**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**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 March 31, 2004**                                            |
|       |   |                                                                                               |
| **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 as specified in its charter)

 

| **Delaware**                                                     |   | **06-1478208**                             |
|------------------------------------------------------------------|--------|--------------------------------------------|
| (State or other jurisdiction of  incorporation or organization)  |   | (I. R. S. Employer  Identification Number) |
|                                                             |   |                                       |
| **1211 Plum Orchard Drive, Suite 300,  Silver Spring, Maryland** |   | **20904**                                  |
| (Address of principal executive offices)                         |   | (Zip Code)                                 |
|                                                             |   |                                       |
| **(301)  572-3740**                                              |
| (Issuer’s telephone number, including area code)            |

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

 Yes ý  Noo.

 

The number ofshares outstanding of each of the issuer’s classes of common stock, as of May14, 2004 is: 1,935,702 shares.

 

 

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PART I – FINANCIALINFORMATION

**Item 1.**

 

American Bank Holdings, Inc.

Silver Spring, Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars inthousands, except per share data)

 

 
|                                                                                                                                                   |   | **March 31,  2004** |    | **December 31,  2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|-----------------------------|--------|
|                                                                                                                                                   |   | **(Unaudited)**          |    |                        |   |
| ASSETS                                                                                                                                                 |   |                     |    |                        |   |
| Cash                                                                                                                                                   |   | $                        | 2,952   |                        | $      | 2,109 |   |
| Interest-bearing  deposits in other banks                                                                                                              |   | 4,651                    |    | 2,289                       |   |
| Cash  and cash equivalents                                                                                                                             |   | 7,603                    |    | 4,398                       |   |
|                                                                                                                                                   |   |                     |    |                        |   |
| Investment  securities, available for sale                                                                                                             |   | 30,234                   |    | 32,656                      |   |
| Investment  securities, held-to-maturity                                                                                                               |   | 11,849                   |    | 11,889                      |   |
| Loans  held for sale                                                                                                                                   |   | 28,032                   |    | 36,186                      |   |
| Loans  receivable, net of allowance for loan losses, 2004 $1,515;  2003   $1,398                                                             |   | 148,773                  |    | 140,964                     |   |
| Foreclosed  real estate, net                                                                                                                           |   | 312                      |    | 348                         |   |
| Premises  and equipment, net                                                                                                                           |   | 1,504                    |    | 1,551                       |   |
| Federal  Home Loan Bank of Atlanta Stock, at cost                                                                                                      |   | 3,054                    |    | 3,054                       |   |
| Cash  surrender value of life insurance                                                                                                                |   | 2,487                    |    | 2,458                       |   |
| Accrued  interest receivable and other assets                                                                                                          |   | 2,919                    |    | 3,383                       |   |
| Total  assets                                                                                                                                          |   | $                        | 236,767 |                        | $      | 236,887 |   |
|                                                                                                                                                   |   |                     |    |                        |   |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                             |   |                     |    |                        |   |
| Liabilities                                                                                                                                            |   |                     |    |                        |   |
| Deposits                                                                                                                                               |   | $                        | 157,258 |                        | $      | 156,506 |   |
| Advances  from the Federal Home Loan Bank                                                                                                              |   | 59,075                   |    | 61,075                      |   |
| Advance  payments by borrowers for taxes and insurance                                                                                                 |   | 389                      |    | 338                         |   |
| Junior  subordinated obligations                                                                                                                       |   | 3,093                    |    | 3,093                       |   |
| Accrued  expenses and other liabilities                                                                                                                |   | 1,691                    |    | 1,564                       |   |
| Total  liabilities                                                                                                                                     |   | $                        | 221,506 |                        | $      | 222,576 |   |
|                                                                                                                                                   |   |                     |    |                        |   |
| Stockholders’  Equity                                                                                                                             |   |                     |    |                        |   |
| Preferred  stock, par value $1 per share, authorized 10,000,000 shares, no shares issued  and outstanding in 2004 and 2003                             |   | $                        | —  |                        | $      | — |   |
| Common  stock, par value $0.001 per share, authorized 10,000,000 shares, issued and  outstanding 1,935,702 shares in 2004 and 1,883,574 shares in 2003 |   | 2                        |    | 2                           |   |
| Additional  paid-in capital                                                                                                                            |   | 9,966                    |    | 9,787                       |   |
| Retained  earnings                                                                                                                                     |   | 5,281                    |    | 4,791                       |   |
| Accumulated  other comprehensive income (loss)                                                                                                         |   | 12                       |    | (269                        | )      |
| Total  stockholders’ equity                                                                                                                       |   | 15,261                   |    | 14,311                      |   |
|                                                                                                                                                   |   |                     |    |                        |   |
| Total  liabilities and stockholders’ equity                                                                                                       |   | $                        | 236,767 |                        | $      | 236,887 |   |

 

The accompanying notes toConsolidated Financial Statements are an integral part of these statements.

 

1

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American Bank Holdings, Inc.

Silver Spring, Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

 
|                                                 |   | **For the  Three Months  Ended March 31,** |   |
|------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                 |   | **2004**                                        |   | **2003** |   |
| Interest Income                                      |   |                                            |   |   |   |
| Interest  and fees on loans                          |   | $                                               | 2,667  |   | $ | 2,122 |   |
| Interest  and dividends on investments               |   | 493                                             |   | 324 |   |
| Other  interest income                               |   | 2                                               |   | 78 |   |
| Total  interest income                               |   | 3,162                                           |   | 2,524 |   |
|                                                 |   |                                            |   |   |   |
| Interest  Expense                                    |   |                                            |   |   |   |
| Interest  on deposits                                |   | 700                                             |   | 863 |   |
| Interest  on borrowings                              |   | 508                                             |   | 451 |   |
| Total  interest expense                              |   | 1,208                                           |   | 1,314 |   |
|                                                 |   |                                            |   |   |   |
| Net  interest income                                 |   | 1,954                                           |   | 1,210 |   |
| Provision  for loan losses                           |   | 145                                             |   | 75 |   |
| Net  interest income after provision for loan losses |   | 1,809                                           |   | 1,135 |   |
|                                                 |   |                                            |   |   |   |
| Other  Income                                        |   |                                            |   |   |   |
| Loan  service charges & late fees                |   | 61                                              |   | 36 |   |
| Gain  on sale of loans                               |   | 1,287                                           |   | 818 |   |
| Deposit  service charges                             |   | 49                                              |   | 47 |   |
| Gain  on sale of securities                          |   | 36                                              |   | 22 |   |
| Other  income                                        |   | 30                                              |   | 29 |   |
| Total  other income                                  |   | 1,463                                           |   | 952 |   |
|                                                 |   |                                            |   |   |   |
| Non-Interest  Expenses                               |   |                                            |   |   |   |
| Salaries  and related expenses                       |   | 1,485                                           |   | 1,102 |   |
| Occupancy  expenses, net                             |   | 208                                             |   | 193 |   |
| Deposit  insurance premiums                          |   | 21                                              |   | 18 |   |
| Legal  and professional expenses                     |   | 110                                             |   | 47 |   |
| Data  processing                                     |   | 152                                             |   | 135 |   |
| Net  cost of operations of foreclosed assets         |   | 146                                             |   | 3 |   |
| Other  expenses                                      |   | 350                                             |   | 204 |   |
| Total  non-interest expenses                         |   | 2,472                                           |   | 1,702 |   |
|                                                 |   |                                            |   |   |   |
| Income  before income taxes                          |   | 800                                             |   | 385 |   |
| Provision  for income taxes                          |   | 310                                             |   | 137 |   |
| Net  income                                          |   | $                                               | 490    |   | $ | 248 |   |
|                                                 |   |                                            |   |   |   |
| Basic  Earnings Per Common Share                     |   | $                                               | 0.26   |   | $ | 0.12 |   |
| Diluted  Earnings Per Common Share                   |   | $                                               | 0.25   |   | $ | 0.11 |   |

