Non-interest bearing demand deposits represent 48% of totaldeposits

First Quarter 2024 Highlights

• Net income for the quarter totaled $10.5 million, or $1.13 per diluted share
• Net interest margin contracted to 3.07% over prior quarter of 3.16%
• Net yield on interest earning assets increased 7 basis points over the prior quarter
• Total deposits decreased $188 million or 5.4%over prior quarter
• Cost of average deposits of 1.24% compared with 1.17% in the prior quarter
• Non-interest bearing demand deposits represent 48% of total deposits
• Total loans decreased $7 million or 0.3% over prior quarter
• Minimal past due loans
• Total borrowings decreased $276 million or 57% over prior year
• Tangible book value per share of $34.80
• Continued status as well-capitalized, the highest regulatory category

Company Website: http://americanbb.bank
LOS ANGELES -- (Business Wire)

AMERICAN BUSINESS BANK (OTCQX: AMBZ) today reported net income of $10.5 million or $1.13 per fully diluted share for the quarter ended March 31, 2024 compared to $11.4 million or $1.23 per fully diluted share for the quarter ended December 31, 2023, and $13.1 million or $1.42 per fully diluted share for the quarter ending March 31, 2023, representing declines of 8% and 20%, respectively. The reduction in net income is primarily due to reduced net interest income.

“We remain focused on providing high touch community banking services to our business clients with a conservative risk approach. At its core, our business is solely reliant on spread income and the rapid rise in interest rates combined with an inverted yield curve has compressed the net interest margin. As is typical, in the 1^st quarter our customers distributed funds for bonuses. Additionally, several of our larger clients took advantage of outside investment opportunities. As a result, despite adding new clients, total deposits declined compared to the prior quarter. Our goals for 2024 continue to be centered on building our outstanding core deposit franchise to eliminate borrowings and enhance margins. There is a strong deposit pipeline of new customers and the cost of deposits seems to be accelerating at a slower pace. The key to our success in 2024 is the continued generation of new clients and we are well positioned to do so.

“The one area the Bank can control is expenses, operating expenses increased 0.9% quarter over quarter and 3.7% year over year. Despite experiencing margin pressure, the Bank still achieved a return on average assets of 1.08% and a return on average equity of 13.4% for the quarter.

“We continue to deliver superior service with the goal of being the premier relationship-banking franchise for small to mid-size businesses in Southern California.” commented Leon Blankstein, ABB’s CEO and Director.

For the quarter ending March 31, 2024, net interest income was $29 million, representing a 5% decrease over the fourth quarter of 2023. Net interest income was negatively impacted by the increase in the cost of deposits and borrowings exceeding the increase in interest earned on loans and securities. The cost of deposits was the largest contributor to the decrease in net interest income as compared to the prior year quarter. For the quarter ending March 31, 2024, the cost of deposits was 1.24% representing an increase of 7 bps compared to the quarter ending December 31, 2023.

The provision for credit losses was $0.2 million in the quarter, a decrease from the prior quarter. The decrease in provision was a result of a reduction in the loan portfolio along with net recoveries of $0.1 million offset by an increase in the reserve for unfunded loan commitments mainly due to a decrease in line utilization. The allowance for credit losses as a percentage of loans was 1.10% at March 31, 2024 and December 31, 2023.

Net Interest Margin

Net interest margin for the first quarter of 2024 decreased to 3.07% from 3.16% for the fourth quarter of 2023 primarily due to an increase in average borrowings. Net interest margin for the first quarter of 2024 decreased to 3.07% from 3.38% for the first quarter of 2023 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 March 31, 2024, 63% of the loan portfolio was fixed rate with a weighted average remaining life of 74 months. Of the variable rate loans, approximately 46% are indexed to prime of which $381 million are adjustable within 90 days of a change in prime.

Net Interest Income

For the quarter ended March 31, 2024, net interest income decreased by $1.5 million, or 5%, compared to the fourth quarter of 2023 primarily due to an increase in borrowings. For the quarter ended March 31, 2024, net interest income decreased by $2.5 million, or 8%, compared to the first quarter of 2023. 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 78% and 81% as of March 31, 2024 and 2023, respectively.

Provision for Credit Losses

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

Non-Interest Income

The decrease in non-interest income compared to the prior quarter and compared to the prior year quarter is primarily due a reduction in the gain on sales of SBA loans. In 2023, seasoned SBA loans were sold unlike in 2024 where only current production was sold.

