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

**WASHINGTON, D.C.  20549**

 

**FORM 10-QSB**

 

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

**SECURITIESEXCHANGE ACT OF 1934**

 

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

 

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

**EXCHANGEACT**

 

**for the transition period from                to                **

 

**Commission file number: 333-102410**

 

**AMERICAN BANK HOLDINGS, INC.**

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

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

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

 

**As of August 13, 2003: 1,883,574 shares ofcommon stock, par value $0.001 per share.**

 

 

----

 

PART I - FINANCIAL INFORMATION

**Item1**.

 

AMERICAN BANK HOLDINGS, INC.

AND SUBSIDIARIES

 

**UNAUDITED CONSOLIDATED STATEMENTS OFFINANCIAL CONDITION**

 
|                                                                                                                                                          |   | **June 30,  2003** |        | **December  31,  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|-------------------------|--------|
|                                                                                                                                                          |   | **(Unaudited)**    |        |                    |   |
| ASSETS                                                                                                                                                        |   |               |        |                    |   |
| Cash                                                                                                                                                          |   | $                  | 799,531     |                    | $      | 3,008,288 |   |
| Interest bearing deposits in other banks                                                                                                                      |   | 2,604,053          |        | 18,799,221              |   |
| Federal funds sold & securities purchased under agreements to  resell                                                                                     |   | 522,000            |        | 1,002,000               |   |
| Investment securities, available for sale                                                                                                                     |   | 37,195,760         |        | 17,752,901              |   |
| Investment securities, held to maturity                                                                                                                       |   | 7,711,358          |        | 1,242,036               |   |
| Loans receivable, net                                                                                                                                         |   | 117,294,254        |        | 109,270,991             |   |
| Loans available for sale                                                                                                                                      |   | 25,110,376         |        | 19,962,092              |   |
| Foreclosed real estate, net                                                                                                                                   |   | 344,176            |        | 526,478                 |   |
| Accrued interest receivable, net                                                                                                                              |   | 810,436            |        | 776,358                 |   |
| Premises and equipment, net                                                                                                                                   |   | 1,669,677          |        | 1,739,298               |   |
| Federal Home Loan Bank of Atlanta stock, at cost                                                                                                              |   | 1,528,800          |        | 1,903,800               |   |
| Income tax refund receivable                                                                                                                                  |   | 185,895            |        | 186,630                 |   |
| Deferred income taxes, net                                                                                                                                    |   | 565,105            |        | 545,307                 |   |
| Cash surrender value life insurance                                                                                                                           |   | 2,418,324          |        | 2,365,324               |   |
| Other assets                                                                                                                                                  |   | 1,032,075          |        | 661,489                 |   |
|                                                                                                                                                          |   |               |        |                    |   |
| Total assets                                                                                                                                                  |   | $                  | 199,791,820 |                    | $      | 179,742,213 |   |
|                                                                                                                                                          |   |               |        |                    |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                     |   |               |        |                    |   |
| Liabilities                                                                                                                                                   |   |               |        |                    |   |
| Checks outstanding in excess of Bank balances                                                                                                                 |   | $                  | 17,737      |                    | $      | 12,584 |   |
| Deposits                                                                                                                                                      |   | 138,883,235        |        | 125,476,021             |   |
| Official checks                                                                                                                                               |   | 12,272,264         |        | 4,965,878               |   |
| Advances from the Federal Home Loan Bank                                                                                                                      |   | 30,575,000         |        | 33,075,000              |   |
| Trust preferred securities                                                                                                                                    |   | 2,894,200          |        | —                  |   |
| Advance payments by borrowers for taxes and insurance                                                                                                         |   | 441,970            |        | 280,076                 |   |
| Accrued expenses and other liabilities                                                                                                                        |   | 601,726            |        | 941,140                 |   |
|                                                                                                                                                          |   |               |        |                    |   |
| Total liabilities                                                                                                                                             |   | $                  | 185,686,132 |                    | $      | 164,750,699 |   |
|                                                                                                                                                          |   |               |        |                    |   |
| Commitments and contingencies                                                                                                                                 |   |               |        |                    |   |
|                                                                                                                                                          |   |               |        |                    |   |
| Stockholders’ Equity                                                                                                                                     |   |               |        |                    |   |
| Preferred stock, par value $0.001 per share, authorized 10,000,000  shares, no shares issued and outstanding                                                  |   | $                  | —      |                    | $      | — |   |
| Common stock, par value $0.001 per share, authorized 10,000,000  shares, issued and outstanding 1,873,478 (2003) and 2,084,354 shares at par  value $1 (2002) |   | 1,873              |        | 2,084,354               |   |
| Additional paid-in capital                                                                                                                                    |   | 9,745,127          |        | 9,020,355               |   |
| Retained earnings                                                                                                                                             |   | 4,260,965          |        | 3,858,817               |   |
| Accumulated other comprehensive income                                                                                                                        |   | 97,723             |        | 27,988                  |   |
|                                                                                                                                                          |   |               |        |                    |   |
| Total stockholders’ equity                                                                                                                               |   | 14,105,688         |        | 14,991,514              |   |
|                                                                                                                                                          |   |               |        |                    |   |
| Total liabilities and stockholders’ equity                                                                                                               |   | $                  | 199,791,820 |                    | $      | 179,742,213 |   |

 

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

 

1

----

 

AMERICAN BANK HOLDINGS, INC.

AND SUBSIDIARIES

 

