c 

**U.S. SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-QSB**

 

**ý****QUARTERLY REPORT UNDERSECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

**for the quarterly period ended: September 30,2003**

 

**o****TRANSITION REPORT UNDERSECTION 13 OR 15(d) OF THE**

**EXCHANGEACT**

 

**for the transition period from                to                **

 

**Commission file number: 333-102410**

 

**AMERICAN BANK HOLDINGS, INC.**

(Exact name of small business issuer as specified in its charter)

 

| **Delaware**                                                                        |   | **16-1645705**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                |   |                                  |
| **12211 Plum Orchard Drive, Suite 300, Silver  Spring, Maryland 20904**             |
| (Address of principal executive offices)                                            |
|                                                                                |   |                                  |
| **301.572.3740**                                                                    |
| (Issuer’s telephone number, including area code)                               |
|                                                                                |   |                                  |
| **Not Applicable**                                                                  |
| (Former Name, Former Address and Former Fiscal Year, if changed since  last report) |

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date:

 

**As of November 14, 2003: 1,883,574 shares ofcommon stock, par value $0.001 per share.**

 

 

----

 

PART I - FINANCIAL INFORMATION

**Item1**.

 

AMERICAN BANK HOLDINGS, INC.AND SUBSIDIARIES

 

**UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIALCONDITION**

 
|                                                                                                                                                                |   | **September  30,  2003** |        | **December  31,  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|-------------------------|--------|
|                                                                                                                                                                |   | **(Unaudited)**          |        |                    |   |
| ASSETS                                                                                                                                                              |   |                     |        |                    |   |
| Cash                                                                                                                                                                |   | $                        | 989,752     |                    | $      | 3,008,288 |   |
| Interest bearing deposits in other banks                                                                                                                            |   | 5,303,601                |        | 18,799,221              |   |
| Federal funds sold & securities purchased under agreements to  resell                                                                                           |   | 490,000                  |        | 1,002,000               |   |
| Investment securities, available for sale                                                                                                                           |   | 33,879,853               |        | 17,752,901              |   |
| Investment securities, held to maturity                                                                                                                             |   | 13,152,661               |        | 1,242,036               |   |
| Loans receivable, net                                                                                                                                               |   | 128,701,247              |        | 109,270,991             |   |
| Loans available for sale                                                                                                                                            |   | 29,199,131               |        | 19,962,092              |   |
| Foreclosed real estate, net                                                                                                                                         |   | 349,720                  |        | 526,478                 |   |
| Accrued interest receivable, net                                                                                                                                    |   | 559,448                  |        | 776,358                 |   |
| Premises and equipment, net                                                                                                                                         |   | 1,663,257                |        | 1,739,298               |   |
| Federal Home Loan Bank of Atlanta stock, at cost                                                                                                                    |   | 2,328,800                |        | 1,903,800               |   |
| Income tax refund receivable                                                                                                                                        |   | 8,974                    |        | 186,630                 |   |
| Deferred income taxes, net                                                                                                                                          |   | 690,549                  |        | 545,307                 |   |
| Cash surrender value life insurance                                                                                                                                 |   | 2,442,324                |        | 2,365,324               |   |
| Other assets                                                                                                                                                        |   | 1,192,352                |        | 661,489                 |   |
|                                                                                                                                                                |   |                     |        |                    |   |
| Total assets                                                                                                                                                        |   | $                        | 220,951,669 |                    | $      | 179,742,213 |   |
|                                                                                                                                                                |   |                     |        |                    |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                           |   |                     |        |                    |   |
| Liabilities                                                                                                                                                         |   |                     |        |                    |   |
| Checks outstanding in excess of Bank balances                                                                                                                       |   | $                        | 17,694      |                    | $      | 12,584 |   |
| Deposits                                                                                                                                                            |   | 137,396,646              |        | 125,476,021             |   |
| Official checks                                                                                                                                                     |   | 11,972,315               |        | 4,965,878               |   |
| Advances from the Federal Home Loan Bank                                                                                                                            |   | 52,575,000               |        | 33,075,000              |   |
| Trust preferred securities                                                                                                                                          |   | 2,894,200                |        | —                  |   |
| Advance payments by borrowers for taxes and insurance                                                                                                               |   | 344,561                  |        | 280,076                 |   |
| Accrued expenses and other liabilities                                                                                                                              |   | 1,517,486                |        | 941,140                 |   |
|                                                                                                                                                                |   |                     |        |                    |   |
| Total liabilities                                                                                                                                                   |   | $                        | 206,717,902 |                    | $      | 164,750,699 |   |
|                                                                                                                                                                |   |                     |        |                    |   |
| Commitments and contingencies                                                                                                                                       |   |                     |        |                    |   |
|                                                                                                                                                                |   |                     |        |                    |   |
| Stockholders’ Equity                                                                                                                                           |   |                     |        |                    |   |
| Preferred stock, par value $0.001 per share, authorized 10,000,000  shares,  no shares issued and  outstanding                                                 |   | $                        | —      |                    | $      | — |   |
|                                                                                                                                                                |   |                     |        |                    |   |   |   |
| Common stock, par value $0.001 per share, authorized 10,000,000  shares,  issued and outstanding  1,873,478 (2003) and 2,084,354 shares at par value $1 (2002) |   | 1,873                    |        | 2,084,354               |   |
| Additional paid-in capital                                                                                                                                          |   | 9,745,127                |        | 9,020,355               |   |
| Retained earnings                                                                                                                                                   |   | 4,469,217                |        | 3,858,817               |   |
| Accumulated other comprehensive income                                                                                                                              |   | 17,550                   |        | 27,988                  |   |
|                                                                                                                                                                |   |                     |        |                    |   |
| Total stockholders’ equity                                                                                                                                     |   | 14,233,767               |        | 14,991,514              |   |
|                                                                                                                                                                |   |                     |        |                    |   |
| Total liabilities and stockholders’ equity                                                                                                                     |   | $                        | 220,951,669 |                    | $      | 179,742,213 |   |

 

The accompanying notes to consolidated financialstatements are an integral part of these statements.

 

1

----

 

AMERICAN BANK HOLDINGS, INC.AND SUBSIDIARIES

 

**UNAUDITEDCONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                |   | **For the  Nine Months  Ended September 30,** |      | **For the  Three Months  Ended September 30,** |   |
|-----------------------------------------------------|--------|-----------------------------------------------|-----------|------------------------------------------------|--------|
|                                                |   | **2003**                                      |      | **2002**                                       |   | **2003** |   | **2002** |   |
| Interest Income                                     |   |                                          |      |                                           |   |   |   |   |   |
| Interest and fees on loans                          |   | $                                             | 6,516,886 |                                           | $      | 6,245,692 |   | $ | 2,265,602 |   | $ | 2,292,322 |   |
| Interest and dividends on investments               |   | 1,105,554                                     |      | 1,323,292                                      |   | 414,769 |   | 402,756 |   |
| Other interest income                               |   | 136,271                                       |      | 112,368                                        |   | 20,398 |   | 51,762 |   |
| Total interest income                               |   | 7,758,711                                     |      | 7,681,352                                      |   | 2,700,769 |   | 2,746,840 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Interest Expense                                    |   |                                          |      |                                           |   |   |   |   |   |
| Interest on deposits                                |   | 2,466,568                                     |      | 2,536,025                                      |   | 753,755 |   | 827,539 |   |
| Interest on short term borrowings                   |   | 1,198,730                                     |      | 426,351                                        |   | 456,813 |   | 83,682 |   |
| Interest on long term borrowings                    |   | 162,232                                       |      | 930,544                                        |   | 48,939 |   | 399,219 |   |
| Total interest expense                              |   | 3,827,530                                     |      | 3,892,920                                      |   | 1,259,507 |   | 1,310,440 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Net interest income                                 |   | 3,931,181                                     |      | 3,788,432                                      |   | 1,441,262 |   | 1,436,400 |   |
| Provision for loan losses                           |   | 275,000                                       |      | 166,218                                        |   | 100,000 |   | 95,000 |   |
| Net interest income after provision for loan losses |   | 3,656,181                                     |      | 3,622,214                                      |   | 1,341,262 |   | 1,341,400 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Other Income                                        |   |                                          |      |                                           |   |   |   |   |   |
| Loan Service charges & late fees                |   | 142,063                                       |      | 76,851                                         |   | 44,630 |   | 27,114 |   |
| Deposit service charges                             |   | 167,772                                       |      | 119,327                                        |   | 60,161 |   | 44,177 |   |
| Gain on sale of securities                          |   | 114,048                                       |      | 100,630                                        |   | 34,246 |   | 17,178 |   |
| Gain on sale of loans available for sale            |   | 2,811,600                                     |      | 1,692,163                                      |   | 1,049,007 |   | 592,241 |   |
| Total other income                                  |   | 3,235,483                                     |      | 1,988,971                                      |   | 1,188,044 |   | 680,710 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Non-Interest Expenses                               |   |                                          |      |                                           |   |   |   |   |   |
| Salaries and related expenses                       |   | 3,547,345                                     |      | 2,562,844                                      |   | 1,278,908 |   | 929,833 |   |
| Occupancy expense, net                              |   | 604,051                                       |      | 509,665                                        |   | 204,976 |   | 215,766 |   |
| Deposit insurance premiums                          |   | 54,000                                        |      | 36,000                                         |   | 18,000 |   | 12,000 |   |
| Legal and professional expenses                     |   | 207,649                                       |      | 206,496                                        |   | 76,127 |   | 32,467 |   |
| Marketing and advertising expenses                  |   | 80,505                                        |      | 106,143                                        |   | 35,735 |   | 32,755 |   |
| Data processing                                     |   | 416,922                                       |      | 287,623                                        |   | 139,991 |   | 110,118 |   |
| Net cost of operations of foreclosed real estate    |   | 23,694                                        |      | 8,008                                          |   | 16,950 |   | 15,963 |   |
| Loss contingency on insurance claim                 |   | 245,000                                       |      | —                                         |   | 245,000 |   | — |   |
| Other expenses                                      |   | 540,672                                       |      | 552,437                                        |   | 182,167 |   | 154,187 |   |
| Total non-interest expenses                         |   | 5,719,838                                     |      | 4,269,216                                      |   | 2,197,854 |   | 1,503,089 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Income before income taxes                          |   | 1,171,826                                     |      | 1,341,969                                      |   | 331,452 |   | 519,021 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Provision for income taxes                          |   | 435,900                                       |      | 515,300                                        |   | 123,200 |   | 200,700 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Net income                                          |   | $                                             | 735,926   |                                           | $      | 826,669 |   | $ | 208,252 |   | $ | 318,321 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Basic Earnings Per Common Share                     |   | $                                             | 0.38      |                                           | $      | 0.40 |   | $ | 0.11 |   | $ | 0.15 |   |
|                                                |   |                                          |      |                                           |   |   |   |   |   |
| Diluted Earnings Per Common Share                   |   | $                                             | 0.36      |                                           | $      | 0.39 |   | $ | 0.11 |   | $ | 0.15 |   |

 

The accompanying notes to consolidatedfinancial statements are an integral part of these statements.

 

2

----

 

AMERICAN BANK HOLDINGS, INC.AND SUBSIDIARIES

 

**UNAUDITEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

 
|                                                                                               |   | **Common********Stock** |      | **Additional********Paid-In********Capital** |   | **Retained********Earnings** |   | **Accumulated  Other  Comprehensive  Income** |      | **Total********Stockholders’********Equity** |   |
|----------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|----------------------------------------------|--------|------------------------------|--------|-----------------------------------------------|-----------|---------------------------------------------------|--------|
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Balance - January 1, 2002                                                                          |   | $                       | 1,969,531 |                                         | $      | 8,460,130                    |   | $                                             | 3,758,528 |                                              | $      | 6,487 |   | $ | 14,194,676 |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Net income for 2002                                                                                |   |                    |      |                                         |   | 1,039,198                    |   |                                          |      |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Net change in unrealized gains (losses) on  available-for-sale securities, net of taxes of $75,337 |   |                    |      |                                         |   |                         |   | 119,735                                       |      |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Less reclassification of gains recognized,  net of taxes of $61,809                                |   |                    |      |                                         |   |                         |   | (98,234                                       | )         |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Comprehensive income                                                                               |   |                    |      |                                         |   |                         |   |                                          |      | 1,060,699                                         |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Five percent stock dividend                                                                        |   | 98,400                  |      | 511,680                                      |   | (610,080                     | )      |                                          |      |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Cash dividend                                                                                      |   |                    |      |                                         |   | (328,829                     | )      |                                          |      | (328,829                                          | )      |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Exercise of stock options                                                                          |   | 16,423                  |      | 48,545                                       |   |                         |   |                                          |      | 64,968                                            |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Balance - December 31, 2002                                                                        |   | $                       | 2,084,354 |                                         | $      | 9,020,355                    |   | $                                             | 3,858,817 |                                              | $      | 27,988 |   | $ | 14,991,514 |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Net income for Nine Months ended September  30, 2003                                               |   |                    |      |                                         |   | 735,926                      |   |                                          |      |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Net change in unrealized gains (losses) on  available-for-sale securities, net of taxes of $37,478 |   |                    |      |                                         |   |                         |   | 59,565                                        |      |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Less reclassification of gains recognized,  net of taxes of $44,045                                |   |                    |      |                                         |   |                         |   | (70,003                                       | )         |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Comprehensive income                                                                               |   |                    |      |                                         |   |                         |   |                                          |      | 725,488                                           |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Reorganization to holding company structure                                                        |   | (1,871,605              | )         | 1,871,605                                    |   |                         |   |                                          |      |                                              |   |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Repurchase of dissenters shares                                                                    |   | (210,876                | )         | (1,146,833                                   | )      |                         |   |                                          |      | (1,357,709                                        | )      |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Cash dividend                                                                                      |   |                    |      |                                         |   | (125,526                     | )      |                                          |      | (125,526                                          | )      |
|                                                                                               |   |                    |      |                                         |   |                         |   |                                          |      |                                              |   |
| Balance - September 30, 2003                                                                       |   | $                       | 1,873     |                                         | $      | 9,745,127                    |   | $                                             | 4,469,217 |                                              | $      | 17,550 |   | $ | 14,233,767 |   |

 

The accompanying notes toconsolidated financial statements are an integral part of these statements.