Non-Interest Expense

For the quarter ending March 31, 2024, total non-interest expense increased $0.2 million compared to the prior quarter and increased $0.6 million compared to the prior year quarter. The increase compared to the prior quarter and prior year quarter is primarily due to an increase in salaries and employee benefits as bonuses and commissions fluctuated with actual results between the periods. The efficiency ratio of 54% for the first quarter of 2024 increased compared to 48% for the fourth quarter of 2023 and 47% for the first quarter of 2023. The first quarter of 2024 is more typical of the Bank’s quarterly non-interest expense.

There were 233 full time equivalent employees at March 31, 2024 compared to 224 a year ago and 233 at December 31, 2023. The Bank has 40 relationship managers in eight offices representing a decrease of one from a year ago and from the prior quarter.

Income Taxes

The effective income tax rate was 27.9% for the quarter ended March 31, 2024, 27.6% for the quarter ended December 31, 2023, and 27.1% for the quarter ended March 31, 2023.

Balance Sheet

For the quarter ended March 31, 2024, total loans decreased $7 million, or 0.3% compared to the prior quarter. The majority of this decline was in Commercial and industrial (C&I) loans mainly as a result of a decrease in line utilization. At March 31, 2024, the utilization rate for the Bank’s commercial lines of credit decreased to 26% from 27% at December 31, 2023. The decline in C&I was offset by loan growth in Commercial real estate (CRE) loans.

The following table is the composition of the Owner occupied and Non owner occupied CRE loans by collateral type:

Total investment securities declined to $1.2 billion at March 31, 2024, which include $561 million or 45% in held-to-maturity (HTM) securities based on book value. As of March 31, 2024, the duration of the available-for-sale (AFS) securities portfolio was 5.8 years, an increase from 5.7 years as of December 31, 2023 and 5.5 years as of March 31, 2023. Accumulated other comprehensive loss (AOCI) increased to $79.6 million as of March 31, 2024 from $70.7 million as of December 31, 2023 as market rates relevant to securities pricing increased. The duration on the held-to-maturity portfolio, which consists primarily of municipal securities, is 7.8 years. As of March 31, 2024, the unrealized after tax loss on HTM securities was $72 million.

During the first quarter of 2024, deposits declined by $188 million or 5% to $3.3 billion. The Bank has lost minimal relationships due to the turbulence in the banking industry this last year. Since January 1, 2024, new deposit relationships have totaled approximately $5.6 million in deposits from 26 new clients. The Bank’s off-balance sheet products of treasury securities held for clients increased by $25 million during the first quarter of 2024 to $247 million and declined by $31 million from prior year quarter. The Bank has no brokered deposits nor internet solicited deposits.

During the first quarter of 2024, total assets decreased $26.5 million, or 0.7%, total loans declined $7 million, or 0.3%, total deposits decreased by $188 million, or 5%, and borrowings increased by $155 million.

The Federal Reserve Bank (FRB) Term Funding Program ended March 11, 2024; however, $180 million is outstanding with a maturity date of March 11, 2025 at a rate of 5.4%. Including the outstanding FRTB borrowing, and also under the FRB discount window and loans pledged at the Federal Home Loan Bank of San Francisco, the Bank has $1.7 billion in borrowing capacity as of March 31, 2024.

Asset Quality

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

During the first quarter, non-performing assets (NPAs) decreased by $0.4 million to $7.4 million mainly due to a paydown of one loan and a $99,000 charge off of one loan relationship. As of March 31, 2024, NPAs have a $333 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 an increase in labor and material costs. The construction industry related loans represent 15% of the loan portfolio. The increase in classified loans is due to one loan that is fully secured by industrial real estate.

The loan portfolio has approximately 10% 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 declined to $28.3 million during the first quarter of 2024 primarily as a result of a decline in the loan portfolio. There was a $99,000 charge off on the unguaranteed portion related to a state guaranteed loan in the first quarter of 2024 compared to no charge offs in the prior year quarter. The Bank recovered in the first quarter of 2024 the loan that had been charged off in the prior quarter. The Bank has one $229 thousand restructured SBA guaranteed loan involving a borrower experiencing financial difficulty.

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/20240430001225/en/

Contacts:

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

Source: American Business Bank