**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 

**ý****             ****Quarterly Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934 For the quarterly periodended  June 30, 2005.**

 

**or**

 

**o****             ****Transition Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934 For the transition periodfrom****                   ****to****                   .**

 

**Commission File Number: 0-23513**

 

**AMERICAN BANK HOLDINGS, INC.**

(Exact name of registrant asspecified in its charter)

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

 

**(301) 572-3740**

(Registrant’s telephone number,including area code)

 

 

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

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

ý  Yes  o  No

 

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

 
| **Common Stock (par value $.001)** | ** ** | **1,964,538**                        |
|------------------------------------|------------|--------------------------------------|
| Class                              |       | Outstanding  at August 10, 2005 |

 

Transitional Small Business Disclosure Format (check one):   oYes  ýNo

 

 

----

 

PART I – FINANCIAL INFORMATION

 

**Item 1.**

 

American BankHoldings, Inc.

Silver Spring,Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars inthousands, except per share data)

 
| ** **                                                                                                                                                                                          | ** ** | **June 30,   2005** | ** ** | **December 31,   2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                                          | ** ** | **(Unaudited)**          | ** ** | ** **                   | ** ** |
| ASSETS                                                                                                                                                                                              |       |                     |       |                         |       |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Cash and due  from banks                                                                                                                                                                            |       | $                        | 3,880      |                         | $          | 2,370 |   |
| Interest-bearing  deposits in other banks                                                                                                                                                           |       | 3,864                    |       | 284                          |       |
| Total cash  and cash equivalents                                                                                                                                                                    |       | 7,744                    |       | 2,654                        |       |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Investment  securities available for sale                                                                                                                                                           |       | 33,522                   |       | 25,824                       |       |
| Investment  securities held-to-maturity                                                                                                                                                             |       | 14,573                   |       | 14,585                       |       |
| Loans held  for sale                                                                                                                                                                                |       | 30,898                   |       | 21,586                       |       |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Loans                                                                                                                                                                                               |       | 194,032                  |       | 178,701                      |       |
| Allowance  for loan losses                                                                                                                                                                          |       | 1,856                    |       | 1,940                        |       |
| Net loans                                                                                                                                                                                           |       | 192,176                  |       | 176,761                      |       |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Foreclosed  real estate, net                                                                                                                                                                        |       | —                   |       | 123                          |       |
| Premises and  equipment, net                                                                                                                                                                        |       | 1,568                    |       | 1,670                        |       |
| Federal Home  Loan Bank of Atlanta Stock, at cost                                                                                                                                                   |       | 3,088                    |       | 1,936                        |       |
| Cash  surrender value of life insurance                                                                                                                                                             |       | 2,601                    |       | 2,564                        |       |
| Accrued  interest receivable and other assets                                                                                                                                                       |       | 4,000                    |       | 3,320                        |       |
| Total assets                                                                                                                                                                                        |       | $                        | 290,170    |                         | $          | 251,023 |   |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Liabilities                                                                                                                                                                                         |       |                     |       |                         |       |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Deposits                                                                                                                                                                                            |       | $                        | 210,754    |                         | $          | 196,533 |   |
| Advances  from the Federal Home Loan Bank                                                                                                                                                           |       | 55,500                   |       | 32,500                       |       |
| Advance  payments by borrowers for taxes and insurance                                                                                                                                              |       | 344                      |       | 248                          |       |
| Junior  subordinated obligations                                                                                                                                                                    |       | 3,093                    |       | 3,093                        |       |
| Accrued  expenses and other liabilities                                                                                                                                                             |       | 1,744                    |       | 1,577                        |       |
| Total  liabilities                                                                                                                                                                                  |       | 271,435                  |       | 233,951                      |       |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Stockholders’  Equity                                                                                                                                                                          |       |                     |       |                         |       |
| Preferred  stock, par value $0.001 per share, authorized 10,000,000 shares, no shares  issued and outstanding in 2005 and 2004                                                                      |       | —                   |       | —                       |       |
| Common stock  $0.001 par value per share, 10,000,000 shares authorized with 1,964,538 and  1,941,489 shares issued and outstanding at June 30, 2005 and December 31,  2004, respectively. |       | 2                        |       | 2                            |       |
| Additional  paid-in capital                                                                                                                                                                         |       | 10,184                   |       | 10,073                       |       |
| Retained  earnings                                                                                                                                                                                  |       | 8,596                    |       | 7,272                        |       |
| Accumulated  other comprehensive loss                                                                                                                                                               |       | (47                      | )          | (275                         | )          |
| Total  stockholders’ equity                                                                                                                                                                    |       | 18,735                   |       | 17,072                       |       |
|                                                                                                                                                                                                |       |                     |       |                         |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                    |       | $                        | 290,170    |                         | $          | 251,023 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

1

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American BankHoldings, Inc.

Silver Spring,Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF OPERATIONS

(dollars inthousands, except per share data)

 
| ** **                                               | ** ** | **For the Six Months   Ended June 30** | ** ** | **For the Three Months   Ended June 30** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                               | ** ** | **2005**                                    | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Interest  Income                                         |       |                                        |       |                                          |       |   |   |   |   |
| Interest and  fees on loans                              |       | $                                           | 6,797      |                                          | $          | 5,491 |   | $ | 3,570 |   | $ | 2,825 |   |
| Interest and  dividends on investments                   |       | 1,134                                       |       | 967                                           |       | 618 |   | 474 |   |
| Other  interest income                                   |       | 34                                          |       | 14                                            |       | 15 |   | 12 |   |
| **Total  interest income**                               |       | 7,965                                       |       | 6,472                                         |       | 4,203 |   | 3,311 |   |
|                                                     |       |                                        |       |                                          |       |   |   |   |   |
| Interest  Expense                                        |       |                                        |       |                                          |       |   |   |   |   |
| Interest on  deposits                                    |       | 2,416                                       |       | 1,448                                         |       | 1,299 |   | 748 |   |
| Interest on  borrowings                                  |       | 1,042                                       |       | 987                                           |       | 585 |   | 480 |   |
| **Total  interest expense**                              |       | 3,458                                       |       | 2,435                                         |       | 1,884 |   | 1,228 |   |
|                                                     |       |                                        |       |                                          |       |   |   |   |   |
| **Net  interest income**                                 |       | 4,507                                       |       | 4,037                                         |       | 2,319 |   | 2,083 |   |
| Provision  for loan losses                               |       | 35                                          |       | 320                                           |       | 10 |   | 175 |   |
| **Net  interest income after provision for loan losses** |       | 4,472                                       |       | 3,717                                         |       | 2,309 |   | 1,908 |   |
|                                                     |       |                                        |       |                                          |       |   |   |   |   |
| Other Income                                             |       |                                        |       |                                          |       |   |   |   |   |
| Loan service  charges and late fees                      |       | 226                                         |       | 122                                           |       | 124 |   | 60 |   |
| Gain on sale  of loans                                   |       | 2,176                                       |       | 2,672                                         |       | 1,076 |   | 1,385 |   |
| Deposit  service charges                                 |       | 113                                         |       | 108                                           |       | 60 |   | 59 |   |
| Gain on sale  of securities                              |       | —                                      |       | 36                                            |       | — |   | — |   |
| Other income                                             |       | 40                                          |       | 58                                            |       | 22 |   | 29 |   |
| **Total  other income**                                  |       | 2,555                                       |       | 2,996                                         |       | 1,282 |   | 1,533 |   |
|                                                     |       |                                        |       |                                          |       |   |   |   |   |
| Non-Interest  Expenses                                   |       |                                        |       |                                          |       |   |   |   |   |
| Salaries and  related expenses                           |       | 3,347                                       |       | 3,021                                         |       | 1,610 |   | 1,536 |   |
| Occupancy  expense, net                                  |       | 510                                         |       | 425                                           |       | 255 |   | 217 |   |
| Deposit  insurance premiums                              |       | 48                                          |       | 44                                            |       | 24 |   | 22 |   |
| Legal and  professional expenses                         |       | 157                                         |       | 237                                           |       | 72 |   | 128 |   |
| Data  processing                                         |       | 327                                         |       | 324                                           |       | 159 |   | 172 |   |
| Net cost of  operations of foreclosed assets             |       | (6                                          | )          | 220                                           |       | (6 | ) | 73 |   |
| Other  expenses                                          |       | 528                                         |       | 666                                           |       | 237 |   | 317 |   |
| **Total  non-interest expense**                          |       | 4,911                                       |       | 4,937                                         |       | 2,351 |   | 2,465 |   |
|                                                     |       |                                        |       |                                          |       |   |   |   |   |
| Income  before income taxes                              |       | 2,116                                       |       | 1,776                                         |       | 1,240 |   | 976 |   |
| Provision  for income taxes                              |       | 792                                         |       | 693                                           |       | 468 |   | 383 |   |
| **Net  income**                                          |       | $                                           | 1,324      |                                          | $          | 1,083 |   | $ | 772 |   | $ | 593 |   |
|                                                     |       |                                        |       |                                          |       |   |   |   |   |
| Basic  Earnings Per Common Share                         |       | $                                           | 0.68       |                                          | $          | 0.57 |   | $ | 0.39 |   | $ | 0.31 |   |
| Diluted  Earnings Per Common Share                       |       | $                                           | 0.65       |                                          | $          | 0.55 |   | $ | 0.38 |   | $ | 0.30 |   |

 

The accompanying notes are an integral part of these statements.

