EXHIBIT 13


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--------------------------------------------------------------------------------
                               2004 ANNUAL REPORT
--------------------------------------------------------------------------------

<PAGE>

                        CONSOLIDATED FINANCIAL HIGHLIGHTS

--------------------------------------------------------------------------------
                                                                      PERCENTAGE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)        2004        2003   CHANGE
--------------------------------------------------------------------------------

AT YEAR END
Assets ........................................   $ 503,436   $ 481,992     4.4%
Loans, net ....................................     242,348     204,832    18.3%
Deposits ......................................     345,732     332,286     4.0%
Shareholders' Equity ..........................      41,910      34,963    19.9%

FOR THE YEAR
Net Interest Income ...........................       9,146       7,288    25.5%
Net Income ....................................       3,167       2,637    20.1%

PER SHARE DATA
Earnings-Basic ................................   $    0.44   $    0.41     7.3%
Earnings-Diluted ..............................        0.43        0.39    10.3%
Book Value ....................................        5.80        5.14    12.8%

FINANCIAL RATIOS
Return on average assets ......................        0.64%       0.56%
Return on average equity ......................        8.24%       8.27%
Average shareholders' equity to average
  assets ......................................        7.71%       6.77%
Net interest margin ...........................        1.90%       1.59%
Net interest spread ...........................        1.68%       1.37%
Non-interest expense ..........................        1.09%       1.07%
Efficiency ratio ..............................       52.30%      55.00%
Non-performing assets/Total assets ............        0.15%       none
Allowance for loan losses/Non-performing
  loans .......................................      373.66%        n/a


<PAGE>

                                TABLE OF CONTENTS
                                                                          Page
                                                                          ----
Message to Our Stockholders ............................................     1
Selected Consolidated Financial Information and Other Data .............     3
Management's Discussion and Analysis of Financial Condition
     and Results of Operations .........................................     4
Common Stock and Related Matters .......................................    19
Report of Independent Registered Public Accounting Firm ................   F-1
Consolidated Balance Sheets ............................................   F-2
Consolidated Statements of Income ......................................   F-3
Consolidated Statements of Stockholders' Equity ........................   F-4
Consolidated Statements of Cash Flows ..................................   F-5
Notes to Consolidated Financial Statements .............................   F-6


<PAGE>

                                [GRAPHIC OMITTED]
                                                                  March 25, 2005

Dear Fellow Stockholder:

Your Company had another record year in 2004 with net income of $3,167,000 and
year-end assets of over $503 million. The increase in net income was the result
of an increase of $23.7 million of average earning assets and an increase of 31
basis points in the net interest margin.

In order to illustrate the progress of American Bank, we want to highlight some
of the accomplishments during 2004.

EARNINGS GROWTH: For the year ended December 31, 2004, American Bank posted
record net income of $3,167,000, or $0.43 per diluted share, an increase of
$530,000 from the prior year. Basic earnings per share was $0.44 for the year.
Beginning with our first annual profit in 2000, American Bank has had five
straight years of record earnings.

ASSET GROWTH: At December 31, 2004, American Bank, Inc. ended the year with
$503.4 million in assets, an increase of $21.4 million. This increase is due in
large part to an increase in our loan portfolio of $37.5 million, or 18.3%, to
$242.3 million at December 31, 2004.

ASSET QUALITY: Asset quality continues to be one of American Bank's strongest
qualities. At December 31, 2004 we had non-performing assets totaling $741,000,
which represented 0.15% of total assets. The average ratio for our peer group is
0.88% of total assets.

EXPENSE CONTROL: For the year ended December 31, 2004, our operating expense to
assets ratio was 1.09%. This figure compares favorably to that of our peers, who
average over 3.25%, and makes us one of the most efficient commercial banks in
the country.

COMMON STOCK PORTFOLIO: American Bank, Inc. maintains an investment portfolio
comprised of the common stock of community banks located throughout the United
States. The stocks held in this portfolio are acquired for investment purposes.
At December 31, 2004 this portfolio was comprised of seventeen banking companies
with a total investment of $11.5 million. During March of 2005, our largest
investment, which represented almost 350,000 shares of PSB Bancorp, Inc.,
announced that their Board of Directors had retained an investment banker to
evaluate strategic alternatives, including a possible sale of the company.

Other factors that affected American Bank in 2004 and are expected to continue
to have an effect in 2005 include:

RISING INTEREST RATES: The year 2004 began with interest rates at historic lows.
Beginning in June, the Federal Open Market Committee ("FOMC") started raising

<PAGE>

the benchmark Federal Funds rate to combat potential inflationary pressure on
the economy. During the period from June through December, the FOMC raised the
Federal Funds rate five times reaching 2.25% at year end compared to 1.0% at the
beginning of the year. To date, in 2005 the FOMC has raised the Federal Funds
rate two times to 2.75%. We expect that the FOMC will continue to raise the
Federal Funds rate throughout the remainder of the year and we have positioned
our balance sheet so that rising interest rates should not have a material
negative impact on our earnings.

SARBANES-OXLEY: The Sarbanes-Oxley Act was passed into law in 2002. This
legislation makes sweeping changes in the way public companies do business. One
of the most significant sections of this Act is Section 404 ("SOX 404"). This
section requires that public companies review, test, document and assert to the
level of effectiveness of internal controls over financial reporting. It also
requires that the independent registered public accounting firm review and
verify the results of management's assessment and render an opinion on the
effectiveness of internal control over financial reporting. This legislation as
it now stands will be effective for the Company for the year ending December 31,
2006. We anticipate that compliance with SOX 404 will have a material and
ongoing negative impact on our net income in 2006 and thereafter and we estimate
the annual impact to be between $150,000 and $300,000.

As we reflect on the Company's performance in 2004, it should be noted that we
continue to invest in team members who embody the values we set forth in our
mission statement: Honesty, Integrity, Responsiveness, Flexibility and
Excellence. Each and every member of our team is committed to delivering
superior products and services to our customers and I would like to commend them
for their efforts.

While our staff is committed to providing excellent service to our customers,
the Board of Directors is committed to enhancing stockholder value through
improved earnings. At the same time, your Board has sought other ways to enhance
shareholder value and in March approved a 375,000 Share Repurchase Program.

In addition, during the first quarter of 2005, we paid an annual dividend of
$0.11 per share, which represented an increase of 10% over the dividend paid in
2004. Shareholders participating in the Dividend Reinvestment and Stock Purchase
Plan were given the opportunity to purchase additional shares of American Bank
Inc. common stock at a 10% discount to the market price. We had share
participation of over 80.3% in this program.

The entire American Bank team, comprised of your Board of Directors, staff,
customers and stockholders, is to be commended for their unwavering dedication
to your Company. We realize that without the hard work of every team member, we
could not have succeeded as much as we have thus far.

Thank you for your continued support.

[OBJECT OMITTED]

/s/Mark W. Jaindl
---------------------
Mark W. Jaindl
Chairman of the Board
President and CEO

                                       2
<PAGE>

           SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA

         The following information is derived from the audited financial
statements of American Bank Incorporated or, prior to January 2, 2001, American
Bank. For additional information about the formation of American Bank
Incorporated and its acquisition of all the outstanding shares of American Bank,
reference is made to the Consolidated Financial Statements of American Bank
Incorporated and related notes included elsewhere herein.

<TABLE>
<CAPTION>
                                                                                AT DECEMBER 31,
                                                          --------------------------------------------------------
                                                            2004        2003        2002        2001        2000
                                                          --------    --------    --------    --------    --------
                                                                                  (In thousands)
<S>                                                       <C>         <C>         <C>         <C>         <C>
SELECTED FINANCIAL CONDITION DATA:
----------------------------------
Total assets .........................................    $503,436    $481,992    $453,265    $368,709    $244,256
Loans receivable, net ................................     242,348     204,832     134,926     135,589     120,614
Securities available for sale ........................     220,911     236,746     276,569     175,177      63,221
Securities held to maturity ..........................      13,480      15,361      13,466      14,822      17,498
Deposits .............................................     345,732     332,286     306,751     253,763     182,495
Short-term debt ......................................       6,991       6,909       7,784       4,237          --
Long-term debt .......................................      96,095      96,357      97,791      83,238      37,456
Junior subordinated debentures .......................      10,187          --          --          --          --
Mandatory redeemable convertible debentures ..........          --      10,200      10,200          --          --
Stockholders' equity .................................      41,910      34,963      28,593      25,508      23,255
</TABLE>

<TABLE>
<CAPTION>
                                                                        FOR THE YEAR ENDED DECEMBER 31,
                                                           ---------------------------------------------------------
                                                             2004         2003       2002        2001         2000
                                                           --------    --------    --------    --------     --------
                                                                  (Dollars in thousands, except per share data)
<S>                                                        <C>         <C>         <C>         <C>          <C>
SELECTED OPERATING DATA:
------------------------
Total interest income ................................     $ 20,729    $ 19,225    $ 20,489    $ 19,995     $ 11,916
                                                           --------    --------    --------    --------     --------
Total interest expense ...............................       11,583      11,937      12,409      13,123        7,535
Net interest income ..................................        9,146       7,288       8,080       6,872        4,381
Provision for loan losses ............................          393         405         212         651          475
                                                           --------    --------    --------    --------     --------
Net interest income after provision for loan
 losses ..............................................        8,753       6,883       7,868       6,221        3,906
                                                           --------    --------    --------    --------     --------
Fees and service charges .............................          207         165         160         131           75
Net realized gains on sale of mortgage loans .........          122         401         296         164           77
Net realized gains (losses) on sale of
 securities ..........................................          334         862         112         (13)          --
Earnings on bank owned life insurance ................          349         318         160          --           --
Other income .........................................          230         255         229         193          214
                                                           --------    --------    --------    --------     --------
Total other income ...................................        1,242       2,001         957         475          366
Total other expenses .................................        5,435       5,111       5,212       5,061        3,589
                                                           --------    --------    --------    --------     --------
Income before taxes on income ........................        4,560       3,773       3,613       1,635          683
Taxes on income ......................................        1,393       1,136       1,097         297          254
                                                           --------    --------    --------    --------     --------
Net income ...........................................     $  3,167    $  2,637    $  2,516    $  1,338     $    429
                                                           ========    ========    ========    ========     ========
Dividend payout per share ............................     $   0.10          --          --          --           --
Earnings per share-basic(1) ..........................     $   0.44    $   0.41    $   0.42    $   0.22     $   0.08
Earnings per share-diluted(1) ........................     $   0.43    $   0.39    $   0.40    $   0.22     $   0.08

PERFORMANCE RATIOS:
-------------------
Return on assets (ratio of net income to
 average total assets) ...............................         0.64%      0.56%      0.62%      0.43%      0.26%
Return on equity (ratio of net income to
 average equity) .....................................         8.24%      8.27%      9.51%      5.48%      2.54%
Interest rate spread information:
Average during period ................................         1.68%      1.37%      1.89%      2.14%      2.37%
End of period ........................................         1.83%      1.57%      1.60%      2.18%      1.97%
Net interest margin (ratio of net interest
 income divided by average earning assets) ...........         1.90%      1.59%      2.08%      2.40%      2.73%
Ratio of operating expense to average total
 assets ..............................................         1.09%      1.07%      1.28%      1.60%      2.07%
Ratio of average interest-earning assets to
 average interest-bearing liabilities ................       109.27%    108.48%    106.18%    105.55%    107.70%

ASSET QUALITY RATIOS:
---------------------
Non-performing assets to total assets at end of
 period ..............................................         0.15%        --         --         --         --
Allowance for loan losses to non-performing
 loans ...............................................       373.66%       n/a        n/a        n/a        n/a
Allowance for loan losses to loans receivable,
 net .................................................         1.13%      1.16%      1.28%      1.47%      1.02%

CAPITAL RATIOS:
---------------
Stockholders' equity to total assets at end of
 period ..............................................         8.33%      7.25%      6.31%      6.92%      9.52%
Average stockholders' equity to average assets .......         7.71%      6.77%      6.52%      8.33%     10.58%
</TABLE>
----------
(1)  Adjusted to reflect three-for-two stock split declared in January 2002.

                                       3
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

         This document contains certain "forward-looking statements" which may
be identified by the use of words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage and other loans,
real estate values, and competition; changes in accounting principles, policies,
or guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, product pricing and services.

OVERVIEW

         American Bank Incorporated is a bank holding company whose assets
consist primarily of its investment in American Bank, its wholly owned
subsidiary. The principal business activity of American Bank Incorporated is
overseeing and directing the business of American Bank.

         American Bank is a full-service, state chartered bank in Pennsylvania.
We currently operate from a single branch located in Allentown, PA. Our
principal business is attracting deposits from the general public and using
those deposits, together with borrowings and other funds, to originate loans and
to purchase investment securities. We offer a comprehensive menu of deposit and
loan products for consumer, business, institutional and governmental customers,
including interest-bearing checking and money market accounts, savings accounts,
certificates of deposit and individual retirement accounts. We also engage in
mortgage banking activities, which include the origination, purchase and, in
certain instances, subsequent sale of residential mortgage loans.

         AmericanBank Online and pcbanker.com are registered trademarks of
American Bank and the brand names for Internet banking and financial services
provided by American Bank. Through AmericanBank Online and pcbanker.com,
American Bank delivers convenience through innovative technology, absent the
restrictions of time and geography, by offering an expanding menu of real-time,
web-browser based Internet banking and financial services.

         American Bank Incorporated's results of operations depend primarily on
net interest income. Net interest income is the difference between the interest
income we earn on our interest-earning assets, consisting primarily of loans,
investment securities and interest-bearing deposits with other financial
institutions, and the interest we pay on our interest-bearing liabilities,
consisting primarily of interest bearing checking accounts, money market
accounts, savings accounts, time deposits and borrowed funds. Our results of
operations are also affected by our provisions for loan losses, other income and
other expense. Other income consists primarily of service charges on deposit
accounts and gains on sales of residential mortgage loans and securities. Other
expense consists primarily of non-interest expenses, including salaries and
employee benefits, occupancy, equipment, data processing, professional fees and
marketing and business development costs. Our results of operations may also be
affected significantly by general and local economic and competitive conditions,
particularly those with respect to changes in market interest rates,
governmental policies and actions of regulatory authorities.

         Net income increased $530,000, or 20.1%, to $3.2 million for the year
ended December 31, 2004 from $2.6 million for the year ended December 31, 2003.
Net interest income increased $1.9 million, or 26.0%, to $9.2 million for the
year ended December 31, 2004 from $7.3 million for the year ended December 31,
2003. Non-interest income decreased $759,000, or 37.9%, to $1.2 million for the
year ended December 31, 2004 compared to $2.0 million for the year ended
December 31, 2003, while non-interest expense increased $324,000, or 6.3%, to
$5.4 million for the year ended December 31, 2004 from $5.1 million for the year
ended December 31, 2003.

                                       4
<PAGE>

CRITICAL ACCOUNTING POLICIES

         Disclosure of our significant accounting policies is included in Note 2
to the consolidated financial statements. Certain of these policies are
particularly sensitive, requiring significant estimates and assumptions to be
made by management. Senior management has discussed the development of such
estimates and the related disclosure in this Section of our Annual Report with
the Audit Committee of the Board of Directors. The following accounting policies
are identified by management as being critical to the results of operations:

                  ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is
         the estimated amount considered necessary to cover credit losses
         inherent in the loan portfolio at the balance sheet date. The allowance
         is established through the provision for loan losses, which is charged
         against income. In determining the allowance for loan losses,
         management makes significant estimates and has identified this policy
         as one of the most critical for us.