 

The accompanying notes toConsolidated Financial Statements are an integral part of these statements.

 

2

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American Bank Holdings, Inc.

Silver Spring, Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

 
|                                                                                    |   | **Common  Stock** |   | **Additional  Paid-In  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total  Stockholders’  Equity** |   |
|-----------------------------------------------------------------------------------------|--------|-------------------|--------|----------------------------------|--------|------------------------|--------|------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Balance  – January 1, 2003                                                    |   | $                 | 213    |                             | $      | 10,892                 |   | $                                                    | 3,859  |                                  | $      | 28 |   | $ | 14,992 |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Net  income for Three Months ended March 31, 2003                                  |   |              |   |                             |   | 248                    |   |                                                 |   | 248                                   |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Net  change in unrealized gains on available-for-sale securities, net of taxes of  $10  |   |              |   |                             |   |                   |   | 16                                                   |   | 16                                    |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Less  reclassification of gains recognized, net of taxes of $9                          |   |              |   |                             |   |                   |   | (13                                                  | )      | (13                                   | )      |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Comprehensive  income                                                                   |   |              |   |                             |   |                   |   |                                                 |   | 251                                   |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Repurchase  and retirement dissenters’ shares                                      |   | (211              | )      | (1,147                           | )      |                   |   |                                                 |   | (1,358                                | )      |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Cash  dividend declared ($.06 per share)                                                |   |              |   |                             |   | (126                   | )      |                                                 |   | (126                                  | )      |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Balance  – March 31, 2003                                                     |   | $                 | 2      |                             | $      | 9,745                  |   | $                                                    | 3,981  |                                  | $      | 31 |   | $ | 13,759 |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Balance  – December 31, 2003                                                  |   | $                 | 2      |                             | $      | 9,787                  |   | $                                                    | 4,791  |                                  | $      | (269 | ) | $ | 14,311 |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Net  income for Three Months ended March 31, 2004                                  |   |              |   |                             |   | 490                    |   |                                                 |   | 490                                   |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Net  change in unrealized gains on available-for-sale securities, net of taxes of  $190 |   |              |   |                             |   |                   |   | 303                                                  |   | 303                                   |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Less  reclassification of gains recognized, net of taxes of $14                         |   |              |   |                             |   |                   |   | (22                                                  | )      | (22                                   | )      |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Comprehensive  income                                                                   |   |              |   |                             |   |                   |   |                                                 |   | 771                                   |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Exercise  of stock options (52,128 shares)                                              |   |              |   | 179                              |   |                   |   |                                                 |   | 179                                   |   |
|                                                                                    |   |              |   |                             |   |                   |   |                                                 |   |                                  |   |
| Balance  – March 31, 2004                                                     |   | $                 | 2      |                             | $      | 9,966                  |   | $                                                    | 5,281  |                                  | $      | 12 |   | $ | 15,261 |   |

 

The accompanying notes toConsolidated Financial Statements are an integral part of these statements.

 

3

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American Bank Holdings, Inc.

Silver Spring, Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

 
|                                                                                  |   | **Three  Months Ended March 31,** |       |
|---------------------------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                                                  |   | **2004**                               |       | **2003** |   |
| **Operating Activities**                                                              |   |                                   |       |   |   |
| Net income                                                                            |   | $                                      | 490        |   | $ | 248 |   |
| Adjustments  to Reconcile Net Income to Net Cash 