 

2

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American BankHoldings, Inc.

Silver Spring,Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

for the sixmonths ended June 30, 2005 and 2004

(dollars inthousands, except per share data)

 
| ** **                                                                                       | ** ** | **Common   Stock** | ** ** | **Additional   Paid-In  Capital** | ** ** | **Retained   Earnings** | ** ** | **Accumulated   Other   Comprehensive   Income (Loss)** | ** ** | **Total   Stockholders’   Equity** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------------------|------------|-------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------|------------|
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Balance at January 1,  2004                                                                 |       | $                  | 2          |                              | $          | 9,787                   |       | $                                                       | 4,791      |                                    | $          | (269 | ) | $ | 14,311 |   |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Comprehensive  income:                                                                           |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Net income  for six months ended June 30, 2004                                              |       |               |       |                              |       | 1,083                   |       |                                                    |       | 1,083                                   |       |
| Net change  in unrealized gains (losses) on available-for-sale securities, net of taxes  of $142 |       |               |       |                              |       |                    |       | (226                                                    | )          | (226                                    | )          |
| Less  reclassification of gains recognized, net of taxes of $14                                  |       |               |       |                              |       |                    |       | (22                                                     | )          | (22                                     | )          |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Total  comprehensive income                                                                      |       |               |       |                              |       |                    |       |                                                    |       | 835                                     |       |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Exercise of  stock options (57,915 shares)                                                       |       |               |       | 194                               |       |                    |       |                                                    |       | 194                                     |       |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Balance at June 30,  2004                                                                   |       | $                  | 2          |                              | $          | 9,981                   |       | $                                                       | 5,874      |                                    | $          | (517 | ) | $ | 15,340 |   |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Balance at December 31,  2004                                                               |       | $                  | 2          |                              | $          | 10,073                  |       | $                                                       | 7,272      |                                    | $          | (275 | ) | $ | 17,072 |   |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Comprehensive  income:                                                                           |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Net income  for six months ended June 30, 2005                                              |       |               |       |                              |       | 1,324                   |       |                                                    |       | 1,324                                   |       |
| Net change  in unrealized gains (losses) on available-for-sale securities, net of taxes  of $143 |       |               |       |                              |       |                    |       | 228                                                     |       | 228                                     |       |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Total  comprehensive income                                                                      |       |               |       |                              |       |                    |       |                                                    |       | 1,552                                   |       |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Exercise of  stock options (23,049 shares)                                                       |       |               |       | 111                               |       |                    |       |                                                    |       | 111                                     |       |
|                                                                                             |       |               |       |                              |       |                    |       |                                                    |       |                                    |       |
| Balance at June 30,  2005                                                                   |       | $                  | 2          |                              | $          | 10,184                  |       | $                                                       | 8,596      |                                    | $          | (47 | ) | $ | 18,735 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

3

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American BankHoldings, Inc.

Silver Spring,Maryland

 

UNAUDITEDCONSOLIDATED STATEMENTS OF CASH FLOWS

 
| ** **                                                                         | ** ** | **For the Six Months Ended   June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| **(Dollars in thousands)**                                                         | ** ** | **2005**                                     | ** ** | **2004** | ** ** |
| **Operating  activities**                                                          |       |                                         |       |   |   |
| Net income                                                                         |       | $                                            | 1,324      |   | $ | 1,083 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                         |       |   |   |
| Depreciation  and amortization                                                     |       | 162                                          |       | 167 |   |
| Net  accretion of discounts and amortization of premiums                           |       | 4                                            |       | 11 |   |
| Securities  gains, net                                                             |       | —                                       |       | (36 | ) |
| Provision  for loan losses                                                         |       | 35                                           |       | 320 |   |
| Provision  for loss on foreclosed assets                                           |       | —                                       |       | 177 |   |
| Amortization  of deferred loan fees                                                |       | (231                                         | )          | (137 | ) |
| Loans  originated for resale                                                       |       | (100,691                                     | )          | (111,383 | ) |
| Gain on sale  of loans                                                             |       | (2,176                                       | )          | (2,672 | ) |
| Proceeds  from sales of loan originated for resale                                 |       | 93,555                                       |       | 111,295 |   |
| Earnings on  life insurance policies                                               |       | (37                                          | )          | (57 | ) |
| (Increase)  decrease in interest receivable and other assets                       |       | (680                                         | )          | 313 |   |
| Increase in  other liabilities                                                     |       | 167                                          |       | 357 |   |
| Net cash  used in operating activities                                             |       | $                                            | (8,568     | ) | $ | (562 | ) |
|                                                                               |       |                                         |       |   |   |
| **Investing  activities**                                                          |       |                                         |       |   |   |
| Proceeds  from sales of investment securities available for sale                   |       | $                                            | —     |   | $ | 1,455 |   |
| Purchase of  investment securities available for sale                              |       | (8,803                                       | )          | (5,494 | ) |
| Principal  collected on mortgage-backed securities                                 |       | 1,113                                        |       | 8,662 |   |
| Principal  collected on loans                                                      |       | 26,903                                       |       | 34,917 |   |
| Loan fees  deferred                                                                |       | 211                                          |       | 207 |   |
| Loans  originated or acquired                                                      |       | (42,057                                      | )          | (51,397 | ) |
| Purchases of  premises and equipment                                               |       | (3                                           | )          | (178 | ) |
| Disposal of  premises and equipment                                                |       | 18                                           |       | — |   |
| Purchase of  stock in the Federal Home Loan Bank                                   |       | (2,052                                       | )          | (675 | ) |
| Proceeds from  redemption of stock in the Federal Home Loan Bank                   |       | 900                                          |       | 778 |   |
| Net cash  used in investing activities                                             |       | $                                            | (23,770    | ) | $ | (11,725 | ) |
|                                                                               |       |                                         |       |   |   |
| **Financing  activities**                                                          |       |                                         |       |   |   |
| Net increase  in deposits and escrow accounts                                      |       | $                                            | 14,317     |   | $ | 17,261 |   |
| Proceeds  from borrowings                                                          |       | 60,000                                       |       | 20,000 |   |
| Repayment of  borrowings                                                           |       | (37,000                                      | )          | (22,075 | ) |
| Proceeds  from exercise of stock options                                           |       | 111                                          |       | 194 |   |
| Net cash  provided by financing activities                                         |       | 37,428                                       |       | 15,380 |   |
|                                                                               |       |                                         |       |   |   |
| Increase in  cash and cash equivalents                                             |       | 5,090                                        |       | 3,093 |   |
| Cash and  cash equivalents as of January 1                                    |       | 2,654                                        |       | 4,398 |   |
| Cash and  cash equivalents as of June 30                                      |       | $                                            | 7,744      |   | $ | 7,491 |   |
|                                                                               |       |                                         |       |   |   |
| Other Cash  Flow Information                                                       |       |                                         |       |   |   |
|                                                                               |       |                                         |       |   |   |
| Interest  paid                                                                     |       | $                                            | 3,308      |   | $ | 2,285 |   |
|                                                                               |       |                                         |       |   |   |
| Income taxes  paid                                                                 |       | $                                            | 1,127      |   | $ | 526 |   |

 

Theaccompanying notes are an integral part of these statements.

 

4

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

Notes to UnauditedConsolidated Financial Statements

As of and for the Six MonthsEnded June 30, 2005 and 2004

 

1)              Basis ofPresentation

 

AmericanBank Holdings, Inc. (the “Company”) is a corporation formed under the lawsof Delaware to serve as the savings and loan holding company of American Bank(the “Bank”), a federally chartered stock savings bank and parent of AmericanBank Holdings Statutory Trust I.  Theconsolidated financial statements include the accounts of the Company and theBank.  All intercompanyaccounts and transactions have been eliminated in the accompanying financialstatements.

 

Theconsolidated financial statements as of June 30, 2005 and for the threeand six months ended June 30, 2005 and 2004 are unauditedand have been prepared in conformity with accounting principles generallyaccepted in the United States of America for interim financial information andwith the instructions to Form 10-QSB and Rule 10-01 ofRegulation S-X, but, in the opinion of management of the Company, contain alladjustments, consisting solely of normal recurring entries, necessary topresent fairly the consolidated financial condition as of June 30, 2005and the results of consolidated operations for the three and six months ended June 30,2005 and 2004 and consolidated cash flows for the six months ended June 30,2005 and 2004.  The consolidated statementof financial condition of December 31, 2004 is derived from the Company’saudited consolidated financial statements.

 

Theresults of the consolidated operations for the six months ended June 30,2005 are not necessarily indicative of results that may be expected for theentire year ending December 31, 2005. Moreover, in preparing the consolidated financial statements, managementis required to make estimates and assumptions that affect the reported amountsof assets and liabilities as of the date of the balance sheets and incomestatements for the period.  Actualresults could differ significantly from the estimates.  Material estimates that are particularlysusceptible to significant change in the near term include the determination ofthe allowance for loan losses and the valuation of foreclosed real estate.  These condensed consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements and notes included in the 2004 annual report of AmericanBank Holdings, Inc. on Form 10-KSB as filed with the Securitiesand Exchange Commission.

