**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 

| **ý** | ** ** | **Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934**                                                                                                                                                                                                                                                                   |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | **For the quarterly period ended  September 30, 2004.**                                                                                                                                                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | **or**                                                                                                                                                                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                 |
| **o**      | ** ** | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934**                                                                                                                                                                                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                                                                 |
| ** ** | ** ** | **For the transition period  from                                    to                 .** |
|       |       |                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | **Commission File Number: 0-23513**                                                                                                                                                                                                                                                                                                                                  |

 

**AMERICAN BANK HOLDINGS, INC.**

(Exact name of registrant asspecified in its charter)

 
| **Delaware**                                                     | ** ** | **06-1478208**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or  other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer Identification No.) |
|                                                             |       |                                  |
| **1211  Plum Orchard Drive, Suite 300, Silver Spring, MD**       | ** ** | **20904**                             |
| (Address of  principal executive offices)                        |       | (Zip Code)                            |

 

**(301)572-3740**

(Registrant’s telephone number,including area code)

 

 

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

ý  Yes           oNo

 

Indicate the number of shares outstanding for each of the issuer’sclasses of common stock, as of the latest practicable date.

 

| Common Stock  (par value $.001) |   | **1,941,489**                          |
|---------------------------------|--------|----------------------------------------|
| Class                           |   | Outstanding  at November 12, 2004 |

 

Transitional Small Business Disclosure Format (checkone):            oYes       ýNo

 

 

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PART I – FINANCIAL INFORMATION

**Item 1.**

 

American BankHoldings, Inc.

Silver Spring,Maryland

 

# UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars inthousands, except per share data)

 
| ** **                                                                                                                                                                                               | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                               |       | **(Unaudited)**              |       |                        |       |
| **ASSETS**                                                                                                                                                                                               |       | ** **                   |       |                        |       |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Cash and due  from banks                                                                                                                                                                                 |       | $                            | 4,163      |                        | $          | 2,109 |   |
| Interest-bearing  deposits in other banks                                                                                                                                                                |       | 289                          |       | 2,289                       |       |
| Total cash  and cash equivalents                                                                                                                                                                         |       | 4,452                        |       | 4,398                       |       |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Investment  securities available for sale                                                                                                                                                                |       | 26,429                       |       | 32,656                      |       |
| Investment  securities held-to-maturity                                                                                                                                                                  |       | 14,592                       |       | 11,889                      |       |
| Loans held  for sale                                                                                                                                                                                     |       | 31,512                       |       | 36,186                      |       |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Loans                                                                                                                                                                                                    |       | 172,357                      |       | 142,362                     |       |
| Allowance  for loan losses                                                                                                                                                                               |       | (1,834                       | )          | (1,398                      | )          |
| Net loans                                                                                                                                                                                                |       | 170,523                      |       | 140,964                     |       |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Foreclosed  real estate, net                                                                                                                                                                             |       | 130                          |       | 348                         |       |
| Premises and  equipment, net                                                                                                                                                                             |       | 1,673                        |       | 1,551                       |       |
| Federal Home  Loan Bank of Atlanta Stock, at cost                                                                                                                                                        |       | 2,625                        |       | 3,054                       |       |
| Cash  surrender value of life insurance                                                                                                                                                                  |       | 2,544                        |       | 2,458                       |       |
| Accrued  interest receivable and other assets                                                                                                                                                            |       | 3,363                        |       | 3,383                       |       |
| Total assets                                                                                                                                                                                             |       | $                            | 257,843    |                        | $          | 236,887 |   |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Liabilities                                                                                                                                                                                              |       |                         |       |                        |       |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Deposits                                                                                                                                                                                                 |       | $                            | 192,726    |                        | $          | 156,506 |   |
| Advances  from the Federal Home Loan Bank                                                                                                                                                                |       | 44,000                       |       | 61,075                      |       |
| Advance  payments by borrowers for taxes and insurance                                                                                                                                                   |       | 301                          |       | 338                         |       |
| Junior  subordinated obligations                                                                                                                                                                         |       | 3,093                        |       | 3,093                       |       |
| Other  liabilities                                                                                                                                                                                       |       | 1,423                        |       | 1,564                       |       |
| Total  liabilities                                                                                                                                                                                       |       | 241,543                      |       | 222,576                     |       |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Stockholders’  Equity                                                                                                                                                                               |       |                         |       |                        |       |
| Preferred  stock, par value $0.001 per share, authorized 10,000,000 shares, no shares  issued and outstanding                                                                                            |       | —                       |       | —                      |       |
| Common stock  $0.001 par value per share, 10,000,000 shares authorized with 1,941,489 and  1,883,574 shares issued and outstanding at September 30, 2004 and  December 31, 2003, respectively. |       | 2                            |       | 2                           |       |
| Additional  paid-in capital                                                                                                                                                                              |       | 9,981                        |       | 9,787                       |       |
| Retained  earnings                                                                                                                                                                                       |       | 6,511                        |       | 4,791                       |       |
| Accumulated  other comprehensive loss                                                                                                                                                                    |       | (194                         | )          | (269                        | )          |
| Total  stockholders’ equity                                                                                                                                                                         |       | 16,300                       |       | 14,311                      |       |
|                                                                                                                                                                                                     |       |                         |       |                        |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                         |       | $                            | 257,843    |                        | $          | 236,887 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

1

----

 

 

American BankHoldings, Inc.

Silver Spring,Maryland

 

# UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars inthousands, except per share data)

 
| ** **                                               | ** ** | **For the Nine Months  Ended September 30,** | ** ** | **For the Three Months  Ended September 30,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                               | ** ** | **2004**                                          | ** ** | **2003**                                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| Interest  Income                                         |       |                                              |       |                                               |       |   |   |   |   |
| Interest and  fees on loans                              |       | $                                                 | 8,650      |                                               | $          | 6,517 |   | $ | 3,159 |   | $ | 2,266 |   |
| Interest and  dividends on investments                   |       | 1,459                                             |       | 1,106                                              |       | 492 |   | 415 |   |
| Other  interest income                                   |       | 25                                                |       | 136                                                |       | 11 |   | 20 |   |
| **Total  interest income**                               |       | 10,134                                            |       | 7,759                                              |       | 3,662 |   | 2,701 |   |
|                                                     |       |                                              |       |                                               |       |   |   |   |   |
| Interest  Expense                                        |       |                                              |       |                                               |       |   |   |   |   |
| Interest on  deposits                                    |       | 2,343                                             |       | 2,467                                              |       | 895 |   | 754 |   |
| Interest on  FHLB advances                               |       | 1,394                                             |       | 1,199                                              |       | 476 |   | 457 |   |
| Interest on  junior subordinated obligations             |       | 108                                               |       | 162                                                |       | 39 |   | 49 |   |
| **Total  interest expense**                              |       | 3,845                                             |       | 3,828                                              |       | 1,410 |   | 1,260 |   |
|                                                     |       |                                              |       |                                               |       |   |   |   |   |
| **Net  interest income**                                 |       | 6,289                                             |       | 3,931                                              |       | 2,252 |   | 1,441 |   |
| Provision  for loan losses                               |       | 541                                               |       | 275                                                |       | 221 |   | 100 |   |
| **Net  interest income after provision for loan losses** |       | 5,748                                             |       | 3,656                                              |       | 2,031 |   | 1,341 |   |
|                                                     |       |                                              |       |                                               |       |   |   |   |   |
| Non-Interest  Income                                     |       |                                              |       |                                               |       |   |   |   |   |
| Loan service  charges and fees                           |       | 193                                               |       | 142                                                |       | 72 |   | 45 |   |
| Gain on sale  of loans                                   |       | 4,233                                             |       | 2,812                                              |       | 1,560 |   | 1,049 |   |
| Deposit  service charges                                 |       | 176                                               |       | 168                                                |       | 68 |   | 60 |   |
| Gain on sale  of securities                              |       | 36                                                |       | 114                                                |       | — |   | 34 |   |
| Other income                                             |       | 88                                                |       | 77                                                 |       | 30 |   | 24 |   |
| **Total  non-interest income**                           |       | 4,726                                             |       | 3,313                                              |       | 1,730 |   | 1,212 |   |
|                                                     |       |                                              |       |                                               |       |   |   |   |   |
| Non-Interest  Expenses                                   |       |                                              |       |                                               |       |   |   |   |   |
| Salaries and  benefits                                   |       | 4,821                                             |       | 3,547                                              |       | 1,800 |   | 1,279 |   |
| Net  occupancy expense                                   |       | 654                                               |       | 604                                                |       | 229 |   | 205 |   |
| Deposit  insurance premiums                              |       | 63                                                |       | 54                                                 |       | 20 |   | 18 |   |
| Legal and  professional expenses                         |       | 337                                               |       | 208                                                |       | 99 |   | 76 |   |
| Data  processing                                         |       | 516                                               |       | 417                                                |       | 192 |   | 140 |   |
| Net cost of  operations of foreclosed assets             |       | 302                                               |       | 24                                                 |       | 82 |   | 17 |   |
| (Gain) loss  contingency on insurance claim              |       | (50                                               | )          | 245                                                |       | (50 | ) | 245 |   |
| Other  expenses                                          |       | 1,014                                             |       | 698                                                |       | 348 |   | 242 |   |
| **Total  non-interest expense**                          |       | 7,657                                             |       | 5,797                                              |       | 2,720 |   | 2,222 |   |
|                                                     |       |                                              |       |                                               |       |   |   |   |   |
| Income  before income taxes                              |       | 2,817                                             |       | 1,172                                              |       | 1,041 |   | 331 |   |
| Provision  for income taxes                              |       | 1,097                                             |       | 436                                                |       | 404 |   | 123 |   |
| **Net  income**                                          |       | $                                                 | 1,720      |                                               | $          | 736 |   | $ | 637 |   | $ | 208 |   |
|                                                     |       |                                              |       |                                               |       |   |   |   |   |
| Basic  Earnings Per Common Share                         |       | $                                                 | 0.89       |                                               | $          | 0.38 |   | $ | 0.33 |   | $ | 0.11 |   |
| Diluted  Earnings Per Common Share                       |       | $                                                 | 0.86       |                                               | $          | 0.36 |   | $ | 0.32 |   | $ | 0.11 |   |

 

The accompanying notes to Consolidated Financial Statements are anintegral part of these statements.

