LOS ANGELES, Calif.--(BUSINESS WIRE)--American Business Bank (OTCQX: AMBZ) today reported net income of $10.8 million or $1.16 per fully diluted share for the quarter ended September 30, 2024 compared to $9.5 million or $1.02 per fully diluted share for the quarter ended June 30, 2024, and $10.2 million or $1.10 per fully diluted share for the quarter ending September 30, 2023, representing increases of 13% and 6%, respectively.

Net income for the nine months ended September 30, 2024 was $30.8 million or $3.31 per fully diluted share, a decrease of $1.8 million or 6%, from $32.6 million or $3.53 per fully diluted share for the nine months ended September 30, 2023.

“Results benefitted from the Bank’s valuable low-cost deposit base, of which 47 percent is non-interest bearing checking accounts at the end of the quarter. Our customers continue to grow their businesses and provide deposits for the Bank to lend in the market. The deposit growth in the second and third quarters from existing customers was significant, however, some of the deposit inflows were event-driven and will not remain on the balance sheet over the long term. We continue to focus on building an outstanding core deposit franchise which resulted in eliminating borrowings in July. The deposit pipeline of new customer relationships remains strong and should drive further growth in the fourth quarter. This has enhanced the expansion of the net interest margin by 13 bps to 3.13% for the third quarter and to 3.21% for the month of September. The key to our success continues to be attracting new business clients through our outstanding team of relationship managers.

“We are proud to provide high touch community banking services to business clients with a conservative risk approach. Our commercial real estate lending is primarily owner-occupied which is not dependent on rent rolls, but reliant on the cash flows of the operating business that occupies the property. C&I and Owner-occupied commercial real estate portfolios comprise 60% of total loans and highlight our position as the premier relationship-banking franchise for small to mid-size businesses in Southern California.

“The Bank continued to expand our team of outstanding relationship managers over the last two quarters. We now have 48 calling officers up from 40 six months ago, this bodes quite well for the future.

“The intelligent delivery of superior service continues to produce excellent risk-adjusted returns for all stakeholders,” commented Leon Blankstein, ABB’s CEO and Director.

For the quarter ending September 30, 2024, net interest income was $31.4 million, an 8% increase compared to the prior quarter and a 4% increase compared to the prior year quarter. Higher average balances of interest earning deposits in other financial institutions led to an increase in interest income compared to the prior quarter and the prior year quarter. In addition, net interest income in the third quarter of 2024 benefitted from the elimination of borrowings that reduced interest expense compared to the prior quarter and the prior year quarter.

The allowance for credit losses as a percentage of loans was 1.11% at September 30, 2024 and June 30, 2024. No provision was recorded for the quarter as the reduction in the reserve for unfunded loan commitments was offset by an increase in the allowance for credit losses due to growth in the loan portfolio.

For the nine months ended September 30, 2024, net income was lower compared to the nine months ended September 30, 2023 due to a decrease in net interest income, an increase in salaries and employee benefits partially offset by a decrease in the provision for loan losses.

Net Interest Margin

Net interest margin for the third quarter of 2024 increased to 3.13% from 3.00% for the prior quarter and from 3.12% for the prior year quarter. This increase is primarily due to a decline in borrowings coupled with an increase in interest earning deposits in other financial institutions. As of September 30, 2024, 63% of the loan portfolio was fixed rate with a weighted average remaining life of 70 months. Approximately 43% of variable rate loans are indexed to prime of which $384 million are adjustable within 90 days of a change in prime. The net interest margin for the month of September 2024 was 3.21%.

Net Interest Income

For the quarter ended September 30, 2024, net interest income increased by $2.3 million, or 8%, compared to the quarter ended June 30, 2024; and increased by $1.1 million, or 4%, compared to the quarter ended September 30, 2023. This increase is due to growth in interest earning deposits at the FRB along with a decline in borrowing costs offset by an increase in the cost of deposits. For the quarter ending September 30, 2024, the cost of deposits was 1.44% representing an increase of 9 bps compared to the quarter ending June 30, 2024. The Loan-to-Deposit ratio was 71% and 72% as of September 30, 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 increase in non-interest income compared to the prior quarter is primarily due to the gain on sale of SBA loans and an increase in the valuation of COLI policies offset by the loss on the sale of municipal investment securities. The decrease in non-interest income compared to the prior year quarter is primarily due to the loss on sale of municipal investment securities.