 

2)              Earnings Per Share

 

Basicearnings per share for the three and six months ended June 30, 2005 wasdetermined by dividing net income by 1,964,538 and 1,957,377, respectively, theweighted average number of shares of common stock outstanding during therespective periods.  Basic earnings pershare for the three and six months ended June 30, 2004 was determined bydividing net income by 1,938,945 and 1,915,426, respectively, the weightedaverage number of shares of common stock outstanding during the respectiveperiods.  Diluted earnings per share forthe three and six months ended June 30, 2005 was determined by dividingnet income by 2,040,368 and 2,033,941, respectively, the weighted averagenumber of shares of common stock and common stock equivalents outstandingduring the respective periods.  Dilutedearnings per share for the three and six months ended June 30, 2004 wasdetermined by dividing net income by 2,004,834 and 1,980,119, respectively, theweighted average number of shares of common stock and common stock equivalentsoutstanding during the respective periods. Common stock equivalents consist of outstanding stock options, if suchoptions are dilutive.

 

3)              Stock Based Compensation

 

Statementof Financial Accounting Standards (SFAS) No. 123,Accounting for Stock-Based Compensation, encourages all entities to adopt afair value based method of accounting for employee stock compensation plans,whereby compensation cost is measured at the grant date based on the valueof  the award and is recognized over theservice period, which is usually the vesting period.  However, it also allows an entity to continueto measure compensation cost for those plans using the intrinsic value basedmethod of accounting prescribed by Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, whereby compensation cost is theexcess, if any, of the quoted market price of the stock at the grant date (orother 

 

5

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measurement date) over theamount an employee must pay to acquire the stock.  The Company has elected to continue with theaccounting methodology in Opinion No. 25. Stock options issued under the Company’s stock option plan have nointrinsic value at the grant date, and under Opinion No. 25 nocompensation cost is recognized for them.

 

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

 
| ** **                                                                                                     | ** **          | **For the Six Months   Ended June 30,** | ** ** | **For the Three Months   Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|---------------------|----------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                     | ** **          | **2005**                                     | ** ** | **2004**                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income,  as reported                                                                                       |                | $                                            | 1,324      |                                           | $          | 1,083 |   | $ | 772 |   | $ | 593 |   |
|                                                                                                           |                |                                         |       |                                           |       |   |   |   |   |
| Deduct:  Total stock-based compensation expense determined under fair value method for  all awards, net of tax |                | 3                                            |       | 11                                             |       | 2 |   | 5 |   |
|                                                                                                           |                |                                         |       |                                           |       |   |   |   |   |
| Net income,  as adjusted                                                                                       |                | $                                            | 1,321      |                                           | $          | 1,072 |   | $ | 770 |   | $ | 588 |   |
|                                                                                                           |                |                                         |       |                                           |       |   |   |   |   |
| Basic  earnings per share                                                                                      | – As  reported |                                         | 0.68       |                                           | 0.57       |   | 0.39 |   | 0.31 |   |
|                                                                                                           | – Pro forma    |                                         | 0.68       |                                           | 0.56       |   | 0.39 |   | 0.30 |   |
|                                                                                                           |                |                                         |       |                                           |       |   |   |   |   |
| Diluted earnings  per share                                                                                    | – As  reported |                                         | 0.65       |                                           | 0.55       |   | 0.38 |   | 0.30 |   |
|                                                                                                           | – Pro forma    |                                         | 0.65       |                                           | 0.54       |   | 0.38 |   | 0.29 |   |
|                                                                                                                |                     |                                              |            |                                                |            |  |  |  |  |  |  |  |  |  |  |

 

4)              Junior SubordinatedObligations

 

In January 2003, theFinancial Accounting Standards Board issued FASBInterpretation No. 46, “Consolidation of Variable Interest Entities, anInterpretation of ARB No. 51” which was revisedin December 2003.  Thisinterpretation provides guidance for the consolidation of variable interestentities (VIEs). American Bank Holdings Statutory Trust I, a wholly-owned trust subsidiaryof American Bank Holdings, Inc., qualifies as a variable interest entityunder FIN 46.  American Bank HoldingsStatutory Trust I issued at par $3.0 million of adjustable rate mandatorily redeemablepreferred securities (trust capital securities) to third-party investors andloaned the proceeds to the Company.  Thepreferred securities are non-voting, mandatorilyredeemable in 2033, and guaranteed by the Company.  The Company’s guarantee, together with itsother obligations under the relevant agreements, constitutes a full,irrevocable, and unconditional guarantee by the Company of the securitiesissued by the Trust.  The entire netproceeds to the Trust from the offering were invested in junior subordinated obligationsof the Company, which are the sole assets of the Trust.  American Bank Holdings Statutory Trust Iissued mandatorily redeemable preferred securities(trust capital securities) to third-party investors and loaned the proceeds tothe Company.  In accordance with theguidance provided by FIN 46, the Company does not consolidate the accounts ofAmerican Bank Holdings Statutory Trust I.

 

5)              Guarantees

 

The Company does not issue any guaranteesthat would require liability recognition or disclosure, other than its standbyletters of credit.  Standby letters ofcredit are written conditional commitments issued by the Company to guaranteethe performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dateswithin one year.  The credit risk involvedin issuing letters of credit is essentially the same as those that are involvedin extending loan facilities to customers. The Company generally holds collateral supporting these commitments.  The Company had $716,000 of standby lettersof credit as of June 30, 2005. Management believes that the proceeds obtained through a liquidation ofcollateral would be sufficient to cover the potential amount of future paymentsrequired under the corresponding guarantees. The current amount of the liability as of June 30, 2005 forguarantees under standby letters of credit issued is not material.

 

6

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6)  Segments

 

TheCompany has two reportable segments: banking and mortgage banking.  The leasing segment is included in thebanking segment and not reported as a separate segment since its assets andrevenues are less than 10% of the Company’s totals.  The banking segment provides traditionalbanking services offered through the Bank. The mortgage-banking segment operates out of the Bank’s headquarters inMaryland and originates and sells residential mortgages of various creditquality levels.  Most loans originated bythe mortgage division are originated for sale. However, on a case-by-case basis, some loans are originated for the Bank’sportfolio.  The accounting policies ofthe segments are the same as those described in the summary of significantaccounting policies in Note 1 to the consolidated financial statements for theyear ended December 31, 2004.  TheCompany evaluates performance based on profit and loss from operations beforeincome taxes not including nonrecurring gains and losses.  The Company accounts for intersegmentrevenues and expenses as if the revenue/expense transactions were to thirdparties, that is, at current market prices. The Company’s reportable segments are strategic business units thatoffer different products and services. Although both segments offer financial products and services, they aremanaged separately because each segment has different types and levels ofcredit and interest rate risk.  Theresults of the two reportable segments are included in the following table:

 
| **Six months ended June 30,  2005**             | ** ** | **Bank** | ** ** | **Mortgage   Banking** | ** ** | **Eliminations** | ** ** | **Consolidated   Totals** | ** ** |
|------------------------------------------------------|------------|----------|------------|------------------------|------------|------------------|------------|---------------------------|------------|
| Interest and  dividend income                        |       | $        | 7,907      |                   | $          | 642              |       | $                         | (584       | ) | $ | 7,965 |   |
| Interest  expense                                    |       | 3,458    |       | 584                    |       | (584             | )          | 3,458                     |       |
| Net interest  income                                 |       | 4,449    |       | 58                     |       | —           |       | 4,507                     |       |
| Provision  for loan losses                           |       | 35       |       | —                 |       | —           |       | 35                        |       |
| Net interest  income after provision for loan losses |       | 4,414    |       | 58                     |       | —           |       | 4,472                     |       |
| Other income                                         |       | 379      |       | 2,176                  |       | —           |       | 2,555                     |       |
| Non-interest  expenses                               |       | 3,372    |       | 1,539                  |       | —           |       | 4,911                     |       |
| Income  before income taxes                          |       | 1,421    |       | 695                    |       | —           |       | 2,116                     |       |
| Provision  for income taxes                          |       | 524      |       | 268                    |       | —           |       | 792                       |       |
| Net income                                           |       | $        | 897        |                   | $          | 427              |       | $                         | —     |   | $ | 1,324 |   |
|                                                 |       |     |       |                   |       |             |       |                      |       |
| At June 30,  2005                               |       |     |       |                   |       |             |       |                      |       |
| Segment  assets                                      |       | $        | 259,272    |                   | $          | 30,898           |       | $                         | —     |   | $ | 290,170 |   |
| Segment  capital                                     |       | 16,022   |       | 2,710                  |       | —           |       | 18,735                    |       |

 
| **Six months ended June 30,  2004**             | ** ** | **Bank** | ** ** | **Mortgage   Banking** | ** ** | **Eliminations** | ** ** | **Consolidated   Totals** | ** ** |
|------------------------------------------------------|------------|----------|------------|------------------------|------------|------------------|------------|---------------------------|------------|
| Interest and  dividend income                        |       | $        | 6,422      |                   | $          | 981              |       | $                         | (931       | ) | $ | 6,472 |   |
| Interest  expense                                    |       | 2,435    |       | 931                    |       | (931             | )          | 2,435                     |       |
| Net interest  income                                 |       | 3,987    |       | 50                     |       | —           |       | 4,037                     |       |
| Provision  for loan losses                           |       | 245      |       | 75                     |       | —           |       | 320                       |       |
| Net interest  income after provision for loan losses |       | 3,742    |       | (25                    | )          | —           |       | 3,717                     |       |
| Other income                                         |       | 324      |       | 2,672                  |       | —           |       | 2,996                     |       |
| Non-interest  expenses                               |       | 3,152    |       | 1,785                  |       | —           |       | 4,937                     |       |
| Income  before income taxes                          |       | 914      |       | 862                    |       | —           |       | 1,776                     |       |
| Provision  for income taxes                          |       | 367      |       | 326                    |       | —           |       | 693                       |       |
| Net income                                           |       | $        | 547        |                   | $          | 536              |       | $                         | —     |   | $ | 1,083 |   |
|                                                 |       |     |       |                   |       |             |       |                      |       |
| At June 30,  2004                               |       |     |       |                   |       |             |       |                      |       |
| Segment  assets                                      |       | $        | 212,077    |                   | $          | 38,946           |       | $                         | —     |   | $ | 251,023 |   |
| Segment  capital                                     |       | 15,527   |       | 1,545                  |       | —           |       | 17,072                    |       |