 

3

----

 

AMERICAN BANK HOLDINGS, INC.AND SUBSIDIARIES

 

**UNAUDITEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                                      |   | **Nine  Months Ended September 30,** |        |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                                      |   | **2003**                             |        | **2002** |   |
| Operating Activities                                                                      |   |                                 |        |   |   |
| Net income                                                                                |   | $                                    | 735,926     |   | $ | 826,669 |   |
| Adjustments to Reconcile Net Income to Net CashProvided By (Used In) Operating Activities |   |                                 |        |   |   |
| Net accretion of discounts and amortization of premiums                                   |   | 48,652                               |        | 44,343 |   |
| Provision for loan losses                                                                 |   | 275,000                              |        | 166,218 |   |
| Gain on sale of investment securities - AFS                                               |   | (114,048                             | )           | (100,630 | ) |
| Loan fees deferred                                                                        |   | 91,371                               |        | 155,385 |   |
| Amortization of deferred loan fees                                                        |   | (268,739                             | )           | (147,492 | ) |
| Loans originated for resale                                                               |   | (160,910,900                         | )           | (81,312,636 | ) |
| Gain on sale of loans                                                                     |   | (2,811,600                           | )           | (1,692,163 | ) |
| Proceeds from sales of loans originated for resale                                        |   | 154,485,461                          |        | 82,530,984 |   |
| Net gain on sale of foreclosed real estate                                                |   | —                               |        | (10,244 | ) |
| (Increase) decrease in interest receivable                                                |   | 216,910                              |        | (120,588 | ) |
| Depreciation and amortization                                                             |   | 241,650                              |        | 140,999 |   |
| (Increase) decrease in income tax refund receivable                                       |   | 177,656                              |        | (55,658 | ) |
| Increase in deferred income taxes                                                         |   | (138,675                             | )           | (6,493 | ) |
| Increase in other assets                                                                  |   | (530,863                             | )           | (124,434 | ) |
| Increase (decrease) in other liabilities                                                  |   | 576,346                              |        | (1,406,279 | ) |
| Net cash used by operating activities                                                     |   | $                                    | (7,925,853  | ) | $ | (1,112,019 | ) |
|                                                                                      |   |                                 |        |   |   |
| Investing Activities                                                                      |   |                                 |        |   |   |
| Proceeds from sales and maturing investment securities - AFS                              |   | 7,375,012                            |        | 12,432,848 |   |
| Purchase of investment securities - AFS                                                   |   | (39,501,783                          | )           | (22,316,938 | ) |
| Proceeds from maturing investment securities - HTM                                        |   | 2,000,000                            |        | 9,000,000 |   |
| Purchase of investment securities - HTM                                                   |   | (18,856,250                          | )           | (5,046,450 | ) |
| Principal collected on mortgage backed securities                                         |   | 21,027,845                           |        | 4,482,676 |   |
| Principal collected on loans                                                              |   | 59,218,141                           |        | 53,296,936 |   |
| Loans originated or acquired                                                              |   | (78,780,038                          | )           | (67,450,126 | ) |
| Funds advanced on foreclosed real estate                                                  |   | (14,195                              | )           | (40,470 | ) |
| Proceeds from the sale of foreclosed real estate                                          |   | 190,952                              |        | 169,551 |   |
| Purchases of premises and equipment                                                       |   | (165,609                             | )           | (1,274,965 | ) |
| Purchase of stock in the Federal Home Loan Bank                                           |   | (425,000                             | )           | (625,000 | ) |
| Investment in life insurance policies                                                     |   | (77,000                              | )           | (62,100 | ) |
| Net cash used by investing activities                                                     |   | $                                    | (48,007,925 | ) | $ | (17,434,038 | ) |

 

4

----

 

AMERICAN BANKAND SUBSIDIARIES

 

**UNAUDITED CONSOLIDATED STATEMENTS OF CASHFLOWS**

 
|                                                                                                                             |   | **Nine  Months Ended September 30,** |      |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|
|                                                                                                                             |   | **2003**                             |      | **2002** |   |
| Financing Activities                                                                                                             |   |                                 |      |   |   |
| Decrease in checks outstanding in excess of  bank balances                                                                       |   | $                                    | 5,110     |   | $ | (2,942 | ) |
| Increase in demand deposits, NOW accounts,  savings accounts, official checks and advances by borrowers for taxes and  insurance |   | 13,710,427                           |      | 1,483,234 |   |
| Net increase in certificates of deposit                                                                                          |   | 5,281,120                            |      | 14,166,723 |   |
| Net proceeds from borrowings                                                                                                     |   | 19,500,000                           |      | 10,985,000 |   |
| Repurchase shares of common stock                                                                                                |   | (1,357,709                           | )         | — |   |
| Proceeds from trust preferred offering                                                                                           |   | 2,894,200                            |      | — |   |
| Proceeds from exercise of stock options                                                                                          |   | —                               |      | 28,285 |   |
| Cash dividends paid                                                                                                              |   | (125,526                             | )         | (245,145 | ) |
| Net cash provided by financing activities                                                                                        |   | 39,907,622                           |      | 26,415,155 |   |
| Decrease in cash equivalents                                                                                                     |   | (16,026,156                          | )         | 7,869,098 |   |
| Cash and cash equivalents at beginning of  year                                                                                  |   | 22,809,509                           |      | 15,291,936 |   |
|                                                                                                                             |   |                                 |      |   |   |
| Cash and cash equivalents at end of period                                                                                       |   | $                                    | 6,783,353 |   | $ | 23,161,034 |   |
|                                                                                                                             |   |                                 |      |   |   |
| Reconciliation of Cash and Cash Equivalents  at End of Period                                                                    |   |                                 |      |   |   |
| Cash                                                                                                                             |   | $                                    | 989,752   |   | $ | 7,010,141 |   |
| Interest bearing deposits in other banks                                                                                         |   | 5,303,601                            |      | 15,713,893 |   |
| Federal funds                                                                                                                    |   | 490,000                              |      | 437,000 |   |
| Cash and cash equivalents at end of period                                                                                       |   | $                                    | 6,783,353 |   | $ | 23,161,034 |   |
|                                                                                                                             |   |                                 |      |   |   |
| Other Cash Flow Information                                                                                                      |   |                                 |      |   |   |
| Interest paid                                                                                                                    |   | $                                    | 4,218,682 |   | $ | 3,787,124 |   |
| Income taxes paid                                                                                                                |   | 413,500                              |      | 601,650 |   |
| Stock dividend                                                                                                                   |   | —                               |      | 610,080 |   |

 

The accompanying notes toconsolidated financial statements are an integral part of these statements.

 

5

----

 

**AMERICAN BANK HOLDINGS, INC. AND SUBSIDIARIES**

 

Notesto Unaudited Consolidated Financial Statements

Asof and for the Nine Months Ended September 30, 2003 and 2002

 

 

1) Basis of Presentation

 

American Bank Holdings, Inc. (the “Company”) is a corporation formedunder the laws of Delaware to serve as the savings and loan holding company ofAmerican Bank (the “Bank”), a federally chartered stock savings bank and parentof American Bank Holdings Statutory Trust I. The Bank’s shareholders approved a reorganization into a holding companystructure at a meeting held on March 17, 2003. As a result of the reorganization, completed on March 25, 2003,stockholders of the Bank are now stockholders of American Bank Holdings, Inc.and the Bank is a direct subsidiary of the Company.  Each outstanding share of American Bank common stock (other thandissenting shares) has been converted into one share of the Company’s commonstock; the par value of the Company’s common stock is $0.001 while the Bank’scommon stock had a par value of $1.00. The consolidated financial statements include the accounts of theCompany and its wholly owned subsidiaries. As a result, the financial data for the periods prior to March 25, 2003is the data for the Bank and thereafter, it is the financial data of theCompany.  All intercompany accounts andtransactions have been eliminated in the accompanying financial statements.

 

The consolidated financial statements as ofSeptember 30, 2003 and for the three and nine months ended September 30, 2003and 2002 are unaudited and have been prepared in conformity with accountingprinciples generally accepted in the United States of America for interimfinancial information and with the instructions to Form 10-QSB and Rule 10-01of Regulation S-X, but, in the opinion of management of the Company, containall adjustments, consisting solely of normal recurring entries, necessary topresent fairly the consolidated financial condition as of September 30, 2003and the results of consolidated operations for the three and nine months endedSeptember 30, 2003 and 2002 and consolidated cash flows for the nine monthsended September 30, 2003 and 2002.  Theconsolidated statement of financial condition of December 31, 2002 is derivedfrom the Bank’s audited financial statements.