 

2

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American BankHoldings, Inc.

Silver Spring,Maryland

 

# UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

# for the nine months ended September 30, 2004 and 2003

(dollars inthousands, except per share data)

 
| ** **                                                                                      | ** ** | **Common  Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|------------------------------------------------------|------------|---------------------------------------|------------|
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Balance at  December 31, 2002                                                              |       | $                 | 213        |                             | $          | 10,892                 |       | $                                                    | 3,859      |                                  | $          | 28 |   | $ | 14,992 |   |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Comprehensive  income:                                                                          |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Net income                                                                                      |       |              |       |                             |       | 736                    |       |                                                 |       | 736                                   |       |
| Net change  in unrealized gains (losses) on available-for-sale securities, net of taxes  of $38 |       |              |       |                             |       |                   |       | 60                                                   |       | 60                                    |       |
| Less  reclassification of gains recognized, net of taxes of $44                                 |       |              |       |                             |       |                   |       | (70                                                  | )          | (70                                   | )          |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Total comprehensive  income                                                                     |       |              |       |                             |       |                   |       |                                                 |       | 726                                   |       |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Repurchase  and retirement dissenters’ Shares                                              |       | (211              | )          | (1,147                           | )          |                   |       |                                                 |       | (1,358                                | )          |
| Cash  dividend declared ($.06 per share)                                                        |       |              |       |                             |       | (126                   | )          |                                                 |       | (126                                  | )          |
| Balance at  September 30, 2003                                                             |       | $                 | 2          |                             | $          | 9,745                  |       | $                                                    | 4,469      |                                  | $          | 18 |   | $ | 14,234 |   |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Balance at  December 31, 2003                                                              |       | $                 | 2          |                             | $          | 9,787                  |       | $                                                    | 4,791      |                                  | $          | (269 | ) | $ | 14,311 |   |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Comprehensive  income:                                                                          |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Net income                                                                                      |       |              |       |                             |       | 1,720                  |       |                                                 |       | 1,720                                 |       |
| Net change  in unrealized gains (losses) on available-for-sale securities, net of taxes  of $61 |       |              |       |                             |       |                   |       | 97                                                   |       | 97                                    |       |
| Less  reclassification of gains recognized, net of taxes of $14                                 |       |              |       |                             |       |                   |       | (22                                                  | )          | (22                                   | )          |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Total  comprehensive income                                                                     |       |              |       |                             |       |                   |       |                                                 |       | 1,795                                 |       |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Exercise of  stock options (57,915 shares)                                                      |       |              |       | 194                              |       |                   |       |                                                 |       | 194                                   |       |
|                                                                                            |       |              |       |                             |       |                   |       |                                                 |       |                                  |       |
| Balance at  September 30, 2004                                                             |       | $                 | 2          |                             | $          | 9,981                  |       | $                                                    | 6,511      |                                  | $          | (194 | ) | $ | 16,300 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

3

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American BankHoldings, Inc.

Silver Spring,Maryland

 

# UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
| ** **                                                                         | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| **(Dollars in thousands)**                                                         | ** ** | **2004**                                          | ** ** | **2003** | ** ** |
| Cash flows  from operating activities                                              |       |                                              |       |   |   |
| Net income                                                                         |       | $                                                 | 1,720      |   | $ | 736 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                              |       |   |   |
| Depreciation  and amortization                                                     |       | 243                                               |       | 242 |   |
| Net  accretion of discounts and amortization of premiums                           |       | 22                                                |       | 49 |   |
| Securities  gains, net                                                             |       | (36                                               | )          | (114 | ) |
| Provision  for loan losses                                                         |       | 541                                               |       | 275 |   |
| Provision  for loss on foreclosed assets                                           |       | 239                                               |       | — |   |
| Net loss on  sale of foreclosed assets                                             |       | 10                                                |       | — |   |
| Loan fees  deferred                                                                |       | 320                                               |       | 91 |   |
| Amortization  of deferred loan fees                                                |       | (219                                              | )          | (269 | ) |
| Loans originated  for sale                                                         |       | (166,944                                          | )          | (160,911 | ) |
| Proceeds  from sale of loans                                                       |       | 175,851                                           |       | 154,485 |   |
| Gain on sale  of loans                                                             |       | (4,233                                            | )          | (2,812 | ) |
| Increase in  cash surrender value of life insurance                                |       | (86                                               | )          | (77 | ) |
| Decrease  (increase) in interest receivable and other assets                       |       | 21                                                |       | (275 | ) |
| Increase  (decrease) in other liabilities                                          |       | (141                                              | )          | 576 |   |
| Net cash  provided by (used in) operating activities                               |       | 7,308                                             |       | (8,004 | ) |
|                                                                               |       |                                              |       |   |   |
| Cash flows  from investing activities                                              |       |                                              |       |   |   |
| Proceeds  from sales of investment securities available for sale                   |       | 1,455                                             |       | 6,375 |   |
| Proceeds  from maturities of investment securities available for sale              |       | 5,000                                             |       | 1,000 |   |
| Purchase of  investment securities available for sale                              |       | (1,754                                            | )          | (39,502 | ) |
| Proceeds  from maturities of investment securities held to maturity                |       | 1,000                                             |       | 2,000 |   |
| Purchase of  investment securities held to maturity                                |       | (3,740                                            | )          | (18,856 | ) |
| Principal  collected on mortgage-backed securities                                 |       | 1,540                                             |       | 21,028 |   |
| Principal  collected on loans                                                      |       | 54,283                                            |       | 59,219 |   |
| Loans  originated or acquired                                                      |       | (84,690                                           | )          | (78,780 | ) |
| Funds  advanced on foreclosed assets                                               |       | —                                            |       | (14 | ) |
| Proceeds  from the sale of foreclosed assets                                       |       | 285                                               |       | 191 |   |
| Purchases of  premises and equipment                                               |       | (365                                              | )          | (166 | ) |
| Purchase of  stock in the Federal Home Loan Bank                                   |       | (1,050                                            | )          | (800 | ) |
| Proceeds  from redemption of stock in the Federal Home Loan Bank                   |       | 1,479                                             |       | 375 |   |
| Net cash  used in investing activities                                             |       | (26,557                                           | )          | (47,930 | ) |
|                                                                               |       |                                              |       |   |   |
| Cash flows  from financing activities                                              |       |                                              |       |   |   |
| Net increase  in deposits and escrow accounts                                      |       | 36,184                                            |       | 18,997 |   |
| Proceeds  from borrowings                                                          |       | 25,500                                            |       | 29,000 |   |
| Repayment of  borrowings                                                           |       | (42,575                                           | )          | (9,500 | ) |
| Repurchase  shares of common stock                                                 |       | —                                            |       | (1,358 | ) |
| Proceeds  from junior subordinated obligations                                     |       | —                                            |       | 2,894 |   |
| Proceeds  from exercise of stock options                                           |       | 194                                               |       | — |   |
| Cash  dividends paid                                                               |       | —                                            |       | (126 | ) |
| Net cash  provided by financing activities                                         |       | 19,303                                            |       | 39,907 |   |
|                                                                               |       |                                              |       |   |   |
| Increase  (decrease) in cash and cash equivalents                                  |       | 54                                                |       | (16,027 | ) |
| Cash and  cash equivalents as of January 1                                    |       | 4,398                                             |       | 22,810 |   |
| Cash and  cash equivalents as of September 30                                 |       | $                                                 | 4,452      |   | $ | 6,783 |   |
|                                                                               |       |                                              |       |   |   |
| Other Cash  Flow Information                                                       |       |                                              |       |   |   |
|                                                                               |       |                                              |       |   |   |
| Interest  paid                                                                     |       | $                                                 | 3,771      |   | $ | 4,219 |   |
|                                                                               |       |                                              |       |   |   |
| Income taxes  paid                                                                 |       | $                                                 | 1,175      |   | $ | 414 |   |

 

The accompanying notes are an integral part of these statements.

 

4

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## ***AMERICANBANK HOLDINGS, INC. AND SUBSIDIARIES***

Notes to Unaudited ConsolidatedFinancial Statements

As of and for the Nine MonthsEnded September 30, 2004 and 2003

 

1)              Basis ofPresentation

 

AmericanBank Holdings, Inc. (the “Company”) is a corporation formed under the laws ofDelaware to serve as the savings and loan holding company of American Bank (the“Bank”), a federally chartered stock savings bank.  The Bank’s stockholders approvedreorganization into a holding company structure at a meeting held onMarch 17, 2003.  As a result of thereorganization, completed on March 25, 2003, stockholders of the Bank arenow stockholders of American Bank Holdings, Inc. and the Bank is a directsubsidiary of the Company.  Eachoutstanding share of American Bank common stock (other than dissenting shares)has been converted into one share of the Company’s common stock.  The consolidated financial statements includethe accounts of the Company and the Bank. The Company also organized American Bank Holdings Statutory TrustI.  All intercompany accounts andtransactions have been eliminated in the accompanying financial statements.