For the nine months ended September 30, 2024, non-interest income decreased $1.2 million or 17% compared to the same period a year ago, primarily due to a reduction in the gain on sale of SBA loans. In 2023, seasoned SBA loans were sold unlike in 2024 when only current production was sold.

Non-Interest Expense

For the quarter ending September 30, 2024, total non-interest expense increased $0.8 million compared to the prior quarter and increased $1.1 million compared to the prior year quarter. This was primarily due to increases in the number of full-time equivalent employees leading to rising salary and employee benefit expenses. The efficiency ratio decreased to 53% for the third quarter of 2024 compared to 55% for the second quarter of 2024 and the third quarter of 2023.

There were 248 full time equivalent employees at September 30, 2024 compared to 235 a year ago and 243 at June 30, 2024. The Bank has 48 relationship managers in eight offices compared to 42 at June 30, 2024 and September 30, 2023.

For the nine months ended September 30, 2024, non-interest expense increased $2.5 million or 5% compared to the same period a year ago, mainly due to increases in salaries and employee benefits.

Income Taxes

The effective income tax rate was 28.1% for the quarter ended September 30, 2024, 28.0% for the quarter ended June 30, 2024, and 28.2% for the quarter ended September 30, 2023.

Balance Sheet

For the quarter ended September 30, 2024, total loans increased $22 million, or 0.9% compared to the prior quarter. The majority of this increase was in Owner-occupied commercial real estate loans mainly due to an increase in industrial and restaurant collateral type loans. The increase in construction loans is primarily related to off campus university student housing in greater Los Angeles. The increase in commercial real estate (CRE) loans was offset by a decline in Commercial and Industrial (C&I) loans mainly due to a decrease in line utilization. At September 30, 2024, the utilization rate for the Bank’s commercial lines of credit decreased to 26% from 27% at June 30, 2024. The following table is the composition of CRE loans as of:

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

Total investment securities at September 30, 2024 were $1.1 billion including $557 million (46%) in held-to-maturity (HTM) securities based on book value. The Bank has no non-agency mortgage-backed securities in its portfolio. As of September 30, 2024, the duration of the available-for-sale (AFS) securities portfolio was 5.7 years, compared to 5.8 years as of June 30, 2024 and September 30, 2023. Accumulated other comprehensive loss (AOCI) decreased to $59.7 million as of September 30, 2024 from $74.9 million as of June 30, 2024 as market rates relevant to securities pricing declined. The duration of the held-to-maturity portfolio, which consists primarily of municipal securities, is 7.5 years. As of September 30, 2024, the unrealized after tax loss on HTM securities was $60 million.

Deposits grew by $258 million or 7% to $3.7 billion in the quarter ended September 30, 2024. For the nine months of 2024, new deposit relationships have totaled approximately $73 million from 122 new clients. The Bank’s off-balance sheet products of treasury securities held for clients increased by $32 million during the third quarter of 2024 to $254 million. The Bank has no brokered or internet-solicited deposits. Non-interest bearing deposits increased from 46% of total deposits to 47% of total deposits in the third quarter. The cost of deposits for the month of September was 1.42%.

During the third quarter of 2024, total assets increased $191 million, or 4.9%, total loans increased by $22 million, or 0.9%, total deposits increased by $258 million, or 7.5%, and borrowings decreased by $100 million. There are no borrowings at the end of the third quarter of 2024.

The Federal Reserve Bank (FRB) Term Funding Program ended March 11, 2024 and was paid in full on July 31, 2024. As of September 30, 2024, the Bank has $1.6 billion in borrowing capacity including the FRB discount window and from loans pledged at the Federal Home Loan Bank of San Francisco.

Asset Quality

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

During the third quarter of 2024, non-performing assets (NPAs) increased by $0.3 million due to an additional C&I loan. As of September 30, 2024, NPAs have a $153 thousand allowance on individually evaluated loans related to five non-performing C&I loans of which the majority have a partial guarantee by the state of California or the SBA. The decline in classified loans is mainly due to the payoff of a residential real estate loan during the quarter.

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 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 $29.1 million during the third quarter of 2024 primarily as a result of an increase in the loan portfolio. There was a $4 thousand charge off in the third quarter of 2024 compared to charge offs of $15 thousand during the prior year quarter. The Bank recovered $258 thousand in the first half of 2024; the majority of which had been charged off in the fourth quarter of 2023. The Bank has four restructured loans totaling $4.1 million involving borrowers 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.