 

7

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| **Three months ended June 30,  2005**           | ** ** | **Bank** | ** ** | **Mortgage   Banking** | ** ** | **Eliminations** | ** ** | **Consolidated   Totals** | ** ** |
|------------------------------------------------------|------------|----------|------------|------------------------|------------|------------------|------------|---------------------------|------------|
| Interest and  dividend income                        |       | $        | 4,169      |                   | $          | 302              |       | $                         | (268       | ) | $ | 4,203 |   |
| Interest  expense                                    |       | 1,884    |       | 268                    |       | (268             | )          | 1,884                     |       |
| Net interest  income                                 |       | 2,285    |       | 34                     |       | —           |       | 2,319                     |       |
| Provision  for loan losses                           |       | 10       |       | —                 |       | —           |       | 10                        |       |
| Net interest  income after provision for loan losses |       | 2,275    |       | 34                     |       | —           |       | 2,309                     |       |
| Other income                                         |       | 206      |       | 1,076                  |       | —           |       | 1,282                     |       |
| Non-interest  expenses                               |       | 1,564    |       | 787                    |       | —           |       | 2,351                     |       |
| Income  before income taxes                          |       | 917      |       | 323                    |       | —           |       | 1,240                     |       |
| Provision  for income taxes                          |       | 343      |       | 125                    |       | —           |       | 468                       |       |
| Net income                                           |       | $        | 574        |                   | $          | 198              |       | $                         | —     |   | $ | 772 |   |

 
| **Three months ended June 30,  2004**           | ** ** | **Bank** | ** ** | **Mortgage   Banking** | ** ** | **Eliminations** | ** ** | **Consolidated   Totals** | ** ** |
|------------------------------------------------------|------------|----------|------------|------------------------|------------|------------------|------------|---------------------------|------------|
| Interest and  dividend income                        |       | $        | 3,297      |                   | $          | 539              |       | $                         | (525       | ) | $ | 3,311 |   |
| Interest  expense                                    |       | 1,228    |       | 525                    |       | (525             | )          | 1,228                     |       |
| Net interest  income                                 |       | 2,069    |       | 14                     |       | —           |       | 2,083                     |       |
| Provision  for loan losses                           |       | 130      |       | 45                     |       | —           |       | 175                       |       |
| Net interest  income after provision for loan losses |       | 1,939    |       | (31                    | )          | —           |       | 1,908                     |       |
| Other income                                         |       | 148      |       | 1,385                  |       | —           |       | 1,533                     |       |
| Non-interest  expenses                               |       | 1,564    |       | 901                    |       | —           |       | 2,465                     |       |
| Income  before income taxes                          |       | 523      |       | 453                    |       | —           |       | 976                       |       |
| Provision  for income taxes                          |       | 215      |       | 168                    |       | —           |       | 383                       |       |
| Net income                                           |       | $        | 308        |                   | $          | 285              |       | $                         | —     |   | $ | 593 |   |

 

Theamounts presented as “Eliminations” consist of imputed interest charges on themortgage loans originated for sale before they are actually sold to investors.

 

7)              Reclassifications

 

Certain items in the 2004 consolidatedfinancial statements have been reclassified to conform to the 2005 consolidatedfinancial statement presentation.  Suchreclassifications had no effect on net income.

 

8)              RecentAccounting Pronouncements

 

In December 2004, the FinancialAccounting Standards Board (FASB) issued Statement No. 123(R),“Share-Based Payment.”  Statement No. 123(R)revised Statement No. 123, “Accounting for Stock-Based Compensation,” andsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,”and its related implementation guidance. Statement No. 123(R) will require compensation costs related toshare-based payment transactions to be recognized in the financial statements(with limited exceptions).  The Companygrants options to purchase common stock to some of its employees and directorsunder various plans at prices equal to the market value of the stock on thedates the options were granted.  Theamount of compensation cost will be measured based on the grant-date fair valueof the equity or liability instruments issued. Compensation cost will be recognized over the period that an employeeprovides services in exchange for the award.

 

The Company will apply this statement for thefirst quarter of 2006.  The impact to theCompany will be dependent upon the nature and quantity of stock-basedcompensation granted in future periods and also by options that vest that arecurrently outstanding.

 

8

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In March 2005, the SEC issued StaffAccounting Bulletin No. 107 (“SAB No. 107”),“Share-Based Payment”, providing guidance on option valuation methods, theaccounting for income tax effects of share-based payment arrangements uponadoption of SFAS No. 123(R), and the disclosuresin MD&A subsequent to the adoption.  The Company will provide SABNo. 107 required disclosures upon adoption of SFASNo. 123(R) in the first quarter of 2006.

 

9

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**Item 2.**

 

**AMERICANBANK HOLDINGS, INC. AND SUBSIDIARIES**

 

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

**Resultsof Operations**

 

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

 

General

 

American Bank Holdings, Inc.is a corporation formed under the laws of Delaware to serve as the holdingcompany for American Bank.  The businessof the Company is conducted through the Bank, which is American Bank, afederally chartered savings bank with six branch offices.  The Bank’s corporate headquarters is locatedin Silver Spring, Maryland and the Bank has five full-service offices locatedat 1700 Rockville Pike, Rockville, Maryland, 5600 Connecticut Avenue,Washington D.C., 4801-A Montgomery Lane, Bethesda, Maryland, in the SuperFresh market at 12028 Cherry Hill Road, Silver Spring,Maryland and in the SuperFresh market at 3301 NorthRidge Road, Ellicott City, Maryland and a loan production/leasing office inCharlotte, North Carolina.  Deposits inthe Bank are insured to applicable limits by the Federal Deposit InsuranceCorporation.  As of June 30, 2005,the Bank had 73 employees, 68 of whom work full time.

 

The Company recorded netincome of $772,000, or $0.38 per diluted share, for the quarter ended June 30,2005 as compared to net income of $593,000, or $0.30 per diluted share, for thequarter ended June 30, 2004.   Netincome for the first six months of 2005 was $1,324,000, or $0.65 per dilutedshare, as compared to $1,083,000, or $0.55 per diluted share, for the first sixmonths of 2004.  The increase in netincome for the six months ended June 30, 2005 was attributable primarilyto the increase in net interest income.

 

**CRITICAL ACCOUNTING POLICIES**

 

The Company’s significant accounting policiesare set forth in note 1 of the consolidated financial statements as of December 31,2004 which was filed on Form 10-KSB with the SEC.  Of these significant accounting policies, theCompany considers its policy regarding the allowance for loan losses to be itsmost critical accounting policy, because it requires management’s mostsubjective and complex judgments.  Inaddition, changes in economic conditions can have a significant impact on theallowance for loan losses and therefore the provision for loan losses andresults of operations.  The Company hasdeveloped appropriate policies and procedures for assessing the adequacy of theallowance for loan losses, recognizing that this process requires a number ofassumptions and estimates with respect to its loan portfolio.  The Company’s assessments may be impacted infuture periods by changes in economic conditions, the impact of regulatoryexaminations and the discovery of information with respect to borrowers that isnot known to management at the time of the issuance of the consolidatedfinancial statements.

 

**Financial Condition**(June 30,2005 compared to December 31, 2004)

 

Total assets increased by$39.1 million, or 15.6%, to $290.2 million at June 30, 2005 compared to December 31,2004.  Total loans outstanding increasedby $24.7 million from $198.3 million at December 31, 2004 to $223.1million at June 30, 2005.  TheCompany originated $142.7 million of loans during the six months ended June 30,2005 as compared to $162.8 million during the same period in 2004.  Investment securities available-for-saleincreased by $7.7 million from year-end 2004 to June 30, 2005.  Cash and cash equivalents increased by $5.1million during the six months ended June 30, 2005.   The increase in cash and cash equivalents isdue to the timing of incoming deposits and the funding of mortgage loans soldto investors.

 

10

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Nonperforming assets, net(including nonaccrual loans, foreclosed real estateand repossessed assets) decreased by $460,000 to $541,000 at June 30, 2005compared to $1.0 million at December 31, 2004.  The decrease in non-performing assetsresulted primarily from a sale of nine non-performing loans during the firstquarter of 2005.  These loans had$135,000 of reserves which were specifically allocated to them and weresubsequently sold for a $123,000 loss. Thus approximately $12,000 of reserves were allocated to the remainingloan portfolio during the first quarter of 2005.  Total nonperforming assets, net, as apercentage of total assets were 0.2% at June 30, 2005 and 0.4% at December 31,2004.

