25 year history. As is typical, our customers distributed funds for bonuses and taxes near year-end causing a small decline in deposits compared to the prior quarter despite adding new customers. On an average basis, deposits grew by $118 million quarter-over-quarter. As of year-end, total deposits exceeded the balances at December 31, 2022 by $107 million. New deposits were derived from the same sources as always and are similar to the Bank’s customer base in terms of quality and type. Borrowing is down since last year and there is a healthy deposit pipeline of new customers. Although loan growth outpaced deposit growth last quarter, our goals for 2024 are to have deposit growth outpace loan growth, eliminate borrowings, and enhance our strong liquidity position. These efforts should result in the moderation of our cost of deposits especially as we wean ourselves from higher paying deposit accounts over time. We believe the key to our success in 2024 is the continued acquisition of new customers and we are well positioned to consistently do so with our relationship-based banking model providing outstanding service.

“During 2023, the banking industry navigated two simultaneous challenges: liquidity pressure and an unprecedented increase in interest rates. Our focus on banking the best small to medium size businesses and building meaningful long-term relationships has allowed us to navigate the upheaval and deliver meaningful profitability for the limited risk we take. I would like to thank our community, referral sources, customers and the entire ABB Family as we complete the 25^th anniversary of the Bank” commented Leon Blankstein, ABB’s CEO and Director.

For the quarter ending December 31, 2023, net interest income was $31 million, representing a 2% increase over the third quarter of 2023. This increase was primarily due to an additional $0.9 million of interest income on loans as a result of loan growth and higher interest rates. Net interest income was negatively impacted by an increase in interest expense primarily as a result of an additional $1.8 million of interest expense on deposits due to higher rates offset by a decline of $1.3 million in interest expense on borrowings due to lower balances. For the quarter ending December 31, 2023, the cost of deposits was 1.17% representing an increase of 0.17% compared to the quarter ending September 30, 2023.

The provision for credit losses was $0.6 million in the quarter, a decrease from the prior quarter. The provision was based on loan growth offset by a decrease in the reserve for unfunded loan commitments mainly due to an increase in line utilization. The allowance for credit losses as a percentage of loans was 1.10% at December 31, 2023 and September 30, 2023.

For the full year 2023, the decrease in net income over 2022 was primarily due to an increase in salary expense of $3.9 million and a decrease in net interest income of $3.1 million offset by a decrease in provision for credit losses of $1.1 million. The increase in salaries and benefits was partially due to general understaffing in 2022 when the Bank experienced a qualified labor shortage. Net interest income declined due to a decrease in non-interest bearing demand deposits.

Net Interest Margin

Net interest margin for the fourth quarter of 2023 increased to 3.16% from 3.12% for the third quarter of 2023 primarily due to higher loan yields and a decline in average borrowings. Net interest margin for the fourth quarter of 2023 decreased to 3.16% from 3.60% for the fourth quarter of 2022 primarily due to an increase in the cost of deposits and a decline in the ratio of average non-interest bearing deposits to total deposits. As of December 31, 2023, 63% of the loan portfolio was fixed rate with a weighted average remaining life of 76 months. Of the variable rate loans, approximately 46% are indexed to prime of which $383 million are adjustable within 90 days of a change in prime. For the month of December 2023, the net interest margin was 3.17% with a cost of deposits of 1.19%.

Net Interest Income

For the quarter ended December 31, 2023, net interest income increased by $0.7 million, or 2%, compared to the third quarter of 2023 primarily due to an increase in loans and a decline in short-term borrowings. For the quarter ended December 31, 2023, net interest income decreased by $3.7 million, or 11%, compared to the fourth quarter of 2022. The decrease compared to prior year quarter is primarily due to a change in the mix of deposits from non-interest bearing deposits to interest bearing deposits. The Loan to Deposit ratio was 74% and 72% as of December 31, 2023 and 2022, respectively.

The following table reflects the effect of PPP related income in 2022 for comparison purposes. The remaining $1.6 million balance of PPP loans are expected to be held to term.

Provision for Credit Losses

The following table presents details of the provision for credit losses for the periods indicated:

The provision for credit losses was $0.6 million for the fourth quarter of 2023 compared to $1.2 million for the fourth quarter of 2022.

Non-Interest Income

The decrease in non-interest income compared to the prior quarter and compared to the prior year quarter is primarily due to losses on the sale of investment securities.