**UNAUDITED CONSOLIDATED STATEMENTS OFOPERATIONS**

 
|                                                |   | **For the  Six Months Ended  June 30,** |      | **For the  Three Months Ended  June 30,** |   |
|-----------------------------------------------------|--------|-----------------------------------------|-----------|-------------------------------------------|--------|
|                                                |   | **2003**                                |      | **2002**                                  |   | **2003** |   | **2002** |   |
| Interest Income                                     |   |                                    |      |                                      |   |   |   |   |   |
| Interest and fees on loans                          |   | $                                       | 4,251,284 |                                      | $      | 3,953,370 |   | $ | 2,129,164 |   | $ | 2,050,308 |   |
| Interest and dividends on investments               |   | 690,785                                 |      | 920,536                                   |   | 366,788 |   | 523,387 |   |
| Other interest income                               |   | 115,873                                 |      | 60,606                                    |   | 38,047 |   | 11,069 |   |
| Total interest income                               |   | 5,057,942                               |      | 4,934,512                                 |   | 2,533,999 |   | 2,584,764 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Interest Expense                                    |   |                                    |      |                                      |   |   |   |   |   |
| Interest on deposits                                |   | 1,712,813                               |      | 1,708,486                                 |   | 849,635 |   | 781,860 |   |
| Interest on short term borrowings                   |   | 741,917                                 |      | 342,669                                   |   | 319,442 |   | 142,592 |   |
| Interest on long term borrowings                    |   | 113,293                                 |      | 531,325                                   |   | 84,602 |   | 336,820 |   |
| Total interest expense                              |   | 2,568,023                               |      | 2,582,480                                 |   | 1,253,679 |   | 1,261,272 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Net interest income                                 |   | 2,489,919                               |      | 2,352,032                                 |   | 1,280,320 |   | 1,323,492 |   |
| Provision for loan losses                           |   | 175,000                                 |      | 71,218                                    |   | 100,000 |   | 55,030 |   |
| Net interest income after provision for loan losses |   | 2,314,919                               |      | 2,280,814                                 |   | 1,180,320 |   | 1,268,462 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Other Income                                        |   |                                    |      |                                      |   |   |   |   |   |
| Loan Service charges & late fees                |   | 97,433                                  |      | 49,737                                    |   | 61,577 |   | 32,825 |   |
| Deposit service charges                             |   | 107,611                                 |      | 75,150                                    |   | 60,630 |   | 38,727 |   |
| Gain on sale of securities                          |   | 79,802                                  |      | 83,452                                    |   | 58,240 |   | 83,452 |   |
| Gain on sale of loans available for sale            |   | 1,762,593                               |      | 1,099,922                                 |   | 943,840 |   | 599,986 |   |
| Total other income                                  |   | 2,047,439                               |      | 1,308,261                                 |   | 1,124,287 |   | 754,990 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Non-Interest Expenses                               |   |                                    |      |                                      |   |   |   |   |   |
| Salaries and related expenses                       |   | 2,268,437                               |      | 1,633,011                                 |   | 1,166,962 |   | 877,014 |   |
| Occupancy expense, net                              |   | 399,075                                 |      | 293,899                                   |   | 205,658 |   | 149,973 |   |
| Deposit insurance premiums                          |   | 36,000                                  |      | 24,000                                    |   | 18,000 |   | 12,000 |   |
| Legal and professional expenses                     |   | 131,522                                 |      | 174,029                                   |   | 84,471 |   | 40,089 |   |
| Marketing and advertising expenses                  |   | 44,770                                  |      | 73,388                                    |   | 37,241 |   | 53,116 |   |
| Data processing                                     |   | 276,931                                 |      | 177,505                                   |   | 141,726 |   | 98,857 |   |
| Net cost of operations of foreclosed real estate    |   | 6,744                                   |      | (7,955                                    | )      | 3,528 |   | (10,676 | ) |
| Other expenses                                      |   | 358,505                                 |      | 398,250                                   |   | 191,003 |   | 213,632 |   |
| Total non-interest expenses                         |   | 3,521,984                               |      | 2,766,127                                 |   | 1,848,589 |   | 1,434,005 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Income before income taxes                          |   | 840,374                                 |      | 822,948                                   |   | 456,018 |   | 589,447 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Provision for income taxes                          |   | 312,700                                 |      | 314,600                                   |   | 176,000 |   | 227,900 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Net income                                          |   | $                                       | 527,674   |                                      | $      | 508,348 |   | $ | 280,018 |   | $ | 361,547 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Basic Earnings Per Common Share                     |   | $                                       | 0.26      |                                      | $      | 0.25 |   | $ | 0.15 |   | $ | 0.17 |   |
|                                                |   |                                    |      |                                      |   |   |   |   |   |
| Diluted Earnings Per Common Share                   |   | $                                       | 0.25      |                                      | $      | 0.24 |   | $ | 0.14 |   | $ | 0.17 |   |

 

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

 

2

----

 

AMERICAN BANK HOLDINGS, INC.

AND SUBSIDIARIES

 

**UNAUDITED CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

 
|                                                                                               |   | **Common  Stock** |      | **Additional  Paid-In  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |      | **Total  Stockholders’  Equity** |   |
|----------------------------------------------------------------------------------------------------|--------|-------------------|-----------|----------------------------------|--------|------------------------|--------|-----------------------------------------------|-----------|---------------------------------------|--------|
| Balance - January 1, 2002                                                                          |   | $                 | 1,969,531 |                             | $      | 8,460,130              |   | $                                             | 3,758,528 |                                  | $      | 6,487 |   | $ | 14,194,676 |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |   |   |   |   |   |
| Net income for 2002                                                                                |   |              |      |                             |   | 1,039,198              |   |                                          |      |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Net change in unrealized gains (losses) on  available-for-sale securities, net of taxes of $75,337 |   |              |      |                             |   |                   |   | 119,735                                       |      |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Less reclassification of gains recognized,  net of taxes of $61,809                                |   |              |      |                             |   |                   |   | (98,234                                       | )         |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Comprehensive income                                                                               |   |              |      |                             |   |                   |   |                                          |      | 1,060,699                             |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Five percent stock dividend                                                                        |   | 98,400            |      | 511,680                          |   | (610,080               | )      |                                          |      |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Cash dividend                                                                                      |   |              |      |                             |   | (328,829               | )      |                                          |      | (328,829                              | )      |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Exercise of stock options                                                                          |   | 16,423            |      | 48,545                           |   |                   |   |                                          |      | 64,968                                |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Balance - December 31, 2002                                                                        |   | $                 | 2,084,354 |                             | $      | 9,020,355              |   | $                                             | 3,858,817 |                                  | $      | 27,988 |   | $ | 14,991,514 |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |   |   |   |   |   |
| Net income for Six Months ended June 30,  2003                                                     |   |              |      |                             |   | 527,674                |   |                                          |      |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Net change in unrealized gains (losses) on  available-for-sale securities, net of taxes of $74,696 |   |              |      |                             |   |                   |   | 118,717                                       |      |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Less reclassification of gains recognized,  net of taxes of $30,820                                |   |              |      |                             |   |                   |   | (48,982                                       | )         |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Comprehensive income                                                                               |   |              |      |                             |   |                   |   |                                          |      | 597,409                               |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Reorganization to holding company structure                                                        |   | (1,871,605        | )         | 1,871,605                        |   |                   |   |                                          |      |                                  |   |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Repurchase of dissenters shares                                                                    |   | (210,876          | )         | (1,146,833                       | )      |                   |   |                                          |      | (1,357,709                            | )      |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Cash dividend                                                                                      |   |              |      |                             |   | (125,526               | )      |                                          |      | (125,526                              | )      |
|                                                                                               |   |              |      |                             |   |                   |   |                                          |      |                                  |   |
| Balance - June 30, 2003                                                                            |   | $                 | 1,873     |                             | $      | 9,745,127              |   | $                                             | 4,260,965 |                                  | $      | 97,723 |   | $ | 14,105,688 |   |

 

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

 

3

----

 

AMERICAN BANK HOLDINGS, INC.