 

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

 
| ** **                                     | ** ** | **June 30,   2005** | ** ** | **December 31,   2004** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|------------------------------|------------|
| Non-accrual  loans:                            |       |                     |       |                         |       |
|                                           |       |                     |       |                         |       |
| One to four  family residential mortgage loans |       | $                        | 227        |                         | $          | 530 |   |
|                                           |       |                     |       |                         |       |
| Commercial  real estate loans                  |       | 39                       |       | 43                           |       |
|                                           |       |                     |       |                         |       |
| Commercial                                     |       | 263                      |       | 280                          |       |
|                                           |       |                     |       |                         |       |
| Consumer  loans                                |       | 12                       |       | 6                            |       |
|                                           |       |                     |       |                         |       |
| Total  non-accrual loans                       |       | $                        | 541        |                         | $          | 859 |   |
|                                           |       |                     |       |                         |       |
| Foreclosed  real estate, net                   |       | —                   |       | 123                          |       |
|                                           |       |                     |       |                         |       |
| Repossessed  assets, net                       |       | —                   |       | 19                           |       |
|                                           |       |                     |       |                         |       |
| Total  nonperforming assets                    |       | $                        | 541        |                         | $          | 1,001 |   |

 

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

 

The Company had ten loans,amounting to $541,000, as of June 30, 2005, which are considered to bepotential problem loans.  All of theseloans are classified as non-accrual loans because the borrowers are over 90 

 

11

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days delinquent and management believes itmay have difficulty in collecting the principal balance on these loans.  The Company had an allowance for loan lossesof $1.9 million, or 0.83% of the total loans outstanding, at June 30,2005, and $1.9 million, or 0.98% of total loans outstanding, at December 31,2004.  Management believes the allowanceis adequate based on the review of the underlying collateral securing thenon-accrual loans.

 

The Company also establishes allowance forlosses on foreclosed real estate and other repossessed assets based upon itsfair value less the cost of disposal. The valuations of foreclosed real estateproperties are reviewed at least quarterly and updated as necessary based onthe Company’s expectations of holding periods, sales activity and other changesin market conditions.  Based on availableinformation, management believes that current loss reserves are adequate atthis time to cover potential losses in the portfolio.  There can be no assurance, however, thatadditional loss provisions will not be necessary in the future if marketconditions deteriorate.  The Company didnot have any allowance for losses on foreclosed real estate or repossessedassets, at June 30, 2005 and at December 31, 2004.

 

The Company had unrealized gains of $98,000and unrealized losses of $175,000, on its investment securitiesavailable-for-sale portfolio at June 30, 2005.  The amortized cost of this portfolio was$33.6 million at that date.  There wereunrealized gains of $49,000 and unrealized losses of $61,000 on its investmentsecurities held-to-maturity portfolio at June 30, 2005, with an amortizedcost of $14.6 million.  The Company’sinvestment securities portfolio includes agency obligations, mortgage-backedsecurities and collateralized mortgage obligations.  The Company’s investment securitiesavailable-for-sale portfolio increased by $7.7 million from December 31,2004 to June 30, 2005 due to the purchase of investment securitiesavailable-for-sale offset by the repayment of principal on mortgage-backedsecurities.  The Company’s investmentsecurities held-to-maturity portfolio remained constant.  The unrealized losses are consideredtemporary as they reflect fair values at June 30, 2005 and are subject tochange daily as interest rates fluctuate.

 

Deposits increased by $14.2 million duringthe six months ended June 30, 2005. The Company continued to focus its efforts in reducing its cost ofdeposits and trying to attract additional core deposits.  Core deposits (money market, checking and statementsavings accounts) increased by $19.4 million while certificates of depositdecreased by $5.2 million during the first six months of 2005.  The deposits at June 30, 2005 had anaverage interest rate of 2.70%.  Advancesfrom the Federal Home Loan Bank increased by $23.0 million during the first sixmonths of 2005.  The advances from theFederal Home Loan Bank at June 30, 2005 had an average interest rate of4.25%.

 

The Company’s stockholders’ equity increasedby $1.7 million, to $18.7 million at June 30, 2005 compared to $17.1million at December 31, 2004.  Theincrease was due principally to current period earnings, proceeds received fromthe exercise of stock options offset by an increase in net unrealized holdinglosses on investments available for sale. At June 30, 2005, the Company and the Bank were considered “wellcapitalized” under regulatory definitions.

 

**RESULTS OF OPERATIONS**

 

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

 

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

 

12

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**AMERICANBANK HOLDINGS, INC.**

**RATESPREAD ANALYSIS**

**(dollarsin thousands)**

 
| ** **                                | ** ** | **6 Months Ended June 30,  2005** | ** ** | **6 Months Ended June 30,  2004** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                | ** ** | **Average   Balance**                  | ** ** | **Interest**                           | ** ** | **Interest   Rate** | ** ** | **Average   Balance** | ** ** | **Interest** | ** ** | **Interest   Rate** | ** ** |
| Interest-bearing  assets:                 |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Loans                                     |       | $                                      | 208,076    |                                   | $          | 6,797 |   | 6.59 | % | $ | 185,892 |   | $ | 5,491 |   | 5.94 | % |
| Investment  securities                    |       | 47,901                                 |       | 1,134                                  |       | 4.78 | % | 45,567 |   | 967 |   | 4.27 | % |
| Other                                     |       | 3,355                                  |       | 34                                     |       | 2.04 | % | 3,321 |   | 14 |   | 0.85 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Total  interest-bearing assets            |       | 259,332                                |       | 7,965                                  |       | 6.19 | % | 234,780 |   | 6,472 |   | 5.54 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Interest  bearing liabilities:            |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Deposits                                  |       | 194,550                                |       | 2,416                                  |       | 2.50 | % | 159,340 |   | 1,448 |   | 1.83 | % |
| FHLB advances & Other Borrowings |       | 47,743                                 |       | 1,042                                  |       | 4.40 | % | 61,173 |   | 987 |   | 3.25 | % |
| Total  interest-bearing liabilities       |       | $                                      | 242,293    |                                   | $          | 3,458 |   | 2.88 | % | $ | 220,513 |   | $ | 2,435 |   | 2.22 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Average  interest rate spread             |       |                                   |       |                                   |       | 3.31 | % |   |   |   |   | 3.32 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Net interest  income/margin               |       |                                   |       | $                                      | 4,507      |   | 3.50 | % |   |   | $ | 4,037 |   | 3.45 | % |

 
| ** **                                | ** ** | **3 Months Ended June 30,  2005** | ** ** | **3 Months Ended June 30,  2004** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                | ** ** | **Average   Balance**                  | ** ** | **Interest**                           | ** ** | **Interest   Rate** | ** ** | **Average   Balance** | ** ** | **Interest** | ** ** | **Interest   Rate** | ** ** |
| Interest-bearing  assets:                 |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Loans                                     |       | $                                      | 214,593    |                                   | $          | 3,570 |   | 6.67 | % | $ | 193,241 |   | $ | 2,825 |   | 5.86 | % |
| Investment  securities                    |       | 50,957                                 |       | 618                                    |       | 4.86 | % | 45,015 |   | 474 |   | 4.24 | % |
| Other                                     |       | 3,400                                  |       | 15                                     |       | 1.77 | % | 5,864 |   | 12 |   | 0.82 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Total  interest-bearing assets            |       | 268,950                                |       | 4,203                                  |       | 6.27 | % | 244,120 |   | 3,311 |   | 5.44 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Interest  bearing liabilities:            |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Deposits                                  |       | 198,073                                |       | 1,299                                  |       | 2.63 | % | 163,357 |   | 748 |   | 1.84 | % |
| FHLB advances & Other Borrowings |       | 54,445                                 |       | 585                                    |       | 4.31 | % | 60,875 |   | 480 |   | 3.15 | % |
| Total  interest-bearing liabilities       |       | $                                      | 252,518    |                                   | $          | 1,884 |   | 2.99 | % | $ | 224,232 |   | $ | 1,228 |   | 2.20 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Average  interest rate spread             |       |                                   |       |                                   |       | 3.28 | % |   |   |   |   | 3.24 | % |
|                                      |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Net interest  income/margin               |       |                                   |       | $                                      | 2,319      |   | 3.46 | % |   |   | $ | 2,083 |   | 3.42 | % |

 

13

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**RESULTS OF OPERATIONS FOR THE THREE MONTHSENDED JUNE 30, 2005 AND JUNE 30, 2004**

 

General.  The Company recorded net income of $772,000,or $0.38 per diluted share, for the three months ended June 30, 2005 ascompared to net income of $593,000, or $0.30 per diluted share, for the threemonths ended June 30, 2004.  Theincrease in net income for the three month period was attributable primarily tothe increase in net interest income and a decrease in the provision for loanlosses.

 

Net interest income, after provision for loanlosses, increased by $401,000 for the three months ended June 30, 2005when compared to the same period in 2004. Non-interest income decreased by $251,000 and non-interest expensedecreased by $114,000 during the three months ended June 30, 2005 comparedto the same period in 2004.  The decreasein operating expense was primarily due to a reduction in legal expenses andcosts of operations of foreclosed real estate.

