Middle market clients driving growth at quiet business bank. (Corporate Focus).

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."

YEAR (Dec. 31)                    2002   2001

Net Interest (millions)             $9   $7.6
Loan Loss Provision (millions)     0.4    0.3
Non-Interest Expense (millions)    7.2    5.9
Net Income (millions)              1.7    1.2
Earnings Per Share               $1.07  $0.80

[GRAPH OMITTED]

[GRAPH OMITTED]

SUMMARY

Business: Banking

Headquarters: Los Angeles

CEO: Donald Johnson

Market Cap: $31.5 million

Dividend Yield: N/A *

Total Liabilities: $304,860

P/E Ratio: 21.5

Long-Term Debt: $0

* Company does not pay a dividend.

RELATED ARTICLE: Election Year Timing

To followers of a phenomenon called the political investment cycle, the stock market's recent rally is more than happenstance.

It fits perfectly into a decades-old pattern of strong market showings in years leading up to U.S. presidential elections.

History tells presidents they should try to help this rally along if they want to get re-elected. President Bush, who will be running for a second term in 2004, appears to have a keen sense of this.

With less than a year and a half to go before Election Day 2004, the throttles are wide open both in the Federal Reserve's monetary policy and in government fiscal policy, augmented by some just-enacted tax cuts.

According to the Hirsch Organization's Stock Trader's Almanac, the last time the market declined in the third year of the four-year political cycle was 1939 -- ancient history in economic and financial terms.

"Presidential elections every four years have a profound impact on the economy and the stock market," the almanac says. "Wars, recessions and bear markets tend to start or occur in the first half of the term; prosperous times and bull markets in the latter half."

Let's not take this to conspiracy-theory extremes. No modern-day president has anything like absolute control over events, much less timing.

The stock market crash of 1987, to cite one disruptive event that comes readily to mind, happened in a pre-election year. The S&P 500 hung on to finish '87 with a net gain of 2 percent, and the Republicans kept the presidency in the '88 election.

On the flip side, a good pre-election year in the stock market doesn't guarantee political success. Though the index rose 26.3 percent in 1991, the present chief executive's father, George H. W. Bush, came up short at the polls in 1992.

He and another recent one-term president, Jimmy Carter in 1977-81, are widely presumed to have missed their chance at re-election because they failed to get sufficient zip into the economy by the time voters went to the polls. George Bush the younger was a front-row witness to his father's 1992 defeat, and is surely determined not to make the same mistake.

As the example of 1991-92 shows, a pre-election stock market rally is a good first step, but only a first step. The energy of recovery must spread from the markets into the producing and consuming economy with enough force to make the electorate happy at election time.

If research published in the Hirsch almanac is any guide, there is ample room for the 2003 stock rally to go further.

Since 1914, it says, the market has averaged a 50 percent gain from its low in the second year of the presidential cycle to its high in the third, or pre-election, year. In 1998-99, it gained 52 percent; in 1994-95, 45 percent. A 50 percent rise from the S&P 500's 2002 low of 776.76 would take it to 1,165, or about 16 percent higher than its recent readings around 1,000.

Of course, market history seldom repeats exactly and the present rally could bring more or less than that. Over the last 10 presidential cycles, Hirsch's data show, the rally's gain has ranged from as much as 81 percent to as little as 21 percent.

The interest rate, federal budget and international currency policies now in effect in this country seem clearly aligned to help keep the rally going from here. The success of that mission may be less than a sure thing, but it's a lot to bet against.