AND SUBSIDIARIES

 

**UNAUDITED CONSOLIDATED STATEMENTS OF CASHFLOWS**

 
|                                                                                        |   | **Six Months  Ended June 30,** |        |
|---------------------------------------------------------------------------------------------|--------|--------------------------------|-------------|
|                                                                                        |   | **2003**                       |        | **2002** |   |
| Operating Activities                                                                        |   |                           |        |   |   |
| Net income                                                                                  |   | $                              | 527,674     |   | $ | 508,348 |   |
| Adjustments to Reconcile Net Income to Net Cash  Provided By (Used In) Operating Activities |   |                           |        |   |   |
| Net accretion of discounts and amortization of premiums                                     |   | 27,286                         |        | 52,338 |   |
| Provision for loan losses                                                                   |   | 175,000                        |        | 71,218 |   |
| Gain on sale of investment securities - AFS                                                 |   | (79,802                        | )           | (83,452 | ) |
| Loan fees deferred                                                                          |   | 27,535                         |        | 104,644 |   |
| Amortization of deferred loan fees                                                          |   | (179,512                       | )           | (67,917 | ) |
| Loans originated for resale                                                                 |   | (97,202,405                    | )           | (47,980,666 | ) |
| Gain on sale of loans                                                                       |   | (1,762,593                     | )           | (1,099,922 | ) |
| Proceeds from sales of loans originated for resale                                          |   | 93,816,714                     |        | 49,319,983 |   |
| Net gain on sale of foreclosed real estate                                                  |   | —                         |        | (10,244 | ) |
| Increase in interest receivable                                                             |   | (34,078                        | )           | (243,160 | ) |
| Depreciation and amortization                                                               |   | 161,100                        |        | 95,999 |   |
| (Increase) decrease in income tax refund receivable                                         |   | 735                            |        | (76,693 | ) |
| Increase in deferred income taxes                                                           |   | (63,675                        | )           | (32,158 | ) |
| Increase in other assets                                                                    |   | (370,586                       | )           | (21,041 | ) |
| Decrease in other liabilities                                                               |   | (339,414                       | )           | (1,700,604 | ) |
| Net cash used by operating activities                                                       |   | $                              | (5,296,021  | ) | $ | (1,163,327 | ) |
|                                                                                        |   |                           |        |   |   |
| Investing Activities                                                                        |   |                           |        |   |   |
| Proceeds from sales and maturing investment securities - AFS                                |   | 5,399,516                      |        | 6,781,265 |   |
| Purchase of investment securities - AFS                                                     |   | (35,995,825                    | )           | (17,064,432 | ) |
| Proceeds from maturing investment securities - HTM                                          |   | 1,000,000                      |        | 9,000,000 |   |
| Purchase of investment securities - HTM                                                     |   | (8,000,000                     | )           | (5,046,450 | ) |
| Principal collected on mortgage backed securities                                           |   | 11,850,255                     |        | 2,902,067 |   |
| Principal collected on loans                                                                |   | 40,050,406                     |        | 37,161,973 |   |
| Loans originated or acquired                                                                |   | (48,096,692                    | )           | (47,490,896 | ) |
| Funds advanced on foreclosed real estate                                                    |   | —                         |        | (40,470 | ) |
| Proceeds from the sale of foreclosed real estate                                            |   | 182,302                        |        | 169,551 |   |
| Purchases of premises and equipment                                                         |   | (91,479                        | )           | (921,418 | ) |
| Purchase (redemption) of stock in the Federal Home Loan Bank                                |   | 375,000                        |        | (625,000 | ) |
| Investment in life insurance policies                                                       |   | (53,000                        | )           | (41,400 | ) |
| Net cash used by investing activities                                                       |   | $                              | (33,379,516 | ) | $ | (15,215,210 | ) |

 

4

----

 

AMERICAN BANK

AND SUBSIDIARIES

 

**UNAUDITED CONSOLIDATED STATEMENTS OF CASHFLOWS**

 
|                                                                                                                             |   | **Six Months  Ended June 30,,** |      |
|----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                                                                                             |   | **2003**                        |      | **2002** |   |
| Financing Activities                                                                                                             |   |                            |      |   |   |
|                                                                                                                             |   |                            |      |   |   |
| Increase in checks outstanding in excess of  bank balances                                                                       |   | $                               | 5,153     |   | $ | 4,907 |   |
|                                                                                                                             |   |                            |      |   |   |   |   |
| Increase in demand deposits, NOW accounts,  savings accounts, official checks and advances by borrowers for taxes and  insurance |   | 17,001,357                      |      | 4,840,074 |   |
|                                                                                                                             |   |                            |      |   |   |
| Net increase (decrease) in certificates of  deposit                                                                              |   | 3,874,137                       |      | (6,229,070 | ) |
|                                                                                                                             |   |                            |      |   |   |
| Net proceeds from borrowings                                                                                                     |   | (2,500,000                      | )         | 12,992,000 |   |
|                                                                                                                             |   |                            |      |   |   |
| Repurchase shares of common stock                                                                                                |   | (1,357,709                      | )         | — |   |
|                                                                                                                             |   |                            |      |   |   |
| Proceeds from trust preferred offering                                                                                           |   | 2,894,200                       |      | — |   |
|                                                                                                                             |   |                            |      |   |   |
| Proceeds from exercise of stock options                                                                                          |   | —                          |      | 28,285 |   |
|                                                                                                                             |   |                            |      |   |   |
| Cash dividends paid                                                                                                              |   | (125,526                        | )         | (161,808 | ) |
|                                                                                                                             |   |                            |      |   |   |
| Net cash provided by financing activities                                                                                        |   | 19,791,612                      |      | 11,474,388 |   |
|                                                                                                                             |   |                            |      |   |   |
| Decrease in cash equivalents                                                                                                     |   | (18,883,925                     | )         | (4,904,149 | ) |
|                                                                                                                             |   |                            |      |   |   |
| Cash and cash equivalents at beginning of  year                                                                                  |   | 22,809,509                      |      | 15,291,936 |   |
|                                                                                                                             |   |                            |      |   |   |
| Cash and cash equivalents at end of period                                                                                       |   | $                               | 3,925,584 |   | $ | 10,387,787 |   |
|                                                                                                                             |   |                            |      |   |   |
| Reconciliation of Cash and Cash Equivalents  at End of Period                                                                    |   |                            |      |   |   |
|                                                                                                                             |   |                            |      |   |   |
| Cash                                                                                                                             |   | $                               | 799,531   |   | $ | 2,243,985 |   |
|                                                                                                                             |   |                            |      |   |   |   |   |
| Interest bearing deposits in other banks                                                                                         |   | 2,604,053                       |      | 6,845,802 |   |
|                                                                                                                             |   |                            |      |   |   |
| Federal funds                                                                                                                    |   | 522,000                         |      | 1,298,000 |   |
|                                                                                                                             |   |                            |      |   |   |
| Cash and cash equivalents at end of period                                                                                       |   | $                               | 3,925,584 |   | $ | 10,387,787 |   |
|                                                                                                                             |   |                            |      |   |   |
| Other Cash Flow Information                                                                                                      |   |                            |      |   |   |
|                                                                                                                             |   |                            |      |   |   |
| Interest paid                                                                                                                    |   | $                               | 2,486,207 |   | $ | 2,519,763 |   |
|                                                                                                                             |   |                            |      |   |   |   |   |
| Income taxes paid                                                                                                                |   | 371,000                         |      | 447,650 |   |
|                                                                                                                             |   |                            |      |   |   |
| Stock dividend                                                                                                                   |   | —                          |      | 610,080 |   |

 

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

 

5

----

 

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

 

Notesto Unaudited Consolidated Financial Statements

Asof and for the Six Months Ended June 30, 2003 and 2002

 

1) Basis of Presentation

 

American Bank Holdings, Inc.(the “Company”) is a corporation formed under the laws of Delaware to serve asthe savings and loan holding company of American Bank (the “Bank”), a federallychartered stock savings bank and holding company of American Bank HoldingsStatutory Trust I.  The Bank’sshareholders approved a reorganization into a holding company structure at ameeting held on March 17, 2003.  As aresult of the reorganization, completed on March 21, 2003, stockholders of theBank are now stockholders of American Bank Holdings, Inc. and the Bank is adirect subsidiary 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 par valueof the Company’s common stock is $0.001 while the Bank’s common stock had a parvalue of $1.00.  The consolidatedfinancial statements include the accounts of the Company and its wholly ownedsubsidiaries.  As a result, thefinancial data for the periods prior to March 21, 2003 is the data for the Bankand thereafter, it is the financial data of the Company.  All intercompany accounts and transactionshave been eliminated in the accompanying financial statements.