 

The results of consolidated operations for the nine months endedSeptember 30, 2003 are not necessarily indicative of results that may beexpected for the year ending December 31, 2003.  Moreover, in preparing the consolidated financial statements,management is required to make estimates and assumptions that effect thereported amounts of assets and liabilities as of the date of the balance sheetsand income statements for the period. Actual results could differ significantly from those estimates.  Material estimates that are particularlysusceptible to significant change in the near term include the determination ofthe allowance for loan losses and the valuation of foreclosed real estate.  These condensed financial statements shouldbe read in conjunction with the audited financial statements and notes includedin the 2002 annual report of American Bank on Form 10-KSB as filed with theOffice of Thrift Supervision and as an exhibit to the Company’s Form 8-K filedwith the SEC on April 1, 2003.

 

 

2) Earnings Per Share

 

Basic earnings per share for the three and nine months ended September30, 2003 was determined by dividing net income by 1,873,478 and 1,959,219, respectively,the weighted average number of shares

 

6

----

 

of common stock outstanding during theperiod.  Basic earnings per share forthe three and nine months ended September 30, 2002 was determined by dividingnet income by 2,075,677 and 2,071,705, respectively, the weighted averagenumber of shares of common stock outstanding during the period.  Diluted earnings per share for the three andnine months ended September 30, 2003 was determined by dividing net income by1,958,257 and 2,041,369, respectively, the weighted average number of shares ofcommon stock and common stock equivalents outstanding during the period.  Diluted earnings per share for the three andnine months ended September 30, 2002 was determined by dividing net income by2,153,395 and 2,146,089, respectively, the weighted average number of shares ofcommon stock and common stock equivalents outstanding during the period.  Common stock equivalents consist ofoutstanding stock options, if such options are dilutive.

 

3) Stock Based Compensation

 

SFAS No. 123, “Accounting for Stock-Based Compensation”, requires theBank to make certain disclosures as if the fair value method of accounting hadbeen applied to the Bank’s stock option grants made subsequent to 1994.  Accordingly, the Bank estimated the grantdate fair value of each option awarded using the Black-Scholes Option-Pricingmodel.  Had 2003 compensation cost been determinedincluding the weighted-average estimate of fair value of options vested, theBank’s net income would be reduced to proforma amount of $721,187 and 203,339for the nine and three months ended September 30, 2003, respectively.  Proforma earnings, basic and diluted, pershare would have been $0.37 and $0.35, respectively, for the nine months endedSeptember 30, 2003 and would have been $0.11 and $0.10, respectively, for thethree months ended September 30, 2003. Had 2002 compensation cost been determined including theweighted-average estimate of fair value of options vested, the Bank’s netincome would be reduced to proforma amount of $815,290 and 314,528 for the nineand three months ended September 30, 2002, respectively.  Proforma earnings, basic and diluted, pershare would have been $0.39 and $0.38, respectively, for the nine months endedSeptember 30, 2002 and would have been $0.15 for the three months endedSeptember 30, 2002.

 

4) Trust Preferred Securities

 

On April 22, 2003, the Company formed a subsidiary, American BankHoldings Statutory Trust I, for the purpose of participating in a trustpreferred pooled offering to issue trust preferred securities which have a 30year term, with no principal amortization and a 5 year call option and areguaranteed by the Company.  These securitiespay interest at the rate of 3 month LIBOR plus 3.30% with a 12.5% interest ratecap for the first 5 years and adjust on a quarterly basis.  The initial rate on these securities was4.62%.  The net proceeds from the Trustwere invested in junior subordinated obligations of the Company, which are thesole assets of the Trust.  The proceedsfrom the Trust was used for general corporate purposes.

 

5) Recent Acounting Pronouncements

 

In April 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 onDerivative Instruments and Hedging Activities”.  This Statement improves financial reporting by requiring thatcontracts with comparable characteristics be accounted for similarly.  In particular, this Statement (1) clarifiesunder what circumstances a contract with an initial net investment meets thecharacteristic of a derivative discussed in paragraph 6(b) of Statement 133,(2) clarifies when a derivative contains a

 

7

----

 

financing component, (3) amends thedefinition of an underlying to conform it to language used in FASBInterpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others”, and (4)amends certain other existing pronouncements. Those changes will result in more consistent reporting on contracts aseither derivatives or hybrid instruments. This Statement is effective for contracts and hedging relationshipsentered into or modified after September 30, 2003.

 

In May 2003, FASB issued SFAS No. 150 “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity.”  This Statement requires that an issuerclassify a financial instrument that is within its scope as a liability (or anasset in some circumstances).  ThisStatement is effective for financial instruments entered into or modified afterMay 31, 2003.  FASB issued a StaffPosition (No. FAS 150-3) which deferred the implementation of SFAS No. 150indefinitely, pending further FASB action.

 

The above accounting pronouncements will not have a material impact onthe consolidated financial statements.

 

 

**Item 2**.

 

**Management’s Discussion and Analysis of Financial Conditionand**

**Results of Operations**

 

 

This discussion and analysis includes a description of material changesthat have affected the Company’s consolidated financial condition andconsolidated results of operations during the periods included in the unauditedconsolidated financial statements.

 

General

 

American Bank Holdings, Inc. is a corporation formed under the laws ofDelaware to serve as the holding company for American Bank. The business of theCompany is conducted through the Bank, which is American Bank, a federallychartered savings bank with six branch offices.  The Bank’s corporate headquarters is located in Silver Spring,Maryland and the Bank has four full-service offices located at 1700 RockvillePike, Rockville, Maryland, 5600 Connecticut Avenue, Washington D.C., in theSuperFresh market at 12028 Cherry Hill Road, Silver Spring, Maryland and in theSuperFresh market at 3301 North Ridge Road, Ellicott City, Maryland and a loanproduction/leasing office in Charlotte, North Carolina.  Deposits in the Bank are insured toapplicable limits by the Federal Deposit Insurance Corporation.   All references to the Company prior toMarch 25, 2003, except where otherwise indicated, are to the Bank.   As of September 30, 2003, the Bank had 62employees, 57 of whom work full time.

 

The Company recorded net income of $208,252, or $.11 per diluted share,for the quarter ended September 30, 2003 as compared to net income of $318,321,or $.15 per diluted share, for the quarter ended September 30, 2002.  Net income for the first nine months of 2003was $735,926, or $.36 per diluted share, as compared to $826,669, or $.39 perdiluted share, for the first nine months of 2002.  The decrease in net income for the nine month period endedSeptember 30, 2003 was attributable to a loss contingency on an

 

8

----

 

insurance claim set aside for damage toproperty without flood insurance for which the Bank was the firstlienholder.  Excluding this charge theCompany would have recorded net income of $358,652 for the quarter endedSeptember 30, 2003 and $886,326 for the first nine months of 2003.

 

**FinancialCondition**  (September 30, 2003 compared to December 31,2002)

 

Total assets increased by $41.2 million, or 23.0%, to $221.0 million atSeptember 30, 2003 compared to December 31, 2002.  Total loans outstanding increased by $28.7 million from $129.2 millionat December 31, 2002 to $157.9 million at September 30, 2003.  The Company originated $239.7 million ofloans during the nine months ended September 30, 2003 as compared to $148.8million during the same period in 2002. The increase in loan production was primarily due to the increase inmortgage refinances originated and subsequently sold by the mortgage division,and an increase in commercial related loans. The drastic increase in mortgage originations is due to the current lowinterest rate environment.  Investmentsecurities held-to-maturity increased by $11.9 million and investmentsecurities available-for-sale increased by $16.1 million from year end 2002 toSeptember 30, 2003.  Cash and cashequivalents decreased by $16.0 million during the six months ended September30, 2003.  The decrease in cash and cashequivalents is due to cash being invested in investment securities and loans.