Provided  by Operating Activities: |   |                                   |       |   |   |
| Net  accretion of discounts and amortization of premiums                              |   | 6                                      |       | 18 |   |
| Gain  on sale of investment securities – AFS                                     |   | (36                                    | )          | (22 | ) |
| Provision  for loan losses                                                            |   | 145                                    |       | 75 |   |
| Provision  for loss on foreclosed assets                                              |   | 146                                    |       | — |   |
| Depreciation  and amortization                                                        |   | 82                                     |       | 81 |   |
| Loan  fees deferred                                                                   |   | 96                                     |       | 15 |   |
| Amortization  of deferred loan fees                                                   |   | (76                                    | )          | (92 | ) |
| Loans  originated for resale                                                          |   | (42,897                                | )          | (41,152 | ) |
| Gain  on sale of loans                                                                |   | (1,287                                 | )          | (818 | ) |
| Proceeds  from sales of loans originated for resale                                   |   | 52,337                                 |       | 41,012 |   |
| Earnings  on life insurance policies                                                  |   | (29                                    | )          | (29 | ) |
| (Increase)  decrease in accrued interest receivable and other assets                  |   | 176                                    |       | (261 | ) |
| (Decrease)  increase in other liabilities                                             |   | 127                                    |       | (153 | ) |
| Net  cash provided by (used in) operating activities                                  |   | $                                      | 9,280      |   | $ | (1,078 | ) |
|                                                                                  |   |                                   |       |   |   |
| **Investing Activities**                                                              |   |                                   |       |   |   |
| Proceeds  from sales and maturities of investment securities – AFS               |   | $                                      | 1,455      |   | $ | 2,009 |   |
| Purchase  of investment securities                                                    |   | —                                 |       | (22,440 | ) |
| Proceeds  from maturing investment securities – HTM                              |   | —                                 |       | 1,000 |   |
| Principal  collected on mortgage-backed securities                                    |   | 1,036                                  |       | 2,397 |   |
| Principal  collected on loans                                                         |   | 15,782                                 |       | 21,101 |   |
| Loans  originated or acquired                                                         |   | (23,297                                | )          | (22,731 | ) |
| Proceeds  from the sale of foreclosed assets                                          |   | —                                 |       | 56 |   |
| Purchases  of premises and equipment                                                  |   | (34                                    | )          | (88 | ) |
| Net  cash used in investing activities                                                |   | $                                      | (5,058     | ) | $ | (18,696 | ) |
|                                                                                  |   |                                   |       |   |   |
| **Financing Activities**                                                              |   |                                   |       |   |   |
| Increase  in deposits and escrow accounts                                             |   | $                                      | 804        |   | $ | 12,334 |   |
| Proceeds  from borrowings                                                             |   | 2,000                                  |       | 5,000 |   |
| Repayment  of borrowings                                                              |   | (4,000                                 | )          | — |   |
| Proceeds  from exercise of stock options                                              |   | 179                                    |       | — |   |
| Cash  dividends paid                                                                  |   | —                                 |       | (126 | ) |
| Net  cash provided by (used in) financing activities                                  |   | (1,017                                 | )          | 17,208 |   |
| Increase  (decrease) in cash equivalents                                              |   | 3,205                                  |       | (2,566 | ) |
| Cash  and cash equivalents at beginning of year                                       |   | 4,398                                  |       | 22,809 |   |
| Cash  and cash equivalents at end of year                                             |   | $                                      | 7,603      |   | $ | 20,243 |   |
|                                                                                  |   |                                   |       |   |   |
| Other  Cash Flow Information                                                          |   |                                   | ** ** |   | ** ** |
| Interest  paid                                                                        |   | $                                      | 853        |   | $ | 1,232 |   |
| Income  taxes paid                                                                    |   | 1                                      |       | — |   |

 

The accompanying notes toConsolidated Financial Statements are an integral part of these statements.

 

4

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**AMERICANBANK HOLDINGS, INC. AND SUBSIDIARIES**

Notes to UnauditedConsolidated Financial Statements

As of and for theThree Months Ended March 31, 2004 and 2003

 

1)              Basisof Presentation

 

American Bank Holdings, Inc.(the “Company”) is a corporation formed under the laws of Delaware to serve asthe saving and loan holding company of American Bank (the “Bank”), a federallychartered stock savings bank and parent of American Bank Holdings StatutoryTrust I.  The Bank’s shareholdersapproved reorganization 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 statementsinclude the accounts of the Company and the Bank.  All intercompany accounts and transactions have been eliminatedin the accompanying financial statements.

 

The consolidated financialstatements as of March 31, 2004 and for the three months endedMarch 31, 2004 and 2003 are unaudited and have been prepared in conformitywith accounting principles generally accepted in the United States of Americafor interim financial information and with the instructions to Form 10-QSB andRule 10-01 of Regulation S-X, but, in the opinion of management of the Company,contain all adjustments, consisting solely of normal recurring entries,necessary to present fairly the consolidated financial condition as ofMarch 31, 2004 and the results of consolidated operations for the threemonths ended March 31, 2004 and 2003 and consolidated cash flows for thethree months ended March 31, 2004 and 2003.  The consolidated statement of financial condition ofDecember 31, 2003 is derived from the Company’s audited financialstatements.

 

The results of theconsolidated operations for the three months ended March 31, 2004 are notnecessarily indicative of results that may be expected for the entire yearending December 31, 2004. Moreover, in preparing the consolidated financial statements, managementis required to make estimates and assumptions that affect the reported amountsof assets and liabilities as of the date of the balance sheets and incomestatements for the period.  Actualresults could differ significantly from the estimates.  Material estimates that are particularlysusceptible to significant change in the near term include the determination ofthe allowance for loan losses and the valuation of foreclosed real estate.  These condensed financial statements shouldbe read in conjunction with the audited financial statements and notes includedin the 2003 annual report of American Bank on Form 10-KSB as filed with theSecurities Exchange Commission.

 

2)              EarningsPer Share

 

Basic earnings per share forthe three months ended March 31, 2004 was determined by dividing netincome by 1,891,907, the weighted average number of shares of common stock outstandingduring the period.  Basic earnings pershare for the three months ended March 31, 2003 was determined by dividingnet income by 2,084,354, the weighted average number of shares of common stockoutstanding during the period.  Dilutedearnings per share for the three months ended March 31, 2004 wasdetermined by dividing net income by 1,959,104, the weighted average number ofshares of common stock and common stock equivalents outstanding during theperiod.  Diluted earnings per share forthe three months ended March 31, 2003 was determined by dividing netincome by 2,163,005, the weighted average number of shares of common stock andcommon stock equivalents outstanding during the period.  Common stock equivalents consist ofoutstanding stock options, if such options are dilutive.

 

5

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3)              StockBased Compensation

 

SFAS No. 123, “Accountingfor Stock-Based Compensation”, requires the Bank to make certain disclosures asif the fair value method of accounting had been applied to the Bank’s stockoption grants made subsequent to 1994. Accordingly, the Bank estimated the grant date fair value of each optionawarded using the Black-Scholes Option-Pricing model.  Had 2004 compensation cost been determined including theweighted-average estimate of fair value of options vested, the Bank’s netincome would be reduced to proforma amount of $481,000 for the three months ended March 31, 2004.  Proforma earnings, basic and diluted, pershare would have been $0.25 and $0.25, respectively, for the three months endedMarch 31, 2004.  Had 2003compensation cost been determined including the weighted-average estimate offair value of options vested, the Bank’s net income would be reduced toproforma amount of $241,000 for the three months ended March 31,2003.  Proforma earnings, basic anddiluted, per share would have been $0.12 and $0.11, respectively, for the threemonths ended March 31, 2003.