 

The consolidated financialstatements as of June 30, 2003 and for the three and six months ended June 30,2003 and 2002 are unaudited and have been prepared in conformity withaccounting principles generally accepted in the United States of America forinterim financial information and with the instructions to Form 10-QSB and Rule10-01 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 of June 30,2003 and the results of consolidated operations for the three and six monthsended June 30, 2003 and 2002 and consolidated cash flows for the six monthsended June 30, 2003 and 2002.  Theconsolidated statement of financial condition of December 31, 2002 is derivedfrom the Bank’s audited financial statements.

 

The results of consolidatedoperations for the six months ended June 30, 2003 are not necessarilyindicative of results that may be expected for the year ending December 31,2003.  Moreover, in preparing theconsolidated financial statements, management is required to make estimates andassumptions that effect the reported amounts of assets and liabilities as ofthe date of the balance sheets and income statements for the period.  Actual results could differ significantlyfrom those estimates.  Materialestimates that are particularly susceptible to significant change in the nearterm include the determination of the allowance for loan losses and thevaluation of foreclosed real estate. These condensed financial statements should be read in conjunction withthe audited financial statements and notes included in the 2002 annual reportof American Bank on Form 10-KSB as filed with the Office of Thrift Supervisionand as an exhibit to the Company’s Form 8-K filed with the SEC on April 1,2003.

 

6

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2) Earnings Per Share

 

Basic earnings per share forthe three and six months ended June 30, 2003 was determined by dividing netincome by 1,922,142 and 2,002,800, respectively, the weighted average number ofshares of common stock outstanding during the period.  Basic earnings per share for the three and six months ended June30, 2002 was determined by dividing net income by 2,071,421 and 2,069,686,respectively, the weighted average number of shares of common stock outstandingduring the period.  Diluted earnings pershare for the three and six months ended June 30, 2003 was determined bydividing net income by 2,005,181 and 2,083,683, respectively, the weightedaverage number of shares of common stock and common stock equivalentsoutstanding during the period.  Dilutedearnings per share for the three and six months ended June 30, 2002 wasdetermined by dividing net income by 2,141,994 and 2,142,352, respectively, theweighted average number of shares of common stock and common stock equivalentsoutstanding during the period.  Commonstock equivalents consist of outstanding stock options, if such options aredilutive.

 

3) Stock Based 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 2003 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 $517,848 and 275,105 for the sixand three months ended June 30, 2003, respectively.  Proforma earnings, basic and diluted, per share would have been$0.26 and $0.25, respectively, for the six months ended June 30, 2003 and wouldhave been $0.14 for the three months ended June 30, 2003.  Had 2002 compensation cost been determinedincluding the weighted-average estimate of fair value of options vested, theBank’s net income would be reduced to proforma amount of $500,762 and 357,754for the six and three months ended June 30, 2002, respectively.  Proforma earnings, basic and diluted, pershare would have been $0.24 for the six months ended June 30, 2002 and wouldhave been $0.17 for the three months ended June 30, 2002.

 

4) Trust Preferred Securities

 

On April 22, 2003, theCompany formed a subsidiary, American Bank Holdings Statutory Trust I, for thepurpose of participating in a trust preferred pooled offering to issue trustpreferred securities which have a 30 year term, with no principal amortizationand a 5 year call option and are guaranteed by the Company.  These securities pay interest at the rate of3 month LIBOR plus 3.30% with a 12.5% interest rate cap for the first 5 yearsand adjusts on a quarterly basis.  Theinitial rate on these securities was 4.62%. The net proceeds from the Trust were invested in American Bank Holdings,Inc., which are the sole assets of the Trust. The proceeds from the Trust will be used for general corporate purposes.

 

7

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5) Recent Acounting Pronouncements

 

In April 2003, FASB issuedSFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and HedgingActivities”.  This Statement improvesfinancial reporting by requiring that contracts with comparable characteristicsbe accounted for similarly.  In particular,this Statement (1) clarifies under what circumstances a contract with aninitial net investment meets the characteristic of a derivative discussed inparagraph 6(b) of Statement 133, (2) clarifies when a derivative contains afinancing component, (3) amends the definition of an underlying to conform itto language used in FASB Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others”, and (4) amends certain other existingpronouncements.  Those changes willresult in more consistent reporting on contracts as either derivatives orhybrid instruments.  This Statement iseffective for contracts and hedging relationships entered into or modifiedafter June 30, 2003.

 

In May 2003, FASB issuedSFAS No. 150 “Accounting for Certain Financial Instruments with Characteristicsof both Liabilities and Equity.”  ThisStatement requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances).  This Statement is effective for financialinstruments entered into or modified after May 31, 2003.

 

The above accountingpronouncements will not have a material impact on the consolidated financialstatements.

 

**Item 2**.

 

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

 

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

**Results of 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 and American Bank Holdings Statutory Trust I. Thebusiness of the Company is conducted through the Bank, which is American Bank,a federally chartered savings bank with six branch offices.  The Bank’s corporate headquarters is locatedin Silver Spring, Maryland and the Bank has four full-service offices locatedat 1700 Rockville Pike, Rockville, Maryland, 5600 Connecticut Avenue,Washington D.C., in the SuperFresh market at 12028 Cherry Hill Road, SilverSpring, Maryland and in the SuperFresh market at 3301 North Ridge Road,Ellicott City, Maryland and a loan production/leasing office in Charlotte,North Carolina.  Deposits in the Bankare insured to applicable limits by the Federal Deposit InsuranceCorporation.   All references to the Companyprior to March 21, 2003, except where otherwise indicated, are to theBank.   As of June 30, 2003, the Bankhad 58 employees, 53 of whom work full time.

 

8

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The Company recorded netincome of $280,018, or $.14 per diluted share, for the quarter ended June 30,2003 as compared to net income of $361,547, or $.17 per diluted share, for thequarter ended June 30, 2002.  Net incomefor the first six months of 2003 was $527,674, or $.25 per diluted share, as comparedto $508,348, or $.24 per diluted share, for the first six months of 2002.  The increase in net income for the six monthperiod ended June 30, 2003 was attributable primarily to the increase in netinterest income and gains recognized on the sale of mortgage loans originatedfor sale by the mortgage division offset by the increase in operating expenses.