 

Nonperforming assets, net (including nonaccrual loans, real estateowned and repossessed assets) remained stable at $1.9 million at September 30,2003 compared to $2.0 million at December 31, 2002.  The mix of the nonperforming assets changed due to therepossession of collateral on a corporate loan, which was  in non-accrual loans during the firstquarter of 2003.  At September 30, 2003,the book balance for the repossessed assets was $289,292 and was classified asother assets on the balance sheet. Total nonperforming assets, net, as a percentage of total assets were0.9% at September 30, 2003 and 1.1% at December 31, 2002.

 

The following table sets forth the composition of the Company’snonperforming assets at the dates indicated.

 
|                                          |   | **September  30, 2003** |      | **December  31, 2002** |   |
|-----------------------------------------------|--------|-------------------------|-----------|------------------------|--------|
|                                          |   |                    |      |                   |   |
| Non-accrual loans:                            |   |                    |      |                   |   |
| One to four family residential mortgage loans |   | $                       | 993,669   |                   | $      | 1,053,424 |   |
| Commercial real estate loans                  |   | 235,384                 |      | 49,029                 |   |
| Corporate loans                               |   | —                  |      | 399,210                |   |
| Consumer loans                                |   | 13,586                  |      | 20,448                 |   |
| Total non-accrual loans                       |   | 1,242,639               |      | 1,522,111              |   |
| Real estate owned                             |   | 349,720                 |      | 526,478                |   |
| Repossessed assets                            |   | 289,292                 |      | —                 |   |
| Total nonperforming assets                    |   | $                       | 1,881,651 |                   | $      | 2,048,589 |   |

 

The allowance for losses on loans is established through a provisionfor loan losses based upon management’s evaluation of the risk inherent in theloan portfolio and changes in the nature and volume of loan activity.  Management considers, among other factors,the estimated fair value of the underlying collateral, current economicconditions and historical loan loss experience.  While management uses available

 

9

----

 

information in establishing the allowance forpossible loan losses, future adjustments to the allowance may be necessary ifeconomic conditions differ substantially from the assumptions used in makingthe evaluations.  Additions to the allowanceare charged to operations; realized losses, net of recoveries, are charged tothe allowance.  In addition, variousregulatory agencies, as part of their examination process, periodically reviewthe Company’s allowance for possible loan losses.  Management will continue to monitor and modify allowances forloan losses as conditions dictate. Although management maintains allowances at levels that it considersadequate to provide for potential losses, there can be no assurances that suchlosses will not exceed the estimated amounts or that higher provisions will notbe necessary in the future.

 

The Company has twenty-nine loans, amounting to $1,242,639, as ofSeptember 30, 2003 which are considered to be potential problem loans.  All of these loans are classified asnon-accrual loans because the borrowers are over 90 days delinquent andmanagement feels it may have difficulty in collecting the principal balance onthese loans.  Commercial real estateloans increased during the second quarter due to one loan in the amount of$188,992 becoming greater than 90 days delinquent.  Management feels the loan is very well collateralized and fullyexpect to be able to recover all of the principal balance, accrued interest chargesand late fees on this loan.  The Companyhad allowance for loan losses of $1,279,621, or 0.81% of total loansoutstanding, at September 30, 2003 and $1,016,951, or 0.79% of total loansoutstanding, at December 31, 2002.

 

The Company also establishes allowances for losses on real estate ownedbased upon its fair value less the cost of disposal.  The valuations of real estate owned properties are reviewed atleast quarterly and updated as necessary based on the Company’s expectations ofholding periods, sales activity and other changes in market conditions.  Based on available information, managementbelieves that current loss reserves are adequate at this time to coverpotential losses in the portfolio. There can be no assurance, however, that additional loss provisions willnot be necessary in the future if market conditions deteriorate.  The Company had allowance for losses of$28,560, or 8.2% of  real estate owned,at September 30, 2003 and $34,801, or 6.2% of real estate owned, at December 31, 2002.

 

The Company had unrealized gains of $28,592 on its investmentsecurities available-for-sale portfolio at September 30, 2003.  The amortized cost of this portfolio was$33.9 million at that date.  There werenet unrealized gains of $8,284 on its investment securities held-to-maturityportfolio at September 30, 2003, with an amortized cost of $13.2  million. The Company’s investment securities portfolio includes agencyobligations, mortgage-backed securities and collateralized mortgageobligations.  The Company’s investmentsecurities available-for-sale portfolio increased by $16.1 million from yearend 2002 to September 30, 2003 due to the purchase of collateralized mortgageobligations and agency securities offset slightly by the repayment of principalon mortgage-backed securities and collateralized mortgage obligations and saleof investment securities available-for-sale. The Company’s investment securities held-to-maturity portfolio increasedby $11.9 million during the period due to the purchase of agency securitiesoffset slightly by the maturity of an agency security and the repayment ofprincipal on mortgage-backed securities.

 

Deposits increased by $11.9 million during the nine months endedSeptember 30, 2003. The Bank continued to focus their efforts in reducing theircost of deposits and try to attract additional core deposits.  Core deposits (money market, checking andstatement savings accounts) increased by $6.6 million while certificates ofdeposits increased by $5.3 million during the first nine months of 2003.  The deposits at September 30, 2003 had anaverage interest rate of 1.88%. Advances from the Federal Home Loan Bank increased by $19.5 millionduring the first nine months of 2003. The advances from the Federal Home Loan Bank at September 30, 2003 hadan average interest rate of 3.51%

 

The Company’s stockholders’ equity decreased by $758,000 to $14.2million at September 30, 2003 compared to $15.0 million at December 31,2002.  The decrease was due to thepurchase of shares from the

 

10

----

 

dissenting shareholders in the conversion,payment of cash dividends and the decrease in net unrealized holding gains oninvestments available for sale offset by current period earnings.  At September 30, 2003, the Company wasconsidered “well capitalized” under regulatory definitions.

 

**RESULTS OFOPERATIONS**

 

The Company’s operating results depend primarily on its net interestincome, which is the difference between interest income on interest-earningassets (primarily loans and investment securities) and interest expense oninterest-bearing liabilities (primarily deposits and borrowings).  The Company’s operating results are alsoaffected by its other income (primarily gain on sale of loans, collection oflate fees and service charges) and its operating expenses (primarily salariesand administrative costs).

 

The following table sets forth certain information relating to theCompany’s average interest-bearing assets and interest-bearing liabilities andreflects the average yield on assets and the average cost of liabilities forthe periods indicated.  During theperiods indicated, non-accrual loans are included in the loans category.