                  Management performs a monthly evaluation of the adequacy of
         the allowance for loan losses. Consideration is given to a variety of
         factors in establishing this estimate including, but not limited to,
         current economic conditions, delinquency statistics, geographic and
         industry concentrations, the adequacy of the underlying collateral, the
         financial strength of the borrower, results of internal loans reviews,
         the present value of future cash flows and other relevant factors. This
         evaluation is inherently subjective as it requires material estimates
         that may be susceptible to significant change.

                  The analysis has three components: specific, general and
         unallocated components. Specific allocations are made for loans that
         are determined to be impaired. Impairment is measured by determining
         the present value of expected future cash flows or, for
         collateral-dependent loans, the fair value of the collateral adjusted
         for market conditions and selling expenses. The general allocation is
         determined by segregating the remaining loans by type of loan, risk
         weighting (if applicable) and payment history. We also analyze
         historical loss experience (we currently review peer group data when
         considering this factor), delinquency trends, general economic
         conditions, geographic and industry concentrations. This analysis
         establishes factors that are applied to the loan groups to determine
         the amount of the general reserve. The unallocated component of the
         allowance reflects the margin of imprecision inherent in the underlying
         assumptions used in the methodologies for estimating specific and
         general losses in the portfolio. Actual loan losses may be
         significantly more than the reserves we have established which could
         have a material negative effect on the financial results.

                  STOCK BASED COMPENSATION. We have a Non-Qualified Stock Option
         Plan for which we follow the disclosure requirements of Financial
         Accounting Standards Board Statement No. 123, "Accounting for
         Stock-Based Compensation." Accordingly, no compensation expense has
         been recognized in our financial statements. If compensation cost for
         the plan had been recognized, net income for 2004 would have been
         reduced by $43,000, from $3,167,000 to $3,124,000, and basic earnings
         per share would have been unchanged at $0.44.

                  We calculate the compensation cost of the options using the
         Black-Scholes model to determine the fair value of the options granted
         for disclosure purposes. In calculating the fair value of the options,
         management makes assumptions regarding the risk-free rate of return,
         the expected volatility of our common stock and the expected life of
         the options.

                  OTHER THAN TEMPORARY IMPAIRMENT OF INVESTMENT SECURITIES.
         Management evaluates the individual securities in the investment
         portfolio for other than temporary impairment on at least a quarterly
         basis. The evaluation considers the length of time and the extent to
         which the fair value has been less than cost, the financial condition
         and near-term prospects of the issuer, the current interest rate cycle
         and the expected direction of interest rates in the near term horizon
         and the intent and ability of the Company to retain its investment in
         the issue for a period of time sufficient to allow for any anticipated
         recovery in fair value.

                                       5
<PAGE>

         Securities that are determined to be other than temporarily impaired
are recorded at the then current fair value and the loss is recorded in current
income. Subsequent recoveries in fair value are not recorded in the carry value
of the investment and gain is not recognized until the security is sold.

         The following discussion and analysis, the significant accounting
policies, and other financial statement disclosures identify and address key
variables and other qualitative and quantitative factors that are necessary for
an understanding and evaluation of American Bank Incorporated and its results of
operations.

INTEREST SENSITIVITY

         We monitor and manage the pricing and maturity of our assets and
liabilities in order to manage the potential adverse impact that changes in
interest rates could have on our net interest income. One monitoring technique
employed by us is the measurement of our interest sensitivity "gap," which is
the positive or negative dollar difference between assets and liabilities whose
interest rates may be repriced or which mature within a given period of time. We
also employ financial modeling techniques to assess the impact that varying
interest rates and balance sheet mix assumptions may have on net interest
income. We attempt to manage interest rate sensitivity by, among other actions,
repricing assets or liabilities, selling securities classified as
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities repricing or maturing in the same time interval helps
to control the risk and minimize the impact on net interest income of rising or
falling interest rates. We evaluate interest sensitivity and formulate
guidelines regarding asset generation and repricing, funding sources and pricing
and off-balance sheet commitments in order to manage interest rate risk within
our policy requirements.

                                       6
<PAGE>

         The following table illustrates our gap position at December 31, 2004.
Except as stated below, the amount of assets and liabilities shown which reprice
or mature during a particular period were determined in accordance with the
earlier of term to repricing or the contractual maturity of the asset or
liability. Savings deposits and demand and NOW accounts do not have contractual
maturities and are assumed to run off, or decay, at 25%, 20%, 15%, 15%, 15%, and
10% during the time-frames shown on the following table.
<TABLE>
<CAPTION>

                                                                               DECEMBER 31, 2004
                                                -----------------------------------------------------------------------------------
                                                                          MATURITIES AND REPRICINGS
                                           WITHIN                                                             OVER
                                           1 YEAR      1-2 YEARS    2-3 YEARS     3-5 YEARS    5-10 YEARS   10 YEARS       TOTAL
                                         ---------     ---------    ---------     ---------    ---------    ---------    ---------
                                                                          (DOLLARS IN THOUSANDS)

<S>                                       <C>           <C>          <C>           <C>          <C>         <C>          <C>
Interest-earning assets:
Interest bearing deposits and Federal
      funds sold ......................   $     216     $      --    $      --     $      --    $      --    $      --    $     216
Loans receivable ......................      81,648         2,880       23,632        75,651       39,699       21,090      244,600
Mortgage-backed securities ............      57,929        55,175       23,256         3,055        1,170          304      140,889
Investment securities .................      64,589        20,952        5,977         6,233          580        1,681      100,012
Restricted investments in bank stock ..       6,887            --           --            --           --           --        6,887
                                          ---------     ---------    ---------     ---------    ---------    ---------    ---------
  Total interest-earning assets .......   $ 211,269     $  79,007    $  52,865     $  84,939    $  41,449    $  23,075    $ 492,604
                                          =========     =========    =========     =========    =========    =========    =========

Interest-bearing liabilities:

Demand ................................   $  26,416     $  21,131    $  15,847     $  15,847    $  15,847    $  10,565    $ 105,653
Savings ...............................      24,141        19,314       14,486        14,486       14,486        9,657       96,570
Time ..................................      69,782        17,458       25,993        13,468           --           --      126,701
Borrowings ............................      95,239         7,613          119           115           --           --      103,086
Junior subordinated debentures ........          --            --           --            --           --       10,187       10,187
                                          ---------     ---------    ---------     ---------    ---------    ---------    ---------
  Total interest-bearing liabilities ..   $ 215,578     $  65,516    $  56,445     $  43,916    $  30,333    $  30,409    $ 442,197
                                          =========     =========    =========     =========    =========    =========    =========

Interest sensitivity gap ..............   $  (4,309)    $  13,491    $  (3,580)    $  41,023    $  11,116    $  (7,334)   $  50,407
                                          =========     =========    =========     =========    =========    =========    =========
Cumulative interest sensitivity gap ...   $  (4,309)    $   9,182    $   5,602     $  46,625    $  57,741    $  50,407    $  50,407
                                          =========     =========    =========     =========    =========    =========    =========
Ratio of gap to total assets ..........        (0.9)%         2.7%        (0.7)%         8.2%         2.2%        (1.5)%       10.0%
                                          =========     =========    =========     =========    =========    =========    =========
Ratio of cumulative gap to
      total assets ....................       (0.9)%         1.8%         1.1%          9.3%        11.5%        10.0%         10.0%
                                          =========     =========    =========     =========    =========    =========    =========
</TABLE>


                                       7
<PAGE>

         American Bank Incorporated generally would benefit from increasing
market rates of interest when it has an asset-sensitive gap and from decreasing
market rates of interest when it is liability-sensitive. As of December 31,
2004, we were liability sensitive over a time horizon of up to twelve months.
This "negative gap" of $4.3 million within such time frame resulted principally
from growth in transaction deposit accounts, six-month certificates of deposit
and stockholders' equity, resulting from the exercise of warrants, used to fund
increases in loans and securities that had similar or longer interest rate
lives. Management's goal is to continue to acquire assets with short interest
rate lives and fund those assets with liabilities that have similar interest
rate lives. This strategy will allow us to benefit or at least remain neutral
from increasing interest rates. Falling interest rates would have a positive
impact on our net interest income stream.

         A gap analysis is not a precise indicator of a financial institution's
interest sensitivity position. Such an analysis presents only a static view of
the timing of maturities and repricing opportunities without taking into
consideration that changes in interest rates do not affect all assets and
liabilities equally. For example, rates paid on a substantial portion of core
deposits may change contractually within a relatively short time frame, but
those rates are viewed by management as significantly less interest-sensitive
than market-based rates such as those paid on non-core deposits. Net interest
income is also affected by other significant factors, including changes in the
volume and mix of interest-earning assets and interest-bearing liabilities.

         We have not engaged in off-balance sheet hedges or other transactions
that may be deemed "speculative," as that term is defined by various regulatory
agencies, for the purpose of managing interest rate risk and do not intend to do
so in the foreseeable future.

AVERAGE BALANCE SHEETS

         The following table presents for the years indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax-equivalent adjustments have been
made. All average balances are daily average balances.


                                       8
<PAGE>
<TABLE>
<CAPTION>
                                                                   For the Years Ended December 31,
                                   -----------------------------------------------------------------------------------------------
                                                  2004                           2003                              2002
                                   ---------------------------    ------------------------------    ------------------------------
                                    Average    Interest            Average     Interest              Average     Interest
                                  Outstanding   Earned/  Yield/  Outstanding    Earned/    Yield/  Outstanding    Earned/     Yield/
                                    Balance      Paid     Rate     Balance       Paid       Rate     Balance       Paid       Rate
                                   --------   --------    ----    --------    --------      ----    --------    --------      ----
                                                                     (Dollars   in Thousands)
<S>                                <C>        <C>         <C>     <C>         <C>           <C>     <C>         <C>           <C>
Interest-earning assets:
Interest bearing deposits and
    federal funds sold ........... $    248   $      2    0.81%   $  5,307    $     54      1.02%   $  7,748    $    113      1.46%
Loans receivable .................  219,961     12,818    5.83     164,289       9,984      6.08     132,262       9,508      7.19
Mortgage-backed securities .......  172,676      4,804    2.78     233,866       6,534      2.79     133,011       5,538      4.16
Investment securities ............   81,071      2,949    3.64      47,134       2,485      5.27     110,005       5,132      4.67
Restricted bank stock ............    7,055        156    2.21       6,730         168      2.50       5,099         198      3.88
                                   --------   --------    ----    --------    --------      ----    --------    --------      ----
  Total interest-earning assets ..  481,011     20,729    4.31     457,326      19,225      4.20     388,125      20,489      5.28
                                   --------   --------    ----    --------    --------      ----    --------    --------      ----

Interest-bearing liabilities:
Demand ...........................  103,761      1,313    1.27      94,011       1,263      1.34      76,535       1,673      2.19
Savings ..........................  102,236      1,386    1.36      91,416       1,386      1.52      85,818       1,975      2.30
Time .............................  120,834      3,809    3.15     120,628       4,163      3.45     103,007       4,115      3.99
Borrowings .......................  103,185      4,464    4.33     105,302       4,513      4.29      93,213       4,229      4.54
Junior subordinated debentures ...   10,190        611    6.00          --          --        --          --          --        --
Mandatory redeemable .............
    convertible debentures .......       --         --      --      10,200         612      6.00       6,950         417      6.00
                                   --------   --------    ----    --------    --------      ----    --------    --------      ----
  Total interest-bearing
     liabilities .................  440,206     11,583    2.63     421,557      11,937      2.83     365,523      12,409      3.39
                                   --------   --------    ----    --------    --------      ----    --------    --------      ----

Net interest income ..............            $  9,146                        $  7,288                          $  8,080
                                              ========                        ========                          ========
Net interest rate spread .........                        1.68%                             1.37%                             1.89%
                                                          ====                              ====                              ====
Net earning assets ............... $ 40,805                       $ 35,769                          $ 22,602
                                   ========                       ========                          ========
Net yield on average
interest-earning assets ..........                       1.90%                             1.59%                             2.08%
                                                         ====                              ====                              ====
Ratio of interest-earning
assets to interest bearing
liabilities ......................  109.27%                        108.48%                           106.18%
                                  ========                       ========                          ========
</TABLE>

                                        9
<PAGE>

RATE/VOLUME ANALYSIS

         The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and those due to changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (a) changes in volume (i.e.,
changes in volume multiplied by old rate) and (b) changes in rate (i.e., changes
in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>

                                           FOR THE YEARS ENDED            FOR THE YEARS ENDED
                                              DECEMBER 31,                   DECEMBER 31,
                                             2004 V. 2003                    2003 V. 2002
                                   -----------------------------    -----------------------------
                                     INCREASE/DECREASE              INCREASE/DECREASE
                                          DUE TO           TOTAL          DUE TO          TOTAL
                                   ------------------    INCREASE/  ------------------   INCREASE/
                                    VOLUME      RATE     DECREASE    VOLUME      RATE    DECREASE
                                   -------    -------    -------    -------    -------    -------
                                                                (IN THOUSANDS)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>
Interest-earning assets:
Interest bearing deposits and
 Federal funds sold ............   $   (48)   $    (4)   $   (52)   $   (33)   $   (26)   $   (59)
Loans receivable ...............     3,275       (441)     2,834      2,060     (1,584)       476
Mortgage-backed securities .....    (1,727)        (3)    (1,730)     4,196     (3,200)       996
Investment securities ..........     1,328       (864)       464     (3,136)       489     (2,647)
Restricted bank stock ..........         8        (20)       (12)        53        (83)       (30)
                                   -------    -------    -------    -------    -------    -------
  Total interest-earning assets      2,836     (1,332)     1,504      3,140     (4,404)    (1,264)
                                   -------    -------    -------    -------    -------    -------

Interest-bearing liabilities:
Demand deposits ................       122        (72)        50        313       (723)      (410)
Savings deposits ...............       155       (155)        --        110       (699)      (589)
Time deposits ..................         7       (361)      (354)       699       (651)        48
Borrowings .....................       (91)        42        (49)       549       (265)       284
Mandatory redeemable convertible
  debentures ...................        (1)        --         (1)       195         --        195
                                   -------    -------    -------    -------    -------    -------
  Total interest-bearing
  liabilities ..................       192       (546)      (354)     1,866     (2,338)      (472)
                                   -------    -------    -------    -------    -------    -------

Net interest income ............   $ 2,644    $  (786)   $ 1,858    $ 1,274    $(2,066)   $  (792)
                                   =======    =======    =======    =======    =======    =======
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2004 AND 2003

OVERVIEW

         Total assets increased to $503.4 million at December 31, 2004 from
$482.0 million at December 31, 2003, an increase of $21.4 million, or 4.4%.
Investment securities decreased by $17.7 million, or 7.0%, to $234.4 million at
December 31, 2004 compared to $252.1 million at December 31, 2003. Loans
receivable, net, increased by $37.5 million, or 18.3%, to $242.3 million at
December 31, 2004, compared to $204.8 million at December 31, 2003. The growth
in assets was funded by an increase in deposits of $13.4 million. In addition,
stockholders' equity increased $6.9 million to $41.9 million at December 31,
2004 from $35.0 million at December 31, 2003.

LOANS

         Loans receivable, net of allowance for loan losses and deferred
origination fees and costs, were $242.3 million at December 31, 2004, an
increase of $37.5 million, or 18.3%, compared to the December 31, 2003 balance
of $204.8 million. Loans receivable represented 48.2% of total assets at
December 31, 2004, compared to 42.5% of total assets at December 31, 2003.
During 2004, we emphasized the origination of residential and commercial real
estate loans.