 

Theconsolidated financial statements as of September 30, 2004 and for thethree and nine months ended September 30, 2004 and 2003 are unaudited andhave been prepared in conformity with accounting principles generally acceptedin the United States of America for interim financial information and with theinstructions to Form 10-QSB and Rule 10-01 of Regulation S-X, but, in theopinion of management of the Company, contain all adjustments, consistingsolely of normal recurring entries, necessary to present fairly theconsolidated financial condition as of September 30, 2004 and the resultsof consolidated operations for the three and nine months endedSeptember 30, 2004 and 2003 and consolidated cash flows for the ninemonths ended September 30, 2004 and 2003. The consolidated statement of financial condition of December 31,2003 is derived from the Company’s audited financial statements.

 

Theresults of the consolidated operations for the nine months endedSeptember 30, 2004 are not necessarily indicative of results that may beexpected for the entire year ending December 31, 2004.  Moreover, in preparing the consolidatedfinancial statements, management is required to make estimates and assumptionsthat affect the reported amounts of assets and liabilities as of the date ofthe balance sheets and income statements for the period.  Actual results could differ significantlyfrom the estimates.  Material estimatesthat are particularly susceptible to significant change in the near terminclude the determination of the allowance for loan losses and the valuation offoreclosed real estate.  These condensedfinancial statements should be read in conjunction with the audited financialstatements and notes included in the 2003 annual report of American Bank onForm 10-KSB as filed with the Securities and Exchange Commission.

 

2)              Earnings Per Share

 

Basicearnings per share for the three and nine months ended September 30, 2004was determined by dividing net income by 1,941,489 and 1,924,177, respectively,the weighted average number of shares of common stock outstanding during therespective periods.  Basic earnings pershare for the three and nine months ended September 30, 2003 wasdetermined by dividing net income by 1,873,478 and 1,959,219, respectively, theweighted average number of shares of common stock outstanding during therespective periods.  Diluted earnings pershare for the three and nine months ended September 30, 2004 wasdetermined by dividing net income by 2,007,246 and 1,989,272, respectively, theweighted average number of shares of common stock and common stock equivalentsoutstanding during the respective periods. Diluted earnings per share for the three and nine months endedSeptember 30, 2003 was determined by dividing net income by 1,958,257 and2,041,369, respectively, the weighted average number of shares of common stockand common stock equivalents outstanding during the respective periods.  Common stock equivalents consist ofoutstanding stock options, if such options are dilutive.

 

5

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3)              Stock Based Compensation

 

Statementof Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-BasedCompensation, encourages all entities to adopt a fair value based method ofaccounting for employee stock compensation plans, whereby compensation cost ismeasured at the grant date based on the value of the award and is recognized overthe service period, which is usually the vesting period.  However, it also allows an entity to continueto measure compensation cost for those plans using the intrinsic value basedmethod of accounting prescribed by Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, whereby compensation cost is theexcess, if any, of the quoted market price of the stock grant date (or othermeasurement date) over the amount an employee must pay to acquire the stock.  The Company has elected to continue with theaccounting methodology in Opinion No. 25. Stock options issued under the Company’s stock option plan have nointrinsic value at the grant date, and under Opinion No. 25 no compensationcost is recognized for them.

 

Hadcompensation cost for the Company’s stock option plan been determined based onthe fair value at the grant dates for awards under the plan consistent with themethod prescribed by SFAS No. 123, the Company’s net income and earnings pershare would have been adjusted to the pro forma amounts indicated below (inthousands, except per share data):

 
| ** **                                                | ** **         | **For the Nine Months  Ended September 30,** | ** ** | **For the Three Months  Ended September 30,** | ** ** |
|-----------------------------------------------------------|--------------------|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                | ** **         | **2004**                                          | ** ** | **2003**                                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                      |               |                                              |       |                                               |       |   |   |   |   |
| Net income,  as reported                                  |               | $                                                 | 1,720      |                                               | $          | 736 |   | $ | 637 |   | $ | 208 |   |
|                                                      |               |                                              |       |                                               |       |   |   |   |   |
| Additional  expense had the Company  Adopted SFAS No. 123 |               | (25                                               | )          | (24                                                | )          | (8 | ) | (8 | ) |
| Related tax  benefit                                      |               | 9                                                 |       | 9                                                  |       | 3 |   | 3 |   |
|                                                      |               |                                              |       |                                               |       |   |   |   |   |
| Net income,  as reported                                  |               | $                                                 | 1,704      |                                               | $          | 721 |   | $ | 632 |   | $ | 203 |   |
|                                                      |               |                                              |       |                                               |       |   |   |   |   |
| Basic  earnings per share                                 | — As reported |                                              | 0.89       |                                               | 0.38       |   | 0.33 |   | 0.11 |   |
|                                                      | — Pro forma   |                                              | 0.89       |                                               | 0.36       |   | 0.33 |   | 0.11 |   |
|                                                      |               |                                              |       |                                               |       |   |   |   |   |
| Diluted  earnings per share                               | — As reported |                                              | 0.86       |                                               | 0.36       |   | 0.32 |   | 0.11 |   |
|                                                      | — Pro forma   |                                              | 0.86       |                                               | 0.35       |   | 0.31 |   | 0.10 |   |
|                                                           |                    |                                                   |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |

 

4)              Junior SubordinatedObligations

 

In January 2003, theFinancial Accounting Standards Board issued FASB Interpretation No. 46,“Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”which was revised in December 2003. This interpretation provides guidance for the consolidation of variableinterest entities (VIEs).  American BankHoldings Statutory Trust I, a wholly-owned trust subsidiary of American BankHoldings, Inc., qualifies as a variable interest entity under FIN 46.  American Bank Holdings Statutory Trust issuedmandatorily redeemable preferred securities (trust capital securities) tothird-party investors and loaned the proceeds to the Company.  American Bank Holdings Statutory Trust Iholds, as its sole asset, subordinated debentures issued by the Company.

 

In accordance with theguidance provided by FIN 46, the Company does not consolidate the accounts ofAmerican Bank Holdings Statutory Trust I. The impact of not consolidating is to report the total outstanding

 

6

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junior subordinated debentures of $3,093,000 as an outstandingliability and to include the Company’s $93,000 equity interest in the trustsubsidiary as an “other asset” on the balance sheet.  For regulatory reporting purposes, theFederal Reserve Board has indicated that the trust capital securities willcontinue to qualify as Tier 1 Capital subject to previously specifiedlimitations, until further notice. If regulators make a determination thattrust capital securities can no longer be considered in regulatory capital, thesecurities become callable and the Company may redeem them.  The adoption of FIN 46 did not have an impacton the Company’s results of operations or liquidity.

 

5)              Guarantees

 

The Company does not issue any guaranteesthat would require liability recognition or disclosure, other than its standbyletters of credit.  Standby letters ofcredit written are conditional commitments issued by the Company to guaranteethe performance of a customer in a third party. Generally, all letters of credit, when issued have expiration dateswithin one year.  The credit riskinvolved in issuing letters of credit is essentially the same as those that areinvolved in extending loan facilities to customers.  The Company generally holds collateral supportingthese commitments.  The Company had$439,000 of standby letters of credit as of September 30, 2004.  Management believes that the proceedsobtained through a liquidation of collateral would be sufficient to cover thepotential amount of future payment required under the correspondingguarantees.  The current amount of theliability as on September 30, 2004 for guarantees under standby letters ofcredit issued is not material.

 

6)              Segments

 

The Company has two reportable segments:banking and mortgage banking.  Theleasing segment is included in the banking segment and not reported as aseparate segment since its assets and revenues are less than 10% of theCompany’s totals.  The banking segmentprovides traditional banking services offered through the Bank.  The mortgage-banking segment operates out ofthe Bank’s headquarters in Maryland and originates and sells residentialmortgages of various credit quality levels. Most loans originated by the mortgage division are originated for sale,however, on a case-by-case basis, some loans are originated for the Bank’sportfolio.  The accounting policies ofthe segments are the same as those described in the summary of significantaccounting policies in Note 1 to the consolidated financial statements for theyear ended December 31, 2003.  TheCompany evaluates performance based on profit and loss from operations beforeincome taxes.  The Company accounts forintersegment revenues and expenses as if the revenue/expense transactions wereto third parties, that is, at current market prices.  The Company’s reportable segments arestrategic business units that offer different products and services.  Although both segments offer financialproducts and services, they are managed separately because each segment has differenttypes and levels of credit and interest rate risk.  The results of the two reportable segmentsare included in the following table:

 
| **Nine months ended September 30, 2004**        | ** ** | **Bank** | ** ** | **Mortgage  Banking** | ** ** | **Eliminations** | ** ** | **Consolidated  Totals** | ** ** |
|------------------------------------------------------|------------|----------|------------|-----------------------|------------|------------------|------------|--------------------------|------------|
| Interest and  dividend income                        |       | $        | 10,010     |                  | $          | 1,594            |       | $                        | (1,470     | ) | $ | 10,134 |   |
| Interest  expense                                    |       | 3,845    |       | 1,470                 |       | (1,470           | )          | 3,845                    |       |
| Net interest  income                                 |       | 6,165    |       | 124                   |       | —           |       | 6,289                    |       |
| Provision  for loan losses                           |       | 436      |       | 105                   |       | —           |       | 541                      |       |
| Net interest  income after provision for loan losses |       | 5,729    |       | 19                    |       | —           |       | 5,748                    |       |
| Other income                                         |       | 493      |       | 4,233                 |       | —           |       | 4,726                    |       |
| Non-interest  expenses                               |       | 4,837    |       | 2,820                 |       | —           |       | 7,657                    |       |
| Net income  before income taxes                      |       | 1,385    |       | 1,432                 |       | —           |       | 2,817                    |       |
| Provision  for income taxes                          |       | 551      |       | 546                   |       | —           |       | 1,097                    |       |
| Net income                                           |       | $        | 834        |                  | $          | 886              |       | $                        | —     |   | $ | 1,720 |   |
|                                                 |       |     |       |                  |       |             |       |                     |       |
| At  September 30, 2004                          |       |     |       |                  |       |             |       |                     |       |
| Segment  assets                                      |       | $        | 226,331    |                  | $          | 31,512           |       | $                        | —     |   | $ | 257,843 |   |
| Segment  capital                                     |       | 14,405   |       | 1,895                 |       | —           |       | 16,300                   |       |