 

Net Interest Income.  The Company’s net interest income increasedby $236,000 during the three months ended June 30, 2005 as compared to thesame period in 2004.  The increase wasprimarily due to the increase in average volume of interest-earning assets.

 

Provision for Loan Losses.  The Company’s provision for loan lossesdecreased by $165,000 to $10,000 during the three months ended June 30,2005 compared to the same period in 2004. The decrease was due to the Company providing less in the currentquarter based on the periodic reviews of the underlying collateral securingloans held in portfolio.  The Company hadan allowance for loan losses of $1.9 million, or 0.83% of the total loansoutstanding, at June 30, 2005, and $1.9 million, or 0.98% of total loansoutstanding, at December 31, 2004.

 

Other Income.  The Company’s other income decreased by$251,000 to $1.3 million during the three months ended June 30, 2005compared to the same period in 2004.  Thedecrease was due to less gains recognized on the sale of loans from themortgage division.  The origination andsubsequent sale of loans is the primary function of the mortgage division.  Loans sold decreased by $12.9 million duringthe three months ended June 30, 2005 as compared to the same period in2004 and the average gain percentage on the sale of loans decreased.  Any future increase in interest rates mayfurther affect the volume of loan production. However management believes that future gains on sale of loans generatedby the mortgage division will not be materially impacted since the Company hasthe ability to alter its product mix to focus on products that tend to be lesssensitive to changes in interest rates. The change in product mix primarily focuses on originating more alt-Aloans whereby the borrower has Fannie Mae/Freddie Mac credit quality butproduces a lower level of documentation to obtain the loan.  These loans typically have more creditrisk.  However the risk to the Bank ismitigated because these loans are sold to investors that also underwrite theloans prior to loan closing.

 

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

 
| ** **                                   | ** ** | **For the Three Months Ended   June 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|----------------------------------------------|------------|------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                   | ** ** | **2005**                                       | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Salaries and  related expenses               |       | $                                              | 1,610      |       | $          | 1,536             |       | $ | 74 |   | 4.8 | % |
| Occupancy  expense, net                      |       | 255                                            |       | 217        |       | 38                |       | 17.5 |   |
| Deposit  insurance premiums                  |       | 24                                             |       | 22         |       | 2                 |       | 9.1 |   |
| Legal and  professional expenses             |       | 72                                             |       | 128        |       | (56               | )          | (43.8 | ) |
| Data  processing                             |       | 159                                            |       | 172        |       | (13               | )          | (7.6 | ) |
| Net cost of  operations of foreclosed assets |       | (6                                             | )          | 73         |       | (79               | )          | (108.2 | ) |
| Advertising                                  |       | 11                                             |       | 30         |       | (19               | )          | (63.3 | ) |
| Loan fees  and expenses                      |       | 56                                             |       | 81         |       | (25               | )          | (30.9 | ) |
| Other  expenses                              |       | 170                                            |       | 206        |       | (36               | )          | (17.5 | ) |
|                                         |       | $                                              | 2,351      |       | $          | 2,465             |       | $ | (114 | ) | (4.6 | ) |

 

The Company’s non-interest expense decreasedby $114,000 to $2.4 million during the three months ended June 30, 2005compared to the same period in 2004.  Thedecrease in non-interest expense was primarily due to 

 

14

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the increase in compensation and employee benefit expense and occupancycosts offset by a decrease in cost of operations of foreclosed assets and legalexpenses. The increase in compensation and employee benefit expenses wasprimarily due to additional staff hired in the lending area and branchnetwork.  The increase in occupancy costsis due to the opening of the new branch during the third quarter of 2004.  The cost of operations of foreclosed assetsdecreased due to the sale of all of the Company’s foreclosed assets during thefirst quarter of 2005.

 

Income Taxes.   Income tax expense for the three monthsended June 30, 2005, totaled $468,000, resulting in an effective tax rateof 37.7%, as compared to tax expense of $383,000, resulting in an effective taxrate of 39.2% for the same period in 2004. The relative mix of state tax exempt income and income from bank ownedlife insurance influences the effective income tax rate and remains the primaryreason for the difference between the effective tax rate and the statutoryfederal and state tax rates for corporations.

 

**RESULTS OF OPERATIONS FOR THE SIX MONTHSENDED JUNE 30, 2005 AND JUNE 30, 2004**

 

General.  The Company recorded net income of $1.3million, or $0.65 per diluted share, for the six months ended June 30,2005 as compared to net income of $1.1 million, or $0.55 per diluted share, forthe six months ended June 30, 2004. The increase in net income for the six month period was attributableprimarily to the increase in net interest income and a decrease in theprovision for loan losses.

 

Net interest income, after provision for loanlosses, increased by $755,000 for the six months ended June 30, 2005 whencompared to the same period in 2004. Non-interest income decreased by $441,000 and non-interest expensedecreased by $26,000 during the six months ended June 30, 2005 compared tothe same period in 2004.  The decrease inoperating expense was primarily due to additional compensation and employeebenefit expenses, and occupancy expenses, offset by a decrease in cost ofoperations of foreclosed assets and legal expenses.

 

Net Interest Income.  The Company’s net interest income increasedby $470,000 during the six months ended June 30, 2005 as compared to thesame period in 2004.  The increase wasprimarily due to the increase in average volume of interest-earning assets.

 

Provision for Loan Losses.  The Company’s provision for loan lossesdecreased by $285,000 to $35,000 during the six months ended June 30, 2005compared to the same period in 2004.  Thedecrease was due to the Company providing less in the current quarter based onthe periodic reviews of the underlying collateral securing loans held inportfolio.  The Company had an allowancefor loan losses of $1.9 million, or 0.83% of the total loans outstanding, at June 30,2005, and $1.9 million, or 0.98% of total loans outstanding, at December 31,2004.

 

Other Income.  The Company’s other income decreased by$441,000 to $2.6 million during the six months ended June 30, 2005compared to the same period in 2004.  Thedecrease was due to less gains recognized on the sale of loans from themortgage division.  The origination andsubsequent sale of loans is the primary function of the mortgage division.  Loans sold decreased by $17.7 million duringthe six months ended June 30, 2005 as compared to the same period in 2004and the average gain percentage on the sale of loans decreased.  Any future increase in interest rates mayfurther affect the volume of loan production. However management believes that future gains on sale of loans generatedby the mortgage division will not be materially impacted since the Company hasthe ability to alter its product mix to focus on products that tend to be lesssensitive to changes in interest rates. The change in product mix primarily focuses on originating more alt-Aloans whereby the borrower has Fannie Mae/Freddie Mac credit quality butproduces a lower level of documentation to obtain the loan.  These loans typically have more creditrisk.  However the risk to the Bank is mitigatedbecause these loans are sold to investors that also underwrite the loans priorto loan closing.

 

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

 

15

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| ** **                                   | ** ** | **For the Six Months Ended   June 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|----------------------------------------------|------------|----------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                   | ** ** | **2005**                                     | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Salaries and  related expenses               |       | $                                            | 3,347      |       | $          | 3,021             |       | $ | 326 |   | 10.8 | % |
| Occupancy  expense, net                      |       | 510                                          |       | 425        |       | 85                |       | 20.0 |   |
| Deposit  insurance premiums                  |       | 48                                           |       | 44         |       | 4                 |       | 9.1 |   |
| Legal and  professional expenses             |       | 157                                          |       | 237        |       | (80               | )          | (33.8 | ) |
| Data processing                              |       | 327                                          |       | 324        |       | 3                 |       | 0.9 |   |
| Net cost of  operations of foreclosed assets |       | (6                                           | )          | 220        |       | (226              | )          | (102.7 | ) |
| Advertising                                  |       | 54                                           |       | 82         |       | (28               | )          | (34.1 | ) |
| Loan fees  and expenses                      |       | 121                                          |       | 171        |       | (50               | )          | (29.2 | ) |
| Other  expenses                              |       | 353                                          |       | 413        |       | (60               | )          | (14.5 | ) |
|                                         |       | $                                            | 4,911      |       | $          | 4,937             |       | $ | (26 | ) | (0.5 | ) |

 

  The Company’s non-interestexpense decreased by $26,000 to $4.9 million during the six months ended June 30,2005 compared to the same period in 2004. The decrease in non-interest expense was primarily due to the increasein compensation and occupancy costs offset by a decrease in cost of operationsof foreclosed assets and legal expenses. The increase in compensation andemployee benefit expenses was primarily due to additional staff hired in thelending area and branch network as well as a signing bonus paid to an executiveofficer.  The increase in occupancy costsis due to the opening of the new branch during the third quarter of 2004.  The cost of operations of foreclosed assetsdecreased during the first six months of 2005 due to loss provisions beingcharged in 2004 on six foreclosed properties and no such provisions needed in2005.  The foreclosed assets weresubsequently sold during the first quarter of 2005.

 

Income Taxes.   Income tax expense for the six months ended June 30,2005, totaled $792,000, resulting in an effective tax rate of 37.4%, ascompared to tax expense of $693,000, resulting in an effective tax rate of39.0% for the same period in 2004.  Therelative mix of state tax exempt income and income from bank owned lifeinsurance influences the effective income tax rate and remains the primaryreason for the difference between the effective tax rate and the statutoryfederal and state tax rates for corporations.