                                       10
<PAGE>

         Residential real estate loans increased to $72.8 million at December
31, 2004, an increase of $19.4 million, or 36.4%, compared to $53.4 million at
December 31, 2003. The increase resulted from the significant increase in
refinancing activity during 2003 and 2004 with the historically low interest
rate environment and, during 2004, the increase in the demand for housing in the
Lehigh Valley and surrounding areas. The increase in the residential real estate
loan portfolio is comprised primarily of adjustable-rate mortgage loans that
have initial interest rate locks of three to seven years, after which the loan
converts to an annual adjustment, based on the one year constant maturity
treasury note plus a margin of 275 to 300 basis points. We originated and
retained $2.1 million of fixed-rate residential mortgage loans with terms of 15
to 30 years. In addition to the residential real estate loans that were retained
in our portfolio, we originated and sold $10.8 million of fixed-rate residential
mortgage loans during 2004. At the present time management does not desire to
retain the long-term, fixed-rate residential mortgage loans in portfolio due to
the interest rate risk that is associated with these assets.

         Commercial real estate loans increased $12.1 million, or 12.5%, to
$108.7 million, compared to $96.6 million at December 31, 2003. Commercial
business loans (not secured by real estate) increased by $2.3 million, or 5.5%,
to $44.3 million at December 31, 2004, from $42.0 million at December 31, 2003.
Consumer loans increased by $3.7 million, or 24.6%, to $18.8 million at December
31, 2004, from $15.1 million at December 31, 2003.

ALLOWANCE FOR LOAN LOSSES

         We have established a systematic methodology for the determination of
provisions for loan losses. The methodology is set forth in a formal policy and
takes into consideration the need for an overall general valuation allowance as
well as specific allowances that are tied to individual loans.

         In originating loans, we recognize that losses will occur and that the
risk of loss will vary with, among other things, the type of loan being made,
the creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the collateral for
the loan.

         The general valuation allowance is maintained to cover losses inherent
in the loan portfolio. Management's periodic evaluation of the adequacy of the
allowance is based on known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral and current economic conditions, as such factors
may be applicable. Specific valuation allowances are established to absorb
losses on loans for which full collectibility cannot be reasonably assured.

         Our evaluation of the adequacy of the allowance for loan losses
includes a review of all loans on a monthly basis. For residential mortgage
loans and consumer loans, the primary factors used to determine the adequacy of
the allowance are delinquency, collateral value, general economic conditions
and, where applicable, individual borrower information that is known to us. For
commercial loans and commercial real estate loans the review includes financial
performance of the borrower, payment history, collateral value, general economic
conditions and more specific economic conditions affecting specific industries
or business activities of the borrowers within the portfolio segments.

         The amount of the general portion of the allowance for loan losses is
determined by applying loss factors to the outstanding loans in the portfolio.
The amount of the factor applied to the loans is dependent upon the type of loan
and management's assessment of the relative risk associated with that loan type.
The factors may change from time to time if conditions or events warrant such
change. American Bank commenced operations in 1997, and as of December 31, 2004
had recorded charge-offs on five loans. In addition, we have had very limited
amounts of loan delinquencies. As a result, we consider the past experience and
knowledge of management, gained at other banking institutions where they have
worked and the experience of our peer group, in determining our loss factors.

         Management maintains an allowance for loan losses that it considers
adequate based on the evaluation process that it performs on a monthly basis. As
part of this process, management considers it appropriate to maintain a portion
of the allowance that is based on credit quality trends, loan volume, current
economic trends and other uncertainties. This portion of the allowance for loan
losses is recorded as the unallocated portion.

                                       11
<PAGE>

         At December 31, 2004 and December 31, 2003, we had an allowance for
loan losses of approximately $2,768,000 and $2,412,000, respectively. Management
believes that the allowance for loan losses at December 31, 2004 was sufficient
to absorb losses inherent in the portfolio at that date. Although management
believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and the results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions we used in
making the determinations. Furthermore, while we believe we have established our
existing allowance for loan losses in accordance with accounting principles
generally accepted in the United States of America, there can be no assurance
that the Pennsylvania Department of Banking or the Board of Governors of the
Federal Reserve System, in reviewing our loan portfolio, will not request us to
increase our allowance for loan losses. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
material increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect the Company's financial
condition and results of operations.

INVESTMENT SECURITIES

         Total investment securities decreased by $17.7 million, or 7.0%, to
$234.4 million at December 31, 2004 from $252.1 million at December 31, 2003.
Investment securities classified as available for sale decreased by $15.8
million, or 6.7%, to $220.9 million, while investment securities classified as
held to maturity decreased by $1.9 million, or 12.3%, to $13.5 million. The
decrease in our portfolio of securities resulted primarily from securities being
called and from prepayments of mortgage backed securities; we used the proceeds
to fund the growth in our loan portfolio.

DEPOSITS

         Total deposits increased by $13.4 million, or 4.0%, to $345.7 million
at December 31, 2004 from the December 31, 2003 balance of $332.3 million.
Non-interest bearing demand deposits decreased $3.2 million, or 16.0%, to $16.8
million at December 31, 2004, from $20.0 million at December 31, 2003.
Interest-bearing checking accounts grew $2.5 million, or 2.4%, to $105.7
million, at December 31, 2004, compared to $103.2 million at December 31, 2003.
Savings deposits, including money market accounts, increased $6.1 million, or
6.7%, to $96.6 million at December 31, 2004, from the balance of $90.5 million
at December 31, 2003. Total certificates of deposit increased by $8.1 million,
or 6.8%, to $126.7 million from the December 31, 2003 balance of $118.6 million.
The increase in deposits resulted from our paying higher rates than our
competition on certain types of deposit accounts to attract new customers and
the related banking relationships those customers bring.

BORROWED MONEY

         Borrowed money consists of short-term overnight borrowings in the form
of securities sold under agreements to repurchase and long-term debt from the
Federal Home Loan Bank of Pittsburgh ("FHLB").

         Securities sold under agreements to repurchase totaled $7.0 million at
December 31, 2004, an increase of $100,000, or 1.5%, from the total of $ 6.9
million at December 31, 2003. These transactions generally mature in one day and
are secured by U.S. Government agency securities. This account is typically used
by commercial business customers as a way to generate interest income on funds
that would otherwise sit idle in non-interest bearing demand accounts.

         As of December 31, 2004, the amount of advances outstanding from the
FHLB was $96.1 million, a decrease of $300,000, or 0.3%, compared to the $96.4
million outstanding at December 31, 2003. The decrease resulted from the
scheduled payments of principal on certain other advances. American Bank is
subject to maximum borrowing limitations with the FHLB based, in part, on the
amount of qualifying assets American Bank holds in the form of residential
mortgage loans and U.S. Government agency securities, including mortgage backed
securities. As of December 31, 2004 American Bank's maximum borrowing capacity
was $265.9 million.

                                       12
<PAGE>

JUNIOR SUBORDINATED /MANDATORY REDEEMABLE CONVERTIBLE DEBENTURES

         On April 26, 2002, American Bank Incorporated issued $10.2 million
principal amount of 6.0% junior subordinated debentures due March 31, 2032 to
American Capital Trust I (the "Trust"). American Bank Incorporated owns all of
the common equity of the Trust. The debentures are the sole asset of the Trust.
The Trust issued $10.2 million of 6.0% cumulative convertible trust preferred
securities to investors. The trust preferred securities are callable by American
Bank Incorporated after March 31, 2007, or earlier under certain conditions. The
trust preferred securities must be redeemed at the maturity of the debentures on
March 31, 2032. Holders of the trust preferred securities may elect to convert
the preferred securities into common stock of American Bank Incorporated at any
time, at a conversion ratio of one share of common stock for each preferred
security. Preferred securities are convertible into 1,187,000 shares of common
stock at December 31, 2004. American Bank Incorporated's obligations under the
debentures and related documents, taken together, constitute a full and
unconditional guarantee by American Bank Incorporated of the Trust's obligations
under the preferred securities.

         The trust and the underlying securities are subject to Financial
Accounting Standards Board Interpretation No. 46R (FIN 46R) which provides
guidance for the consolidation of variable interest entities (VIEs). Management
determined that under the provisions of FIN 46, American Capital Trust I was
required to be de-consolidated as of March 31, 2004. After adoption of FIN 46
the junior subordinated debentures issued to the Trust continue to be reported
on the Consolidated Balance Sheets as "Long-term debt". American Bank
Incorporated's equity interest in the Trust of $315,469 (which was eliminated in
consolidation prior to adoption of FIN 46R) is reported in "Other assets".
Please refer to Note 10 to the Consolidated Financial Statements for additional
discussion of FIN 46R.

         The debentures qualify as Tier 1, or core capital of American Bank
Incorporated, subject to a 25% of capital limitation under risk-based capital
guidelines developed by the Federal Reserve Board. The portion that exceeds the
25% of capital limitation qualifies as Tier 2, or supplementary capital of
American Bank Incorporated. At December 31, 2004 the entire $10.2 million of the
debentures outstanding qualified as Tier 1 capital of American Bank
Incorporated. The Federal Reserve Board ("FRB") has indicated that the preferred
securities will continue to qualify as Tier I Capital, subject to the above
noted limitations, until further notice. Should the FRB determine that the
preferred securities no longer qualify as Tier I capital, American Bank
Incorporated has the right to call the entire issue.

STOCKHOLDERS' EQUITY

         Stockholders' equity at December 31, 2004 was $41.9 million, an
increase of $6.9 million, or 19.7%, from the December 31, 2003 balance of $35.0
million. This increase was attributable to net income of $3.2 million, shares
purchased under the Dividend Reinvestment and Optional Purchase Plan of $2.1
million, the exercise of options by option holders of $548,000 (including tax
benefits) and an increase of $1.2 million in the unrealized gain on investment
securities classified as available for sale (net of the related tax effect).
Stockholders' equity was reduced by $120,000 in cash dividends paid.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

NET INCOME

         For the year ended December 31, 2004 we reported net income of $3.2
million, or $0.44 per basic share and $0.43 per diluted share for a return on
average assets of 0.64% and a return on average equity of 8.24%. This was an
increase of $530,000, or 20.1%, over net income of $2.6 million for the year
ended December 31, 2003, or $0.41 per basic and $0.39 per diluted share. The
increase in net income was primarily the result of an increase of $1.9 million
in net interest income, partially offset by a decrease of $759,000 of
non-interest income and increases of $324,000 of non-interest expense and
$257,000 of taxes on income.

                                       13
<PAGE>

NET INTEREST INCOME

         Net interest income, which is the sum of interest and certain loan
origination fees generated by interest-earning assets minus interest paid on
deposits and other funding sources, is the principal source of our earnings. Net
interest income increased by $1.9 million or 26.0%, to $9.2 million for the year
ended December 31, 2004, as compared to $7.3 million for the year ended December
31, 2003. Average interest-earning assets grew to $481.0 million for the year
ended December 31, 2004, an increase of $23.7 million, or 5.2%, as compared to
the average of $457.3 million for the year ended December 31, 2003. Average
interest-bearing liabilities grew to $440.2 million for the year ended December
31, 2004, an increase of $18.6 million, or 4.4%, compared to the average of
$421.6 million for the year ended December 31, 2003. The yield on average
interest-earning assets was 4.31% for the year ended December 31, 2004, an
increase of 11 basis points from the yield of 4.20% for the year ended December
31, 2003. The increase in the yield on earning assets resulted from level to
modestly rising interest rates and the American Bank Incorporated's continued
efforts to increase the size of the loan portfolio as a percent of total assets.
The cost of funds was 2.63% for the year ended December 31, 2004, a decrease of
20 basis points from the cost of 2.83% for the year ended December 31, 2003. The
decrease in the cost of funds results from the historically low interest rate
environment. Our strategy is to price fixed maturity and non-maturity deposits
in the top 5% of financial institutions nationwide. As interest rates have
fallen and remained low our cost of funds has declined accordingly. As a result
our net interest margin (net interest income as a percentage or average
interest-earning assets) increased 31 basis points, to 1.90%, for the year ended
December 31, 2004, as compared to 1.59%, for the year ended December 31, 2003.

PROVISION FOR LOAN LOSSES

         Management records a provision for loan losses in amounts that result
in an allowance for loan losses that management believes is sufficient to absorb
losses inherent in the loan portfolio. Management's evaluation includes such
factors as past loan loss experience, economic conditions, delinquency
statistics and re-evaluation of the credit quality of the loans in the
portfolio. During the year ended December 31, 2004, the provision for loan
losses amounted to $393,000, a decrease of $12,000, or 3.0%, from the $405,000
provision for the year ended December 31, 2003. The increase in the provision in
the current year was primarily the result of the increase in loans outstanding.
During January of 2003, we recovered $250,000 of a loan charged-off in the prior
year. At December 31, 2004, the allowance for loan losses as a percentage of
outstanding loans was 1.13%, as compared to 1.16% at December 31, 2003.
Management considers the allowance for loan losses at December 31, 2004 to be
adequate for the inherent risks of loss in its loan portfolio at that date.

NON-INTEREST INCOME

         Total non-interest income for the year ended December 31, 2004 was
$1,242,000, a decrease of $759,000, or 37.9%, compared to $2,001,000 for the
year ended December 31, 2003. Service charges on deposit accounts increased to
$207,000 for the year 2004, compared to $165,000 for the year 2003. The increase
of $42,000, or 25.5%, was the result of increases in the number of deposit
accounts and increases in the fees charged for certain services connected with
those accounts. Net realized gains on sale of loans decreased $279,000, or
69.6%, to $122,000 in 2004 compared to $401,000 in 2003. The decrease resulted
from a lower volume of residential real estate loans originated and sold,
primarily the result of the leveling of and then modest increasing of interest
rates during the year 2004. Net realized gains on the sale of securities totaled
$334,000 for the year ended December 31, 2004, compared to $862,000 for year
2003. The net realized gains on sales of securities for the years ended December
31, 2004 and 2003, resulted from management's desire and ability to reposition
the securities portfolio to achieve interest rate risk objectives. Other
non-interest income, comprised primarily of income from automated teller machine
fees, safe deposit box rental fees, wire transfer fees and sales of checks and
checkbooks decreased $25,000, or 9.8%, to $230,000 for year ended December 31,
2004, compared to $255,000 for the year ended December 30, 2003. The decreases
in these fees were due to lower volumes of foreign ATM transactions and slower
sales of checks and checkbooks. The increase in the carrying value of bank-owned
life insurance included in income for the year ended December 31, 2004, was
$349,000, compared to $318,000 for the year ended December 31, 2003. The
increase in earnings for 2004 was due to a larger amount of insurance owned and
higher crediting rates.

                                       14
<PAGE>

NON-INTEREST EXPENSE

         Non-interest expense for the year ended December 31, 2004 increased
$324,000, or 6.4%, to $5,435,000, as compared to $5,111,000 for the year ended
December 31, 2003. Our efficiency ratio (non-interest expense divided by the sum
of net interest income and non-interest income) improved to 52.3% for the year
ended December 31, 2004, as compared to 55.0% for the year ended December 31,
2003. Salaries and wages for the year ended December 31, 2004 totaled $1.8
million, an increase of $107,000, or 6.3%, as compared to salaries and wages for
the year ended December 31, 2003, primarily the result of an increase of two
employees and merit based pay raises. Employee benefit costs increased by
$69,000, compared to 2003, most notably from increases in group medical
insurance premiums. Net occupancy expense of $815,000 represented an increase of
$31,000, or 4.0%, compared to the prior year, due to scheduled increases in base
rents provided for in our lease agreements, an increase in the amount of space
rented and increased utility costs. Marketing and business development costs
increased $28,000 due largely to increases in advertising expense. Loan
origination and product management expense decreased $23,000, or 6.4%, to
$338,000 for the year ended December 31, 2004 from $361,000 for the year ended
December 31, 2003, primarily the result of the slow-down in residential mortgage
refinancing activity during the current year. Professional fees increased by
$102,000, or 50.8%, to $303,000 for the year ended December 31, 2004, compared
to $201,000 for the year ended December 31, 2003 primarily from legal,
accounting and consulting fees paid in connection with the Dividend Reinvestment
and Optional Purchase Plan that was established in 2004 and from legal fees
associated with certain trademark and fictitious name filings. Pennsylvania bank
shares tax increased $36,000, to $212,000, the result of a higher amount of
capital subject to tax in 2004 compared to 2003.