Non-Interest Expense

For the quarter ending December 31, 2023, total non-interest expense decreased $0.6 million compared to the prior quarter and increased $0.2 million compared to the prior year quarter. The decrease compared to the prior quarter is primarily due to a decrease in salaries and employee benefits as bonuses and commissions fluctuated with actual results between the periods. The increase compared to the prior year quarter is primarily due to an increase in salaries and employee benefits. The efficiency ratio of 48% for the fourth quarter of 2023 decreased compared to 55% for the third quarter of 2023 and increased compared to 45% for the fourth quarter of 2022. The third quarter of 2023 is more typical of the Bank’s quarterly non-interest expense.

For the year ended December 31, 2023, non-interest expense increased $5.9 million or 10% compared to the prior year, mainly due to an increase in salaries and employee benefits and professional services.

There were 233 full time equivalent employees at December 31, 2023 compared to 225 a year ago and 235 at September 30, 2023. The Bank has 41 relationship managers in eight offices representing an increase of one from a year ago and a decrease of one from the prior quarter.

Income Taxes

The effective income tax rate was 27.6% for the quarter ended December 31, 2023, 28.2% for quarter ended September 30, 2023, and 27.3% for the quarter ended December 31, 2022.

Balance Sheet

For the quarter ended December 31, 2023, total loans increased $68.6 million, or 2.7% compared to the prior quarter. The majority of this growth was in owner-occupied industrial commercial real estate (CRE) loans. Commercial and industrial (C&I) loans increased by $14 million mainly as a result of an increase in line utilization. At December 31, 2023, the utilization rate for the Bank’s commercial lines of credit increased to 27% from 24% at September 30, 2023.

Total investment securities benefitted from a higher market value and increased at the end of the fourth quarter of 2023 to $1.2 billion, including $569 million or 44% in held-to-maturity (HTM) securities based on book value. As of December 31, 2023, the duration of the available-for-sale (AFS) securities portfolio of 5.7 years decreased from 5.8 years as of September 30, 2023 and increased from 5.4 years as of December 31, 2022. Accumulated other comprehensive loss (AOCI) decreased to $70.7 million as of December 31, 2023 from $93.5 million as of September 30, 2023 as market rates relevant to securities pricing decreased. The duration on the held-to-maturity portfolio, which consists primarily of municipal securities, is 7.3 years. As of December 31, 2023, the unrealized after tax loss on HTM securities was $66 million.

During the fourth quarter of 2023, deposits declined by $5 million or 0.2% to $3.5 billion. The Bank has not lost any relationships due to the recent turbulence in the banking industry. Since January 1, 2023, new deposit relationships have totaled approximately $208 million in deposits from 164 new clients. The Bank’s off-balance sheet products of treasury securities held for clients declined by $25 million during the fourth quarter of 2023 to $222 million and increased by $52 million from prior year end. The Bank has no brokered deposits nor internet solicited deposits.

During the fourth quarter of 2023, total assets decreased $28.6 million, or 0.7%, total loans increased $68.6 million, or 2.7%, total deposits decreased by $5.3 million, or 0.2%, and borrowings increased by $15 million.

The Bank has increased its borrowing capability since March 31, 2023 by pledging additional securities under the Federal Reserve Bank (FRB) Term Funding Program. Under this program, the FRB discount window and loans pledged at the Federal Home Loan Bank of San Francisco, the Bank has $1.8 billion in borrowing capacity as of December 31, 2023.

At December 31, 2023, the tangible common equity ratio was 8.05%, benefitting from year to date net income, a decrease of $10.5 million in AOCI and adoption of CECL ($2.7 million) as compared to prior year end.

Asset Quality

The following table presents asset quality overview as of the dates indicated:

During the fourth quarter, non-performing assets (NPAs) increased by $2.5 million to $7.9 million mainly due to two contractor loan relationships. As of December 31, 2023, NPAs have a $585 thousand allowance on individually evaluated loans related to one residential real estate loan relationship and seven C&I non-performing loan relationships of which the majority have a partial guarantee by the state of California or the SBA. Criticized loans reflect an overall deterioration in contractors impacted by the rains earlier in the year while labor and material costs increased. The construction industry related loans represent 14% of the loan portfolio.

The loan portfolio has approximately 11% in office collateral of which the majority is owner-occupied, and substantially all are three stories or under and are all located in suburban markets.

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

The allowance for credit losses for loans increased to $28.5 million during the fourth quarter of 2023 primarily as a result of an increase in loan growth. There was a $200,000 charge off on a personal line of credit in the fourth quarter of 2023 compared to $23,000 during the prior year. The Bank has one $231 thousand restructured loan involving a borrower experiencing financial difficulty. The Bank adopted CECL as of January 1, 2023, thus 2022 was under a different accounting method.

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240129595531/en/

Karen Schoenbaum
EVP/CFO
(213) 430-4000
www.americanbb.bank

Source: American Business Bank