 

**OFF-BALANCE SHEET ARRANGEMENTS**

 

The Company is party to financial instruments withoff-balance sheet risk including commitments to extend credit under existinglines of credit and commitments to sell loans. These instruments involve, tovarying degrees, elements of credit and interest rate risk in excess of theamount recognized in the consolidated balance sheets.

 

Commitments to originate new loans or extend creditare agreements to lend to a customer as long as there is no violation of anycondition established in the contract. Loan commitments generally expire within30 to 45 days. Most equity line commitments for the unfunded portion ofequity lines are for a term of 10 years, and commercial lines of creditare generally renewable on an annual basis. Commitments generally have fixedexpiration dates or other termination clauses and may require payment of a fee.Since many of the commitments are expected to expire without being drawn upon,the total commitment amounts do not necessarily represent future cashrequirements. 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.

 

The Company enters into rate lock commitments toextend credit to borrowers for generally a 15-day to 60-day periodfor the origination of loans. Unfunded loans for which commitments have beenentered into are called “pipeline loans.” Some of these rate lock commitmentswill ultimately expire without being completed. To the extent that a loan isultimately granted and the borrower ultimately accepts the terms of the loan,these rate lock commitments expose the Company to variability in their fairvalue due to changes in interest rates. If interest rates increase, the valueof these rate lock commitments decreases. Conversely, if interest ratesdecrease, the value of these rate lock commitments increases.

 

16

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To mitigate the effect of interest rate risk, theCompany usually enters into offsetting derivative contracts, primarily in theform of loan sale commitments. The loan sale commitments lock in an interestrate and price for the sale of loans similar to the specific rate lock offeredto the borrower on the loan. The Company utilizes two types of loan salecommitments: a best efforts contract or a mandatory contract. Best effortscontracts are usually entered into prior to the loan being originated and havean expiration date between 30 and 60 days from the date of the contract.Under these contracts, to the extent that a loan is ultimately granted, theCompany would sell the loan to the investor within the guidelines of the loansale commitment. Since there is no net settlement or penalty with the investorif these loans are not ultimately sold to the investor, these contracts are notconsidered to be derivatives. Mandatory contracts are entered into only after aloan is closed and pre-approval of the loan is received from the investor.These contracts typically have an expiration date between 15 and 45 daysfrom the date of the contract. Under these contracts, the Company is obligatedto sell the loan to the investor and deliver the loan to the investor by theexpiration date. The mandatory contracts do meet the definition of a derivativeand are to be recorded on the balance sheet at fair value. The risk on thesecontracts is mitigated by the fact that these contracts are only entered intoon closed loans which are pre-approved by the investor and have very shortexpiration dates. However, there may be occasions where the Company originatesa mortgage loan held for sale and the subsequent sale of the loan is notcompleted, which typically occurs only on the best efforts contracts. In thesecases, generally the commitment would have expired and the Company wouldevaluate each loan on a case-by-case basis to decide whether to continue toclassify the loan as held for sale. At June 30, 2005, the aggregate fairvalue of these loan sale commitments (based on the cash flows expected from thesale of the loans) was $481,000 on the $26.8 million of the particularloans to be sold under these commitments. Of the $26.8 million of notionalloan sale commitments,  $12.5 millionof these contracts were mandatory and $14.3 million of these contractswere best efforts. For the periods ended June 30, 2005 and December 31,2004, the fair value of the derivative associated with the mandatory contractswas not material. The Company had $4.1 million of loans classified as heldfor sale that did not have loan sale commitments as of June 30, 2005, ofwhich $2.8 million of these loans previously had loan sale commitmentswhich had expired. The Company continues to have the intent and ability to sellthese loans during the life of the loan even though no commitment to sell theloan exists at this time.

 

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

 
| ** **                                                                                        | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| Commitments  to originate new loans                                                               |       | $                      | 4,310      |                       | $          | 4,200 |   |
| Unfunded  commitments to extend credit under existing equity line and commercial lines  of credit |       | 14,946                 |       | 5,619                      |       |
| Commercial  letters of credit                                                                     |       | 716                    |       | 492                        |       |
| Notional  commitments to sell loans held for sale                                                 |       | 26,846                 |       | 15,792                     |       |
| Rate lock  commitments                                                                            |       | 4,180                  |       | 4,853                      |       |
|                                                                                                   |            |                        |            |                            |            |  |  |

 

Rate lock commitments related to the origination ofmortgage loans that will be held for sale must be accounted for as derivativeinstruments. Such commitments, along with any related fees received frompotential borrowers, are recorded at fair value on the balance sheet, withchanges in fair value recorded in the net gain or loss on sale of mortgageloans. Fair value is based on fees currently charged to enter into similaragreements, and for fixed-rate commitments, also considers the differencebetween current levels of interest rates and the committed rates. For theperiods ended June 30, 2005 and December 31, 2004, the fair value ofthe derivative was not material.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company’s main sources of liquidity, as aholding company, are dividends from the Bank, investment income and netproceeds from borrowings and capital securities offerings.  The Company’s main use of liquidity is thepayment of interest to the issuer of trust preferred securities.  The ability of the Bank to pay dividends issubject to various regulatory limitations.

 

Liquidity describes our ability to meet thefinancial obligations that arise during the ordinary course of business.  Liquidity is primarily needed to meet theborrowing and deposit withdrawal requirements of our customers and to fundcurrent and planned expenditures.  TheBank’s primary sources of funds are deposits, scheduled amortization andprepayments of loan principal and mortgage-backed securities, maturities andcalls 

 

17

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of securities and funds provided by our operations.  Our ability to maintain and expand ourdeposit base and borrowing capabilities is an important source ofliquidity.  In addition to core deposits,we regularly utilize wholesale funding sources such as brokered deposits and FHLB advances.  At June 30,2005, we had $55.5 million in outstanding borrowings.

 

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

 

The Bank is required to maintain sufficientliquidity to ensure its safe and sound operation.  As required by recent legislation, the OTS recently deleted its requirement that federal savingsassociations maintain a certain minimum level of liquid assets.  Instead, adequate liquidity is assessed bythe OTS on a case-by-case basis by reviewing suchfactors as the institution’s overall asset/liability structure, marketconditions, competition and the nature of the institution’s activities.  The OTS considersboth an institution’s liquidity ratio as well as safety and soundness issues inassessing whether an institution has sufficient liquidity.  The Bank has ample liquidity to meet its outstandingloan commitments.

 

Quantitative measures established by bankregulations to ensure capital adequacy require the Bank to maintain minimumamounts and ratios (set forth in the table below) of total and Tier I capital(as defined in the regulations) and risk-weighted assets (as defined), and ofTier I capital (as defined) to average assets (as defined).  As of June 30, 2005, the Bank meets allcapital adequacy requirements to which it is subject.

 

As of June 30, 2005, the most recentnotification from the OTS categorized the Bank as “wellcapitalized”.  To be categorized as “wellcapitalized” the Bank must maintain minimum total risk-based, Tier Irisk-based, and Tier I leverage ratios as set forth in the table.  There have been no conditions or events sincethat notification that management believes that would have changed the Bank’scapital classification.  The Bank’sactual capital amounts and ratios are as follows (in thousands):

 
| ** ** | ** ** | **ACTUAL** | ** ** | **ACTUAL%** | ** ** | **REQUIRED** | ** ** | **REQ’D****%** | ** ** | **EXCESS** | ** ** |
|------------|------------|------------|------------|-------------|------------|--------------|------------|---------------------|------------|------------|------------|
| Core       |       | $          | 21,096     |        | 7.29       | %            | $          | 11,565              |       | 4.0        | %          | $ | 9,531 |   |
| Tangible   |       | 21,096     |       | 7.29        |       | 4,337        |       | 1.5                 |       | 16,759     |       |
| Risk-based |       | 22,952     |       | 10.88       |       | 16,545       |       | 8.0                 |       | 6,407      |       |
|            |            |            |            |             |            |              |            |                     |            |            |            |  |  |  |

 

18

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**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The following table sets forth the amounts ofinterest-earning assets and interest-bearing liabilities outstanding at June 30,2005, which are expected to mature or reprice in eachof the time periods shown.

 

American Bank Holdings, Inc.