 

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

 

Total assets increased by$20.0 million, or 11.5%, to $199.8 million at June 30, 2003 compared toDecember 31, 2002.  Total loansoutstanding increased by $13.2 million from $129.2 million at December 31, 2002to $142.4 million atJune 30, 2003.  The Company originated$145.3 million of loans during the six months ended June 30, 2003 as comparedto $95.5 million during the same period in 2002.  The increase in loan production was primarily due to the increasein mortgage refinances originated and subsequently sold by the mortgagedivision, and an increase in commercial related loans.  The drastice increase in mortgageoriginations is due to the current low interest rate environment.  Investment securities held-to-maturityincreased by $6.5 million and investment securities available-for-sale increasedby $19.4 million from year end 2002 to June 30, 2003.  Cash and cash equivalents decreased by $18.9 million duringthe six months ended June 30, 2003.  Thedecrease in cash and cash equivalents is due to cash being invested ininvestment securities and loans.

 

Nonperforming assets, net(including nonaccrual loans, real estate owned and repossessed assets) remainedstable at $1.9 million at June 30, 2003 compared to $2.0 million at December31, 2002.  The mix of the nonperformingassets changed due to the repossession of collateral on a corporate loan, whichwas  in non-accrual loans during thefirst quarter of 2003.  At June 30,2003, the book balance for the repossessed assets was $326,950 and wasclassified as other assets on the balance sheet.  Total nonperforming assets, net, as a percentage of total assetswere 0.9% at June 30, 2003 and 1.1% at December 31, 2002.

 

The following table setsforth the composition of the Company’s nonperforming assets at the datesindicated.

 
|                                          |   | **June 30,  2003** |      | **December  31, 2002** |   |
|-----------------------------------------------|--------|--------------------|-----------|------------------------|--------|
|                                          |   |               |      |                   |   |
| Non-accrual loans:                            |   |               |      |                   |   |
|                                          |   |               |      |                   |   |
| One to four family residential mortgage loans |   | $                  | 931,006   |                   | $      | 1,053,424 |   |
|                                          |   |               |      |                   |   |
| Commercial real estate loans                  |   | 235,983            |      | 49,029                 |   |
|                                          |   |               |      |                   |   |
| Corporate loans                               |   | —             |      | 399,210                |   |
|                                          |   |               |      |                   |   |
| Consumer loans                                |   | 52,888             |      | 20,448                 |   |
|                                          |   |               |      |                   |   |
| Total non-accrual loans                       |   | 1,219,877          |      | 1,522,111              |   |
|                                          |   |               |      |                   |   |
| Real estate owned                             |   | 344,176            |      | 526,478                |   |
|                                          |   |               |      |                   |   |
| Repossessed assets                            |   | 326,950            |      | —                 |   |
|                                          |   |               |      |                   |   |
| Total nonperforming assets                    |   | $                  | 1,891,003 |                   | $      | 2,048,589 |   |

 

9

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The allowance for losses onloans 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.  While management usesavailable information in establishing the allowance for possible loan losses,future adjustments to the allowance may be necessary if economic conditionsdiffer substantially from the assumptions used in making the evaluations.  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 possible loan losses.  Managementwill continue to monitor and modify allowances 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 has thirty-fiveloans, amounting to $1,219,877, as of June 30, 2003 which are considered to bepotential problem loans.  All of theseloans are classified as non-accrual loans because the borrowers are over 90days delinquent and management feels it may have difficulty in collecting the principalbalance on these loans.  Commercial realestate loans increased during the second quarter due to one loan in the amountof $188,992 becoming greater than 90 days delinquent.  Management feels the loan is very well collateralized and fullyexpect to be able to recover all of the principal balance, accrued interestcharges and late fees on this loan.  TheCompany had allowance for loan losses of $1,191,463, or 0.84% of total loansoutstanding, at June 30, 2003 and $1,016,951, or 0.79% of total loans outstanding,at December 31, 2002.

 

The Company also establishesallowances for losses on real estate owned based upon its fair value less thecost of disposal.  The valuations ofreal estate owned properties are reviewed at least quarterly and updated as necessarybased on the Company’s expectations of holding periods, sales activity andother changes in market conditions. Based on available information, management believes that current lossreserves are adequate at this time to cover potential losses in theportfolio.  There can be no assurance,however, that additional loss provisions will not be necessary in the future ifmarket conditions deteriorate.  TheCompany had allowance for losses of $5,520, or 1.6% of  real estate owned, at June 30, 2003 and $34,801,or 6.2% of  real estate owned, atDecember 31, 2002.

 

The Company had unrealizedgains of $159,209 on its investment securities available-for-sale portfolio atJune 30, 2003.  The amortized cost ofthis portfolio was $37.0 million at that date. There were net unrealized gains of $9,775 on its investment securitiesheld-to-maturity portfolio at June 30, 2003, with an amortized cost of $7.7million.  The Company’s investmentsecurities portfolio includes agency obligations, mortgage-backed securitiesand collateralized mortgage obligations. The Company’s investment securities available-for-sale portfolioincreased by $19.4 million from year end 2002 to June 30, 2003 due to thepurchase of collateralized mortgage obligations and agency securities offsetslightly by the repayment of principal on mortgage-backed securities andcollateralized mortgage obligations and sale of investment securitiesavailable-for-sale.  The Company’sinvestment securities held-to-maturity portfolio increased by $6.5 million duringthe period due to the purchase of agency securities offset slightly by thematurity of an agency security and the repayment of principal onmortgage-backed securities.

 

Deposits increased by $13.4million during the six months ended June 30, 2003. The Bank continued

 

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to focus their efforts inreducing their cost of deposits and try to attract additional coredeposits.  Core deposits (money market,checking and statement savings accounts) increased by $9.5 million whilecertificates of deposits increased by $3.9 million during the first six monthsof 2003.  The deposits at June 30, 2003had an average interest rate of 2.20%. Advances from the Federal Home Loan Bank decreased by $2.5 millionduring the first six months of 2003. The advances from the Federal Home Loan Bank at June 30, 2003 had anaverage interest rate of 5.18%

 

The Company’s stockholders’equity decreased by $886,000 to $14.1 million at June 30, 2003 compared to$15.0 million at December 31, 2002.  Thedecrease was due to the purchase of shares from the dissenting shareholders inthe conversion and payment of cash dividends offset by current period earningsand the increase in net unrealized holding gains on investments available for sale.  At June 30, 2003, the Company was considered“well capitalized” under regulatory definitions.

 

 

**RESULTS OFOPERATIONS**

 

The Company’s operatingresults depend primarily on its net interest income, which is the differencebetween interest income on interest-earning assets (primarily loans andinvestment securities) and interest expense on interest-bearing liabilities(primarily deposits and borrowings). The Company’s operating results are also affected by its other income(primarily gain on sale of loans, collection of late fees and service charges)and its operating expenses (primarily salaries and administrative costs).

 

The following table setsforth certain information relating to the Company’s average interest-bearingassets and interest-bearing liabilities and reflects the average yield onassets and the average cost of liabilities for the periods indicated.  During the periods indicated, non-accrualloans are included in the loans category.