 

7

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| **Nine months ended September 30, 2003**               | ** ** | **Bank** | ** ** | **Mortgage  Banking** | ** ** | **Eliminations** | ** ** | **Consolidated  Totals** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|-----------------------|------------|------------------|------------|--------------------------|------------|
| Interest and  dividend income                               |       | $        | 7,686      |                  | $          | 1,043            |       | $                        | (970       | ) | $ | 7,759 |   |
| Interest  expense                                           |       | 3,828    |       | 970                   |       | (970             | )          | 3,828                    |       |
| Net interest  income                                        |       | 3,858    |       | 73                    |       | —           |       | 3,931                    |       |
| Provision  for loan losses                                  |       | 105      |       | 170                   |       | —           |       | 275                      |       |
| Net interest  income (loss) after provision for loan losses |       | 3,753    |       | (97                   | )          | —           |       | 3,656                    |       |
| Other income                                                |       | 501      |       | 2,812                 |       | —           |       | 3,313                    |       |
| Non-interest  expenses                                      |       | 3,624    |       | 2,173                 |       | —           |       | 5,797                    |       |
| Net income  before income taxes                             |       | 630      |       | 542                   |       | —           |       | 1,172                    |       |
| Provision  for income taxes                                 |       | 229      |       | 207                   |       | —           |       | 436                      |       |
| Net income                                                  |       | $        | 401        |                  | $          | 335              |       | $                        | —     |   | $ | 736 |   |
|                                                        |       |     |       |                  |       |             |       |                     |       |
| At  September 30, 2003                                 |       |     |       |                  |       |             |       |                     |       |
| Segment  assets                                             |       | $        | 191,753    |                  | $          | 29,199           |       | $                        | —     |   | $ | 220,952 |   |
| Segment  capital                                            |       | 13,255   |       | 979                   |       | —           |       | 14,234                   |       |

 
| **Three months ended September 30, 2004**       | ** ** | **Bank** | ** ** | **Mortgage  Banking** | ** ** | **Eliminations** | ** ** | **Consolidated  Totals** | ** ** |
|------------------------------------------------------|------------|----------|------------|-----------------------|------------|------------------|------------|--------------------------|------------|
| Interest and  dividend income                        |       | $        | 3,588      |                  | $          | 613              |       | $                        | (539       | ) | $ | 3,662 |   |
| Interest  expense                                    |       | 1,410    |       | 539                   |       | (539             | )          | 1,410                    |       |
| Net interest  income                                 |       | 2,178    |       | 74                    |       | —           |       | 2,252                    |       |
| Provision  for loan losses                           |       | 191      |       | 30                    |       | —           |       | 221                      |       |
| Net interest  income after provision for loan losses |       | 1,987    |       | 44                    |       | —           |       | 2,031                    |       |
| Other income                                         |       | 170      |       | 1,560                 |       | —           |       | 1,730                    |       |
| Non-interest  expenses                               |       | 1,686    |       | 1,034                 |       | —           |       | 2,720                    |       |
| Net income  before income taxes                      |       | 471      |       | 570                   |       | —           |       | 1,041                    |       |
| Provision  for income taxes                          |       | 184      |       | 220                   |       | —           |       | 404                      |       |
| Net income                                           |       | $        | 287        |                  | $          | 350              |       | $                        | —     |   | $ | 637 |   |

 
| **Three months ended September 30, 2003**       | ** ** | **Bank** | ** ** | **Mortgage  Banking** | ** ** | **Eliminations** | ** ** | **Consolidated  Totals** | ** ** |
|------------------------------------------------------|------------|----------|------------|-----------------------|------------|------------------|------------|--------------------------|------------|
| Interest and  dividend income                        |       | $        | 2,647      |                  | $          | 782              |       | $                        | (728       | ) | $ | 2,701 |   |
| Interest  expense                                    |       | 1,260    |       | 728                   |       | (728             | )          | 1,260                    |       |
| Net interest  income                                 |       | 1,387    |       | 54                    |       | —           |       | 1,441                    |       |
| Provision  for loan losses                           |       | 60       |       | 40                    |       | —           |       | 100                      |       |
| Net interest  income after provision for loan losses |       | 1,327    |       | 14                    |       | —           |       | 1,341                    |       |
| Other income                                         |       | 163      |       | 1,049                 |       | —           |       | 1,212                    |       |
| Non-interest  expenses                               |       | 1,397    |       | 825                   |       | —           |       | 2,222                    |       |
| Net income  before income taxes                      |       | 93       |       | 238                   |       | —           |       | 331                      |       |
| Provision  for income taxes                          |       | 31       |       | 92                    |       | —           |       | 123                      |       |
| Net income                                           |       | $        | 62         |                  | $          | 146              |       | $                        | —     |   | $ | 208 |   |

 

8

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The amounts presented as “Eliminations”consist of imputed interest charges on the mortgage loans originated for salebefore they are actually sold to investors.

 

7)              Reclassifications

 

Certain items in the 2003 financialstatements have been reclassified to conform to the 2004 financial statementpresentation.  Such reclassifications hadno effect on net income.

 

8)              RecentAccounting Developments

 

In March 2004, the Emerging Issues TaskForce (EITF) reached consensus on Issue 03-01. “The Meaning of Other-Than-Temporary Impairment and Its Application toCertain Investments.”  EITF No. 03-01includes new guidance for evaluating and recording impairment losses on debtand equity investments, as well as new disclosure requirements for investmentsthat are deemed to be temporarily impaired. The accounting guidance of EITF No. 03-01 is effective for fiscal yearsbeginning after June 15, 2004, while the disclosure requirements areeffective for fiscal years ending after June 15, 2004.  The Company has not yet determined the impactthat adoption will have on its financial position or results of operations asthe impact is heavily dependent on the interest rate environment at the date ofadoption and pending implementation guidance from the Financial AccountingStandards Board.

 

**Item 2.**

 

**AMERICANBANK HOLDINGS, INC. AND SUBSIDIARIES**

 

**Management’sDiscussion and Analysis of Financial Condition and**

**Resultsof Operations**

 

This discussion and analysisincludes a description of material changes that have affected the Company’sconsolidated financial condition and consolidated results of operations duringthe periods included in the unaudited consolidated financial statements.

 

General

 

American Bank Holdings, Inc.is a corporation formed under the laws of Delaware to serve as the holdingcompany for American Bank.  The businessof the Company is conducted principally through the Bank, a federally charteredsavings bank.  The Company’s corporateheadquarters is located in Silver Spring, Maryland and the Bank has fivefull-service offices located at 1700 Rockville Pike, Rockville, Maryland, 5600Connecticut Avenue, Washington D.C., 4801-A Montgomery Lane, Bethesda,Maryland, in the SuperFresh market at 12028 Cherry Hill Road, Silver Spring,Maryland and in the SuperFresh market at 3301 North Ridge Road, Ellicott City,Maryland.  The Bank also operates 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, 2004, the Company had74 employees, 65 of whom work full time.

 

The Company recorded netincome of $637,000, or $0.32 per diluted share, for the quarter endedSeptember 30, 2004 as compared to net income of $208,000, or $0.11 perdiluted share, for the quarter ended September 30, 2003.  Net income for the first nine months of 2004was $1,720,000, or $0.86 per diluted share, as compared to $736,000, or  $0.36 per diluted share, for the first ninemonths of 2003.  The increase in netincome for the nine months ended September 30, 2004 was attributableprimarily to the increase in net interest income and gains recognized on thesale of mortgage loans originated for sale by the mortgage division offset bythe increase in non-interest expense.

 

9

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**CRITICAL ACCOUNTING POLICIES**

 

The Company’s significant accounting policiesare set forth in note 1 of the consolidated financial statements as ofDecember 31, 2003 which was filed on Form 10-KSB with the SEC.  Of these significant accounting policies, theCompany considers its policy regarding the allowance for loan losses to be itsmost 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 infuture periods by changes in economic conditions, the impact of regulatoryexaminations and the discovery of information with respect to borrowers that isnot known to management at the time of the issuance of the consolidatedfinancial statements.

 

**Financial Condition**(September 30,2004 compared to December 31, 2003)

 

Total assets increased by$21.0 million, or 8.8%, to $257.8 million at September 30, 2004 comparedto December 31, 2003.  Total loansoutstanding increased by $24.8 million from $177.2 million at December 31,2003 to $202.0 million at September 30, 2004.  The Company originated $251.6 million ofloans during the nine months ended September 30, 2004 as compared to$239.7 million during the same period in 2003. The increase in loan production was primarily due to the increase inmortgage loans originated and subsequently sold by the mortgage division, andan increase in commercial related loans. Investment securities held-to-maturity increased by $2.7 million andinvestment securities available-for-sale decreased by $6.2 million fromyear-end 2003 to September 30, 2004.