RepricingSchedule as of June 30, 2005

(in thousands)

 
| ** **                                             | ** ** | **Less than   One Year** | ** ** | **One Year to   Five Years** | ** ** | **Five Years to   Ten Years** | ** ** | **More than   Ten Years** | ** ** | **Totals** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------------|------------|------------|------------|
| ** **                                             | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                | ** ** | ** ** | ** ** |
| Interest-earning assets:                               | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                | ** ** | ** ** | ** ** |
|                                                   |       |                     |       |                         |       |                          |       |                      |       |       |       |
| Loans                                                  |       | $                        | 119,346    |                         | $          | 35,038                        |       | $                         | 6,526      |       | $          | 31,266 |   | $ | 192,176 |   |
| Investment  securities                                 |       | 4,059                    |       | 1,020                        |       | 9,618                         |       | 33,398                    |       | 48,095     |       |
| Other  interest-earning assets                         |       | 6,952                    |       | —                       |       | —                        |       | —                    |       | 6,952      |       |
| Total  interest-earning assets                         |       | $                        | 130,357    |                         | $          | 36,058                        |       | $                         | 16,144     |       | $          | 64,664 |   | $ | 247,223 |   |
|                                                   |       |                     |       |                         |       |                          |       |                      |       |       |       |
| Interest-bearing  liabilities:                         |       |                     |       |                         |       |                          |       |                      |       |       |       |
|                                                   |       |                     |       |                         |       |                          |       |                      |       |       |       |
| Certificates  of Deposit                               |       | $                        | 101,897    |                         | $          | 15,995                        |       | $                         | 99         |       | $          | — |   | $ | 117,991 |   |
| Money market  deposits                                 |       | 19,830                   |       | 33,813                       |       | 9,666                         |       | —                    |       | 63,309     |       |
| NOW &  Statement accounts                     |       | 5,040                    |       | 12,859                       |       | 11,555                        |       | —                    |       | 29,454     |       |
| Borrowings &  Junior subordinated obligations |       | 33,593                   |       | 20,000                       |       | 5,000                         |       | —                    |       | 58,593     |       |
| Total  interest-bearing liabilities                    |       | $                        | 160,360    |                         | $          | 82,667                        |       | $                         | 26,320     |       | —     |   | $ | 269,347 |   |
| GAP                                                    |       | (30,003                  | )          | (46,609                      | )          | (10,176                       | )          | 64,664                    |       |       |       |
| Cumulative  GAP                                        |       | $                        | (30,003    | )                            | $          | (76,612                       | )          | $                         | (86,788    | )          | $          | (22,124 | ) |   |   |
| Cum.  GAP/total assets                                 |       | (12.14                   | )%         | (30.99                       | )%         | (35.11                        | )%         | (8.95                     | )%         |       |       |

 

The following assumptions were used by theCompany’s management in order to prepare the Company’s GAP (repricingschedule) table set forth above.  Loansare shown based on contractual maturity and schedule 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 for fixed-rate and adjustable-rate securities,respectively.  Agency securities areshown in the period in which they contractually mature.  No prepayment assumptions or call assumptionsare reflected for any interest-earning assets. Deposits without contractual maturities are shown based on OTS decay rates.

 

The interest rate sensitivity of the Company’sassets and liabilities could vary substantially if different assumptions areused.  Moreover, certain shortcomings areinherent in the methods of analysis presented in the above GAP table.  Although certain assets and liabilities mayhave similar maturities or periods of repricing, theymay react in different degrees to changes in market interest rates.  The interest rates on certain types of assetsand liabilities may fluctuate in advance of changes in market interest rates,whereas interest rates on other types of assets and liabilities may lag behindchanges in market interest rates. Certain assets, such as adjustable-rate mortgages have features thatrestrict changes in interest rates on a short-term basis and over the life ofthe assets.  In the event of a change ininterest rates, prepayment and early withdrawal levels would likely deviatesignificantly from those assumed in calculating the table.  The ability of many borrowers to servicetheir debt may decrease in the event of an interest rate increase.

 

The Company’s results of operations depend toa large extent on the level of the Company’s net interest income.  If interest rate fluctuations cause theCompany’s cost of funds to increase faster than the yield of itsinterest-bearing assets, then its net interest income will be reduced.  At June 30, 2005, 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 12.2%.   The Companyhas emphasized shorter-term deposits, which tend to repriceon a basis more consistent with the short-term duration of the Company’stypical loan products.  In addition, theCompany’s management classifies certain securities as available-for-sale 

 

19

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to provide flexibility for liquidity purposes.  If the need to sell an asset for liquidity orother purposes arises, management believes that there are adequate securitiesclassified as available-for-sale with a positive mark-to-market and that suchsale would not have a material impact on results of operations.

 

The Company’s management believes that theCompany’s interest rate risk position at June 30, 2005 represents areasonable amount of interest rate risk.

 

**FORWARD-LOOKING STATEMENTS**

 

Certain statements inManagement’s Discussion and Analysis are forward-looking statements within themeaning of the Securities Act of 1934, as amended.  Actual results, performance or developmentsmay differ materially from those expressed or implied by such forward-lookingstatements as a result of market uncertainties and other factors related to theCompany’s business.  The financialservices market generally, and the market for the Company’s products andservices specifically, is characterized by a high degree of competition andrapidly changing local, national and global market, financial and economicconditions, and interest rate fluctuations/market conditions.  Such developments, as well as unforeseendevelopments in the financial services industry, could have an adverse impacton the Company’s financial position and results of operations.

 

**Item 3. CONTROLS AND PROCEDURES**

 

The Company’s management, including the ChiefExecutive Officer and Chief Financial Officer evaluated the effectiveness ofthe design and operation of the Company’s disclosure controls and procedures(as defined in Rule 13a-15(e) or 15(d)-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of theend of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures are effective in ensuring that information required to be disclosedby the Company in reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commissions rules and forms.

 

There were no changes in the Company’sinternal controls over financial reporting that occurred during the Company’smost recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

**PART II – OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

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

 

Howard Little, Robin Brandt,Gary Brandt, and David Goldstein have filed an action against the Bank andother defendants, including the United States of America, in the United StatesDistrict Court for the Middle District of Florida.  This action was commenced on August 31,2000.  The claim arises out of statementsallegedly made by former Bank personnel to federal investigators in 1994.  Plaintiffs allege that as a result of thesestatements and others, the plaintiffs were wrongly indicted by a federal grandjury and were ultimately acquitted of the charges.  The plaintiffs are seeking unspecifieddamages.  The Bank filed a motion todismiss the plaintiffs’ claims which was denied by the court in September 2001.  The initial scheduling conference hasoccurred and discovery has begun.  In November 2003,we filed a motion for summary judgment on the plaintiffs’ claims.  During the third quarter of 2004, the courtdenied the motion for summary judgment. Accordingly, the case will go to trial, but no date has currently beenset.  The Company has tendered this caseto its insurance carrier and they have agreed to defend the claim under areservation of rights.

 

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

 

Not applicable.

 

20

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**Item 3. Defaults Upon Senior Securities**

 

Not applicable.

 

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

 

Not applicable.

 

**Item 5. Other Information**

 

During the second quarter2005, the Company commenced an offering of 1,000,000 shares of its common stockat $9.00 per share pursuant to a Prospectus dated April 29, 2005.  The offering is being conducted in two steps –a pro rata rights offering and a community offering.  The rights offering was made available toshareholders of record as of the close of business on April 28, 2005.  Shares not purchased by the shareholders ofrecord in the rights offering are being made available for purchase in thecommunity offering.  The rights offeringexpired on June 20, 2005 and the Company received subscriptions for332,801 shares.  Subsequent to the quarter-endJune 30, 2005, the Company closed the rights offering pursuant to which itaccepted subscriptions for 237,076 shares with proceeds of $2,133,684.  The Company has conditionally accepted asubscription for 95,725 shares for an aggregate purchase price of $861,525,subject to receipt by the subscriber of the required regulatory approvals toacquire the shares.  The Company hasextended the deadline for subscribing for shares in the community offering from June 27, 2005 to September 30,2005.

 

**Item 6.  Exhibits**

 
| 3.1    |   | Restated Certificate of Incorporation of American Bank Holdings, Inc.  (incorporated herein by reference from Exhibit 3.1 to the Company’s  Registration Statement on Form S-4(File No. 333-102410),  filed with the SEC on January 8, 2003). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                        |
| 3.2    |   | Bylaws of American Bank Holdings, Inc. (incorporated herein by  reference from Exhibit 3.2 to the Company’s Registration Statement on Form S-4  (File No. 333-102410), filed with the SEC on January 8,  2003).                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 31.1   |   | 302  Certification of Chief Executive Officer                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 31.2   |   | 302  Certification of Chief Financial Officer                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 32.1   |   | 906  Certification of Chief Executive Officer                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 32.2   |   | 906  Certification of Chief Financial Officer                                                                                                                                                                                                                               |

 

 

**SIGNATURES**

 

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

 
|   | AMERICAN  BANK HOLDINGS, INC.          |
|--------|----------------------------------------|
|   | (Registrant)                           |
|   |                                   |
|   |                                   |
|   | Date:  August 12, 2005            |
|   |                                   |
|   |                                   |
|   | /s/  James E. Plack                    |   |
|   | James  E. Plack                        |
|   | President  and Chief Executive Officer |

 

21

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|   | /s/  John M. Wright                                |   |
|--------|----------------------------------------------------|--------|
|   | John  M. Wright                                    |
|   | Senior  Vice President and Chief Financial Officer |

 

22

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**EXHIBIT INDEX**

 
| 3.1    |   | Restated Certificate of Incorporation of American Bank Holdings, Inc.  (incorporated herein by reference from Exhibit 3.1 to the Company’s  Registration Statement on Form S-4(File No. 333-102410),  filed with the SEC on January 8, 2003). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                        |
| 3.2    |   | Bylaws of American Bank Holdings, Inc. (incorporated herein by  reference from Exhibit 3.2 to the Company’s Registration Statement on Form S-4  (File No. 333-102410), filed with the SEC on January 8,  2003).                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 31.1   |   | 302  Certification of Chief Executive Officer                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 31.2   |   | 302  Certification of Chief Financial Officer                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 32.1   |   | 906  Certification of Chief Executive Officer                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                        |
| 32.3   |   | 906  Certification of Chief Financial Officer                                                                                                                                                                                                                               |

 

23

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