 

**American Bank Holdings, Inc.**

**Rate Spread Analysis**

**(in thousands, except rates)**

 
|                                       |   | **9 Months  ended September 30, 2003** |    | **9 months  ended September 30, 2002** |   |
|--------------------------------------------|--------|----------------------------------------|---------|----------------------------------------|--------|
|                                       |   | **Average  Balance**                   |    | **Interest**                           |   | **Interest  Rate** |   | **Average  Balance** |   | **Interest** |   | **Interest  Rate** |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Interest-bearing assets:                   |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Loans                                      |   | $                                      | 139,443 |                                   | $      | 6,517 |   | 6.23 | % | $ | 111,587 |   | $ | 6,246 |   | 7.46 | % |
| Investment and mortgage- backed securities |   | 37,846                                 |    | 1,105                                  |   | 3.89 |   | 26,976 |   | 1,323 |   | 6.54 |   |
| Other                                      |   | 16,248                                 |    | 136                                    |   | 1.12 |   | 10,262 |   | 112 |   | 1.46 |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Total interest-bearing assets              |   | 193,537                                |    | 7,759                                  |   | 5.34 |   | 148,825 |   | 7,681 |   | 6.88 |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:              |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Deposits                                   |   | 135,674                                |    | 2,467                                  |   | 2.42 |   | 102,405 |   | 2,536 |   | 3.30 |   |
| FHLB advances & other borrowings       |   | 40,208                                 |    | 1,361                                  |   | 4.51 |   | 37,083 |   | 1,357 |   | 4.88 |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Total interest-bearing liabilities         |   | 175,882                                |    | 3,828                                  |   | 2.90 |   | 139,488 |   | 3,893 |   | 3.72 |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Average interest rate spread               |   |                                   |    |                                   |   | 2.44 |   |   |   |   |   | 3.16 |   |
|                                       |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Net interest margin                        |   |                                   |    |                                   |   | 2.71 | % |   |   |   |   | 3.39 | % |
|                                            |        |                                        |         |                                        |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

11

----

 
|                                      |   | **3 Months  ended September 30, 2003** |    | **3 months  ended September 30, 2002** |   |
|-------------------------------------------|--------|----------------------------------------|---------|----------------------------------------|--------|
|                                      |   | **Average  Balance**                   |    | **Interest**                           |   | **Interest  Rate** |   | **Average  Balance** |   | **Interest** |   | **Interest  Rate** |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Interest-bearing assets:                  |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Loans                                     |   | $                                      | 154,710 |                                   | $      | 2,266 |   | 5.86 | % | $ | 121,998 |   | $ | 2,292 |   | 7.52 | % |
| Investment and mortgage-backed securities |   | 47,186                                 |    | 415                                    |   | 3.52 |   | 24,097 |   | 403 |   | 6.69 |   |
| Other                                     |   | 7,255                                  |    | 20                                     |   | 1.10 |   | 14,479 |   | 52 |   | 1.43 |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Total interest-bearing assets             |   | 209,151                                |    | 2,701                                  |   | 5.17 |   | 160,574 |   | 2,747 |   | 6.84 |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:             |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Deposits                                  |   | 141,616                                |    | 754                                    |   | 2.13 |   | 108,948 |   | 827 |   | 3.04 |   |
| FHLB advances & other borrowings      |   | 48,888                                 |    | 506                                    |   | 4.14 |   | 42,060 |   | 483 |   | 4.59 |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Total interest-bearing liabilities        |   | 190,504                                |    | 1,260                                  |   | 2.65 |   | 151,008 |   | 1,310 |   | 3.47 |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Average interest rate spread              |   |                                   |    |                                   |   | 2.52 |   |   |   |   |   | 3.37 |   |
|                                      |   |                                   |    |                                   |   |   |   |   |   |   |   |   |   |
| Net interest margin                       |   |                                   |    |                                   |   | 2.76 | % |   |   |   |   | 3.58 | % |
|                                           |        |                                        |         |                                        |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

**RESULTS OFOPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002**

 

General.  The Company recorded net income of $208,252,or $.11 per diluted share, for the three months ended September 30, 2003 ascompared to net income of $318,321, or $.15 per diluted share, for the threemonths ended September 30, 2002.    Thedecrease in net income was attributable due to a loss contingency on aninsurance claim set aside for damage to property without flood insurance forwhich the Bank was the first lienholder. Excluding this one-time charge the Company would have recorded netincome of $358,652 for the quarter ended September 30, 2003.

 

Net interest income, after provision for loan losses, decreased by $138for the three months ended September 30, 2003 when compared to the same periodin 2002.  Other income increased by$507,334 and operating expenses increased by $694,765 during the three monthsended September 30, 2003 compared to the same period in 2002.  The increase in other income was primarilydue to an increase in gains on sale of loans. The increase in operating expenses was primarily due to additionalcompensation & employee benefit expenses, data processing expenses and theaccrual of a loss contingency.

 

Net Interest Income.  The Company’s net interestincome increased by $4,862 during the three months ended September 30, 2003 ascompared to the same period in 2002. The increase was primarily due to the increase in average volume ofinterest-earning assets offset by the decrease in interest rate spread.

 

Provision for Loan Losses.  The Company’s provision forloan losses increased by $5,000 to $100,000 during the three months endedSeptember 30, 2003 compared to the same period in 2002.  The increase was due to the Companyproviding more reserves in the current quarter based on the periodic reviews ofthe underlying collateral securing the loans.

 

Other Income.  The Company’s other non-interest incomeincreased by $507,334 to $1,188,044 during the three months ended September 30,2003 compared to the same period in 2002. The increase was due to additional loan service charges, deposit servicecharges and gains recognized on the sale of loans available-for-sale from themortgage division.  The Company’s coredeposit base has increased due to the expansion of the branch locations whichis creating more opportunities to collect deposit related service charges.  The origination and subsequent sale of loansis the primary function of the mortgage division.

 

Operating Expense.  The Company’s operatingexpenses increased by $694,765 to $2,197,854 during the three months endedSeptember 30, 2003 compared to the same period in 2002.  The increase in operating

 

12

----

 

expenses was primarily due to the increase incompensation & employee benefit expenses, legal expenses, data processingexpenses and an accrual of a loss contingency. The increase in compensation & employee benefit expenses wasprimarily due to additional staff hired in the lending area and branchnetwork.  Occupancy expenses increasedprimarily due to additional branch location, loan production office and newheadquarters for the Company.  Data processingexpenses increased due to increased costs associated with the new processingsystem, which includes the amortization of the capitalized equipment andincreased costs paid to the third party vendor, and additional volume ofaccounts.

 

**RESULTS OFOPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002**

 

General.  The Company recorded net income of $735,926,or $.36 per diluted share, for the nine months ended September 30, 2003 ascompared to net income of $826,669, or $.39 per diluted share, for the ninemonths ended September 30, 2002.   Thedecrease in net income for the nine month period ended September 30, 2003 wasattributable due to a loss contingency on an insurance claim set aside fordamage to property without flood insurance for which the Bank was the firstlienholder.  Excluding this one-timecharge the Company would have recorded net income of $886,326 for the firstnine months of 2003.  Excluding the losscontingency the increase in net income for the nine month period endedSeptember 30, 2003 was attributable primarily to the increase in net interestincome before provision for loan losses and gains recognized on the sale ofmortgage loans originated for sale by the mortgage division offset by theincrease in operating expenses.

 

Net interest income, after provision for loan losses, increased by$33,967 for the nine months ended September 30, 2003 when compared to the sameperiod in 2002.  Other income increasedby $1,246,512 and operating expenses increased by $1,450,622 during the ninemonths ended September 30, 2003 compared to the same period in 2002.  The increase in other income was primarilydue to an increase in gains on sale of loans. The increase in operating expenses was primarily due to additionalcompensation & employee benefit expenses, occupancy expenses, dataprocessing expenses and an accrual for a loss contingency.

 

Net Interest Income.  The Company’s net interestincome increased by $142,749 during the nine months ended September 30, 2003 ascompared to the same period in 2002. The increase was primarily due to the increase in average volume ofinterest-earning assets offset by the decrease in interest rate spread.  During the first nine months of 2003, due tothe interest rate environment management did not want to take an excessiveamount of interest rate risk and thus had an unusually high percentage ofassets in interest bearing deposits and federal funds sold.  This strategy had a negative impact on thecurrent interest rate spreads during this period, however, management felt thatsuch action would allow them to take advantage of an increase in interest ratesin future periods.  During the thelatter part of the second quarter, loan production increased and the interestrate environment improved and management was able to take advantage ofopportunities to increase the investment portfolio.  Management feels it will be able to improve the interest ratespreads to approximate 2002 levels, while at the same time increasing totalassets resulting in an increase in anticipated net interest income.