 

4)              JuniorSubordinated Obligations

 

In January 2003, the FinancialAccounting Standards Board issued FASB Interpretation No. 46, “Consolidation ofVariable Interest Entities, an Interpretation of ARB No. 51” which was revisedin December 2003.  Thisinterpretation provides guidance for the consolidation of variable interestentities (VIEs).  American Bank HoldingsStatutory Trust I, a wholly-owned trust subsidiary of American Bank Holdings,Inc., qualifies as a variable interest entity under FIN 46.   American Bank Holdings Statutory Trustissued mandatorily redeemable preferred securities (trust capital securities)to third-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 the guidance provided byFIN 46, the Company did not consolidate the accounts of American Bank HoldingsStatutory Trust I.  The impact of notconsolidating was to report the total outstanding junior subordinateddebentures of $3,093,000 as an outstanding liability and to include theCompany’s $93,000 equity interest in the trust subsidiary as an “other Asset”on the balance sheet.  For regulatoryreporting purposes, the Federal Reserve Board has indicated that the trustcapital securities will continue to qualify as Tier 1 Capital subject topreviously specified limitations, until further notice. If regulators make adetermination that trust capital securities can no longer be considered inregulatory capital, the securities become callable and the Company may redeemthem.  The adoption of FIN 46 did nothave an impact on the Company’s results of operations or liquidity.

 

5)              Guarantees

 

The Company doesnot issue any guarantees that would require liability recognition ordisclosure, other than its standby letters of credit.  Standby letters of credit written are conditional commitmentsissued by the Company to guarantee the performance of a customer in a thirdparty.  Generally, all letters ofcredit, when issued have expiration dates within one year.  The credit risk involved in issuing lettersof credit is essentially the same as those that are involved in extending loanfacilities to customers.  The Companygenerally holds collateral supporting these commitments.  The Company had $266,000 of standby letter sof credit as of March 31, 2004. Management believes that the proceeds obtained through a liquidation ofcollateral would be sufficient to cover the potential amount of future paymentrequired under the corresponding guarantees. The current amount of the liability as on March 31, 2004 forguarantees under standby letters of credit issued is not material.

 

6)              Reclassifications

 

Certain items inthe 2003 financial statements have been reclassified to conform to the 2004financial statement presentation.  Suchreclassifications had no effect on net income.

 

6

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**Item2.**

 

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

 

**Management’s Discussion and Analysis of FinancialCondition andResults of Operations**

----

 

This discussion and analysis includes adescription of material changes that have affected the Company’s consolidatedfinancial condition and consolidated results of operations during the periodsincluded in the unaudited consolidated financial statements.

 

General

 

American Bank Holdings, Inc. is a corporationformed under the laws of Delaware to serve as the holding company for AmericanBank.  The business of the Company isconducted through the Bank, which is American Bank, a federally charteredsavings bank with six branch offices.  TheBank’s corporate headquarters is located in Silver Spring, Maryland and theBank has four full-service offices located at 1700 Rockville Pike, Rockville,Maryland, 5600 Connecticut Avenue, Washington D.C., in the SuperFresh market at12028 Cherry Hill Road, Silver Spring, Maryland and in the SuperFresh market at3301 North Ridge Road, Ellicott City, Maryland and a loan production/leasingoffice in Charlotte, North Carolina. Deposits in the Bank are insured to applicable limits by the FederalDeposit Insurance Corporation.  Allreferences to the Company prior to March 25, 2003, except where otherwiseindicated, are to the Bank.  As ofMarch 31, 2004, the Bank had 65 employees, 59 of whom work full time.

 

The Company recorded net income of $490,000,or $0.25 per diluted share, for the quarter ended March 31, 2004 ascompared to net income of $248,000, or $0.11 per diluted share, for the quarterended March 31, 2003.  The increasein net income for the three months ended March 31, 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 operating expenses.

 

**CRITICALACCOUNTING POLICIES**

 

The Company’ssignificant accounting policies are set forth in note 1 of the consolidatedfinancial statements as of December 31, 2003 which was filed on Form10-KSB with the SEC.  Of thesesignificant accounting policies, the Company considers its policy regarding theallowance for loan losses to be its most critical accounting policy, because itrequires management’s most subjective and complex judgments.  In addition, changes in economic conditionscan have a significant impact on the allowance for loan losses and thereforethe provision for loan losses and results of operations.  The Company has developed appropriatepolicies and procedures for assessing the adequacy of the allowance for loanlosses, recognizing that this process requires a number of assumptions andestimates with respect to its loan portfolio. The Company’s assessments may be impacted in future periods by changesin economic conditions, the impact of regulatory examinations and the discoveryof information with respect to borrowers that is not known to management at thetime of the issuance of the consolidated financial statements.

 

**FinancialCondition**(March 31, 2004 compared to December 31,2003)

 

Total assetsdecreased by $119,000, or less than 0.1%, to $236.8 million at March 31,2004 compared to December 31, 2003. Total loans outstanding decreased by $345,000 from $177.2 million atDecember 31, 2003 to $176.8 million at March 31, 2004.  The Company originated $66.2 million loansduring the three months ended March 31, 2004 as compared to $63.9 millionduring the same period in 2003.  Theincrease in loan production was primarily due to the increase in mortgage loansoriginated and subsequently sold by the mortgage division, and an increase incommercial related loans.  Investmentsecurities held-to-maturity decreased by $40,000 and investment securitiesavailable-for-sale decreased by $2.4 million from year end 2003 toMarch 31, 2004.  Cash and cashequivalents increased by $3.2 million during the three months ended March 31, 2004.  The increase in cash and cash equivalents isdue to the timing of incoming deposits and the funding of mortgage loans soldto investors.

 

7

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Nonperforming assets, net (includingnonaccrual loans, real estate owned and repossessed assets) decreased by$592,000 to $1.6 million at March 31, 2004 compared to $2.2 million atDecember 31, 2003.  AtMarch 31, 2004, the book balance for repossessed assets was $136,000 andwas classified as other assets on the balance sheet.  Total nonperforming assets, net, as a percentage of total assetswere 0.7% at March 31, 2004 and 0.9% at December 31, 2003.