 

**American Bank Holdings, Inc.**

**Rate Spread Analysis**

**(in thousands, except rates)**

 

 
|                                      |   | **6 Months  ended June 30, 2003** |       | **6 months  ended June 30, 2002** |       |
|-------------------------------------------|--------|-----------------------------------|------------|-----------------------------------|------------|
|                                      |   | **Average  Balance**              | ** ** | **Interest**                      | ** ** | **Interest  Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Interest  Rate** | ** ** |
| Interest-bearing assets:                  |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
|                                      |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Loans                                     |   | $                                 | 131,809    |                              | $          | 4,251 |   | 6.45 | % | $ | 106,381 |   | $ | 3,953 |   | 7.43 | % |
| Investment and mortgage-backed securities |   | 33,176                            |       | 691                               |       | 4.16 |   | 30,083 |   | 921 |   | 6.12 |   |
| Other                                     |   | 18,996                            |       | 116                               |       | 1.22 |   | 8,246 |   | 61 |   | 1.47 |   |
|                                      |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Total interest-bearing assets             |   | 183,981                           |       | 5,058                             |       | 5.50 |   | 144,710 |   | 4,935 |   | 6.82 |   |
|                                      |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:             |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
|                                      |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Deposits                                  |   | 132,704                           |       | 1,713                             |       | 2.58 |   | 99,134 |   | 1,708 |   | 3.45 |   |
| FHLB advances & other borrowings      |   | 34,738                            |       | 855                               |       | 4.92 |   | 34,594 |   | 874 |   | 5.05 |   |
|                                      |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Total interest-bearing liabilities        |   | 167,442                           |       | 2,568                             |       | 3.07 |   | 133,728 |   | 2,582 |   | 3.86 |   |
|                                      |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Average interest rate spread              |   |                              |       |                              |       | 2.43 |   |   |   |   |   | 2.96 |   |
|                                      |   |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Net interest margin                       |   |                              |       |                              |       | 2.71 | % |   |   |   |   | 3.25 | % |
|                                           |        |                                   |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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|                                      |   | **3 Months  ended June 30, 2003** |    | **3 months  ended June 30, 2002** |   |
|-------------------------------------------|--------|-----------------------------------|---------|-----------------------------------|--------|
|                                      |   | **Average  Balance**              |    | **Interest**                      |   | **Interest  Rate** |   | **Average  Balance** |   | **Interest** |   | **Interest  Rate** |   |
| Interest-bearing assets:                  |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
| Loans                                     |   | $                                 | 135,304 |                              | $      | 2,129 |   | 6.29 | % | $ | 109,560 |   | $ | 2,051 |   | 7.49 | % |
| Investment and mortgage-backed securities |   | 37,756                            |    | 367                               |   | 3.89 |   | 34,955 |   | 523 |   | 5.99 |   |
| Other                                     |   | 13,120                            |    | 38                                |   | 1.16 |   | 3,033 |   | 11 |   | 1.46 |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
| Total interest-bearing assets             |   | 186,180                           |    | 2,534                             |   | 5.44 |   | 147,548 |   | 2,585 |   | 7.01 |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:             |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
| Deposits                                  |   | 135,863                           |    | 850                               |   | 2.50 |   | 96,382 |   | 782 |   | 3.24 |   |
| FHLB advances & other borrowings      |   | 33,014                            |    | 404                               |   | 4.90 |   | 40,099 |   | 479 |   | 4.78 |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
| Total interest-bearing liabilities        |   | 168,877                           |    | 1,254                             |   | 2.97 |   | 136,481 |   | 1,261 |   | 3.70 |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
| Average interest rate spread              |   |                              |    |                              |   | 2.47 |   |   |   |   |   | 3.31 |   |
|                                      |   |                              |    |                              |   |   |   |   |   |   |   |   |   |
| Net interest margin                       |   |                              |    |                              |   | 2.75 | % |   |   |   |   | 3.59 | % |
|                                           |        |                                   |         |                                   |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

General.  TheCompany recorded net income of $280,018, or $.14 per diluted share, for thethree months ended June 30, 2003 as compared to net income of $361,547, or $.17per diluted share, for the three months ended June 30, 2002.    The decrease in net income for the threemonth period was attributable primarily to the increase in operating expensesand a decrease in net interest income offset by increased gains recognized onthe sale of loans.

 

Net interest income, afterprovision for loan losses, decreased by $88,142 for the three months ended June30, 2003 when compared to the same period in 2002.  Other income increased by $369,297 and operating expensesincreased by $414,584 during the three months ended June 30, 2003 compared tothe same period in 2002.  The increasein other income was primarily due to an increase in gains on sale ofloans.  The increase in operatingexpenses was primarily due to additional compensation & employee benefitexpenses, occupancy expenses and data processing expenses.

 

NetInterest Income.  The Company’s net interest income decreasedby $43,172 during the three months ended June 30, 2003 as compared to the sameperiod in 2002.  The decrease wasprimarily due to the decrease in interest rate spread offset by the increase inaverage volume of interest-earning assets.

 

Provisionfor Loan Losses.  The Company’s provision for loan lossesincreased by $44,970 to $100,000 during the three months ended June 30, 2003compared to the same period in 2002. The increase was due to the Company providing more reserves in thecurrent quarter based on the periodic reviews of the underlying collateralsecuring the loans.

 

OtherIncome.  The Company’s other non-interest incomeincreased by $369,297 to $1,124,287 during the three months ended June 30, 2003compared to the same period in 2002. The increase was due to additional loan service charges, deposit servicecharges and gains recognized on the sale of loans available-for-sale from themortgage division.  The Company’s coredeposit base has increased due to the expansion of the branch locations whichis creating more opportunities to collect deposit related service charges.  The origination and subsequent sale of loansis the primary function of the mortgage division.

 

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OperatingExpense.  The Company’s operating expenses increasedby $414,584 to $1,848,589 during the three months ended June 30, 2003 comparedto the same period in 2002.  Theincrease in operating expenses was primarily due to the increase incompensation & employee benefit expenses, occupancy expenses and dataprocessing expenses.  The increase incompensation & employee benefit expenses was primarily due to additionalstaff hired in the lending area and branch network.  Occupancy expenses increased primarily due to additional branchlocation, loan production office and new headquarters for the Company.  Data processing expenses increased due toincreased costs associated with the new processing system, which includes theamortization of the capitalized equipment and increased costs paid to the thirdparty vendor, and additional volume of accounts.

 

**RESULTS OFOPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002**

 

General.  TheCompany recorded net income of $527,674, or $.25 per diluted share, for the sixmonths ended June 30, 2003 as compared to net income of $508,348, or $.24 perdiluted share, for the six months ended June 30, 2002.    The increase in net income for the sixmonth period was attributable primarily to the increase in net interest incomeand increased gains recognized on the sale of loans offset by the increase inoperating expenses.

 

Net interest income, afterprovision for loan losses, increased by $34,105 for the six months ended June30, 2003 when compared to the same period in 2002.  Other income increased by $739,178 and operating expenses increasedby $755,857 during the six months ended June 30, 2003 compared to the sameperiod in 2002.  The increase in otherincome was primarily due to an increase in gains on sale of loans.  The increase in operating expenses wasprimarily due to additional compensation & employee benefit expenses,occupancy expenses and data processing expenses.