 

Provision for Loan Losses.  The Company’s provision forloan losses increased by $108,782 to $275,000 during the nine months endedSeptember 30, 2003 compared to the same period in 2002.  The increase was due to the Companyproviding more reserves in the current quarter based on the periodic reviews ofthe underlying collateral securing the loans.

 

Other Income.  The Company’s other non-interest incomeincreased by $1,246,512 to $3,235,483 during the nine months ended September30, 2003 compared to the same period in 2002. The increase was due to additional loan service charges, deposit servicecharges and gains recognized on the sale of loans available-for-sale from themortgage division.  The Company’s core depositbase has increased due to the expansion of the branch locations which iscreating more opportunities to collect deposit related service charges.  The originating and subsequent sale of loansis the primary function of the mortgage division.

 

Operating Expense.  The Company’s operatingexpenses increased by $1,450,622 to $5,719,838 during the nine months endedSeptember 30, 2003 compared to the same period in 2002.  The increase in operating expenses wasprimarily due to the increase in compensation & employee benefit expenses,occupancy expenses, data processing expenses and an accrual for a losscontingency.  The increase incompensation & employee benefit expenses was primarily due to additionalstaff hired in the lending area and branch network.  Occupancy expenses increased primarily due to additional branchlocation, loan production office and new headquarters for the Company. Dataprocessing expenses increased due to increased costs associated with the newprocessing system, which includes the amortization of the capitalized equipmentand increased costs paid to the third party vendor, and additional volume ofaccounts.

 

13

----

 

**COMMITMENTS,CONTINGENCIES AND OFF-BALANCE SHEET RISK**

 

The Company is a party to financial instruments with off-balance sheetrisk including commitments to extend credit under existing lines of credit andcommitments to sell loans.  Theseinstruments involve, to varying degrees, elements of credit and interest raterisk in excess of the amount recognized in the consolidated balance sheets.

 

Off-balance sheet financial instruments whose contract amountsrepresent credit and interest rate risk are summarized as follows (dollars inthousands):

 
|                                                                                             |   | **September  30, 2003** |   | **December  31, 2002** |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
|                                                                                             |   |                    |   |                   |   |
| Commitments to originate new loans                                                               |   | 3,157                   |   | 2,560                  |   |
|                                                                                             |   |                    |   |                   |   |
| Commitments to originate new loans held for sale                                                 |   | —                  |   | —                 |   |
|                                                                                             |   |                    |   |                   |   |
| Unfunded commitments to extend credit under existing equity line and  commercial lines of credit |   | 11,084                  |   | 7,361                  |   |
|                                                                                             |   |                    |   |                   |   |
| Commercial letters of credit                                                                     |   | 175                     |   | 468                    |   |
|                                                                                             |   |                    |   |                   |   |
| Commitments to sell loans held for sale                                                          |   | 23,262                  |   | 18,156                 |   |

 

The Company does not have any special purpose entities or other similarforms of off-balance sheet financing arrangements.

 

Commitments to originate new loans or extend credit are agreements tolend to a customer as long as there is no violation of any conditionestablished in the contract.  Loancommitments generally expire within 30 to 45 days.  Most equity line commitments for the unfunded portion of equitylines are for a term of 10 years, and commercial lines of credit are generallyrenewable on an annual basis. Commitments generally have fixed expiration dates or other terminationclauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawnupon, the total commitment amounts do not necessarily represent future cashrequirements.  The Company evaluateseach customer’s creditworthiness on a case-by-case basis.  The amounts of collateral obtained, ifdeemed necessary by the Company upon extension of credit, is based onmanagement’s credit evaluation of the borrower.

 

Commitments to sell loans held for sale are agreements to sell loans toa third party at an agreed upon price. At September 30, 2003, the aggregate fair value of these commitmentsexceeded the book value of the loans to be sold.

 

**CRITICALACCOUNTING POLICIES**

 

The Company’s significant accounting policies are set forth in note 1of the consolidated financial statements as of December 31, 2002 which wasfiled on Form 10-KSB with the Office of Thrift Supervision and as an exhibit tothe Company’s Current Report on Form 8-K filed with the SEC on April 1,2003.  Of these significant accounting policies,the Company considers its policy regarding the allowance for loan losses to beits most critical accounting policy, because it requires management’s mostsubjective and complex judgments.  Inaddition, changes in economic conditions can have a significant impact on theallowance for loan losses and therefore the provision for loan losses andresults of operations.  The Company hasdeveloped appropriate policies and procedures for assessing the adequacy of theallowance for loan losses, recognizing that this process requires a number of assumptionsand estimates with respect to its loan portfolio.  The Company’s assessments may be impacted in future periods bychanges in economic conditions, the impact of regulatory examinations, and thediscovery of information with respect to borrowers that is not known tomanagement at the time of the issuance of the consolidated financialstatements.

 

14

----

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company’s main sources of liquidity, as a holding company, are dividendsfrom the Bank, investment income and net proceeds from borrowings and capitalsecurities offerings.  As a neworganization, the Company expects its main uses of liquidity initially will bethe payment of dividends to shareholders, and the payment of interest to theissuer of trust preferred securities. The ability of the Bank to pay dividends is subject to variousregulatory limitations.  As part of thereorganization of the Company, the Company received a capital contribution of$400,000 from the Bank.

 

During the quarter ended June 30, 2003, the Bank purchased 210,876shares of American Bank common stock from dissenters to the reorganization foran aggregate of $1,357,709.

 

The Bank is required to maintain sufficient liquidity to ensure itssafe and sound operation.  As requiredby recent legislation, the OTS recently deleted its requirement that federalsavings associations maintain a certain minimum level of liquid assets.  Instead, adequate liquidity is assessed bythe OTS on a case-by-case basis by reviewing such factors as the institution’soverall asset/liability structure, market conditions, competition and thenature of the institution’s activities. The OTS considers both an institution’s liquidity ratio as well assafety and soundness issues in assessing whether an institution has sufficientliquidity.  The Bank has ample liquidityto meet its outstanding loan commitments. At September 30, 2003, the Bank had outstanding loan commitmentstotaling $3,157,000.

 

Quantitative measures established by bank regulations to ensure capitaladequacy require the Bank to maintain minimum amounts and ratios (set forth inthe table below) of total and Tier I capital (as defined in the regulations)and risk-weighted assets (as defined), and of Tier I capital (as defined) toaverage assets (as defined).  As ofSeptember 30, 2003, the Bank meets all capital adequacy requirements to whichit is subject.

 

As of September 30, 2003, the most recent notification from the OTScategorized the Bank as “well capitalized” under the regulatory framework forprompt corrective action.  To becategorized as “well capitalized” the Bank must maintain minimum totalrisk-based, Tier I risk-based, and Tier I leverage ratios as set forth in thetable.  There have been no conditions orevents since that notification that management believes have changed the Bank’scategory.  The Bank’s actual capitalamounts and ratios are as follows:

 
|       |   | **ACTUAL** |   | **ACTUAL%** |   | **REQUIRED** |   | **REQ’D%** |   | **EXCESS** |   |
|------------|--------|------------|--------|-------------|--------|--------------|--------|-----------------|--------|------------|--------|
|       |   |       |   |        |   |         |   |            |   |       |   |
| Core       |   | $          | 16,110 |        | 7.29   | %            | $      | 8,838           |   | 4.0        | %      | $ | 7,272 |   |
| Tangible   |   | 16,110     |   | 7.29        |   | 3,314        |   | 1.5             |   | 12,796     |   |
| Risk-based |   | 17,065     |   | 11.87       |   | 11,501       |   | 8.0             |   | 5,564      |   |
|            |        |            |        |             |        |              |        |                 |        |            |        |  |  |  |

 

15

----

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The following table sets forth the amount ofinterest-earning assets and interest-bearing liabilities outstanding atSeptember 30, 2003, which are expected to mature or reprice in each of the timeperiods shown.