 

The followingtable sets forth the composition of the Company’s nonperforming assets at thedates indicated (in thousands).

 
|                                           |   | **March 31,  2004** |   | **December 31,  2003** |   |
|------------------------------------------------|--------|--------------------------|--------|-----------------------------|--------|
| Non-accrual  loans:                            |   |                     |   |                        |   |
|                                           |   |                     |   |                        |   |
| One  to four family residential mortgage loans |   | $                        | 869    |                        | $      | 1,285 |   |
|                                           |   |                     |   |                        |   |
| Commercial  real estate loans                  |   | 239                      |   | 243                         |   |
|                                           |   |                     |   |                        |   |
| Consumer  loans                                |   | 14                       |   | 16                          |   |
|                                           |   |                     |   |                        |   |
| Total  non-accrual loans                       |   | $                        | 1,122  |                        | $      | 1,543 |   |
|                                           |   |                     |   |                        |   |
| Foreclosed  real estate, net                   |   | 312                      |   | 348                         |   |
|                                           |   |                     |   |                        |   |
| Repossessed  assets, net                       |   | 136                      |   | 270                         |   |
|                                           |   |                     |   |                        |   |
| Total  nonperforming assets                    |   | $                        | 1,570  |                        | $      | 2,162 |   |

 

The allowance forlosses on loans is established through a provision for loan losses based uponmanagement’s evaluation of the risk inherent in the loan portfolio and changesin the nature and volume of loan activity. Management considers, among other factors, the estimated fair value ofthe underlying collateral, 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 managementuses available information in establishing the allowance for loan losses,future adjustments to the allowance may be necessary if economic conditionsdiffer substantially 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 theallowance.  In addition, variousregulatory agencies, as part of their examination process, periodically reviewthe Company’s allowance for loan losses. Management will continue to monitor and modify allowances for loanlosses as conditions dictate.  Althoughmanagement maintains allowances at levels that it considers adequate to providefor potential losses, there can be no assurances that such losses will notexceed the estimated amounts or that higher provisions will not be necessary inthe future.

 

TheCompany had twenty-six loans, amounting to $1.1 million, as of March 31,2004, which are considered to be potential problem loans.  All of these loans are classified asnon-accrual loans because the borrowers are over 90 days delinquent andmanagement feels it may have difficulty in collecting the principal balance onthese loans.  The Company had anallowance for loan losses of $1.5 million, or 0.85% of the total loansoutstanding, at March 31, 2004, and $1.4 million, or 0.79% of total loansoutstanding, at December 31, 2003. The increase in the allowance was due to the change in portfolio mix andthe risk factors inherent in the overall portfolio mix. Management believes theprovisions are adequate based on the review of the underlying collateralsecuring the loans.

 

8

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The Company alsoestablishes allowance for losses on foreclosed real estate based upon its fairvalue 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 onavailable information, management believes that current loss reserves areadequate at this time to cover potential losses in the portfolio.  There can be no assurance, however, thatadditional loss provisions will not be necessary in the future if marketconditions deteriorate.  The Company hadan allowance for losses of $65,000, or 17.2% of foreclosed real estate, atMarch 31, 2004 and $29,000 or 8.2% of foreclosed real estate, atDecember 31, 2003.  The Company hadan allowance for losses on repossessed assets of $110,000 at March 31,2004.

 

The Company hadunrealized gains of $20,000, on its investment securities available-for-saleportfolio at March 31, 2004.  Theamortized cost of this portfolio was $30.2 million at that date.  There were net unrealized gains of $58,000on its investment securities held-to-maturity portfolio at March 31, 2004,with an amortized cost of $11.9 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 $2.4 million from year end2003 to March 31, 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 decreased by $40,000 due to the repaymentof principal on mortgage-backed securities.

 

Deposits increasedby $752,000 during the three months ended March 31, 2004.  The Company continued to focus its effortsin reducing its cost of deposits and trying to attract additional coredeposits.  Core deposits (money market,checking and statement savings accounts) increased by $5.0 million whilecertificates of deposits decreased by $4.2 million during the first threemonths of 2004.  The deposits atMarch 31, 2004 had an average interest rate of 1.77%.  Advances from the Federal Home Loan Bankdecreased by $2.0 million during the first three months of 2004.  The advances from the Federal Home Loan Bankat March 31, 2004 had an average interest rate of 3.13%.

 

The Company’sstockholders’ equity increased by $950,000, to $15.3 million at March 31,2004 compared to $14.3 million at December 31, 2003.  The increase was due to current periodearnings, net unrealized holding gains on investments available for sale, andproceeds received from the exercise of stock options.  At March 31, 2004, the Company was considered “wellcapitalized” under regulatory definitions.

 

**RESULTSOF OPERATIONS**

 

The Company’soperating results depend primarily on its net interest income, which is thedifference between interest income on interest-earning assets (primarily loansand investment securities) and interest expense on interest-bearing liabilities(primarily deposits and borrowings). The Company’s operating results are also affected by its other income (primarilygain on sale of loans, collection of late fees and service charges) and itsoperating expenses (primarily salaries and administrative costs).

 

The followingtable sets forth certain information relating to the Company’s averageinterest-bearing assets and interest-bearing liabilities and reflects theaverage yield on assets and the average cost of liabilities for the periodsindicated.  During the periodsindicated, non-accrual loans are included in the loans category.

 

9

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**AMERICAN BANK HOLDINGS, INC.**

**RATE SPREAD ANALYSIS**

**(dollars in thousands)**

 
|                                  |   | **3 Months  Ended March 31, 2004** |    | **3 Months  Ended March 31, 2003** |   |
|---------------------------------------|--------|-----------------------------------------|---------|-----------------------------------------|--------|
|                                  |   | **Average  Balance**                    |    | **Interest**                            |   | **Interest  Rate** |   | **Average  Balance** |   | **Interest** |   | **Interest  Rate** |   |
| Interest-bearing  assets:             |   |                                    |    |                                    |   |   |   |   |   |   |   |   |   |
|                                  |   |                                    |    |                                    |   |   |   |   |   |   |   |   |   |
| Loans                                 |   | $                                       | 175,044 |                                    | $      | 2,667 |   | 6.13 | % | $ | 128,314 |   | $ | 2,122 |   | 6.62 | % |
| Investment  securities                |   | 46,118                                  |    | 493                                     |   | 4.30 |   | 28,566 |   | 324 |   | 4.54 |   |
| Other                                 |   | 778                                     |    | 2                                       |   | 0.82 |   | 21,667 |   | 78 |   | 1.44 |   |
| Total  interest-bearing assets        |   | 221,940                                 |    | 3,162                                   |   | 5.73 |   | 178,547 |   | 2,524 |   | 5.65 |   |
|                                  |   |                                    |    |                                    |   |   |   |   |   |   |   |   |   |
| Interest  bearing liabilities:        |   |                                    |    |                                    |   |   |   |   |   |   |   |   |   |
|                                  |   |                                    |    |                                    |   |   |   |   |   |   |   |   |   |
| Deposits                              |   | 155,323                                 |    | 700                                     |   | 1.81 |   | 129,545 |   | 863 |   | 2.67 |   |
| FHLB  advances & Other Borrowings |   | 61,438                                  |    | 508                                     |   | 3.32 |   | 36,462 |   | 451 |   | 4.95 |   |
| Total  interest-bearing liabilities   |   | $                                       | 213,761 |                                    | $      | 1,208 |   | 2.24 |   | $ | 166,007 |   | $ | 1,314 |   | 3.17 |   |
|                                  |   |                                    |    |                                    |   |   |   |   |   |   |   |   |   |
| Average  interest rate spread         |   |                                    |    |                                    |   | 3.49 |   |   |   |   |   | 2.49 |   |
|                                  |   |                                    |    |                                    |   |   |   |   |   |   |   |   |   |
| Net  interest margin                  |   |                                    |    | $                                       | 1,954  |   | 3.54 | % |   |   | $ | 1,210 |   | 2.71 | % |