INCOME TAX EXPENSE

         Income tax expense for the year ended December 31, 2004, amounted to
$1,393,000, an increase of $257,000 from the $1,136,000 incurred for the year
ended December 31, 2003, due primarily to the increase in pretax income. Our
effective tax rate for the year 2004 was 30.6%, as compared to 30.1% for the
year 2003. The benefit realized from income with preferential tax treatment was
less in 2004 than in 2003 due to income subject to preferential tax treatment
being less in 2004 than in 2003.

CAPITAL RESOURCES AND LIQUIDITY

         Our liquidity management objectives are to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for expansion. Liquidity management addresses the ability to meet
deposit account withdrawals on demand or at contractual maturity, to repay
borrowings as they mature, and to fund new loans and investments as
opportunities arise. Our primary sources of internally generated funds are
principal and interest payments on loans receivable, cash flows generated from
operations, and cash flows generated by investments. External sources of funds
include increases in deposits and advances from the Federal Home Loan Bank of
Pittsburgh.

         We monitor our liquidity position on an on-going basis and report
regularly to the Board of Directors the level of liquidity as compared to
minimum levels established by Board policy. As of December 31, 2004, our level
of liquidity was in excess of the minimum established by Board policy.

         American Bank Incorporated is subject to various regulatory capital
adequacy requirements promulgated by the Pennsylvania Department of Banking and
the Board of Governors of the Federal Reserve System. Failure to meet minimum
capital requirements can result in certain mandatory and, possibly, additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on our financial condition and results of operations. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, American Bank must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices.

         Quantitative measures established by regulation to ensure capital
adequacy require American Bank Incorporated and American Bank to maintain
minimum amounts and ratios (set forth in the tables below) of Total and Tier 1
capital to risk-weighted assets and Tier 1 capital to average assets. As of
December 31, 2004, American Bank Incorporated and American Bank exceeded all
applicable capital adequacy requirements.

                                       15
<PAGE>

         At December 31, 2004, American Bank's actual and required minimum
capital ratios were as follows:
<TABLE>
<CAPTION>
                                                                   REQUIRED FOR CAPITAL  REQUIRED TO BE CONSIDERED
                                                       ACTUAL        ADEQUACY PURPOSES      "WELL CAPITALIZED"
                                                  ---------------   -------------------  -------------------------
                                                  AMOUNT   PERCENT  AMOUNT    PERCENT        AMOUNT    PERCENT
                                                  -------   -----   -------   -------        -------   -------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                               <C>       <C>     <C>        <C>           <C>        <C>
As of December 31, 2004:
Total Capital (to risk weighted assets) ........  $43,267   14.33%  $24,161    8.00%         $30,201    10.00%
Tier I Capital (to risk weighted assets) .......   40,491   13.41    12,080    4.00           18,121     6.00
Tier I Capital (to average assets) .............   40,491    8.14    19,895    4.00           24,869     5.00
</TABLE>

         At December 31, 2004, American Bank Incorporated's actual and required
minimum capital ratios were as follows:
<TABLE>
<CAPTION>

                                                                          REQUIRED FOR CAPITAL
                                                         ACTUAL             ADEQUACY PURPOSES
                                              ------------------------    ---------------------
                                                 AMOUNT         PERCENT     AMOUNT       PERCENT
                                              ----------         -----    ---------        ----
                                                         (DOLLARS IN THOUSANDS)
<S>                                           <C>                <C>      <C>              <C>
As of December 31, 2004:
Total Capital (to risk weighted assets) ..... $   54,133         17.50%   $  24,973        8.00%
Tier I Capital (to risk weighted assets) ....     50,828         16.28       12,486        4.00
Tier I Capital (to average assets) ..........     50,828          9.98       20,365        4.00
</TABLE>

         American Bank Incorporated's consolidated financial statements do not
reflect various commitments that are made in the normal course of business,
which may involve some liquidity risk. These commitments consist mainly of
unfunded loans and letters of credit made under the same standards as on-balance
sheet instruments. Unused commitments at December 31, 2004 totaled $58.7
million. This consisted of $7.9 million in commitments to fund commercial
business, commercial real estate, residential real estate and commercial and
residential construction loans, $44.7 million under lines of credit, including
$5.1 million in home equity lines of credit and $6.1 million in standby letters
of credit. Because these commitments have a fixed maturity date and because many
of them will expire without being drawn upon, they do not generally present any
significant liquidity risk to American Bank Incorporated.

         Management believes that any amounts actually drawn upon can be funded
in the normal course of operations. American Bank Incorporated has no investment
in or financial relationship with any unconsolidated entities that are
reasonably likely to have a material effect on liquidity or the availability of
capital resources.

CONTRACTUAL OBLIGATIONS AND CAPITAL RESOURCES

         The following table represents American Bank Incorporated's aggregate
on- and off-balance sheet contractual obligations to make future payments as of
December 31, 2004.

<TABLE>
<CAPTION>
                                           DUE AFTER       DUE AFTER
                                          DECEMBER 31,    DECEMBER 31,
                            DUE BY        2005 THROUGH    2007 THROUGH     DUE AFTER
                          DECEMBER 31,     DECEMBER 31,    DECEMBER 31,  DECEMBER 31,
                             2005            2007            2009            2009            TOTAL
                           --------        --------        --------        --------        --------
                                                       (IN THOUSANDS)
<S>                        <C>             <C>             <C>             <C>             <C>
Time deposits ...........  $ 69,782        $ 43,451        $ 13,468        $   --          $126,701
Short-term debt .........     6,991            --              --              --             6,991
Long-term debt ..........       248          15,232           3,115          77,500          96,095
Junior subordinated
debentures ..............      --              --              --            10,187          10,187
Operating leases ........       372             729            --              --             1,101
                           --------        --------        --------        --------        --------
  Total .................  $ 77,393        $ 59,412        $ 16,583        $ 87,687        $241,075
                           ========        ========        ========        ========        ========
</TABLE>

                                       16
<PAGE>

         American Bank Incorporated is not aware of any known trends or any
known demands, commitments, events or uncertainties which would result in any
material increase or decrease in liquidity.

         The greater the capital resources, the more likely we will be able to
meet our cash obligations and unforeseen expenses. Stockholders' equity at
December 31, 2004 totaled $41.9 million, an increase of $6.9 million over $35.0
million at December 31, 2003. The increase was the result of net income of $3.2
million, net proceeds from the DRIP of $2.0 million, the exercise of options by
option holders of $548,000 and an increase in the unrealized gain on investment
securities classified as available for sale (net of the related tax effect) of
$1.2 million.

ASSET QUALITY

NON-PERFORMING ASSETS AND DELINQUENCIES

         When a borrower fails to make a required payment on a loan, we attempt
to cure the deficiency by contacting the borrower and seeking the payment. Late
notices are mailed no more than 16 days after the payment is due. In most cases,
deficiencies are cured promptly. If a delinquency continues, additional contact
is made through written notice and direct contact from an assigned account
officer. American Bank will remain in continual contact with the borrower and,
if needed, will attempt to work out a payment schedule acceptable to us and the
borrower. While we generally prefer to work with borrowers to resolve such
problems, we will institute foreclosure or other proceedings, as necessary, to
minimize any potential loss.

         Loans are generally placed on non-accrual status if, in the opinion of
management, principal or interest payments are not likely to be made in
accordance with the terms of the loan agreement, or when principal or interest
is past due more than 90 days. Interest accrued but not collected at the date
the loan is placed on non-accrual status is reversed against income in the
current period. Loans may be reinstated to accrual status when payments are less
than 90 days past due and, in the opinion of management, collection of the
remaining balance can be reasonably expected. The Board of Directors is informed
monthly of the status of all loans delinquent more than 15 days.

         At December 31, 2004, we had no loans delinquent more than 30 days. At
that date we had four loans classified as non-performing or non-accrual, and no
assets acquired in settlement of loans. During the year ended December 31, 2004,
we recorded charge-offs on three loans. One of the loans was unsecured and
written off. The other two loans are secured by real estate and currently in the
process of foreclosure. We classified both loans as impaired and recorded a loss
of $39,000 to write the loans down to the estimated net realizable value. During
the year we recovered $2,000 of loans charged-off in previous years.

REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

         Real estate acquired by American Bank as a result of foreclosure or by
deed in lieu of foreclosure would be classified as real estate acquired in
settlement of loans until sold. At December 31, 2004 and 2003, we had no real
estate acquired in settlement of loans.

RESTRUCTURED LOANS

         Under accounting principles generally accepted in the United States of
America ("GAAP"), American Bank is required to account for certain loan
modifications or restructurings as "troubled debt restructurings." In general,
the modification or restructuring of a debt constitutes a troubled debt
restructuring if American Bank, for economic or legal reasons related to the
borrower's financial difficulties, grants a concession to the borrower that we
would not otherwise consider. Debt restructurings or loan modifications for a
borrower do not necessarily always constitute troubled debt restructurings and
troubled debt restructurings do not necessarily result in non-accrual loans. We
had no restructured loans as of December 31, 2004.

                                       17
<PAGE>

ASSET CLASSIFICATION

         The Pennsylvania Department of Banking and Board of Governors of the
Federal Reserve System have adopted various regulations regarding problem assets
of banking institutions. The regulations require that each insured institution
review and classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, regulatory examiners have authority
to identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: "Substandard," "Doubtful,"
and "Loss." "Substandard" assets have one or more defined weaknesses and are
characterized by the distinct possibility that we will sustain some loss if the
deficiencies are not corrected. "Doubtful" assets have the weaknesses of
"Substandard" assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions, and values questionable, and there is a high probability of loss,
although the amount of such loss may not be determinable at such time. An asset
classified as "Loss" is considered uncollectible and of such little value that
continuance as an asset of American Bank is not warranted. If an asset or
portion thereof is classified as "Loss", we must establish a specific allowance
for loss for the amount of the portion of the asset classified as "Loss." All or
a portion of general loan loss allowances established to cover possible losses
related to assets classified "Substandard" or "Doubtful" can be included in
determining our regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose us to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are designated as "Special
Mention" and monitored by us.

         At December 31, 2004, the aggregate amount of our assets classified as
"Special Mention" and "Substandard" were $1,709,000 and $160,000, respectively.
No assets were classified as "Doubtful," and $39,000 assets were classified as
"Loss."

IMPACT OF NEW ACCOUNTING STANDARDS

         In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123(R), "Share-Based Payment." Statement No. 123(R) revised
Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. Statement No. 123(R) will require compensation costs
related to share-based payment transactions to be recognized in the financial
statements (with limited exceptions). The amount of compensation cost will be
measured based on the grant-date fair value of the equity or liability
instruments issued. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award. This statement is effective
as of the beginning of the first interim or annual reporting period that begins
after June 15, 2005. American Bank Incorporated is currently evaluating the
impact from this standard on its results of operations and financial position.

         In March 2004, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 105, "Application of Accounting Principles to
Loan Commitments." SAB 105 provides guidance about the measurements of loan
commitments recognized at fair value under FASB Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SAB 105 also requires
companies to disclose their accounting policy for those loan commitments
including methods and assumptions used to estimate fair value and associated
hedging strategies. SAB 105 is effective for all loan commitments accounted for
as derivatives that are entered into after March 31, 2004. The adoption of SAB
105 did not have a material effect on our consolidated financial statements.

         In December 2003, the Accounting Standards Executive Committee issued
Statement of Position 03-3 ("SOP 03-3"), "Accounting for Certain Loans or Debt
Securities Acquired in a Transfer." SOP 03-3 addresses accounting for
differences between contractual cash flows and cash flows expected to be
collected from an investor's initial investment in loans or debt securities
acquired in a transfer, including business combinations, if those differences
are attributable, at least in part, to credit quality. SOP 03-3 is effective for
loans or debt securities acquired in fiscal years beginning after December 15,
2004. American Bank Incorporated intends to adopt the provisions of SOP 03-3
effective January 1, 2005, and does not expect the initial implementation to
have a material effect on the consolidated financial statements.

                                       18
<PAGE>

IMPACT OF INFLATION AND CHANGING PRICES

         The consolidated financial statements and related notes of American
Bank Incorporated have been prepared in accordance with GAAP. GAAP generally
requires the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of our operations. Unlike industrial companies, our assets
and liabilities are primarily monetary in nature. As a result, changes in market
interest rates have a greater impact on performance than the effects of
inflation.

                        COMMON STOCK AND RELATED MATTERS

         We began paying a cash dividend to shareholders in March 2004. Payment
of dividends on American Bank Incorporated's common stock is subject to
determination and declaration by the Board of Directors and depends upon a
number of factors, including capital requirements, regulatory limitations on the
payment of dividends, American Bank Incorporated's results of operations and
financial condition, tax considerations and general economic conditions. No
assurance can be given that cash dividends will continue to be declared and paid
or, if declared, what the amount of dividends will be.

         Our common stock is listed for trading on the Nasdaq SmallCap Market
under the symbol "AMBK." As of March 18, 2005, we had seven registered market
makers, 725 stockholders of record (excluding the number of persons or entities
holding stock in street name through various brokerage firms), and 7,539,249
shares outstanding.

         The following tables set forth market price and dividend information
for the common stock for the last two fiscal years.