 

Nonperforming assets, net(including nonaccrual loans, foreclosed real estate and repossessed assets)decreased by $685,000 to $1.5 million at September 30, 2004 compared to$2.2 million at December 31, 2003. The decrease in non-performing assets resulted primarily from a decreasein non-performing loans and decrease in foreclosed real estate and repossessedassets.  At September 30, 2004, thebook balance for repossessed assets was $30,000 and was classified as otherassets on the balance sheet.  Totalnonperforming assets, net, as a percentage of total assets were 0.6% atSeptember 30, 2004 and 0.9% at December 31, 2003.

 

10

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The following table sets forth thecomposition of the Company’s nonperforming assets at the dates indicated (inthousands).

 
| ** **                                     | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|------------------------|------------|
| Non-accrual  loans:                            |       |                         |       |                   |       |
|                                           |       |                         |       |                   |       |
| One to four  family residential mortgage loans |       | $                            | 534        |                   | $          | 1,285 |   |
|                                           |       |                         |       |                   |       |
| Commercial  real estate loans                  |       | 226                          |       | 243                    |       |
|                                           |       |                         |       |                   |       |
| Commercial                                     |       | 544                          |       | —                 |       |
|                                           |       |                         |       |                   |       |
| Consumer  loans                                |       | 13                           |       | 16                     |       |
|                                           |       |                         |       |                   |       |
| Total  non-accrual loans                       |       | $                            | 1,317      |                   | $          | 1,544 |   |
|                                           |       |                         |       |                   |       |
| Foreclosed  real estate, net                   |       | 130                          |       | 348                    |       |
|                                           |       |                         |       |                   |       |
| Repossessed  assets, net                       |       | 30                           |       | 270                    |       |
|                                           |       |                         |       |                   |       |
| Total  nonperforming assets                    |       | $                            | 1,477      |                   | $          | 2,162 |   |

 

The allowance for losses on loans isestablished through a provision for loan losses based upon management’sevaluation of the risk inherent in the loan portfolio and changes in the natureand volume of loan activity.  Managementconsiders, among other factors, the estimated fair value of the underlyingcollateral, current economic conditions and historical loan lossexperience.  Management reviews theallowance for loan losses on a periodic basis, at least quarterly, and thesereviews take into consideration the change in portfolio mix, change innonperforming loans, actual charge-offs net of any recoveries, and estimationsused in calculating the adequacy of the loan loss allowance.  The nonperforming loans are reviewed on anindividual basis and all other loans are reviewed in major categories.  Management has made adjustments to theestimation methods for the major categories due to historical losses anddelinquencies, however these changes have not had a material effect on theoverall allowance.  While management usesavailable information in establishing the allowance for loan losses, futureadjustments to the allowance may be necessary if economic conditions differsubstantially from the assumptions used in making the evaluations.  A significant decline in the credit qualityof the Company’s loan portfolio could have a material adverse effect on theCompany’s estimates and, as a result, could have a material adverse effect onthe Company’s financial condition and results of operations.  Additions to the allowance are charged tooperations; realized losses, net of recoveries, are charged to the allowance.  In addition, various regulatory agencies, aspart of their examination process, periodically review the Company’s allowancefor loan losses.  Management willcontinue to monitor and modify the allowance for loan losses as conditionsdictate.  Although management maintainsallowances at levels that it considers adequate to provide for potentiallosses, there can be no assurances that such losses will not exceed theestimated amounts or that higher provisions will not be necessary in thefuture.

 

The Company had twenty-threeloans, amounting to $1.3 million, as of September 30, 2004, which areconsidered to be potential problem loans. All of these loans are classified as non-accrual loans because theborrowers are over 90 days delinquent and management believes it may havedifficulty in collecting the principal balance on these loans.  The Company had an allowance for loan lossesof $1.8 million, or 0.91% of the total loans outstanding, at September 30,2004, and $1.4 million, or 0.79% of total loans outstanding, atDecember 31, 2003.  The increase inthe allowance was due to the change in portfolio mix and the risk factorsinherent in the overall portfolio mix. Management believes the allowance is adequate based on the review of theunderlying collateral securing the loans.

 

The Company also establishes allowance forlosses on foreclosed real estate and other repossessed assets based upon itsfair value less the cost of disposal. The valuations of foreclosed real estateproperties are reviewed at least quarterly and updated as necessary based onthe Company’s expectations of holding periods, sales activity and other changesin market conditions.  Based on availableinformation, management believes

 

11

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that current loss reserves are adequate at this time to cover potentiallosses in the portfolio.  There can be noassurance, however, that additional loss provisions will not be necessary inthe future if market conditions deteriorate. The Company did not have any allowance for losses on foreclosed realestate, at September 30, 2004 and $29,000 or 8.2% of foreclosed realestate, at December 31, 2003.  TheCompany had an allowance for losses on repossessed assets of $172,000 atSeptember 30, 2004.

 

The Company had unrealized losses of$316,000, on its investment securities available-for-sale portfolio atSeptember 30, 2004.  The amortizedcost of this portfolio was $26.7 million at that date.  There were net unrealized losses of $55,000on its investment securities held-to-maturity portfolio at September 30,2004, with an amortized cost of $14.6 million. The Company’s investment securities portfolio includes agencyobligations, mortgage-backed securities and collateralized mortgageobligations.  The Company’s investmentsecurities available-for-sale portfolio decreased by $6.2 million from year end2003 to September 30, 2004 due to the sale of investment securitiesavailable-for-sale and by the repayment of principal on mortgage-backedsecurities.  The Company’s investmentsecurities held-to-maturity portfolio increased by $2.7 million due to thepurchase of mortgage-backed securities offset by the repayment of principal onmortgage-backed securities.  There were atotal of five investments with an unrealized loss position for 12 months orgreater with an aggregate market value of $11.3 million. None of thesesecurities was deemed to have any fundamental issues that would lead theCompany to believe that they were other than temporarily impaired. Theunrealized losses are considered temporary as they reflect fair values atSeptember 30, 2004, are subject to change daily as interest ratesfluctuate and the Company has the intent and ability to hold these securitiesfor a period of time sufficient to allow for any anticipated recovery in fairvalue.

 

Deposits increased by $36.2 million duringthe nine months ended September 30, 2004. The Company continued to focus its efforts in reducing its cost ofdeposits and trying to attract additional core deposits.  Core deposits (money market, checking andstatement savings accounts) increased by $10.3 million while certificates ofdeposit increased by $25.9 million during the first nine months of 2004.  The deposits at September 30, 2004 hadan average interest rate of 1.99%.  Advancesfrom the Federal Home Loan Bank decreased by $17.1 million during the firstnine months of 2004.  The advances fromthe Federal Home Loan Bank at September 30, 2004 had an average interestrate of 3.88%.

 

The Company’s stockholders’ equity increasedby $2.0 million, to $16.3 million at September 30, 2004 compared to $14.3million at December 31, 2003.  Theincrease was due principally to current period earnings, proceeds received fromthe exercise of stock options and a decrease in net unrealized holding losseson investments available for sale.  AtSeptember 30, 2004, the Company and the Bank were considered “wellcapitalized” under regulatory definitions.

 

**RESULTS OF OPERATIONS**

 

The Company’s operating results dependprimarily on its net interest income, which is the difference between interestincome on interest-earning assets (primarily loans and investment securities)and interest expense on interest-bearing liabilities (primarily deposits andborrowings).  The Company’s operatingresults are also affected by its other income (primarily gain on sale of loans,collection of late fees and service charges) and its non-interest expense(primarily salaries and administrative costs).

 

The following table sets forth certaininformation relating to the Company’s average interest-bearing assets andinterest-bearing liabilities and reflects the average yield on assets and theaverage cost of liabilities for the periods indicated.  During the periods indicated, non-accrual loansare included in the loans category.