 

** **

**RESULTSOF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31,2003**

 

General.  The Company recorded net income of $490,000,or $0.25 per diluted share, for the three months ended March 31, 2004 ascompared to net income of $248,000, or $0.11 per diluted share, for the threemonths ended March 31, 2003.  Theincrease in net income for the three month period was attributable primarily tothe increase in net interest income and gains recognized on the sale of loansoffset by an increase in operating expenses.

 

Net interestincome, after provision for loan losses, increased by $674,000 for the threemonths ended March 31, 2004 when compared to the same period in 2003.  Other income increased by $511,000 and operatingexpenses increased by $770,000 during the three months ended March 31,2004 compared to the same period in 2003. The increase in operating expense was primarily due to additionalcompensation & employee benefit expenses, costs associated with foreclosedassets, occupancy expenses, and data processing expenses.

 

Net InterestIncome.  The Company’snet interest income increased by $744,000 during the three months endedMarch 31, 2004 as compared to the same period in 2003.  The increase was primarily due to theincrease in average volume of interest-earning assets and the average interestrate spread increasing by 100 basis points. The Company was able to increase the yield earned on interest-bearingassets by 7 basis points while decreasing the cost of funds by 93 basispoints.  The decrease in cost of fundswas due to the increase in core deposits while maturing certificates ofdeposits and borrowings repriced downward.

 

Provision for LoanLosses.  The Company’sprovision for loan losses increased by $70,000 to $145,000 during the threemonths ended March 31, 2004 compared to the same period in 2003.  The increase was due to the Companyproviding more reserves in the current quarter based on the periodic reviews ofthe underlying collateral securing the loans. More reserves were needed due to the change in mix, and the growth ofloans that have a higher inherent risk. The Company had an allowance for loan losses of $1.5 million, or 0.85%of the total loans outstanding, at March 31, 2004, and $1.4 million, or0.79% of total loans outstanding, at December 31, 2003.

 

10

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Other Income.  The Company’s other non-interest incomeincreased by $511,000 to $1.5 million during the three months endedMarch 31, 2004 compared to the same period in 2003.  The increase was due to additional loanservice charges, deposit service charges and gains recognized on the sale ofloans available-for-sale from the mortgage division.  The Company’s core deposit base has increased due to theexpansion of the branch locations, which is creating more opportunities tocollect deposit related service charges. The origination and subsequent sale of loans is the primary function ofthe mortgage division.  Loans originatedfor sale increased by $1.7 million during the three months ended March 31,2004 as compared to the same period in 2003. The mortgage division was able to increase the volume of loan productionand subsequent sales, which are all sold with servicing released, due to theincrease volume of alt-A loans.  Anyfuture increase in interest rates may affect the volume of loan production,however management believes that future gains on sale of loans generated by themortgage division will not be materially impacted since the Company has theability 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 has to produce a lowerlevel of documentation to obtain the loan. These loans typically have more credit risk, however the risk to theBank is mitigated because these loans are sold to investors that also underwritethe loans prior to loan closing.

 

OperatingExpenses.  Thefollowing table summarizes changes in the major components of operating expense(in thousands):

 
|                                         |   | **For the  Three Months Ended  March 31,** |   |     |   |         |   |
|----------------------------------------------|--------|-------------------------------------------------|--------|----------|--------|--------------|--------|
|                                         |   | **2004**                                        |   | **2003** |   | **$ Change** |   | **% Change** |   |
| Salaries  and related expenses               |   | $                                               | 1,485  |     | $      | 1,102        |   | $ | 383 |   | 34.8 | % |
| Occupancy  expense, net                      |   | 208                                             |   | 193      |   | 15           |   | 7.8 |   |
| Deposit  insurance premiums                  |   | 21                                              |   | 18       |   | 3            |   | 16.7 |   |
| Legal  and professional expenses             |   | 110                                             |   | 47       |   | 63           |   | 134.0 |   |
| Data  processing                             |   | 152                                             |   | 135      |   | 17           |   | 12.6 |   |
| Net  cost of operations of foreclosed assets |   | 146                                             |   | 3        |   | 143          |   | 4,766.7 |   |
| Advertising                                  |   | 52                                              |   | 5        |   | 47           |   | 854.8 |   |
| Loan  fees and expenses                      |   | 90                                              |   | 51       |   | 39           |   | 76.9 |   |
| Other  expenses                              |   | 208                                             |   | 148      |   | 60           |   | 40.5 |   |
|                                         |   | $                                               | 2,472  |     | 1,702  |         | $      | 770 |   | 45.2 | % |
|                                              |        |                                                 |        |          |        |              |        |  |  |  |  |  |

 

The Company’soperating expenses increased by $770,000 to $2.5 million during the threemonths ended March 31, 2004 compared to the same period in 2003.  The increase in operating expenses wasprimarily due to the increase in compensation & employee benefit expense,legal expenses, data processing, cost of operations of foreclosed assets,advertising, and loan fees and expenses. The increase in compensation and employee benefit expenses was primarilydue to additional staff hired in the lending area and branch network as well asmore commissions paid to loan officers in the mortgage division, whichcorrelates to the increase in gains from the sale of loans.  The increase in legal and professionalexpenses is primarily due to the Little lawsuit (see PART II, Item 1) and legalcosts associated with the collection efforts on non-accrual assets. Theincrease in costs of operations in foreclosed assets is due to $110,000provision charged on repossessed automobiles and $36,000 provision charged onforeclosed residential real estate property. The original loan related to the repossessed automobiles was originatedin April 2001 and secured by the assignment of twenty-eight automobileleases to individuals and security interest filings on these vehicles.  During the third quarter of 2002, the loanwas past due less than 90 days when the borrower filed for Chapter 11Bankruptcy protection.  As ofMarch 31, 2004, repossessed assets had a gross balance of $246,000(excluding the specific reserves) which consists of 10 repossessed automobilesand the assignment of 10 leases to individuals, which all but one are currentlyperforming under the terms of the lease.