 

NetInterest Income.  The Company’s net interest income increasedby $137,887 during the six months ended June 30, 2003 as compared to the sameperiod in 2002.  The increase wasprimarily due to the increase in average volume of interest-earning assetsoffset by the decrease in interest rate spread.  During the first six months of 2003, due to the interest rateenvironment management did not want to take an excessive amount of interestrate risk and thus had an unusually high percentage of assets in interestbearing deposits and federal funds sold. This strategy had a negative impact on the current interest rate spreadsduring this period, however, management felt that such action would allow themto take advantage of an increase in interest rates in future periods.  During the latter part of the secondquarter, loan production increased and the interest rate environment improvedand management was able to take advantage of opportunities to increase theinvestment portfolio.  Management feelsit will be able to improve the interest rate spreads to approximate 2002levels, while at the same time increasing total assets resulting in an increasein anticipated net interest income.

 

Provisionfor Loan Losses.  The Company’s provision for loan lossesincreased by $103,782 to $175,000 during the six months ended June 30, 2003compared to the same period in 2002. The increase was due to the Company providing more reserves in the currentquarter based on the periodic reviews of the underlying collateral securing theloans.

 

OtherIncome.  The Company’s other non-interest incomeincreased by $739,178 to $2,047,439 during the six months ended June 30, 2003compared to the same period in 2002. The increase was due to additional loan service charges, deposit servicecharges and gains recognized on the sale of loans available-for-sale from themortgage division.  The Company’s coredeposit base has increased due to the expansion of the branch locations whichis creating more opportunities to collect deposit related service charges.  The originating and subsequent sale of loansis the primary function of the mortgage division.

 

OperatingExpense.  The Company’s operating expenses increasedby $755,857 to $3,521,984 during the six months ended June 30, 2003 compared tothe same period in 2002.  The increasein operating expenses was primarily due to the increase in compensation &employee benefit expenses, occupancy expenses and data processingexpenses.  The increase in compensation& employee benefit expenses was primarily due to additional staff hired inthe lending area and branch network. Occupancy expenses increased primarily due to additional branchlocation, loan production office and new headquarters for the Company. Dataprocessing expenses increased due to increased costs associated with the newprocessing system, which includes the amortization of the capitalized equipmentand increased costs paid to the third

 

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party vendor, and additionalvolume of accounts.

 

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

 

The Company is a party tofinancial instruments with off-balance sheet risk including commitments toextend credit under existing lines of credit and commitments to sellloans.  These instruments involve, tovarying degrees, elements of credit and interest rate risk in excess of theamount recognized in the consolidated balance sheets.

 

Off-balance sheet financialinstruments whose contract amounts represent credit and interest rate risk aresummarized as follows (dollars in thousands):

 
|                                                                                             |   | **June 30,  2003** |   | **December  31, 2002** |   |
|--------------------------------------------------------------------------------------------------|--------|--------------------|--------|------------------------|--------|
|                                                                                             |   |               |   |                   |   |
| Commitments to originate new loans                                                               |   | 6,774              |   | 2,560                  |   |
|                                                                                             |   |               |   |                   |   |
| Commitments to originate new loans held for sale                                                 |   | —             |   | —                 |   |
|                                                                                             |   |               |   |                   |   |
| Unfunded commitments to extend credit under existing equity line and  commercial lines of credit |   | 9,187              |   | 7,361                  |   |
|                                                                                             |   |               |   |                   |   |
| Commercial letters of credit                                                                     |   | 60                 |   | 468                    |   |
|                                                                                             |   |               |   |                   |   |
| Commitments to sell loans held for sale                                                          |   | 19,019             |   | 18,156                 |   |

 

The Company does not haveany unconsolidated special purpose entities or other similar forms ofoff-balance sheet financing arrangements.

 

Commitments to originate newloans or extend credit are agreements to lend to a customer as long as there isno violation of any condition established in the contract.  Loan commitments generally expire within 30to 45 days.  Most equity linecommitments for the unfunded portion of equity lines are for a term of 10years, and commercial lines of credit are generally renewable on an annualbasis.  Commitments generally have fixedexpiration dates or other termination clauses and may require payment of afee.  Since many of the commitments areexpected to expire without being drawn upon, the total commitment amounts donot necessarily represent future cash requirements.  The Company evaluates each customer’s creditworthiness on acase-by-case basis.  The amounts ofcollateral obtained, if deemed necessary by the Company upon extension ofcredit, is based on management’s credit evaluation of the borrower.

 

Commitments to sell loansheld for sale are agreements to sell loans to a third party at an agreed uponprice.  At June 30, 2003, the aggregatefair value of these commitments exceeded the book value of the loans to besold.

 

**CRITICALACCOUNTING POLICIES**

 

The Company’s significantaccounting policies are set forth in note 1 of the consolidated financialstatements as of December 31, 2002 which was filed on Form 10-KSB with theOffice of Thrift Supervision and as an exhibit to the Company’s Current Reporton Form 8-K filed with the SEC on April 1, 2003.  Of these significant accounting policies, the Company considersits policy regarding the allowance for loan losses to be its most criticalaccounting policy, because it requires management’s most subjective and complex

 

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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 thediscovery of information with respect to borrowers that is not known tomanagement at the time of the issuance of the consolidated financialstatements.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company’s main sourcesof liquidity, as a holding company, are dividends from the Bank, investmentincome and net proceeds from borrowings and capital securities offerings.  As a new organization, the Company expectsits main uses of liquidity initially will be the payment of dividends toshareholders, and the payment of interest to the issuer of trust preferredsecurities.  The ability of the Bank topay 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.

 

During the quarter endedJune 30, 2003, the Bank purchased 210,876 shares of American Bank common stockfrom dissenters to the reorganization for an aggregate of $1,357,709.

 

The Bank is required tomaintain sufficient liquidity 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.  At June30, 2003, the Bank had outstanding loan commitments totaling $6,774,000.

 

Quantitative measuresestablished by bank regulations to ensure capital adequacy require the Bank tomaintain minimum amounts and ratios (set forth in the table below) of total andTier I capital (as defined in the regulations) and risk-weighted assets (asdefined), and of Tier I capital (as defined) to average assets (asdefined).  As of June 30, 2003, the Bankmeets all capital adequacy requirements to which it is subject.

 

As of June 30, 2003, themost recent notification from the Office of Thrift Supervision (“OTS”)categorized the Bank as “well capitalized” under the regulatory framework forprompt corrective action.  To be categorizedas “well capitalized” 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:

 
|       |   | **ACTUAL** |   | **ACTUAL %** |   | **REQUIRED** |   | **REQ’D %** |   | **EXCESS** |   |
|------------|--------|------------|--------|--------------|--------|--------------|--------|------------------|--------|------------|--------|
|       |   |       |   |         |   |         |   |             |   |       |   |
| Core       |   | $          | 14,008 |         | 7.01   | %            | $      | 7,991            |   | 4.0        | %      | $ | 6,017 |   |
| Tangible   |   | 14,008     |   | 7.01         |   | 2,997        |   | 1.5              |   | 11,011     |   |
| Risk-based |   | 14,989     |   | 11.38        |   | 10,533       |   | 8.0              |   | 4,456      |   |
|            |        |            |        |              |        |              |        |                  |        |            |        |  |  |  |

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The following table sets forth the amount ofinterest-earning assets and interest-bearing liabilities outstanding at June30, 2003, which are expected to mature or reprice in each of the time periodsshown.