YEAR ENDED DECEMBER 31, 2004       HIGH         LOW      CASH DIVIDENDS DECLARED
----------------------------    ---------    --------    -----------------------
Fourth Quarter                  $    9.25    $   8.25           $--
Third Quarter                        9.75        8.12            --
Second Quarter                      11.43        8.61            --
First Quarter                       13.75        8.61          0.10

YEAR ENDED DECEMBER 31, 2003       HIGH         LOW      CASH DIVIDENDS DECLARED
----------------------------    ---------    --------    -----------------------
Fourth Quarter                  $    9.95    $   7.50           $--
Third Quarter                        9.15        7.55            --
Second Quarter                      10.06        7.30            --
First Quarter                        9.96        9.00            --

                                       19

<PAGE>

BEARD MILLER
COMPANY LLP
--------------------------------------------
Certified Public Accountants and Consultants




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
American Bank Incorporated
Allentown, Pennsylvania

         We have audited the accompanying consolidated balance sheets of
American Bank Incorporated and its subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

         We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Bank Incorporated and its subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

                                          /s/ Beard Miller Company LLP
                                          -------------------------------------
Reading, Pennsylvania
March 4, 2005

                                      F-1
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                               2004          2003
                                                            ---------     ---------
                                                             (Dollars in Thousands,
                                                             Except per Share Data)
<S>                                                         <C>           <C>
ASSETS
   Cash and due from banks                                  $   6,510     $   4,623
   Interest bearing deposit with bank                             216           237
                                                            ---------     ---------

       Cash and Cash Equivalents                                6,726         4,860

   Securities available for sale                              220,911       236,746
   Securities held to maturity, fair value 2004 $13,886;
      2003 $15,584                                             13,480        15,361
   Loans receivable, net of allowance for loan losses
      2004 $2,768; 2003 $2,412                                242,348       204,832
   Restricted investments in bank stocks                        6,887         6,994
   Bank owned life insurance                                    8,527         8,178
   Premises and equipment, net                                  1,462         1,808
   Accrued interest receivable                                  2,122         1,973
   Other assets                                                   973         1,240
                                                            ---------     ---------

       TOTAL ASSETS                                         $ 503,436     $ 481,992
                                                            =========     =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

   Deposits:
      Non-interest bearing                                  $  16,808     $  19,964
      Interest-bearing                                        328,924       312,322
                                                            ---------     ---------

       Total Deposits                                         345,732       332,286
   Securities sold under agreements to repurchase               6,991         6,909
   Long-term debt                                              96,095        96,357
   Junior subordinated debentures                              10,187            --
   Mandatory redeemable convertible debentures                     --        10,200
   Accrued interest payable                                       646           629
   Other liabilities                                            1,875           648
                                                            ---------     ---------

       TOTAL LIABILITIES                                      461,526       447,029
                                                            ---------     ---------

STOCKHOLDERS' EQUITY

   Preferred stock, par value $.10 per share; authorized           --            --
      5,000,000 shares; issued and outstanding -0- shares
   Common stock, par value $.10 per share; authorized
      15,000,000 shares; issued and outstanding 2004
      7,223,102 shares; 2003 6,807,279 shares                     722           681
   Paid-in capital                                             32,720        29,489
   Unallocated ESOP shares, at cost                              (118)         (117)
   Retained earnings                                            7,336         4,853
   Accumulated other comprehensive income                       1,250            57
                                                            ---------     ---------

       TOTAL STOCKHOLDERS' EQUITY                              41,910        34,963
                                                            ---------     ---------

       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITy           $ 503,436     $ 481,992
                                                            =========     =========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                       F-2
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                   ------------------
                                                                     2004       2003
                                                                   -------    -------
                                                                 (DOLLARS IN THOUSANDS,
                                                                 EXCEPT PER SHARE DATA)

INTEREST INCOME
<S>                                                                <C>        <C>
   Loans receivable, including fees                                $12,818    $ 9,984
   Securities, taxable                                               7,909      9,187
   Interest-bearing deposit with bank                                    2         27
   Securities purchased under agreement to resell                       --         27
                                                                   -------    -------

       TOTAL INTEREST INCOME                                        20,729     19,225
                                                                   -------    -------

INTEREST EXPENSE

   Deposits                                                          6,508      6,812
   Short-term debt                                                      55         57
   Long-term debt                                                    4,409      4,456
   Junior subordinated debentures                                      611         --
   Mandatory redeemable convertible debentures                          --        612
                                                                   -------    -------

       TOTAL INTEREST EXPENSE                                       11,583     11,937
                                                                   -------    -------

       NET INTEREST INCOME                                           9,146      7,288

PROVISION FOR LOAN LOSSES                                              393        405
                                                                   -------    -------

       NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES           8,753      6,883
                                                                   -------    -------

OTHER INCOME

   Service fees                                                        207        165
   Net realized gains on sale of residential mortgage loans            122        401
   Net realized gains on sales of securities available for sale        334        862
   Earnings on bank owned life insurance                               349        318
   Other                                                               230        255
                                                                   -------    -------

       TOTAL OTHER INCOME                                            1,242      2,001
                                                                   -------    -------

OTHER EXPENSES

   Salaries and wages                                                1,807      1,700
   Employee benefits                                                   482        413
   Occupancy                                                           815        784
   Equipment and data processing                                       676        697
   Marketing and business development                                  171        143
   Loan origination and product management                             338        361
   Professional services                                               303        201
   Pennsylvania bank shares tax                                        212        176
   Other                                                               631        636
                                                                   -------    -------

       TOTAL OTHER EXPENSES                                          5,435      5,111
                                                                   -------    -------

       INCOME BEFORE INCOME TAXES                                    4,560      3,773

INCOME TAXES                                                         1,393      1,136
                                                                   -------    -------

       NET INCOME                                                  $ 3,167    $ 2,637
                                                                   =======    =======
NET INCOME PER COMMON SHARE

   Basic                                                           $  0.44    $  0.41
                                                                   =======    =======

   Diluted                                                         $  0.43    $  0.39
                                                                   =======    =======
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                       F-3

<PAGE>

AMERICAN BANK INCORPORATED
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2004 and 2003
<TABLE>
<CAPTION>
                               SHARES OF                                                   ACCUMULATED
                                 COMMON                           UNALLOCATED                 OTHER
                                 STOCK      COMMON      PAID-IN      ESOP       RETAINED   COMPREHENSIVE
                                 ISSUED     STOCK       CAPITAL     SHARES      EARNINGS      INCOME        TOTAL
                               ---------   ---------   ---------   ---------    ---------    ---------    ---------
                                                             (Dollars in Thousands)

<S>                            <C>         <C>         <C>         <C>          <C>          <C>          <C>
BALANCE - DECEMBER 31, 2002    6,077,827   $     608   $  24,614   $    (139)   $   2,216    $   1,294    $  28,593
                                                                                                          ---------
Comprehensive income:
    Net income                        --          --          --          --        2,637           --        2,637
    Net change in unrealized
      gains on securities
      available for sale,
      net of reclassification
      adjustment and tax effect       --          --          --          --           --       (1,237)      (1,237)
                                                                                                          ---------
    Total Comprehensive Income                                                                                1,400
                                                                                                          ---------
Allocation of shares by ESOP
    Trust                             --          --           7          22           --           --           29
Exercise of stock options         12,000           1         165          --           --           --          166
Exercise of stock warrants       717,452          72       4,703          --           --           --        4,775
                               ---------   ---------   ---------   ---------    ---------    ---------    ---------
BALANCE - DECEMBER 31, 2003    6,807,279         681      29,489        (117)       4,853           57       34,963
                                                                                                          ---------
Comprehensive income:
    Net income                        --          --          --          --        3,167           --        3,167
    Net change in unrealized
      gains on securities
      available for sale,
      net of reclassification
      adjustment and tax effect       --          --          --          --           --        1,193        1,193
                                                                                                          ---------
    Total Comprehensive Income                                                                                4,360
                                                                                                          ---------
Purchase of shares by ESOP            --          --          --         (22)          --           --          (22)
Allocation of shares by ESOP
    Trust                             --          --          --          21           --           --           21
Dividends declared                    --          --          --          --         (684)          --         (684)
Dividends reinvested              68,163           7         557          --           --           --          564
Optional purchase through
DRIP                             259,654          26       2,121          --           --           --        2,147
Conversion of trust
preferred
    securities                     1,506          --          13          --          --           --            13
Exercise of stock options         86,500           8         540          --           --           --          548
                               ---------   ---------   ---------   ---------    ---------    ---------    ---------
BALANCE - DECEMBER 31, 2004    7,223,102   $     722   $  32,720   $    (118)   $   7,336    $   1,250    $  41,910
                               =========   =========   =========   =========    =========    =========    =========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                       F-4

<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                                 ----------------------
                                                                                    2004        2003
                                                                                 ---------    ---------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                                              <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                    $   3,167    $   2,637
   Adjustments to reconcile net income to net cash provided by operating
      activities:
         Provision for loan losses                                                     393          405
         Depreciation and amortization                                                 595          627
         Proceeds from sale of residential mortgage loans held for sale             10,939       25,394
         Net realized gains on sale of loans                                          (122)        (401)
         Originations of residential mortgage loans held for sale                  (10,817)     (24,993)
         Net amortization of securities premiums and discounts                       1,866        2,481
         Net realized gains on sales of securities                                    (334)        (862)
         Deferred tax expense (benefit)                                                201         (197)
         Income tax benefit on stock options exercised                                 140           99
         Earnings on bank owned life insurance                                        (349)        (318)
         Allocation of ESOP shares                                                      21           29
         (Increase) decrease in accrued interest receivable and other assets          (697)       1,100
         Increase (decrease) in accrued interest payable and other liabilities       1,244         (728)
                                                                                 ---------    ---------
         NET CASH PROVIDED BY OPERATING ACTIVITIES                                   6,247        5,273
                                                                                 ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
   Securities available for sale:
      Purchases                                                                   (109,201)    (155,676)
      Maturities and principal repayments                                          115,826      174,291
      Sales                                                                          9,560       17,768
   Securities held to maturity:
      Purchases                                                                     (1,576)     (12,626)
      Maturities and principal repayments                                            3,382       10,678
   Net increase in loans receivable                                                (37,909)     (70,311)
   Purchase of bank owned life insurance                                              --         (2,000)
   Purchases of premises and equipment                                                (249)        (182)
   (Purchase) redemption of restricted investments in bank stocks                      107         (863)
                                                                                 ---------    ---------
         NET CASH USED IN INVESTING ACTIVITIES                                     (20,060)     (38,921)
                                                                                 ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES

   Net increase in demand and savings deposits                                       5,383       22,894
   Net increase in time deposits                                                     8,063        2,641
   Net increase (decrease) in securities sold under agreements to repurchase            82         (875)
   Repayments on long-term debt                                                       (262)      (1,434)
   Issuance of common stock                                                          2,711        4,842
   Proceeds from exercise of stock options                                             408           --
   Dividends paid                                                                     (684)          --
   Purchase of common stock, ESOP Trust                                                (22)          --
                                                                                 ---------    ---------
         NET CASH PROVIDED BY FINANCING ACTIVITIES                                  15,679       28,068
                                                                                 ---------    ---------
         NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        1,866       (5,580)

CASH AND CASH EQUIVALENTS - BEGINNING                                                4,860       10,440
                                                                                 ---------    ---------
CASH AND CASH EQUIVALENTS - ENDING                                               $   6,726    $   4,860
                                                                                 =========    =========
SUPPLEMENTARY CASH FLOWS INFORMATION
   Interest paid                                                                 $  11,566    $  12,010
                                                                                 =========    =========
   Income taxes                                                                  $     810    $   1,140
                                                                                 =========    =========
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                       F-5

<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

American Bank Incorporated (the "Company") was formed in August 2001. On January
2, 2002, American Bank Incorporated acquired all the outstanding shares of
American Bank (the "Bank"), a full service Bank. This transaction was completed
in accordance with an Agreement and Plan of Reorganization (the "Plan") approved
and adopted by the Bank's Board of Directors on March 20, 2001 and the Bank's
shareholders on April 17, 2001. Pursuant to the Plan, the outstanding shares of
common stock of the Bank became, by operation of law on a one-for-one basis,
common stock, par value $.10 per share, of the Company. As a result of this
transaction, the consolidated financial statements include the accounts of
American Bank Incorporated and its wholly-owned subsidiary, American Bank.
American Bank's trust subsidiary, American Capital Trust I, is the trust formed
for the purpose of issuing the mandatory redeemable debentures on behalf of the
Company (for additional information, see Note 10). All material intercompany
transactions have been eliminated. The Company is subject to regulation and
supervision by the Federal Reserve Bank.

The Bank was incorporated September 3, 1996 under the laws of the Commonwealth
of Pennsylvania and is a Pennsylvania state chartered bank. The Bank commenced
operations on June 5, 1997 and provides full banking services. The Bank is
subject to regulation of the Pennsylvania Department of Banking and the Federal
Reserve Bank.

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

ESTIMATES

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates. Material estimates that are
     particularly susceptible to significant in the near term relate to the
     determination of the allowance for loan losses and the valuation of
     deferred tax assets.

SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

     The Bank maintains its principal office in Allentown, Pennsylvania and its
     local service area includes Lehigh and Northampton counties, along with
     portions of Berks, Bucks and Montgomery counties, in Pennsylvania. The Bank
     also offers internet banking services on a national basis to United States
     citizens regardless of geographic location. Note 4 discusses the types of
     securities that the Company invests in. Note 5 discusses the types of
     lending that the Company engages in. The Company does not have any
     significant concentrations to any one industry or customer. Although the
     Company has a diversified loan portfolio, its debtors' ability to honor
     their contracts is influenced by their local economy.

PRESENTATION OF CASH FLOWS

     For purposes of reporting cash flows, cash and cash equivalents include
     cash on hand, amounts due from banks, federal funds sold, securities
     purchased under agreement to resell and interest-bearing deposits with
     bank. Generally, federal funds and securities purchased under agreement to
     resell are purchased and sold for one day periods.


--------------------------------------------------------------------------------
                                      F-6
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

SECURITIES

     Management determines the appropriate classification of debt securities at
     the time of purchase and re-evaluates such designation as of each balance
     sheet date.

     Securities classified as available for sale are those securities that the
     Company intends to hold for an indefinite period of time but not
     necessarily to maturity. Securities available for sale are carried at fair
     value. Unrealized gains or losses are included in other comprehensive
     income, net of the related deferred tax effect. Realized gains or losses,
     determined on the basis of the cost of the specific securities sold, are
     included in earnings. Premiums and discounts are recognized in interest
     income using the interest method over the terms of the securities.

     Securities classified as held to maturity are those debt securities the
     Company has both the intent and ability to hold to maturity regardless of
     changes in market conditions, liquidity needs or changes in general
     economic conditions. These securities are carried at cost adjusted for the
     amortization of premium and accretion of discount, computed by the interest
     method over the terms of the securities.

     Declines in the fair value of held-to-maturity and available-for-sale
     securities below their cost that are deemed to be other than temporary are
     reflected in earnings as realized losses. In estimating other than
     temporary impairment losses, management considers (1) the length of time
     and the extent to which the fair value has been less than cost, (2) the
     financial condition and near term prospects of the issuer and (3) the
     intent and ability of the Company to hold the security until its
     anticipated recovery in fair value. Gains and losses on the sale of
     securities are recorded n the trade date and are determined using the
     specific identification method.

RESIDENTIAL MORTGAGE LOANS HELD FOR SALE

     Residential mortgage loans originated and intended for sale in the
     secondary market are carried at the lower of cost or estimated market value
     in the aggregate. Net unrealized losses, if any, are recognized through a
     valuation allowance by a charge against income. Gains and losses on sales
     of loans held for sale are included in other income. Servicing rights are
     not retained on residential mortgage loans sold. There were no loans held
     for sale at December 31, 2004 and 2003.

PURCHASED MORTGAGE LOANS

     The Company records its investment in purchased mortgage loans at cost. The
     related premium or discount is recognized over the life of the purchased
     loan and is included as part of interest income. Principal is reduced as
     payments are received. The Company evaluates the realization of such loans
     when determining the allowance for loan losses.

LOANS RECEIVABLE

     Loans that management has the intent and ability to hold for the
     foreseeable future or until maturity or pay-off generally are stated at
     their outstanding unpaid principal balances, net of any deferred fees or
     costs on originated loans. Interest income is accrued on the unpaid
     principal balance. Loan origination fees, net of certain direct origination
     costs, are deferred and recognized as an adjustment of the yield (interest
     income) of the related loans. The Company is generally amortizing these
     amounts over the contractual life of the loan.


--------------------------------------------------------------------------------
                                      F-7
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

LOANS RECEIVABLE (CONTINUED)

     The accrual of interest is discontinued when the contractual payment of
     principal or interest has become 90 days past due unless the credit is well
     secured and in the process of collection, or management has serious doubts
     about further collectibility of principal or interest, even though the loan
     is currently performing. When a loan is placed on nonaccrual status, unpaid
     interest credited to income in the current year is reversed and unpaid
     interest accrued in prior years is charged against the allowance for loan
     losses. Interest received on nonaccrual loans generally is either applied
     against principal or reported as interest income, according to management's
     judgment as to the collectibility of principal. Generally, loans are
     restored to accrual status when the obligation is brought current, has
     performed in accordance with the contractual terms for a reasonable period
     of time and the ultimate collectibility of the total contractual principal
     and interest is no longer in doubt.

ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses is established as losses are estimated to
     have occurred through a provision for loan losses charged to earnings. Loan
     losses are charged against the allowance when management believes the
     uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
     any, are credited to the allowance.

     The allowance for loan losses is evaluated on a regular basis by management
     and is based upon management's periodic review of the collectibility of the
     loans in light of historical experience, the nature and volume of the loan
     portfolio, adverse situations that may affect the borrower's ability to
     repay, estimated value of any underlying collateral and prevailing economic
     conditions. This evaluation is inherently subjective, as it requires
     estimates that are susceptible to significant revision as more information
     becomes available.