 

11

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**OFF-BALANCESHEET ARRANGEMENTS**

 

The Company isparty to financial instruments with off-balance sheet risk includingcommitments to extend credit under existing lines of credit and commitments tosell loans.  These instruments involve,to varying degrees, elements of credit and interest rate risk in excess of theamount recognized in the consolidated balance sheets.

 

Commitments tooriginate new loans or extend credit are agreements to lend to a customer aslong as there is no violation of any condition established in thecontract.  Loan commitments generallyexpire within 30 to 45 days.  Mostequity line commitments for the unfunded portion of equity lines are for a termof 10 years, and commercial lines of credit are generally renewable on anannual basis.  Commitments generallyhave fixed expiration dated or other termination clauses and may requirepayment of a fee.  Since many of thecommitments are expected to expire without being drawn upon, the totalcommitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer’screditworthiness on a case-by-case basis. The amounts of collateral obtained, if deemed necessary by the Companyupon extension of credit, is based on management’s credit evaluation of theborrower.

 

Commitments tosell loans held for sale are agreements to sell loans to a third party at anagreed upon price.  At March 31, 2004,the aggregate fair value of these commitments exceeded the book value of theloans to be sold.

 

Off-balance sheetfinancial instruments whose contract amounts represent credit and interest raterisk are summarized as follows (dollars in thousands):

 
|                                                                                              |   | **March 31,  2004** |   | **December 31,  2003** |   |
|---------------------------------------------------------------------------------------------------|--------|--------------------------|--------|-----------------------------|--------|
| Commitments  to originate new loans                                                               |   | $                        | 6,406  |                        | $      | 3,077 |   |
| Commitments  to originate new loans held for sale                                                 |   | —                   |   | —                      |   |
| Unfunded  commitments to extend credit under existing equity line and commercial lines  of credit |   | 13,407                   |   | 5,612                       |   |
| Commercial  letters of credit                                                                     |   |     266   |   |     175      |   |
| Commitments  to sell loans held for sale                                                          |   | 17,556                   |   | 34,666                      |   |
|                                                                                                   |        |                          |        |                             |        |  |  |

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company’s mainsources of liquidity, as a holding company, are dividends from the Bank,investment income and net proceeds from borrowings and capital securitiesofferings.  As a new organization, theCompany expects its main uses of liquidity initially will be the payment ofdividends to shareholders, and the payment of interest to the issuer of trustpreferred securities.  The ability ofthe Bank to pay dividends is subject to various regulatory limitations.  As part of the reorganization of theCompany, the Company received a capital contribution of $400,000 from the Bank.

 

Liquiditydescribes our ability to meet the financial obligations that arise during theordinary course of business.  Liquidityis primarily needed to meet the borrowing and deposit withdrawal requirementsof our customers and to fund current and planned expenditures.  Our primary sources of funds are deposits,scheduled amortization and prepayments of loan principal and mortgage-backedsecurities, maturities and calls of securities and funds provided by ouroperations.  Our ability to maintain andexpand our deposit base and borrowing capabilities is an important source ofliquidity.  In addition to coredeposits, we regularly utilize wholesale funding sources such as brokereddeposits and FHLB advances.  At March 31,2004, we had $59.1 million in outstanding borrowings.

 

We closely monitorand maintain appropriate levels of interest earning assets and interest bearingliabilities so that maturities of assets are such that adequate funds areprovided to meet customer withdrawals and loan demand.  In addition, we continue to explore various capitalmanagement strategies such as share repurchases and the issuance of trustpreferred securities.

 

12

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During the quarterended March 31, 2003, the Bank purchased 210,876 shares of American Bankcommon stock from dissenters to the reorganization for an aggregate of$1,358,000.

 

The Bank isrequired to maintain sufficient liquidity to ensure its safe and soundoperation.  As required by recentlegislation, the OTS recently deleted its requirement that federal savingsassociations maintain a certain minimum level of liquid assets.  Instead, adequate liquidity is assessed bythe OTS on a case-by-case basis by reviewing such factors as the institution’soverall asset/liability structure, market conditions, competition and thenature of the institution’s activities. The OTS considers both an institution’s liquidity ratio as well assafety and soundness issues in assessing whether an institution has sufficientliquidity.  The Bank has ample liquidityto meet its outstanding loan commitments. At March 31, 2004, the Bank had outstanding loan commitmentstotaling $6,406,000 and other commitments under lines of credit totaling$13,407,000.

 

Quantitativemeasures established by bank regulations to ensure capital adequacy require theBank to maintain minimum amounts and ratios (set forth in the table below) oftotal and Tier I capital (as defined in the regulations) and risk-weightedassets (as defined), and of Tier I capital (as defined) to average assets (asdefined).  As of March 31, 2004,the Bank meets all capital adequacy requirements to which it is subject.

 

As ofMarch 31, 2004, the most recent notification from the OTS categorized theBank as “well capitalized” under the regulatory framework for prompt correctiveaction.  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 eventssince that notification that management believes have changed the Bank’scategory.  The Bank’s actual capitalamounts and ratios are as follows (in thousands):

 
|       |   | **ACTUAL** |    | **ACTUAL%** |   | **REQUIRED** |   | **REQ’D%** |   | **EXCESS** |   |
|------------|--------|------------|---------|-------------|--------|--------------|--------|-----------------|--------|------------|--------|
| Core       |   |       | $17,029 |        | 7.19   | %            |   | $9,463          |   | 4.0        | %      |   | $7,566 |   |
| Tangible   |   | 17,029     |    | 7.19        |   | 3,549        |   | 1.5             |   | 13,480     |   |
| Risk-based |   | 18,355     |    | 11.29       |   | 13,003       |   | 8.0             |   | 5,352      |   |
|            |        |            |         |             |        |              |        |                 |        |            |        |  |  |  |

 

**QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

The followingtable sets forth the amounts of interest-earning assets and interest-bearingliabilities outstanding at March 31, 2004, which are expected to mature orreprice in each of the time periods shown.

 

13

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American Bank Holdings, Inc.