 

12

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**AMERICANBANK HOLDINGS, INC.**

**RATESPREAD ANALYSIS**

**(dollarsin thousands)**

 
| ** **                            | ** ** | **9 Months Ended  September 30, 2004** | ** ** | **9 Months Ended  September 30, 2003** | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                            | ** ** | **Average  Balance**                        | ** ** | **Interest**                                | ** ** | **Interest  Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Interest  Rate** | ** ** |
| Interest-bearing  assets:             |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Loans                                 |       | $                                           | 193,746    |                                        | $          | 8,650 |   | 5.97 | % | $ | 139,443 |   | $ | 6,517 |   | 6.23 | % |
| Investment  securities                |       | 45,199                                      |       | 1,459                                       |       | 4.31 |   | 37,846 |   | 1,106 |   | 3.89 |   |
| Other                                 |       | 3,322                                       |       | 25                                          |       | 0.95 |   | 16,248 |   | 136 |   | 1.12 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Total  interest-bearing assets        |       | 242,267                                     |       | 10,134                                      |       | 5.59 |   | 193,537 |   | 7,759 |   | 5.34 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest  bearing liabilities:        |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Deposits                              |       | 165,942                                     |       | 2,343                                       |       | 1.89 |   | 135,674 |   | 2,467 |   | 2.42 |   |
| FHLB  advances & Other Borrowings |       | 61,801                                      |       | 1,502                                       |       | 3.23 |   | 40,208 |   | 1,361 |   | 4.51 |   |
| Total  interest-bearing liabilities   |       | $                                           | 227,743    |                                        | $          | 3,845 |   | 2.25 |   | $ | 175,882 |   | $ | 3,828 |   | 2.90 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Average  interest rate spread         |       |                                        |       |                                        |       | 3.34 |   |   |   |   |   | 2.44 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Net interest  margin                  |       |                                        |       | $                                           | 6,289      |   | 3.47 | % |   |   | $ | 3,931 |   | 2.70 | % |

 
| ** **                            | ** ** | **3 Months Ended  September 30, 2004** | ** ** | **3 Months Ended  September 30, 2003** | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                            | ** ** | **Average  Balance**                        | ** ** | **Interest**                                | ** ** | **Interest  Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Interest  Rate** | ** ** |
| Interest-bearing  assets:             |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Loans                                 |       | $                                           | 208,941    |                                        | $          | 3,159 |   | 5.99 | % | $ | 154,710 |   | $ | 2,266 |   | 5.86 | % |
| Investment  securities                |       | 44,471                                      |       | 492                                         |       | 4.39 |   | 47,186 |   | 415 |   | 3.52 |   |
| Other                                 |       | 3,712                                       |       | 11                                          |       | 1.25 |   | 7,255 |   | 20 |   | 1.10 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Total  interest-bearing assets        |       | 257,124                                     |       | 3,662                                       |       | 5.64 |   | 209,151 |   | 2,701 |   | 5.17 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest  bearing liabilities:        |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Deposits                              |       | 179,002                                     |       | 895                                         |       | 1.98 |   | 141,616 |   | 754 |   | 2.13 |   |
| FHLB advances  & Other Borrowings |       | 63,043                                      |       | 515                                         |       | 3.18 |   | 48,888 |   | 506 |   | 4.14 |   |
| Total  interest-bearing liabilities   |       | $                                           | 242,045    |                                        | $          | 1,410 |   | 2.29 |   | $ | 190,504 |   | $ | 1,260 |   | 2.65 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Average  interest rate spread         |       |                                        |       |                                        |       | 3.35 |   |   |   |   |   | 2.52 |   |
|                                  |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Net interest  margin                  |       |                                        |       | $                                           | 2,252      |   | 3.48 | % |   |   | $ | 1,441 |   | 2.76 | % |

 

13

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**RESULTS OF OPERATIONS FOR THE THREE MONTHSENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003**

 

General.  The Company recorded net income of $637,000,or $0.32 per diluted share, for the three months ended September 30, 2004as compared to net income of $208,000, or $0.11 per diluted share, for thethree months ended September 30, 2003. The increase in net income for the three month period was attributableprimarily to the increase in net interest income and gains recognized on thesale of loans offset by an increase in non-interest expense.

 

Net interest income, after provision for loanlosses, increased by $690,000 for the three months ended September 30,2004 when compared to the same period in 2003. Non-interest income increased by $518,000 and non-interest expenseincreased by $498,000 during the three months ended September 30, 2004 comparedto the same period in 2003.  The increasein operating expense was primarily due to additional compensation and employeebenefit expenses, occupancy expenses, and data processing expenses offset bythe difference in the loss contingency on an insurance claim.

 

Net Interest Income.  The Company’s net interest income increasedby $811,000 during the three months ended September 30, 2004 as comparedto the same period in 2003.  The increasewas primarily due to the increase in average volume of interest-earningassets.  The Company was able to decreasethe cost of funds by 36 basis points. The decrease in cost of funds was due to the increase in core deposits coupledwith maturing certificates of deposits and borrowings repricing downward.

 

Provision for Loan Losses.  The Company’s provision for loan lossesincreased by $121,000 to $221,000 during the three months endedSeptember 30, 2004 compared to the same period in 2003.  The increase was due to the Company providingmore reserves in the current quarter based on the periodic reviews of theunderlying collateral securing loans held in portfolio.  More reserves were needed due to the changein mix, and the growth of loans that have a higher inherent risk.  The Company had an allowance for loan lossesof $1.8 million, or 0.91% of the total loans outstanding, at September 30,2004, and $1.4 million, or 0.79% of total loans outstanding, atDecember 31, 2003.

 

Non-interest Income.  The Company’s non-interest income increasedby $518,000 to $1.7 million during the three months ended September 30,2004 compared to the same period in 2003. The increase was due to additional loan service charges and gainsrecognized on the sale of loans from the mortgage division.  The origination and subsequent sale of loansis the primary function of the mortgage division.  Loans originated for sale decreased by $8.1million during the three months ended September 30, 2004 as compared tothe same period in 2003.  However, theaverage gain percentage on the sale of loans increased due to a higherpercentage of alt-A loans being sold. The mortgage division was able to increase the volume of loan productionand subsequent sales, which are all sold with servicing released, due to theincreased volume of alt-A loans.  Anyfuture increase in interest rates may affect the volume of loanproduction.  However management believesthat future gains on sale of loans generated by the mortgage division will notbe materially impacted since the Company has the ability to alter its productmix to focus on products and tend to be less sensitive to changes in interestrates.  The change in product mixprimarily focuses on alt-A loans whereby the borrower has Fannie Mae/FreddieMac credit quality but produces a lower level of documentation to obtain theloan.  These loans typically have morecredit risk.  However the risk to theBank is somewhat mitigated because these loans are sold to investors that alsounderwrite the loans prior to loan closing.

 

Non-interest Expense.  The following table summarizes changes in themajor components of operating expense (in thousands):

 
| ** **                                   | ** ** | **For the Three Months Ended  September 30,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **2004**                                           | ** ** | **2003**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Salaries and  related expenses               |       | $                                                  | 1,800      |       | $          | 1,279 |   | $ | 521 |   | 40.7 | % |
| Occupancy  expense, net                      |       | 229                                                |       | 205        |       | 24 |   | 11.7 |   |
| Deposit  insurance premiums                  |       | 20                                                 |       | 18         |       | 2 |   | 11.1 |   |
| Legal and  professional expenses             |       | 99                                                 |       | 76         |       | 23 |   | 30.3 |   |
| Data  processing                             |       | 192                                                |       | 140        |       | 52 |   | 37.1 |   |
| Net cost of  operations of foreclosed assets |       | 82                                                 |       | 17         |       | 65 |   | 382.4 |   |
| Advertising                                  |       | 29                                                 |       | 36         |       | (7 | ) | (19.4 | ) |
| Loan fees  and expenses                      |       | 77                                                 |       | 75         |       | 2 |   | 2.7 |   |
| Loss  contingency on insurance claim         |       | (50                                                | )          | 245        |       | (295 | ) | (120.4 | ) |
| Other  expenses                              |       | 242                                                |       | 131        |       | 111 |   | 84.7 |   |
|                                         |       | $                                                  | 2,720      |       | $          | 2,222 |   | $ | 498 |   | 22.4 | % |

 

14

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The Company’s non-interest expense increasedby $498,000 to $2.7 million during the three months ended September 30,2004 compared to the same period in 2003. The increase in non-interest expense was primarily due to the increasein compensation and employee benefit expense, legal expenses, data processing,cost of operations of foreclosed assets, and loan fees and expenses offset bydecreased advertising costs and a recovery of an accrual of a loss contingencyon an insurance claim during the third quarter of 2003. The increase incompensation and employee benefit expenses was primarily due to additionalstaff hired in the lending area and branch network as well as more commissionspaid to loan officers in the mortgage division, which correlates to theincrease in gains from the sale of loans. The increase in legal and professional expenses is primarily due to theLittle lawsuit (see PART II, Item 1) and legal costs associated with thecollection efforts on non-accrual assets. The increase in cost of operations inforeclosed assets is due to a $72,000 provision charged on repossessedautomobiles.   During the third quarterof 2003, a loss contingency was set up for $245,000 on an insurance claimresulting form Hurricane Isabel.  Thematter was settled during the third quarter of 2004 for $195,000 resulting in arecovery of $50,000.

 

Income Taxes.   Income tax expense for the three monthsended September 30, 2004, totaled $404,000, resulting in an effective taxrate of 38.8%, as compared to tax expense of $123,000, resulting in aneffective tax rate of 37.2% for the same period in 2003.  The relative mix of state tax exempt incomeand income from bank owned life insurance influences the effective income taxrate and remains the primary reason for the difference between the effectivetax rate and the statutory federal and state tax rates for corporations.

 

**RESULTS OF OPERATIONS FOR THE NINE MONTHSENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003**

 

General.  The Company recorded net income of$1,720,000, or $0.86 per diluted share, for the nine months ended September 30,2004 as compared to net income of $736,000, or $0.36 per diluted share, for thenine months ended September 30, 2003. The increase in net income for the nine month period was attributableprimarily to the increase in net interest income and gains recognized on thesale of loans offset by an increase in non-interest expense.

 

Net interest income, after provision for loanlosses, increased by $2.1 million for the nine months ended September 30,2004 when compared to the same period in 2003. Non-interest income increased by $1.4 million and non-interest expenseincreased by $1.9 million during the nine months ended September 30, 2004compared to the same period in 2003.  Theincrease in non-interest expense was primarily due to additional compensationand employee benefit expenses, costs associated with foreclosed assets, anddata processing expenses.

 

Net Interest Income.  The Company’s net interest income increasedby $2.4 million during the nine months ended September 30, 2004 ascompared to the same period in 2003.  Theincrease was primarily due to the increase in average volume ofinterest-earning assets and the average interest rate spread increasing by 90basis points.  The Company was able toincrease the yield earned on interest-bearing assets by 25 basis points whiledecreasing the cost of funds by 65 basis points.  The decrease in cost of funds was due to theincrease in core deposits coupled with maturing certificates of deposits andborrowings repricing downward.