     The allowance consists of specific, general and unallocated components. The
     specific component relates to loans that are classified as either doubtful,
     substandard or special mention. For such loans that are also classified as
     impaired, an allowance is established when the discounted cash flows (or
     collateral value or observable market price) of the impaired loan is lower
     than the carrying value of that loan. The general component covers
     non-classified loans and is based on historical loss experience adjusted
     for qualitative factors. An unallocated component is maintained to cover
     uncertainties that could affect management's estimate of probable losses.
     The unallocated component of the allowance reflects the margin of
     imprecision inherent in the underlying assumptions used in the
     methodologies for estimating specific and general losses in the portfolio.

     A loan is considered impaired when, based on current information and
     events, it is probable that the Company will be unable to collect the
     scheduled payments of principal or interest when due according to the
     contractual terms of the loan agreements. Factors considered by management
     in determining impairment include payment status, collateral value and the
     probability of collecting scheduled principal and interest payments when
     due. Loans that experience insignificant payment delays and payment
     shortfalls generally are not classified as impaired. Management determines
     the significance of payment delays and payment shortfalls on a case-by-case
     basis, taking into consideration all of the circumstances surrounding the
     loan and the borrower, including the length of the delay, the reasons for
     the delay, the borrower's prior payment record, and the amount of the
     shortfall in relation to the principal and interest owed. Impairment is
     measured on a loan by loan basis for commercial and commercial mortgage
     loans by either the present value of expected future cash flows discounted
     at the loan's effective interest rate, the loan's obtainable market price
     or the fair value of the collateral if the loan is collateral dependent.


--------------------------------------------------------------------------------
                                      F-8
<PAGE>

AMERICAN BANK INCORPORATED
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

ALLOWANCE FOR LOAN LOSSES (CONTINUED)

     Large groups of smaller balance homogeneous loans are collectively
     evaluated for impairment. Accordingly, the Company does not separately
     identify individual consumer and residential mortgage loans for impairment
     disclosures, unless such loans are the subject of a restructuring
     agreement.

PREMISES AND EQUIPMENT

     Premises and equipment are stated at cost less accumulated depreciation.
     Depreciation is computed on the straight-line method over the assets
     estimated useful lives. Leasehold improvements are depreciated over the
     estimated useful life of the improvement. The estimated useful lives for
     calculating depreciation are as follows:

                                                                  YEARS
                                                                 --------
         Leasehold improvements                                   7 - 12
         Furniture, fixtures and equipment                        5 - 7
         Computer equipment and software                          3 - 5

RESTRICTED INVESTMENT IN BANK STOCKS

     The Company owns several restricted investments in bank stocks including
     stock in the FHLB, the Federal Reserve Bank of Philadelphia and the
     Atlantic Central Bankers Bank. These stocks are reflected on the balance
     sheet at historical cost. Under the Bank's membership agreement with the
     FHLB, required stock purchases are based on a percentage of outstanding
     borrowings, a percentage of unused borrowing capacity and may also include
     a percentage of assets sold to the FHLB.

BANK OWNED LIFE INSURANCE

     The Company invests in bank owned life insurance ("BOLI") as a source of
     funding for employee benefit expenses. BOLI involves the purchasing of life
     insurance by the Bank on a chosen group of employees. The Bank is the owner
     and beneficiary of the policies. This life insurance investment is carried
     at the cash surrender value of the underlying policies in the amount of
     $8,527,000 and $8,178,000 at December 31, 2004 and 2003, respectively.
     Income from the increase in cash surrender value of the policies is
     included in non-interest income on the income statement.

TRANSFERS OF FINANCIAL ASSETS

     Transfers of financial assets are accounted for as sales, when control over
     the assets has been surrendered. Control over transferred assets is deemed
     to be surrendered when (1) the assets have been isolated from the Company,
     (2) the transferee obtains the right (free of conditions that constrain it
     from taking advantage of that right) to pledge or exchange the transferred
     assets and (3) the Company does not maintain effective control over the
     transferred assets through an agreement to repurchase them before their
     maturity.

ADVERTISING COSTS

     The Company follows the policy of charging the costs of advertising to
     expense as incurred. Advertising costs of $87,000 and $70,000 are included
     in marketing and business development expenses for the years ended December
     31, 2004 and 2003, respectively.


--------------------------------------------------------------------------------
                                      F-9
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

     Income taxes are provided on the liability method whereby deferred tax
     assets are recognized for deductible temporary differences and deferred tax
     liabilities are recognized for taxable temporary differences. Temporary
     differences are the differences between the reported amounts of assets and
     liabilities and their tax basis. Deferred tax assets are reduced by a
     valuation allowance when, in the opinion of management, it is more likely
     than not that some portion of the deferred tax assets will not be realized.
     Deferred tax assets and liabilities are adjusted for the effects of changes
     in tax laws and rates on the date of enactment.

INTEREST RATE RISK

     The Company is principally engaged in the business of attracting deposits
     from the general public, and using these deposits, together with borrowed
     funds, to make commercial, commercial mortgage, residential mortgage and
     consumer loans, to purchase residential mortgages and to invest in
     overnight and term investment securities. Inherent in such activities is
     the potential for the Company to assume interest rate risk that results
     from differences in the maturities and repricing characteristics of assets
     and liabilities. For this reason, management regularly monitors the level
     of interest rate risk and the potential impact on net interest income.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

     In the ordinary course of business, the Company has entered into
     off-balance sheet financial instruments consisting of commitments to extend
     credit and letters of credit. Such financial instruments are recorded in
     the balance sheet when they are funded.

EARNINGS PER SHARE

     Basic earnings per share represents income available to common stockholders
     divided by the weighted-average number of shares outstanding during the
     period. Diluted earnings per share reflects additional common shares that
     would have been outstanding if dilutive potential common shares had been
     issued as well as any adjustment to income that would result from the
     assumed issuance. Potential common shares that may be issued by the Company
     relate to outstanding stock options and warrants and are determined using
     the treasury stock method. Potential common shares also include the
     mandatory redeemable convertible debentures determined using the "if
     converted" method.

COMPREHENSIVE INCOME

     Accounting principles generally require that recognized revenue, expenses,
     gains and losses be included in net income. Certain changes in assets and
     liabilities, such as unrealized gains and losses on securities available
     for sale, are reported as a separate component of the equity section of the
     balance sheet. Such items, along with net income, are the components of
     comprehensive income.


--------------------------------------------------------------------------------
                                      F-10
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

COMPREHENSIVE INCOME (CONTINUED)

     The components of other comprehensive income (loss) and related tax effects
are as follows:

                                                            2004       2003
                                                          -------     -------
                                                            (IN THOUSANDS)

Unrealized holding gains (losses) on securities
     available for sale                                   $ 2,141     $(1,012)
Reclassification adjustment for gains realized
     in net income                                           (334)       (862)
                                                          -------     -------

       NET UNREALIZED GAINS (LOSSES)                        1,807      (1,874)

Tax effect                                                   (614)        637
                                                          -------     -------

       NET OF TAX AMOUNT                                  $ 1,193     $(1,237)
                                                          =======     =======

STOCK-BASED COMPENSATION

     The Company has elected to follow Accounting Principles Board Opinion No.
     25, "Accounting for Stock Issued to Employees" (APB 25), and related
     interpretations in accounting for its employee and director stock options,
     which are discussed in Note 15. Under APB 25, because the exercise price of
     the Company's stock options equals the market price of the underlying stock
     on the date of grant, no compensation expense is recognized.

     Pro forma information regarding net income and net income per share is
     required by FASB Statement No. 123, and has been determined as if the
     Company had accounted for its stock options under the fair value method of
     that statement. The weighted average fair value of options granted during
     2004 and 2003 was $2.22 and $2.61, respectively. The fair value for these
     options was estimated at the date of grant using a Black-Scholes option
     pricing model with the following weighted-average assumptions for 2004 and
     2003, respectively: dividend yield 1.16% and -0-%; expected volatility of
     27% and 22%; risk-free interest rates of 4.24% and 3.94% and an expected
     life of the options of ten years.

     For purposes of pro forma disclosures, the estimated fair value of the
     options is amortized to expense over the options' vesting period.

                                                              YEARS ENDED
                                                              DECEMBER 31,
                                                          --------------------
                                                           2004         2003
                                                          -------      -------
                                                             (IN THOUSANDS)

Net income, as reported                                   $ 3,167      $ 2,637
Total stock based employee compensation expense
     determined under fair value based method for
     all awards, net of related tax effects                   (43)         (35)
                                                          -------      -------

       PRO FORMA NET INCOME                               $ 3,124      $ 2,602
                                                          =======      =======


-------------------------------------------------------------------------------
                                      F-11
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION (CONTINUED)

                                         YEARS ENDED
                                         DECEMBER 31,
                                    ----------------------
                                      2004          2003
                                    --------     ---------
         Earnings per share:
              As reported:
                  Basic             $   0.44     $   0.41
                  Diluted               0.43         0.39
              Pro forma:
                  Basic                 0.44         0.40
                  Diluted               0.42         0.38

NEW ACCOUNTING STANDARDS

     In December 2004, the Financial Accounting Standards Board (FASB) issued
     Statement No. 123 (revised 2004), "Share-Based Payment." Statement No.
     123(R) addresses the accounting for share-based payment transactions in
     which an enterprise receives employee services in exchange for (a) equity
     instruments of the enterprise or (b) liabilities that are based on the fair
     value of the enterprise's equity instruments or that may be settled by the
     issuance of such equity instruments. Statement No. 123(R) requires an
     entity to recognize the grant-date fair-value of stock options and other
     equity-based compensation issued to employees in the income statement. The
     revised Statement generally requires that an entity account for those
     transactions using the fair-value-based method, and eliminates the
     intrinsic value method of accounting in APB Opinion No. 25, "Accounting for
     Stock Issued to Employees," which was permitted under Statement No. 123, as
     originally issued.

     The revised Statement requires entities to disclose information about the
     nature of the share-based payment transactions and the effects of those
     transactions on the financial statements.

     Statement No. 123(R) is effective for public companies that file as small
     business issuers as of the beginning of the first interim or annual
     reporting period that begins after December 15, 2005 (i.e., first quarter
     2006 for the Company). All public companies must use either the modified
     prospective or the modified retrospective transition method. Early adoption
     of this Statement for interim or annual periods for which financial
     statements or interim reports have not been issued is encouraged. The
     Company has not yet evaluated the impact of adoption of this pronouncement.

     In March 2004, the SEC released Staff Accounting Bulletin (SAB) No. 105,
     "Application of Accounting Principles to Loan Commitments." SAB 105
     provides guidance about the measurements of loan commitments recognized at
     fair value under FASB Statement No. 133, "Accounting for Derivative
     Instruments and Hedging Activities." SAB 105 also requires companies to
     disclose their accounting policy for those loan commitments including
     methods and assumptions used to estimate fair value and associated hedging
     strategies. SAB 105 is effective for all loan commitments accounted for as
     derivatives that are entered into after March 31, 2004. The adoption of SAB
     105 did not have a material effect on our consolidated financial
     statements.


--------------------------------------------------------------------------------
                                      F-12
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

SOP 03-3

In December 2003, the Accounting Standards Executive Committee issued Statement
of Position 03-3 (SOP 03-3), "Accounting for Certain Loans or Debt Securities
Acquired in a Transfer." SOP 03-3 addresses accounting for differences between
contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities acquired in a
transfer, including business combinations, if those differences are
attributable, at least in part, to credit quality. SOP 03-3 is effective for
loans for debt securities acquired in fiscal years beginning after December 15,
2004. The Company intends to adopt the provisions of SOP 03-3 effective January
1, 2005, and does not expect the initial implementation to have a material
effect on the Company's consolidated financial statements.

NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES

American Bank is required to maintain reserve balances with the Federal Reserve
Bank. The required reserve balances at December 31, 2004 and 2003 were $168,000
and $112,000, respectively.

NOTE 4 - SECURITIES

The amortized cost and approximate fair value of securities as of December 31,
2004 and 2003 are summarized as follows:
<TABLE>
<CAPTION>
                                                                              DECEMBER 31, 2004
                                                     --------------------------------------------------------------------
                                                                           GROSS              GROSS
                                                     AMORTIZED          UNREALIZED         UNREALIZED             FAIR
                                                        COST               GAINS             LOSSES              VALUE
                                                     ---------          ---------           ---------           ---------
                                                                               (IN THOUSANDS)
<S>                                                  <C>                <C>                 <C>                 <C>
SECURITIES AVAILABLE FOR SALE:
     U.S. Government agencies                        $  27,750          $       1           $    (131)          $  27,620
     Mortgage-backed securities                        132,727                560                (524)            132,763
     Mutual funds, mortgage-backed
         mutual funds                                   19,254                 --                 (86)             19,168
     U.S. Government agency preferred stock              2,505                 --                (522)              1,983
     Common stock                                        9,114              2,402                 (55)             11,461
     Trust preferred obligations                        27,667                368                (119)             27,916
                                                     ---------          ---------           ---------           ---------

                                                     $ 219,017          $   3,331           $  (1,437)          $ 220,911
                                                     =========          =========           =========           =========
SECURITIES HELD TO MATURITY:

     Trust preferred obligations                     $  10,683          $     361           $      (5)          $  11,039
     Mortgage-backed securities                          2,446                 50                  --               2,496
     Other                                                 351                 --                  --                 351
                                                     ---------          ---------           ---------           ---------

                                                     $  13,480          $     411           $      (5)          $  13,886
                                                     =========          =========           =========           =========
</TABLE>


--------------------------------------------------------------------------------
                                      F-13
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
                                                                              DECEMBER 31, 2003
                                                     --------------------------------------------------------------------
                                                                           GROSS              GROSS
                                                     AMORTIZED          UNREALIZED         UNREALIZED             FAIR
                                                        COST               GAINS             LOSSES              VALUE
                                                     ---------          ---------           ---------           ---------
                                                                              (IN THOUSANDS)
<S>                                                  <C>                <C>                 <C>                 <C>
SECURITIES AVAILABLE FOR SALE:
     U.S. Government agencies                        $  15,997          $      36           $      --           $  16,033
     Corporate notes                                     6,685                127                  --               6,812
     Mortgage-backed securities                        184,774                689                (999)            184,464
     Mutual funds, mortgage-backed
         mutual funds                                   20,427                 --                (100)             20,327
     U.S. Government agency preferred stock              2,505                 25                (273)              2,257
     Common stock                                        4,224                677                  --               4,901
     Trust preferred obligations                         2,047                  9                (104)              1,952
                                                     ---------          ---------           ---------           ---------
                                                     $ 236,659          $   1,563           $  (1,476)          $ 236,746
                                                     =========          =========           =========           =========
SECURITIES HELD TO MATURITY:
     Trust preferred obligations                     $  11,530          $     263           $     (94)          $  11,699
     Mortgage-backed securities                          3,481                 54                  --               3,535
     Other                                                 350                 --                  --                 350
                                                     ---------          ---------           ---------           ---------
                                                     $  15,361          $     317           $     (94)          $  15,584
                                                     =========          =========           =========           =========
</TABLE>

Gross realized gains on the sale of securities available for sale totaled
$440,000 and $1,128,000 for the years ended December 31, 2004 and 2003,
respectively. Gross realized losses on the sale of securities available for sale
totaled $106,000 and $266,000 for the years ended December 31, 2004 and 2003,
respectively.

Securities with a carrying value of $8,493,000 and $31,367,000 at December 31,
2004 and 2003, respectively, were pledged to secure advances from the Federal
Home Loan Bank, public deposits, securities sold under agreements to repurchase
and for other purposes as required or permitted by law.


