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Middle Market Clients Driving Growth at Quiet Business Bank

Middle Market Clients Driving Growth at Quiet Business Bank


By KATE BERRY, Staff Reporter

American Business Bank is an anomaly in the banking world. It has just one office on the ninth floor of an old building in downtown Los Angeles, with no signage and no walk-in customers.

In its five years of existence, the bank has stuck to a motto of building its customers slowly, rather than the high-volume, fee-intensive approach that can lead to customer churn. Its eight account officers and senior officers call on new businesses and bring in between five to 10 new clients every month.

“You can build a fine bank with 1,000 to 1,500 customers and still know everyone on the other end,” said Donald Johnson, president and chief executive.

The bank currently has just 380 customers, all with sales ranging from $10 million to $100 million. Clients include Lucky Brand Dungarees, Justman Packaging & Display, Hosting4Less and National Corset Supply House.

These are the type of middle market customers that often find themselves neglected when L.A.’s homegrown banks get bought by larger competitors.

Indeed, the bank’s five top executives hail from other Los Angeles institutions: Union Bank, the former Security Pacific Bank, and the former 1st Business Bank, which was acquired by Mellon Bank.

Filling a void

Johnson and the other founders dreamed up the idea of creating an old-fashioned bank to fill the vacuum between larger and smaller institutions.

“If you’re a company with $20 million to $30 million in sales, you can’t get an account officer from a Union Bank or a Bank of America,” said Robert Schack, the bank’s chairman.

With its old-fashioned approach, American Business Bank has found customers that not only contribute to but also finance its growth.

To get off the ground, the bankers rounded up their previous clients and raised $10 million from about 95 customers. To ensure that no one customer could take control, none was allowed to buy more than 400,000 shares, Johnson said.

The company raised nearly $7 million in a private placement in November 2002, but insiders still control 28 percent of the shares.

Though the bank qualifies to trade on the Nasdaq Stock Market, its top executives opted instead for the cheaper, less stringent requirements of the over-the-counter bulletin board, which is in the process of implementing tighter listing standards.

The bank saves more than $100,000 per year by staying put, Johnson said, but the bulletin board residence is seen as a drawback by certain types of investors, such as institutions who seek out stocks they can easily buy and sell in any market condition.

Low profile

Despite a 54 percent rise in the past year, to a close of $21.50 on June 23, shares of American Business Bank remain illiquid and have so much insider ownership that the stock appeals mainly to investors who are willing to stick around for three to five years. By that time, the level of growth could force a move to the Nasdaq and the higher multiples that typically result.

“I think it’s a hidden asset,” said one investor, Michael Bonesteel, a litigator with Haight Brown & Bonesteel. (The firm is not a customer of the bank.)

“Obviously this is a stock that’s not heavily looked at by the investment community and what I’m afraid of is if someone came along and tried to buy it up,” he added.

Johnson said the company has already been approached by a handful of suitors but management is determined to grow the bank “one brick at a time.”

He also eschewed any suggestion that American Business Bank would become an acquirer one reason the company does not trade on the Nasdaq, as it has no need to raise millions for a purchase.

Assets stood at $328.5 million at the end of the first quarter. Net income jumped to $432,000 (21 cents a diluted share) for the three months ended March 31, versus $324,000 (21 cents) for the like period a year ago.

The performance seems to suit investors just fine. One founding investor, psychiatrist Arnold Gilberg, is also a customer who has needed swing loans and small business loans from time to time for his own investments.

“The banking environment has been quite outstanding,” he said. “The bank has also provided my adult children with excellent opportunities to increase their understanding of finances. Both of them have found this to be a wonderful place, where multi-generations can be involved in the same institution, just like the old days.”

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