 

Provision for Loan Losses.  The Company’s provision for loan lossesincreased by $266,000 to $541,000 during the nine months endedSeptember 30, 2004 compared to the same period in 2003.  The increase was due to the Company providingmore reserves in the current quarter based on the periodic reviews of theunderlying collateral securing loans held in portfolio.  More reserves were needed due to the changein mix, and the growth of loans that have a higher inherent risk.  The Company had an allowance for loan lossesof $1.8 million, or 0.91% of the total loans outstanding, at September 30,2004, and $1.4 million, or 0.79% of total loans outstanding, atDecember 31, 2003.

 

15

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Non-interest Income.  The Company’s non-interest income increasedby $1.4 million to $4.7 million during the nine months ended September 30,2004 compared to the same period in 2003. The increase was due to additional loan service charges and gainsrecognized on the sale of loans available-for-sale from the mortgagedivision.  The origination and subsequentsale of loans is the primary function of the mortgage division.  Loans originated for sale increased by $6.0million during the nine months ended September 30, 2004 as compared to thesame period in 2003 and the average gain percentage on the sale of loansincreased due to a higher percentage of alt-A loans being sold.  The mortgage division was able to increasethe volume of loan production and subsequent sales, which are all sold withservicing released, due to the increase volume of alt-A loans.  Any future increase in interest rates mayaffect the volume of loan production. However management believes that future gains on sale of loans generatedby the mortgage division will not be materially impacted since the Company hasthe ability to alter its product mix to focus on products and tend to be lesssensitive to changes in interest rates. The change in product mix primarily focuses on alt-A loans whereby theborrower has Fannie Mae/Freddie Mac credit quality but produces a lower levelof documentation to obtain the loan. These loans typically have more credit risk.  However the risk to the Bank is mitigatedbecause these loans are sold to investors that also underwrite the loans priorto loan closing.

 

Non-interest Expense.  The following table summarizes changes in themajor components of operating expense (in thousands):

 
| ** **                                   | ** ** | **For the Nine Months Ended  September 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|----------------------------------------------|------------|---------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                   | ** ** | **2004**                                          | ** ** | **2003**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Salaries and  related expenses               |       | $                                                 | 4,821      |       | $          | 3,547             |       | $ | 1,274 |   | 35.9 | % |
| Occupancy  expense, net                      |       | 654                                               |       | 604        |       | 50                |       | 8.3 |   |
| Deposit  insurance premiums                  |       | 63                                                |       | 54         |       | 9                 |       | 16.7 |   |
| Legal and  professional expenses             |       | 337                                               |       | 208        |       | 129               |       | 62.0 |   |
| Data  processing                             |       | 516                                               |       | 417        |       | 99                |       | 23.7 |   |
| Net cost of  operations of foreclosed assets |       | 302                                               |       | 24         |       | 278               |       | 1,158.3 |   |
| Advertising                                  |       | 111                                               |       | 81         |       | 30                |       | 37.0 |   |
| Loan fees  and expenses                      |       | 248                                               |       | 193        |       | 55                |       | 28.5 |   |
| Loss  contingency on insurance claim         |       | (50                                               | )          | 245        |       | (295              | )          | (120.4 | ) |
| Other  expenses                              |       | 655                                               |       | 424        |       | 231               |       | 54.5 |   |
|                                         |       | $                                                 | 7,657      |       | $          | 5,797             |       | $ | 1,860 |   | 32.1 | % |

 

The Company’s non-interest expense increasedby $1.9 million to $7.7 million during the nine months ended September 30,2004 compared to the same period in 2003. The increase in non-interest expense was primarily due to the increasein compensation and employee benefit expense, legal expenses, data processing,cost of operations of foreclosed assets, advertising, and loan fees andexpenses.  The increase in compensationand employee benefit expenses was primarily due to additional staff hired in thelending area and branch network as well as more commissions paid to loanofficers in the mortgage division, which correlates to the increase in gainsfrom the sale of loans.  The increase inlegal and professional expenses is primarily due to the Little lawsuit (seePART II, Item 1) and legal costs associated with the collection efforts onnon-accrual assets. The increase in cost of operations in foreclosed assets isdue to $182,000 provision charged on repossessed automobiles and $77,000provision charged on foreclosed residential real estate property.  The original loan related to the repossessedautomobiles was originated in April 2001 and secured by the assignment oftwenty-eight automobile leases to individuals. During the third quarter of 2002, the loan was past due less than 90days when the borrower filed for Chapter 11 Bankruptcy protection.  As of September 30, 2004, repossessedassets had a gross balance of $202,000 (excluding the specific reserves of$172,000) which consists of the assignment of eight leases to individuals, allbut two of which are currently performing under the terms of the lease.

 

Income Taxes.   Income tax expense for the nine months endedSeptember 30, 2004, totaled $1,097,000, resulting in an effective tax rateof 38.9%, as compared to tax expense of $436,000, resulting in an effective taxrate of 37.2% for the same period in 2003.  The relative mix of statetax exempt income and income from bank owned life insurance influences theeffective income tax rate and remains the primary reason for the differencebetween the effective tax rate and the statutory federal and state tax ratesfor corporations

 

16

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**OFF-BALANCE SHEET ARRANGEMENTS**

 

The Company is party to financial instrumentswith off-balance sheet risk including commitments to extend credit underexisting lines of credit and commitments to sell loans.  These instruments involve, to varyingdegrees, elements of credit and interest rate risk in excess of the amountrecognized in the consolidated balance sheets.

 

Commitments to originate new loans or extendcredit are agreements to lend to a customer as long as there is no violation ofany condition established in the contract. Loan commitments generally expire within 30 to 45 days.  Most equity line commitments for the unfundedportion of equity lines are for a term of 10 years, and commercial lines ofcredit are generally renewable on an annual basis.  Commitments generally have fixed expirationdates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected toexpire without being drawn upon, the total commitment amounts do notnecessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-casebasis.  The amounts of collateralobtained, if deemed necessary by the Company upon extension of credit, is basedon management’s credit evaluation of the borrower.

 

Commitments to sell loans held for sale areagreements to sell loans to a third party at an agreed upon price.  At September 30, 2004, the aggregatefair value of these commitments exceeded the book value of the loans to besold.

 

Off-balance sheet financial instruments whosecontract amounts represent credit and interest rate risk are summarized asfollows (dollars in thousands):

 
| ** **                                                                                        | ** ** | **September 30,  2004** | ** ** | **December 31, 2003** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------|------------|----------------------------|------------|
| Commitments  to originate new loans                                                               |       | $                            | 6,119      |                       | $          | 3,077 |   |
| Unfunded  commitments to extend credit under existing equity line and commercial lines  of credit |       | 5,053                        |       | 5,612                      |       |
| Commercial  letters of credit                                                                     |       | 439                          |       | 175                        |       |
| Commitments  to sell loans held for sale                                                          |       | 29,240                       |       | 34,666                     |       |
|                                                                                                   |            |                              |            |                            |            |  |  |

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company’s main sources of liquidity, as aholding company, are dividends from the Bank, investment income and netproceeds from borrowings and capital securities offerings.  As a new organization, the Company expectsits main uses of liquidity initially will be 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.

 

Liquidity describes our ability to meet thefinancial obligations that arise during the ordinary course of business.  Liquidity is primarily needed to meet theborrowing and deposit withdrawal requirements of our customers and to fundcurrent and planned expenditures.  Ourprimary sources of funds are deposits, scheduled amortization and prepaymentsof loan principal and mortgage-backed securities, maturities and calls ofsecurities and funds provided by our operations.  Our ability to maintain and expand ourdeposit base and borrowing capabilities is an important source of liquidity.  In addition to core deposits, we regularlyutilize wholesale funding sources such as brokered deposits and FHLBadvances.  At September 30, 2004, wehad $44.0 million in outstanding borrowings.

 

We closely monitor and maintain appropriatelevels of interest earning assets and interest bearing liabilities so thatmaturities of assets are such that adequate funds are provided to meet customerwithdrawals and loan demand.  Inaddition, we continue to explore various capital management strategies such asshare repurchases and the issuance of trust preferred securities.

 

During the quarter ended September 30,2003, the Bank purchased 210,876 shares of American Bank common stock fromdissenters to the reorganization for an aggregate of $1,358,000.

 

17

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The Bank is required to maintain sufficientliquidity to ensure its safe and sound operation.  As required by recent legislation, the OTSrecently deleted its requirement that federal savings associations maintain acertain minimum level of liquid assets. Instead, adequate liquidity is assessed by the OTS on a case-by-casebasis by reviewing such factors as the institution’s overall asset/liabilitystructure, market conditions, competition and the nature of the institution’sactivities.  The OTS considers both aninstitution’s liquidity ratio as well as safety and soundness issues inassessing whether an institution has sufficient liquidity.  The Bank has ample liquidity to meet itsoutstanding loan commitments.  AtSeptember 30, 2004, the Bank had outstanding loan commitments totaling$6,119,000 and other commitments under lines of credit totaling $28,129,000.

 

Quantitative measures established by bankregulations to ensure capital adequacy require the Bank to maintain minimumamounts and ratios (set forth in the table below) of total and Tier I capital(as defined in the regulations) and risk-weighted assets (as defined), and ofTier I capital (as defined) to average assets (as defined).  As of September 30, 2004, the Bank meetsall capital adequacy requirements to which it is subject.