--------------------------------------------------------------------------------
                                      F-14
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - SECURITIES (CONTINUED)

The following table shows gross unrealized losses and fair value on securities,
aggregated by category and length of time that individual securities have been
in continuous unrealized loss positions, at December 31, 2004.
<TABLE>
<CAPTION>

                                      LESS THAN 12 MONTHS             12 MONTHS OR MORE                  TOTAL
                                   ------------------------      ------------------------      ------------------------
                                     FAIR         UNREALIZED       FAIR         UNREALIZED       FAIR         UNREALIZED
                                     VALUE          LOSSES         VALUE          LOSSES         VALUE          LOSSES
                                   ---------      ---------      ---------      ---------      ---------      ---------
                                                                        (IN THOUSANDS)
<S>                                <C>            <C>            <C>            <C>            <C>            <C>
SECURITIES AVAILABLE FOR SALE:
     U.S. Government agencies      $  23,619      $    (131)     $      --      $      --      $  23,619      $    (131)
     Mortgage-backed securities       52,126           (363)        23,359           (161)        75,485           (524)
     Mutual funds, mortgage-
         backed mutual funds              --             --          6,035            (86)         6,035            (86)
     U.S. Government agency
         preferred stock                 499             (1)         1,484           (521)         1,983           (522)
     Common stock                      2,236            (55)            --             --          2,236            (55)
     Trust preferred  obligations      6,113            (55)         1,922            (64)         8,035           (119)
                                   ---------      ---------      ---------      ---------      ---------      ---------

                                      84,593           (605)        32,800           (832)       117,393         (1,437)

SECURITIES HELD TO MATURITY:
     Trust preferred obligations         420             (4)           454             (1)           874             (5)
                                   ---------      ---------      ---------      ---------      ---------      ---------

       TOTAL TEMPORARILY
           IMPAIRED SECURITIES     $  85,013      $    (609)     $  33,254      $    (833)     $ 118,267      $  (1,442)
                                   =========      =========      =========      =========      =========      =========
</TABLE>

Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.

In management's opinion, the unrealized losses reflect changes in interest rates
subsequent to the acquisition of specific securities. There were 70 securities
available for sale and 22 securities held to maturity that are classified as
temporarily impaired. The Company has the ability to hold these securities until
maturity or market price recovery. Management believes that the unrealized
losses represent temporary impairment of the securities.

The amortized cost and fair value of securities as of December 31, 2004, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because the securities may be called or prepaid with or
without any penalty.


--------------------------------------------------------------------------------
                                      F-15
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
                                              HELD TO MATURITY        AVAILABLE FOR SALE
                                           ---------------------     ---------------------
                                           AMORTIZED      FAIR       AMORTIZED     FAIR
                                             COST         VALUE        COST        VALUE
                                           --------     --------     --------     --------
                                                            (IN THOUSANDS)

<S>                                        <C>          <C>          <C>            <C>
Due in one year or less                    $    251     $    251     $     --       $   --
Due after one year through five years            --           --       27,750       27,620
Due after five years through ten years          100          100           --           --
Due after ten years                          10,683       11,039       30,172       29,899
Mortgage-backed securities                    2,446        2,496      132,727      132,763
Mutual funds                                     --           --       19,254       19,168
Common stock                                     --           --        9,114       11,461
                                           --------     --------     --------     --------

                                           $ 13,480     $ 13,886     $219,017     $220,911
                                           ========     ========     ========     ========
</TABLE>

NOTE 5 - LOANS RECEIVABLE

The composition of net loans receivable at December 31, 2004 and 2003 is as
follows:

                                             2004              2003
                                          ---------         ---------
                                                (IN THOUSANDS)

       Commercial                         $  44,254         $  41,937
       Commercial mortgage                  108,702            96,609
       Residential mortgage                  72,840            53,393
       Consumer                              18,804            15,098
                                          ---------         ---------
                                            244,600           207,037
       Net deferred loan costs                  516               207
       Allowance for loan losses             (2,768)           (2,412)
                                          ---------         ---------

       NET LOANS RECEIVABLE               $ 242,348         $ 204,832
                                          =========         =========

Summary of information related to impaired loans at December 31, 2004 and 2003
is as follows:

                                                                2004        2003
                                                                ----        ----
                                                                 (IN THOUSANDS)

Impaired loans without a valuation allowance                    $700        $  0
Impaired loans with a valuation allowance                         41           0
                                                                ----        ----

       TOTAL IMPAIRED LOANS                                     $741        $  0
                                                                ====        ====

       TOTAL NON-ACCRUAL LOANS                                  $741        $  0
                                                                ====        ====

Average investment in impaired loans                            $163        $  0
                                                                ====        ====

Interest income recognized on a cash basis on impaired loans    $  9        $  0
                                                                ====        ====



--------------------------------------------------------------------------------
                                      F-16
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - ALLOWANCE FOR LOAN LOSSES

The following table presents changes in the allowance for loan losses for the
years ended December 31, 2004 and 2003:

                                                             2004         2003
                                                            -------     -------
                                                              (IN THOUSANDS)

       Balance, beginning                                   $ 2,412     $ 1,759
            Provision for loan losses                           393         405
            Charge-offs                                         (39)         (3)
            Recoveries                                            2         251
                                                            -------     -------
       Balance, ending                                      $ 2,768     $ 2,412
                                                            =======     =======

NOTE 7 - PREMISES AND EQUIPMENT

The components of premises and equipment at December 31, 2004 and 2003 are as
follows:

                                                             2004         2003
                                                            -------     -------
                                                              (IN THOUSANDS)

       Leasehold improvements                               $   885     $   885
       Furniture, fixtures and equipment                      1,224       1,053
       Computer equipment and data processing software        2,575       2,497
                                                            -------     -------
                                                              4,684       4,435
       Accumulated depreciation                              (3,222)     (2,627)
                                                            -------     -------
                                                            $ 1,462     $ 1,808
                                                            =======     =======

NOTE 8 - DEPOSITS

The components of deposits at December 31, 2004 and 2003 are as follows:

                                                             2004         2003
                                                            -------     -------
                                                              (IN THOUSANDS)

       Demand, non-interest bearing                         $ 16,808    $ 19,964
       Demand, interest-bearing                              105,653     103,210
       Savings                                                96,570      90,474
       Time, $100,000 and over                                33,468      26,354
       Time, other                                            93,233      92,284
                                                            --------    --------
                                                            $345,732    $332,286
                                                            ========    ========


--------------------------------------------------------------------------------
                                      F-17
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - DEPOSITS (CONTINUED)

At December 31, 2004, the scheduled maturities of time deposits approximated the
following (in thousands):

                  2005               $ 69,782
                  2006                 17,458
                  2007                 25,993
                  2008                  3,782
                  2009                  9,686
                                     --------

                                     $126,701
                                     ========

NOTE 9 - DEBT

The Bank enters into agreements with customers as part of cash management
services where the Bank sells securities to the customer overnight with the
agreement to repurchase them at par. Securities sold under agreements to
repurchase, which are classified as secured borrowings, generally mature within
one day of the transaction date. Securities sold under agreements to repurchase
are reflected at the amount of cash received in connection with the transaction.
The securities underlying the agreements are under the Bank's control and the
fair value of the underlying securities are monitored on a daily basis.

Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              -----------------------------
                                                                 2004               2003
                                                              ----------         ----------
                                                                  (DOLLARS IN THOUSANDS)

<S>                                                           <C>                <C>
     Average balance during the year                          $    6,693         $    7,502
     Average interest rate during the year                          0.76%              0.67%
     Maximum month-end balance during the year                    10,417             15,895
     Weighted average interest rate at the end of the year          0.91%              0.75%
</TABLE>

The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) which
permits the Bank to obtain funding in the form of advances, subject to a maximum
borrowing capacity of $265,900,000, of which $96,095,000 was outstanding at
December 31, 2004.

Membership in the FHLB also requires that the Bank maintain a certain percentage
of its assets in home mortgage assets, which may include mortgage-backed
securities, and to purchase a certain amount of FHLB common stock. Both
requirements follow formulas established by the FHLB and, at December 31, 2004,
American Bank was in compliance with these requirements.

At December 31, 2004, long-term debt consists of $95,500,000 in fixed maturity
advances with interest rates locked for certain periods of time, after which the
FHLB may, at its option, elect to convert the advances to a variable rate of
interest that resets quarterly and is based on a spread over the then current 90
day LIBOR. If the FHLB does reprice the advance, the Bank has the option to pay
the advances back to the FHLB with no penalty. Interest rates on these advances
at December 31, 2004 range from 2.74% to 6.07%, with a weighted average interest
rate of 4.50%.


--------------------------------------------------------------------------------
                                      F-18
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - DEBT (CONTINUED)

At December 31, 2004, there are $595,000 of advances from the FHLB that amortize
principal monthly and have fixed interest rates ranging from 5.26% to 5.46% with
a weighted average interest rate of 5.33%. These advances fully amortize by
2008.

Scheduled repayments are as follows (in thousands):

               2005                        $   248
               2006                            113
               2007                         15,119
               2008                          3,115
               2009                             --
               Thereafter                   77,500
                                           -------

                                           $96,095
                                           =======

NOTE 10 - JUNIOR SUBORDINATED DEBENTURES

On April 26, 2002, the Company issued $10,200,000 principal amount of 6.0%
junior subordinated debentures due March 31, 2032 to American Capital Trust I
(the "Trust"), a Delaware Business Trust. The Company owns all of the common
equity of the Trust. The debentures are the sole asset of the Trust. The Trust
issued $10,200,000 of 6.0% cumulative convertible trust preferred securities to
investors. The trust preferred securities are callable by the Company after
March 31, 2007, or earlier under certain conditions. The trust preferred
securities must be redeemed at the maturity of the debentures on March 31, 2032.
Holders of the preferred securities may elect to convert the preferred
securities into common stock of the Company at any time, at a conversion ratio
of one share of common stock for each preferred security. Preferred securities
are convertible into 1,198,494 shares of common stock at December 31, 2004. The
Company's obligations under the debentures and related documents, taken
together, constitute a full and unconditional guarantee by the Company of the
Trust's obligations under the preferred securities.

The debentures currently qualify as Tier 1 capital of the Company, subject to a
25% of capital limitation under risk based capital guidelines developed by the
Federal Reserve Board. The portion that exceeds the 25% of capital limitation
qualifies as Tier 2 capital of the Company. For regulatory reporting purposes,
the Federal Reserve Board has indicated that the preferred securities will
continue to qualify as Tier I Capital subject to these limitations, until
further notice.

Financial Interpretation 46 (FIN 46) required the Company to deconsolidate
American Capital Trust I from the consolidated financial statements as of March
31, 2004. There has been no restatement of prior periods. The impact of this
deconsolidation was to increase junior subordinated debentures by $10,200,000
and reduce mandatory redeemable convertible securities by $10,200,000, which had
represented the trust preferred securities of the Trust. The Company's equity
interest in the trust subsidiary of $315,000, which had previously been
eliminated in consolidation, is now reported in "Other assets." The adoption of
FIN 46 did not have an impact on the Company's results of operations or
liquidity.


--------------------------------------------------------------------------------
                                      F-19
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE

The Company leases the premises for its principal office and full service
banking operation under a five-year operating lease agreement with a related
party expiring November 2007. The Company has the option to extend the lease
agreement for four additional five-year lease terms. The Company is responsible
for its direct or proportionate share of real estate taxes, insurance, utilities
and maintenance and repairs on the building. The lessor is the estate of the
former chairman, who was a principal shareholder of the Company until his death.
In addition, the Company leases two vehicles under 36-month leases expiring May
2006 and an offsite disaster recovery facility with a lease expiring November
2007.

Future minimum lease payments by year are as follows:

                         MINIMUM ANNUAL     MINIMUM ANNUAL
                         LEASE PAYMENTS     LEASE PAYMENTS
                          TO RELATED           TO THIRD
                             PARTY              PARTIES               TOTAL
                            ------               ------               ------
                                            (IN THOUSANDS)

         2005               $  343               $   29               $  372
         2006                  361                   21                  382
         2007                  331                   16                  347
                            ------               ------               ------

                            $1,035               $   66               $1,101
                            ======               ======               ======

Rental expense, which includes accruals for common charges, was $361,000 and
$335,000 for the years ended December 31, 2004 and 2003, respectively, including
$336,000 and $303,000, respectively, to the related party.

NOTE 12 - EMPLOYMENT AGREEMENT

The Company entered into an employment agreement with its President and Chief
Executive Officer which includes minimum annual salary commitments over a term
of three years. The agreement automatically extends by one day for each day of
the contract term and includes restrictions on competition and confidentiality.

NOTE 13 - STOCKHOLDERS' EQUITY

On June 15, 2000, the Company's subsidiary, American Bank issued to the public
1,520,391 shares of common stock at $6.67 per share. In addition, the Company's
subsidiary granted warrants entitling subscribers in the public offering to
purchase one additional share for each two shares purchased during the offering.
The warrants were exercisable at any time through June 30, 2003 at an exercise
price of $6.67. The total number of warrants issued in connection with the
public offering were 760,205, of which 727,588 were exercised by the expiration
date. During 2003, 717,452 warrants were exercised.

In January 2004, the Company established a dividend reinvestment and stock
purchase plan to provide the shareholders of the Company with a convenient and
economic method of investing cash dividends and optional cash payments in
additional shares of the common stock of the Company. The Company registered
2,127,275 shares of its common stock for sale under the plan.


--------------------------------------------------------------------------------
                                      F-20
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - NET INCOME PER COMMON SHARE

The following table sets forth the computations of basic and diluted earnings
per share for the years ended December 31, 2004 and 2003:
<TABLE>
<CAPTION>
                                                                                 2004          2003
                                                                                ------        ------
                                                                             (IN THOUSANDS, EXCEPT PER
                                                                                      SHARE DATA)

<S>                                                                             <C>           <C>
     Numerator, basic earnings per share, net income                            $3,167        $2,637
     Interest paid on mandatory redeemable debentures, net of tax effect           403           404
                                                                                ------        ------

     Numerator, diluted earnings per share                                      $3,570        $3,041
                                                                                ======        ======

     Denominators:
          Average basic shares outstanding                                       7,129         6,458
          Average dilutive option effect                                            48            83
          Average dilutive warrant effect                                         --              87
          Average dilutive mandatory redeemable debentures effect                1,199         1,200
                                                                                ------        ------

            AVERAGE DILUTED SHARES OUTSTANDING                                   8,376         7,828
                                                                                ======        ======

     Net income per common share:

          Basic                                                                 $ 0.44        $ 0.41
                                                                                ======        ======

          Diluted                                                               $ 0.43        $ 0.39
                                                                                ======        ======
</TABLE>

Options to purchase 39,800 and 58,600 shares of common stock outstanding at
December 31, 2004 and 2003, respectively, were not included in dilutive earnings
per share since their exercise price exceeded the fair value of the related
common stock.

NOTE 15 - EMPLOYEE BENEFITS

The Company has a 401(k) plan covering substantially all employees. The Company
matches 50% of an employee's contribution on the first 6% of gross pay, up to a
maximum of 3%. Additionally, discretionary contributions may be determined
annually by the Board of Directors. The Company's contributions are expensed as
costs are incurred. Total expense amounted to $45,000 and $43,000 for the years
ended December 31, 2004 and 2003, respectively.

The Company has a Non-Qualified Stock Option Plan (the "Plan") that includes
officers and independent directors. The Plan covers 312,502 shares of common
stock. Options granted under the Plan will have an option price at least equal
to the fair market value of the common stock on the date of the grant. The
options expire not more than ten years after the date of the grant. Exercise and
vesting dates and terms may vary and are specified at the date of the grant.