Repricing Schedule as of March 31, 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                               |   | $                       | 78,893 |                         | $      | 34,617                        |   | $                         | 5,357  |       | $      | 29,905 |   | $ | 148,773 |   |
| Other  interest-earning assets      |   | 10,658                  |   | —                       |   | —                        |   | —                    |   | 10,658     |   |
| Investment  securities              |   | 3,918                   |   | 1,049                        |   | 10,904                        |   | 26,212                    |   | 42,083     |   |
| Total  interest-earning assets      |   | 93,469                  |   | 35,666                       |   | 16,261                        |   | 56,117                    |   | 201,514    |   |
|                                |   |                    |   |                         |   |                          |   |                      |   |       |   |
| Interest-bearing  liabilities:      |   |                    |   |                         |   |                          |   |                      |   |       |   |
|                                |   |                    |   |                         |   |                          |   |                      |   |       |   |
| Certificates  of Deposit            |   | 76,091                  |   | 28,693                       |   | —                        |   | —                    |   | 104,785    |   |
| Money  market deposits              |   | 8,141                   |   | 13,882                       |   | 3,969                         |   | —                    |   | 25,991     |   |
| NOW  & Statement accounts       |   | 3,943                   |   | 10,060                       |   | 9,040                         |   | —                    |   | 23,043     |   |
| Borrowings                          |   | 50,668                  |   | 11,500                       |   | —                        |   | —                    |   | 62,168     |   |
| Total  interest-bearing liabilities |   | 138,843                 |   | 64,135                       |   | 13,009                        |   | —                    |   | 215,987    |   |
| GAP                                 |   | (45,374                 | )      | (28,469                      | )      | 3,252                         |   | 56,117                    |   |       |   |
| Cumulative  GAP                     |   | (45,374                 | )      | (73,843                      | )      | (70,591                       | )      | (14,473                   | )      |       |   |
| Cum.  GAP/total assets              |   |    -22.5%     |   |    -36.6%          |   |    -35.0%           |   |    -7.2%        |   |       |   |
|                                     |        |                         |        |                              |        |                               |        |                           |        |            |        |  |  |  |  |  |

 

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

 

The interest ratesensitivity of the Company’s assets and liabilities could vary substantially ifdifferent assumptions are used. Moreover, certain shortcomings are inherent in the methods of analysispresented in the above GAP table.  Althoughcertain assets and liabilities may have similar maturities or periods of repricing,they may react in different degrees to changes in market interest rates.  The interest rates on certain types ofassets and liabilities may fluctuate in advance of changes in market interestrates, whereas interest rates on other types of assets and liabilities may lagbehind changes in market interest rates. Certain assets, such as adjustable-rate mortgages have features thatrestrict changes in interest rates on a short-term basis and over the life ofthe assets.  In the event of a change ininterest rates, prepayment and early withdrawal levels would likely deviatesignificantly from those assumed in calculating the table.  The ability of many borrowers to servicetheir debt may decrease in the event of an interest rate increase.

 

The Company’s resultsof operations depend to a large extent on the level of the Company’s netinterest income.  If interest ratefluctuations cause the Company’s cost of funds to increase faster than theyield of its interest-bearing assets, then its net interest income will bereduced.  At March 31, 2004, theCompany’s one-year interest sensitivity “gap” (the percentage by which itsinterest sensitive assets in a given period exceed its interest sensitiveliabilities for the same period) was negative 22.5%.   The Company has emphasized shorter-term deposits, which tend toreprice on a basis more consistent with the short-term duration of theCompany’s typical loan products.  Inaddition, the Company’s management classifies certain securities asavailable-for-sale to provide flexibility for liquidity purposes.  If the need to sell an asset for liquidityor other purposes arises,

 

14

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management believes thatthere are 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’smanagement believes that the Company’s interest rate risk position atMarch 31, 2004 represents a reasonable amount of interest rate risk.

 

**FORWARD-LOOKINGSTATEMENTS**

 

Certain statements in Management’s Discussionand Analysis are forward-looking statements within the meaning of theSecurities Act of 1934, as amended. Actual results, performance or developments may differ materially fromthose expressed or implied by such forward-looking statements as a result ofmarket uncertainties and other factors related to the Company’s business.  The financial services market generally, andthe market for the Company’s products and services specifically, ischaracterized by a high degree of competition and rapidly changing local,national and global market, financial and economic conditions, and interestrate fluctuations/market conditions. Such developments, as well as unforeseen developments in the financialservices industry, could have an adverse impact on the Company’s financialposition and results of operations.

 

**Item3.  CONTROLS AND PROCEDURES**

 

The Company’smanagement, including the Chief Executive Officer and Chief Financial Officerevaluated the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined in Rule 13a-15(e) and15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the“Exchange Act”) as of the end of the period covered by this report.  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective in ensuring that informationrequired to be disclosed by the Company in reports that it files or submitsunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commissions rules andforms.

 

There were nosignificant changes in the Company’s internal controls over financial reportingthat occurred during the Company’s most recent fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

**PART II– OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

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

 

Howard Little, Robin Brandt, Gary Brandt, andDavid Goldstein have filed an action against the Bank and other defendants,including the United States of America, in the United States District Court forthe Middle District of Florida.  Thisaction was commenced on August 31, 2000. The claim arises out of statements allegedly made by former Bankpersonnel to federal investigators in 1994. Plaintiffs allege that as a result of these statements and others, theplaintiffs were wrongly indicted by a federal grand jury and were ultimatelyacquitted of the charges.  The Bankfiled a motion to dismiss the plaintiffs’ claims which was denied by the courtin September 2001.  The initialscheduling conference has occurred and discovery has begun.  In November 2003, we filed a motion forsummary judgment on the plaintiffs’ claims, which is currently pending.

 

**Item2.  Changes in Securities, Use of  Proceeds and Small Business Issuer Purchasesof Equity Securities**

 

Not applicable.

 

**Item3.  Defaults Upon Senior Securities**

 

Not applicable.

 

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

 

Not applicable.

 

**Item5.  Other Information**

 

Not applicable.

 

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

 

(a)          Exhibits.

 

31.1                           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

 

(b)         Reports on Form 8-K.

 

On January 8, 2004, theCompany filed a form 8-K reporting a change in its independent accountants.

 

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**SIGNATURES**

 

In accordance with the requirements of theExchange Act, the registrant caused this report to be signed on its behalf bythe undersigned, there unto duly authorized.

 
|   | AMERICAN BANK HOLDINGS,  INC.                      |
|--------|----------------------------------------------------|
|   | (Registrant)                                       |
|   |                                               |
|   |                                               |
|   | Date: May 14, 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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