 

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AMERICANBANK HOLDINGS, INC.

RepricingSchedule as of June 30, 2003

(inthousands)

 
|                               |   | **Less than  One Year** |   | **One Year  to Five  Years** |   | **Five Years  to Ten  Years** |   | **More than  Ten Years** |   | **Totals** |   |
|------------------------------------|--------|-------------------------|--------|------------------------------|--------|-------------------------------|--------|--------------------------|--------|------------|--------|
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Interest-earning assets            |   |                    |   |                         |   |                          |   |                     |   |       |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Loans                              |   | $                       | 64,157 |                         | $      | 12,451                        |   | $                        | 2,348  |       | $      | 38,338 |   | $ | 117,294 |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Investment securities              |   | 3,887                   |   | —                       |   | 7,090                         |   | 33,930                   |   | 44,907     |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Other interest-earning assets      |   | 4,655                   |   | —                       |   | —                        |   | —                   |   | 4,655      |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Total interest-earning assets      |   | 72,699                  |   | 12,451                       |   | 9,438                         |   | 72,268                   |   | 166,856    |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Interest-bearing liabilities       |   |                    |   |                         |   |                          |   |                     |   |       |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Certificates of Deposit            |   | 63,939                  |   | 22,217                       |   | —                        |   | —                   |   | 86,156     |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Money market deposits              |   | 9,944                   |   | 16,955                       |   | 4,847                         |   | —                   |   | 31,746     |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| NOW & Statement accounts       |   | 3,590                   |   | 9,160                        |   | 8,231                         |   | —                   |   | 20,981     |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Borrowings & Trust preferred   |   | 26,969                  |   | 6,500                        |   | —                        |   | —                   |   | 33,469     |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Total interest-bearing liabilities |   | 104,442                 |   | 54,832                       |   | 13,078                        |   | —                   |   | 172,352    |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| GAP                                |   | (31,743                 | )      | (42,381                      | )      | (3,640                        | )      | 72,268                   |   |       |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Cumulative GAP                     |   | (31,743                 | )      | (74,124                      | )      | (77,764                       | )      | (5,496                   | )      |       |   |
|                               |   |                    |   |                         |   |                          |   |                     |   |       |   |
| Cum. GAP/total assets              |   | -19.0                   | %      | -44.4                        | %      | -46.6                         | %      | -3.3                     | %      |       |   |
|                                    |        |                         |        |                              |        |                               |        |                          |        |            |        |  |  |  |  |  |

 

The following assumptionswere used by the Company’s management in order to prepare the Company’s GAP(repricing schedule) table set forth above. Loans are shown based on contractual maturity and scheduled repricingfor fixed-rate and adjustable-rate mortgages, respectively.  The mortgage-backed securities andcollateralized mortgage obligations portion of the investment securitiesportfolio are shown based on contractual maturity as scheduled repricing forfixed-rate and adjustable-rate securities, respectively.  Agency securities are shown in the period inwhich they contractually mature.  Noprepayment assumptions or call assumptions are reflected for anyinterest-earning asset.  Depositswithout contractual maturities are shown 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 method of analysispresented in the above GAP table. Although certain assets and liabilities may have similar maturities orperiods of repricing, they may react in different degrees to changes in marketinterest rates.  The interest rates oncertain types of assets and liabilities may fluctuate in advance of changes inmarket interest rates, whereas

 

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interest rates on other typesof assets and liabilities may lag behind changes in market interest rates.  Certain assets, such as adjustable-ratemortgages, have features that restrict changes in interest rates on ashort-term basis and over the life of the assets.  In the event of a change in interest rates, prepayment and earlywithdrawal levels would likely deviate significantly from those assumed incalculating the table.  The ability ofmany borrowers to service their debt may decrease in the event of an interestrate increase.

 

The Company’s results ofoperations depend to a large extent on the level of the Company’s net interestincome.  If interest-rate fluctuationscause the Company’s cost of funds to increase faster than the yield of itsinterest-bearing assets, then its net interest income will be reduced.  At June 30, 2003, the Company’s one-yearinterest sensitivity “gap” (the percentage by which its interest sensitiveassets in a given period exceed its interest sensitive liabilities for the sameperiod) was negative 19.0%.  The Companyhas emphasized shorter term deposits which tend to reprice on a basis more consistentwith the 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 managementbelieves that the Company’s interest rate risk position at June 30, 2003represents a reasonable amount of interest rate risk.

 

**FORWARD-LOOKINGSTATEMENTS**

 

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

 

**Item3.   CONTROLS AND PROCEDURES**

 

The Company’s management, including theCompany’s Chief Executive Officer and Chief Financial Officer evaluated theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rule 13a-15(e) or 15(d)-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”) as ofthe end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that 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 no significantchanges in the Company’s internal controls over financial reporting thatoccurred during the Company’s most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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**PART II -OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

Other than ordinary androutine litigation incidental to the business of the Company, the Company orits subsidiaries is not a party to, nor is its property the subject of anymaterial pending legal proceedings.

 

 

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

 

Not applicable.

 

 

**Item3.  Defaults Upon Senior Securities**

 

Not applicable.

 

 

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

 

Not applicable.

 

 

**Item5.  Other Information**

 

Not applicable.

 

 

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

 
|   |  (a) |   | Exhibits.            |                                                           |                                            |
|--------|-----------|--------|----------------------|----------------------------------------------------------------|-------------------------------------------------|
|   |      |   |                 | 31.1                                                           | 302 Certification of Chief  Executive Officer   |
|   |      |   |                 |                                                           |                                            |
|   |      |   |                 | 31.2                                                           | 302 Certification of Chief  Financial Officer   |
|   |      |   |                 |                                                           |                                            |
|   |      |   |                 | 32.1                                                           | 906 Certifications of  Chief Executive Officer. |
|   |      |   |                 |                                                           |                                            |
|   |      |   |                 | 32.2                                                           | 906 Certifications of  Chief Financial Officer. |
|   |      |   |                 |                                                           |                                            |
|   |  (b) |   | Reports on Form 8-K. |                                                           |
|   |      |   |                 |                                                           |                                            |
|   |      |   |                 | Current Report on Form  8-K, filed April 1, 2003 with the SEC. |

 

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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, thereunto duly authorized.

 

 
|   |   | AMERICAN BANK HOLDINGS,  INC.                      |
|--------|--------|----------------------------------------------------|
|   |   | (Registrant)                                       |   |
|   |   |                                               |   |
|   |   |                                               |   |
|   |   | Date: August 13, 2003                              |   |
|   |   |                                               |   |
|   |   |                                               |   |
|   |   | /s/ Phillip C. Bowman                              |   |
|   |   | Phillip C. Bowman                                  |   |
|   |   | President and Chief  Executive Officer             |
|   |   |                                               |   |
|   |   |                                               |   |
|   |   | /s/ John M. Wright                                 |   |
|   |   | John M. Wright                                     |   |
|   |   | Senior Vice President and  Chief Financial Officer |

 

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