 

AMERICANBANK HOLDINGS, INC.

RepricingSchedule as of September 30, 2003

(inthousands)

 
|                               |   | **Less than  One Year** |   | **One Year  to  Five Years** |   | **Five Years  to Ten  Years** |   | **More than  Ten Years** |   | **Totals** |   |
|------------------------------------|--------|-------------------------|--------|------------------------------|--------|-------------------------------|--------|--------------------------|--------|------------|--------|
| Interest-earning assets            |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Loans                              |   | $                       | 74,125 |                         | $      | 16,584                        |   | $                        | 3,425  |       | $      | 34,567 |   | $ | 128,701 |   |
| Investment securities              |   | 3,724                   |   | —                       |   | 12,055                        |   | 31,253                   |   | 47,032     |   |
| Other interest-earning assets      |   | 8,122                   |   | —                       |   | —                        |   | —                   |   | 8,122      |   |
| Total interest-earning assets      |   | 85,971                  |   | 16,584                       |   | 15,480                        |   | 65,820                   |   | 183,855    |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Interest-bearing liabilities       |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Certificates of Deposit            |   | 58,170                  |   | 29,393                       |   | —                        |   | —                   |   | 87,563     |   |
| Money market deposits              |   | 9,181                   |   | 15,655                       |   | 4,476                         |   | —                   |   | 29,312     |   |
| NOW & Statement accounts       |   | 3,512                   |   | 8,959                        |   | 8,051                         |   | —                   |   | 20,522     |   |
| Borrowings & Trust preferred   |   | 48,969                  |   | 6,500                        |   | —                        |   | —                   |   | 55,469     |   |
| Total interest-bearing liabilities |   | 119,832                 |   | 60,507                       |   | 12,527                        |   | —                   |   | 192,866    |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| GAP                                |   | (33,861                 | )      | (43,923                      | )      | 2,953                         |   | 65,820                   |   |       |   |
| Cumulative GAP                     |   | (33,861                 | )      | (77,784                      | )      | (74,831                       | )      | (9,011                   | )      |       |   |
| Cum. GAP/total assets              |   | -18.4                   | %      | -42.3                        | %      | -40.7                         | %      | -4.9                     | %      |       |   |
|                                    |        |                         |        |                              |        |                               |        |                          |        |            |        |  |  |  |  |  |

 

The following assumptions were used by the Company’s management inorder to prepare the Company’s GAP (repricing schedule) table set forthabove.  Loans are shown based oncontractual maturity and scheduled repricing for fixed-rate and adjustable-ratemortgages, respectively.  Themortgage-backed securities and collateralized mortgage obligations portion ofthe investment securities portfolio are shown based on contractual maturity asscheduled repricing for fixed-rate and adjustable-rate securities,respectively.  Agency securities areshown in the period in which they contractually mature.  No prepayment assumptions or callassumptions are reflected for any interest-earning asset.  Deposits without contractual maturities areshown based on OTS decay rates.

 

The interest rate sensitivity of the Company’s assets and liabilitiescould vary substantially if different assumptions are used.  Moreover, certain shortcomings are inherentin the method of analysis presented in the above GAP table.  Although certain assets and liabilities mayhave similar maturities or periods of repricing, they may react in differentdegrees to changes in market interest rates. The interest rates on certain types of assets and liabilities mayfluctuate in advance of changes in market interest rates, whereas interestrates on other types of assets and liabilities may lag behind changes in marketinterest rates.  Certain assets, such as

 

16

----

 

adjustable-rate mortgages, havefeatures that restrict changes in interest rates on a short-term basis and overthe life of the assets.  In the event ofa change in interest rates, prepayment and early withdrawal levels would likelydeviate significantly from those assumed in calculating the table.  The ability of many borrowers to servicetheir debt may decrease in the event of an interest rate increase.

 

The Company’s results of operations depend to a large extent on thelevel of the Company’s net interest income. If interest-rate fluctuations cause the Company’s cost of funds toincrease faster than the yield of its interest-bearing assets, then its netinterest income will be reduced.  AtSeptember 30, 2003, the Company’s one-year interest sensitivity “gap” (thepercentage by which its interest sensitive assets in a given period exceed itsinterest sensitive liabilities for the same period) was negative 18.4%.  The Company has emphasized shorter termdeposits which tend to reprice on a basis more consistent with the short-termduration of the Company’s typical loan products.  In addition, the Company’s management classifies certainsecurities as available-for-sale to provide flexibility for liquiditypurposes.  If the need to sell an assetfor liquidity or other purposes arises, management believes that there are adequatesecurities classified as available-for-sale with a positive mark-to-market andthat such sale would not have a material impact on results of operations.

 

The Company’s management believes that the Company’s interest rate riskposition at September 30, 2003 represents a reasonable amount of interest raterisk.

 

**FORWARD-LOOKINGSTATEMENTS**

 

Certain statements inManagement’s Discussion and Analysis are forward-looking statements within themeaning of the Securities Act of 1934, as amended.  Actual results, performance or developments may differ materiallyfrom those expressed or implied by such forward-looking statements as a resultof market uncertainties and other factors related to the Company’sbusinesses.  The financial servicesmarket generally, and the market for the Company’s products and servicesspecifically, is characterized by a high degree of competition and rapidlychanging local, national and global market, financial and economic conditions,and interest rate fluctuations/market conditions.  Such developments, as well as unforeseen developments in thefinancial services industry, could have an adverse impact on the Company’sfinancial position and results of operations.

 

**Item3.   CONTROLS AND PROCEDURES**

 

The Company’s management, including theCompany’s Chief Executive Officer and Chief Financial Officer evaluated theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rule 13a-15(e) and 15(d)-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”) as ofthe end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures are effective in ensuring thatinformation required to be disclosed by the Company in reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commissionsrules and forms.

 

There were no significantchanges in the Company’s internal controls over financial reporting thatoccurred during the Company’s most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PART II -OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

Other than ordinary and routine litigation incidental to the businessof the Company, the Company or its subsidiaries is not a party to, nor is itsproperty the subject of any material pending legal proceedings.

 

17

----

 

**Item2.  Changes in Securities and Use ofProceeds**

 

Not applicable.

 

**Item3.  Defaults Upon Senior Securities**

 

Not applicable.

 

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

 

Not applicable.

 

 

**Item5.  Other Information**

 

Not applicable.

 

**Item6.  Exhibits and Reports on Form 8-K**

 

(a)           Exhibits.

31.1               302 Certification of Chief Executive Officer

 

31.2               302 Certification of Chief Financial Officer

 

32.1               906 Certifications of Chief Executive Officer.

 

32.2               906 Certifications of Chief Financial Officer.

 

(b)           Reports on Form 8-K.

 

Not applicable.

 

18

----

 

**SIGNATURES**

 

In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|   | AMERICAN BANK HOLDINGS,  INC.                      |
|--------|----------------------------------------------------|
|   | (Registrant)                                       |
|   |                                               |
|   |                                               |
|   | Date: November 14, 2003                            |
|   |                                               |
|   |                                               |
|   | /s/ Phillip C. Bowman                              |   |
|   | Phillip C. Bowman                                  |
|   | President and Chief  Executive Officer             |
|   |                                               |
|   |                                               |
|   | /s/ John M. Wright                                 |   |
|   | John M. Wright                                     |
|   | Senior Vice President and  Chief Financial Officer |
|        |                                                    |  |  |

 

19

----