 

As of September 30, 2004, the mostrecent notification from the OTS categorized the Bank as “wellcapitalized”.  To be categorized as “wellcapitalized” the Bank must maintain minimum total risk-based, Tier Irisk-based, and Tier I leverage ratios as set forth in the table.  There have been no conditions or events sincethat notification that management believes that would have changed the Bank’scapital classification.  The Bank’sactual capital amounts and ratios are as follows (in thousands):

 
| ** ** | ** ** | **ACTUAL** | ** ** | **ACTUAL%** | ** ** | **REQUIRED** | ** ** | **REQ’D%** | ** ** | **EXCESS** | ** ** |
|------------|------------|------------|------------|-------------|------------|--------------|------------|-----------------|------------|------------|------------|
| Core       |       | $          | 18,750     |        | 7.29       | %            | $          | 10,285          |       | 4.0        | %          | $ | 8,465 |   |
| Tangible   |       | 18,750     |       | 7.29        |       | 3,857        |       | 1.5             |       | 14,893     |       |
| Risk-based |       | 20,321     |       | 10.95       |       | 14,840       |       | 8.0             |       | 5,481      |       |
|            |            |            |            |             |            |              |            |                 |            |            |            |  |  |  |

 

18

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**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The following table sets forth the amounts ofinterest-earning assets and interest-bearing liabilities outstanding atSeptember 30, 2004, which are expected to mature or reprice in each of thetime periods shown.

 

American Bank Holdings, Inc.

Repricing Schedule as ofSeptember 30, 2004

(in thousands)

 
| ** **                          | ** ** | **Less than  One Year** | ** ** | **One Year to  Five Years** | ** ** | **Five Years to Ten  Years** | ** ** | **More than Ten  Years** | ** ** | **Totals** | ** ** |
|-------------------------------------|------------|-------------------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------|------------|------------|------------|
| Interest-earning  assets:           |       |                    |       |                        |       |                         |       |                     |       |       |       |
|                                |       |                    |       |                        |       |                         |       |                     |       |       |       |
| Loans                               |       | $                       | 90,727     |                        | $          | 39,351                       |       | $                        | 6,121      |       | $          | 34,324 |   | $ | 170,523 |   |
| Other  interest-earning assets      |       | 7,077                   |       | —                      |       | —                       |       | —                   |       | 7,077      |       |
| Investment  securities              |       | 3,964                   |       | 1,037                       |       | 9,649                        |       | 26,371                   |       | 41,021     |       |
| Total  interest-earning assets      |       | 101,768                 |       | 40,388                      |       | 15,770                       |       | 60,695                   |       | 218,621    |       |
|                                |       |                    |       |                        |       |                         |       |                     |       |       |       |
| Interest-bearing  liabilities:      |       |                    |       |                        |       |                         |       |                     |       |       |       |
|                                |       |                    |       |                        |       |                         |       |                     |       |       |       |
| Certificates  of Deposit            |       | 84,026                  |       | 50,787                      |       | —                       |       | —                   |       | 134,813    |       |
| Money market  deposits              |       | 9,486                   |       | 16,175                      |       | 4,624                        |       | —                   |       | 30,285     |       |
| NOW and  Statement accounts         |       | 4,727                   |       | 12,062                      |       | 10,839                       |       | —                   |       | 27,628     |       |
| Borrowings                          |       | 32,093                  |       | 15,000                      |       | —                       |       | —                   |       | 47,093     |       |
| Total  interest-bearing liabilities |       | 130,332                 |       | 94,024                      |       | 15,463                       |       | —                   |       | 239,819    |       |
| GAP                                 |       | (28,564                 | )          | (53,636                     | )          | 307                          |       | 60,695                   |       |       |       |
| Cumulative  GAP                     |       | (28,564                 | )          | (82,200                     | )          | (81,893                      | )          | (21,198                  | )          |       |       |
| Cum.  GAP/total assets              |       | -13.1                   | %          | -37.6                       | %          | -37.5                        | %          | -9.7                     | %          |       |       |
|                                     |            |                         |            |                             |            |                              |            |                          |            |            |            |  |  |  |  |  |

 

The following assumptions were used by theCompany’s management in order to prepare the Company’s GAP (repricing schedule)table set forth above.  Loans are shownbased on contractual maturity and schedule repricing for fixed-rate andadjustable-rate mortgages, respectively. The mortgage-backed securities and collateralized mortgage obligationsportion of the investment securities portfolio are shown based on contractualmaturity as scheduled repricing for fixed-rate and adjustable-rate securities,respectively.  Agency securities areshown in the period in which they contractually mature.  No prepayment assumptions or call assumptionsare reflected for any interest-earning assets. Deposits without contractual maturities are shown based on OTS decayrates.

 

The interest rate sensitivity of theCompany’s assets and liabilities could vary substantially if different assumptionsare used.  Moreover, certain shortcomingsare inherent in the methods 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 asadjustable-rate mortgages have features that restrict changes in interest rateson a short-term basis and over the life of the assets.  In the event of a change in interest rates,prepayment and early withdrawal levels would likely deviate significantly fromthose assumed in calculating the table. The ability of many borrowers to service their debt may decrease in theevent of an interest rate increase.

 

The Company’s results of operations depend toa large extent on the level of the Company’s net interest income.  If interest rate fluctuations cause theCompany’s cost of funds to increase faster than the yield of itsinterest-bearing assets, then its net interest income will be reduced.  At September 30, 2004, the Company’sone-year interest sensitivity “gap” (the percentage by which its interestsensitive assets in a given period exceed its interest sensitive liabilitiesfor the same period) was negative 13.1%.  The Company has emphasized shorter-

 

19

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term deposits, which tend to reprice on a basis more consistent withthe short-term duration of the Company’s typical loan products.  In addition, the Company’s managementclassifies certain securities as available-for-sale to provide flexibility forliquidity purposes.  If the need to sellan asset for liquidity or other purposes arises, management believes that thereare adequate securities classified as available-for-sale with a positivemark-to-market and that such sale would not have a material impact on resultsof operations.

 

The Company’s management believes that theCompany’s interest rate risk position at September 30, 2004 represents areasonable amount of interest rate risk.

 

**FORWARD-LOOKING STATEMENTS**

 

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 developmentsmay differ materially from those expressed or implied by such forward-lookingstatements as a result of market uncertainties and other factors related to theCompany’s business.  The financialservices market generally, and the market for the Company’s products andservices specifically, is characterized by a high degree of competition andrapidly changing local, national and global market, financial and economicconditions, and interest rate fluctuations/market conditions.  Such developments, as well as unforeseendevelopments in the financial services industry, could have an adverse impacton the Company’s financial position and results of operations.

 

**Item 3. CONTROLS AND PROCEDURES**

 

The Company’s management, including the ChiefExecutive Officer and Chief Financial Officer evaluated the effectiveness ofthe design and operation of the Company’s disclosure controls and procedures(as defined in Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Actof 1934, as amended (the “Exchange Act”) as of the end of the periods coveredby 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 significant changes in theCompany’s internal controls over financial reporting that occurred during theCompany’s most recent fiscal quarter that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**PART II – OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

Except as described below,other than ordinary and routine litigation incidental to the business of theCompany, the Company or its subsidiaries is not a party to, nor is its propertythe subject of any material pending legal proceedings.

 

Howard Little, Robin Brandt,Gary Brandt, and David Goldstein have filed an action against the Bank andother defendants, including the United States of America, in the United StatesDistrict Court for the Middle District of Florida.  This action was commenced on August 31,2000.  The claim arises out of statementsallegedly made by former Bank personnel to federal investigators in 1994.  Plaintiffs allege that as a result of thesestatements and others, the plaintiffs were wrongly indicted by a federal grandjury and were ultimately acquitted of the charges.  The Bank filed a motion to dismiss theplaintiffs’ claims which was denied by the court in September 2001.  The initial scheduling conference hasoccurred and discovery has begun.  InNovember 2003, we filed a motion for summary judgment on the plaintiffs’claims.  During the third quarter of2004, the court denied the motion for summary judgment.  Accordingly, the court has scheduled the casefor trial.  The Company has tendered thiscase to its insurance carrier and they have agreed to defend the claim.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**

 

Not applicable.

 

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**Item 3. Defaults Upon Senior Securities**

 

Not applicable.

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

Not applicable.

 

**Item 5. Other Information**

 

Not applicable.

 

**Item 6.  Exhibits**

 

3.1                                 RestatedCertificate of Incorporation of the Company (incorporated by reference toexhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on FormS-4, Registration No. 333-102410, filed with SEC on January 28, 2003).

 

3.2                                 Amendedand Restated Bylaws of the Company (incorporated by reference to exhibit 3.2 toAmendment No. 1 to the Company’s Registration Statement on Form S-4,Registration No. 333-102410, filed with SEC on January 28, 2003).

 

31.1                           302Certification of Chief Executive Officer

 

31.2                           302Certification of Chief Financial Officer

 

32.1                           906Certifications of Chief Executive Officer

 

32.2                           906Certifications of Chief Financial Officer

 

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**SIGNATURES**

 

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, there unto duly authorized.

 

 
|   | AMERICAN  BANK HOLDINGS, INC.                      |
|--------|----------------------------------------------------|
|   | (Registrant)                                       |
|   |                                               |
|   |                                               |
|   | Date:  November 12, 2004                      |
|   |                                               |
|   |                                               |
|   | /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 |
|        |                                                    |  |  |

 

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