--------------------------------------------------------------------------------
                                      F-21
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - EMPLOYEE BENEFITS (CONTINUED)

Stock option transactions under the Plan were as follows:
<TABLE>
<CAPTION>

                                                                    YEARS ENDED DECEMBER 31,
                                                     -------------------------------------------------------
                                                               2004                         2003
                                                     -------------------------     -------------------------
                                                                      WEIGHTED                      WEIGHTED
                                                                      AVERAGE                       AVERAGE
                                                                      EXERCISE                      EXERCISE
                                                      OPTIONS           PRICE       OPTIONS          PRICE
                                                     --------         --------     --------         --------
<S>                                                   <C>             <C>           <C>             <C>
     Outstanding at the beginning of the year         255,588         $   6.07      265,250         $   6.02
          Granted                                      14,000             8.69        2,338             9.31
          Exercised                                   (86,500)            4.81      (12,000)            5.58
                                                     --------         --------     --------         --------

     Outstanding at the end of the year               183,088         $   6.87      255,588         $   6.07
                                                     ========         ========     ========         ========

     Exercisable at December 31                       180,750         $   6.84      216,750         $   5.76
                                                     ========         ========     ========         ========
</TABLE>

At December 31, 2004, 110,500 outstanding options had exercise prices ranging
from $3.33 to $8.00 per share. The weighted average remaining life of these
options is 5.5 years. In addition, at December 31, 2004, 72,588 outstanding
options had exercise prices ranging from $8.01 to $9.42 per share. The weighted
average remaining life of these options is 6.5 years. The weighted-average
remaining contractual life of the outstanding options at December 31, 2003 is
approximately 6.3 years.

Options available for grant at December 31, 2004 were 129,414.

The Company maintains an Employee Stock Ownership Plan (ESOP) covering employees
who meet certain eligibility requirements. The Plan is designed to provide
officers and eligible employees with proprietary interest in American as an
incentive to contribute to the success of American and to help ensure the
attainment of the Company's goals.

The Plan is administered by a committee of the Board of Directors. At present,
the securities held by the plan consist solely of shares of common stock of the
Company, which were purchased on the open market. Contributions to the plan and
allocations of shares under the plan are discretionary on the part of the Board
of Directors. The Company has engaged the services of an independent Trustee to
hold the assets of the Plan and Trust.

During 2004, the Company made contributions to the Plan, purchased 2,625 shares
into the Plan, recognized expense of $21,000 and authorized the allocation of
2,500 shares of stock to eligible employees, leaving 15,900 shares of stock
being held as unallocated at year end. The fair value of the unallocated ESOP
shares at December 31, 2004 was $118,000.


--------------------------------------------------------------------------------
                                      F-22
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - EMPLOYEE BENEFITS (CONTINUED)

During 2003, the Company made contributions to the Plan, recognized expense of
$29,000 and authorized the allocation of 3,000 shares of stock to eligible
employees.

American Bank established a Non-qualified Deferred Compensation Plan for Senior
Employees (the "Plan"), effective January 1, 2003, for senior employees
designated by the Board of Directors. The Plan is an unfunded plan maintained
primarily for the purpose of providing deferred compensation to a select group
of management or highly compensated employees within the meaning of the Employee
Retirement Income Security Act of 1974, as amended. Each year American Bank may,
but is not required to, make discretionary contributions to the Plan on behalf
of participants. The rate of return credited to participants' accounts each
year, the vesting provisions, and other provisions are set forth in the Plan
document. For as long as the participant participates in the Plan as an employee
of American Bank or while receiving benefits under the Plan, the participant
will be bound by the non-disclosure/trade secret and non-solicitation provisions
of the Plan. At December 31, 2004 and 2003, the liability for the Plan was
$84,000 and $42,000, respectively. The amount charged to expense in connection
with the Plan for the years ended December 31, 2004 and 2003 was $42,000 each
year.

NOTE 16 - INCOME TAXES

The provision for federal income taxes for the years ended December 31, 2004 and
2003 consisted of the following:

                                  2004                 2003
                                -------               -------
                                       (IN THOUSANDS)

         Current                $ 1,192               $ 1,333
         Deferred                   201                  (197)
                                -------               -------

                                $ 1,393               $ 1,136
                                =======               =======

Reconciliation of the statutory income tax expense computed at 34% to the income
tax expense included in the statements of income is as follows:

                                                       2004             2003
                                                     -------          -------
                                                           (IN THOUSANDS)

         Computed statutory tax expense              $ 1,550          $ 1,283
         Earnings on bank owned life insurance          (119)            (108)
         Dividends received deduction                    (39)             (44)
         Other, net                                        1                5
                                                     -------          -------

                                                     $ 1,393          $ 1,136
                                                     =======          =======

The income tax provision applicable to net realized gains on the sale of
securities was $114,000 in 2004 and $293,000 in 2003.


--------------------------------------------------------------------------------
                                      F-23
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - INCOME TAXES (CONTINUED)

At December 31, 2004 and 2003, the significant components of deferred tax assets
and liabilities are as follows:

                                                             2004         2003
                                                            -------     -------
                                                              (IN THOUSANDS)
   Deferred tax assets:
        Allowance for loan losses                           $   931     $   809
        Deferred compensation                                    14          --
        Charitable contributions                                  2          --
        Other                                                     1           2
                                                            -------     -------
          TOTAL DEFERRED TAX ASSETS                             948         811
                                                            -------     -------
   Deferred tax liabilities:
        Depreciation                                            (54)        (88)
        Prepaid expenses                                        (51)         --
        Loan origination costs                                 (321)         --
        Unrealized gains on securities available for sale      (644)        (30)
                                                            -------     -------
          TOTAL DEFERRED TAX LIABILITIES                     (1,070)       (118)
                                                            -------     -------
          NET DEFERRED TAX ASSET (LIABILITY)                $  (122)    $   693
                                                            =======     =======

NOTE 17 - TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS

The Company has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with its executive officers,
directors, principal stockholders, their immediate families and affiliated
companies (commonly referred to as related parties), on the same terms,
including interest rates, as those prevailing at the time for comparable
transactions with others. Deposits of related parties totaled $22,357,000 and
$15,839,000 at December 31, 2004 and 2003, respectively. Loans to related
parties totaled $255,000 and $229,000 at December 31, 2004 and 2003,
respectively. During 2004, $48,000 of new loans were made and repayments totaled
$22,000. In addition, the Company leases property from a related party (see Note
11).

NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and letters of
credit. Those instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.


--------------------------------------------------------------------------------
                                      F-24
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)

A summary of the Company's financial instrument commitments at December 31, 2004
and 2003 is as follows:

                                                         2004           2003
                                                       -------        -------
                                                           (IN THOUSANDS)

     Commitments to extend credit                      $ 7,923        $ 6,870
     Unfunded commitments under lines of credit         44,681         40,477
     Outstanding letters of credit                       6,095          3,842

Commitments to extend credit and unfunded commitments under lines of credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation. Collateral held
varies but may include personal or commercial real estate, accounts receivable,
inventory and equipment.

Outstanding letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
majority of these standby letters of credit expire within the next twelve
months. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The Company
requires collateral supporting these letters of credit as deemed necessary.
Management believes that the proceeds obtained through a liquidation of such
collateral would be sufficient to cover the maximum potential amount of future
payments required under the corresponding guarantees. The current amount of the
liability as of December 31, 2004 and 2003 for guarantees under standby letters
of credit issued is not material.

NOTE 19 - REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements
administered by the Pennsylvania Department of Banking and the federal banking
agencies. Failure to meet the minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth below) of total and Tier l capital (as defined in the regulations) to
risk-weighted assets, and of Tier l capital to average assets. Management
believes, as of December 31, 2004, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.



--------------------------------------------------------------------------------
                                      F-25
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - REGULATORY MATTERS (CONTINUED)

As of December 31, 2004, the most recent notification from the Federal Reserve
Bank categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be well capitalized, the Bank must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the Bank's category.

The Company's and the Bank's actual capital amounts and ratios at December 31,
2004 and 2003 are presented below:
<TABLE>
<CAPTION>
                                                                                                          TO BE WELL
                                                                                                       CAPITALIZED UNDER
                                                                             FOR CAPITAL ADEQUACY       PROMPT CORRECTIVE
                                                           ACTUAL                  PURPOSES             ACTION PROVISIONS
                                                    --------------------     --------------------      -------------------
                                                     AMOUNT        RATIO      AMOUNT        RATIO       AMOUNT       RATIO
                                                    -------        -----     --------       -----      --------      -----
                                                                    (DOLLAR AMOUNTS IN THOUSANDS)
<S>                                                 <C>            <C>       <C>            <C>        <C>           <C>
AS OF DECEMBER 31, 2004:
     Total capital (to risk-weighted
         assets):
         Consolidated                               $54,133        17.50%    $=>24,973      =>8.0%        N/A          N/A
         Bank                                        43,267        14.33      =>24,161      =>8.0      $=>30,201     =>10.0%
     Tier 1 capital (to risk-weighted assets):

         Consolidated                                50,828        16.28      =>12,486      =>4.0         N/A          N/A
         Bank                                        40,491        13.41      =>12,080      =>4.0       =>18,121     => 6.0
     Tier 1 capital (to average assets):

         Consolidated                                50,828         9.98      =>20,365      =>4.0         N/A          N/A
         Bank                                        40,491         8.14      =>19,895      =>4.0       =>24,869     => 5.0

AS OF DECEMBER 31, 2003:
     Total capital (to risk-weighted
         assets):
         Consolidated                               $47,782        17.68%    $=>21,690      =>8.0%        N/A          N/A
         Bank                                        39,548        14.86      =>21,288      =>8.0      $=>26,610     =>10.0%
     Tier 1 capital (to risk-weighted assets):

         Consolidated                                45,106        16.69      =>10,845      =>4.0         N/A          N/A
         Bank                                        37,136        13.96      =>10,644      =>4.0       =>15,966     => 6.0
     Tier 1 capital (to average assets):

         Consolidated                                45,106         9.40      =>19,200      =>4.0         N/A          N/A
         Bank                                        37,136         7.81      =>19,016      =>4.0       =>23,770     => 5.0
</TABLE>

The Bank is subject to certain restrictions on the amount of dividends that it
may declare due to regulatory considerations. The Pennsylvania Banking Code
provides that cash dividends may be declared and paid only out of accumulated
net earnings.


--------------------------------------------------------------------------------
                                      F-26
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 20 - CONDENSED FINANCIAL INFORMATION OF AMERICAN BANK INCORPORATED (PARENT
COMPANY ONLY)

BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                 ----------------------
                                                                                   2004          2003
                                                                                 -------        -------
                                                                                     (IN THOUSANDS)

                   ASSETS

<S>                                                                              <C>            <C>
     Cash and equivalents                                                        $   534        $ 3,359
     Investment in common and preferred stock                                     11,534          4,974
     Investment in bank subsidiary                                                40,250         36,808
     Other assets                                                                    476            162
                                                                                 -------        -------

            TOTAL ASSETS                                                         $52,794        $45,303
                                                                                 =======        =======

          LIABILITIES AND STOCKHOLDERS' EQUITY

     Corporate obligation for mandatory redeemable convertible debentures        $10,187        $10,200
     Other liabilities                                                               697            140

     Stockholders' equity                                                         41,910         34,963
                                                                                 -------        -------

            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $52,794        $45,303
                                                                                 =======        =======
</TABLE>

STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                         YEARS ENDED DECEMBER 31,
                                                                         -----------------------
                                                                          2004             2003
                                                                         -------         -------
                                                                             (IN THOUSANDS)

<S>                                                                      <C>             <C>
     Dividend income on common stock                                     $   101         $    96
     Interest expense on corporate obligation for mandatory
          redeemable convertible debentures                                 (611)           (612)
     Gains on sales of investments                                           422             976
     Operating expenses                                                     (180)           (149)
                                                                         -------         -------

            INCOME (LOSS) BEFORE INCOME TAXES                               (268)            311

     Income tax expense (benefits)                                           (83)             96
                                                                         -------         -------

            INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS           (185)            215
                OF BANK SUBSIDIARY

     Equity in undistributed earnings of bank subsidiary                   3,352           2,422
                                                                         -------         -------

            NET INCOME                                                   $ 3,167         $ 2,637
                                                                         =======         =======
</TABLE>


--------------------------------------------------------------------------------
                                      F-27
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 20 - CONDENSED FINANCIAL INFORMATION OF AMERICAN BANK INCORPORATED (PARENT
COMPANY ONLY) (CONTINUED)

STATEMENTS OF CASH FLOWS

                                                        YEARS ENDED DECEMBER 31,
                                                        ------------------------
                                                           2004          2003
                                                          -------       -------
                                                             (IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                           $ 3,167       $ 2,637
     Adjustments to reconcile net income to
         net cash provided by operating
         activities:
         Net gains realized on sales of securities           (422)         (976)
         Deferred tax (benefit) expense                      (145)         (276)
         Income tax benefit on stock options exercised        140            99
         (Increase) decrease in other assets                 (314)          329
         Increase in other liabilities                        541           175
         Equity in undistributed earnings of bank
              subsidiary                                   (3,352)       (2,422)
                                                          -------       -------

              Net cash used in operating activities          (385)         (434)
                                                          -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES
     Securities available for sale:
         Purchases                                         (6,730)       (7,127)
         Sales                                              1,877         6,428
     Capital contribution in bank subsidiary                   --        (2,500)
                                                          -------       -------

              Net cash used in investing activities        (4,853)       (3,199)
                                                          -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES
     Dividends declared                                      (684)           --
     Issuance of common stock                               2,711         4,842
     Purchase of common stock, ESOP trust                     (22)           --
     Proceeds from stock options                              408            --
                                                          -------       -------

              Net cash provided by financing activities     2,413         4,842
                                                          -------       -------

              Increase in cash and cash equivalents        (2,825)        1,209

Cash and cash equivalents:
     Beginning                                              3,359         2,150
                                                          -------       -------

     Ending                                               $   534       $ 3,359
                                                          =======       =======


--------------------------------------------------------------------------------
                                      F-28
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates herein are not necessarily indicative of the amounts that could
have been realized in a sales transaction on the dates indicated. The estimated
fair value amounts have been measured as of their respective year ends, and have
not been reevaluated or updated for purposes of these financial statements
subsequent to those respective dates. As such, the estimated fair values of
these financial instruments subsequent to the respective reporting dates may be
different than the amounts reported at each year-end.

The following information should not be interpreted as an estimate of the entire
fair value of the Company since a fair value calculation is only provided for a
limited portion of the Company's assets and liabilities. Due to a wide range of
valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between American's disclosures and those of other
companies may not be meaningful. The following methods and assumptions were used
by the company in estimating its fair value disclosures for financial
instruments:

CASH AND DUE FROM BANKS, INTEREST BEARING DEPOSIT WITH BANK AND SECURITIES
PURCHASED UNDER AGREEMENT TO RESELL

     The carrying amounts reported approximate those assets' fair value.

SECURITIES

     Fair values of securities are based on quoted market prices, where
     available. If quoted market prices are not available, fair values are based
     on quoted market prices of comparable instruments.

LOANS RECEIVABLE

     For variable-rate loans that reprice frequently and with no significant
     change in credit risk, fair values are based on carrying values. The fair
     values for other loans receivable were estimated using discounted cash flow
     analysis, using interest rates currently being offered for loans with
     similar terms to borrowers of similar credit quality.

ACCRUED INTEREST RECEIVABLE AND PAYABLE

     The carrying amount of accrued interest receivable and payable approximate
     their fair values.

RESTRICTED INVESTMENTS IN BANK STOCK

     The carrying amounts approximate their fair values.

DEPOSIT LIABILITIES

     The fair values disclosed for demand deposits (e.g., interest-bearing and
     non-interest bearing checking, passbook, savings and certain types of money
     market accounts) are, by definition, equal to the amount payable on demand
     at the reporting date (i.e., their carrying amounts). Fair values for
     fixed-rate certificates of deposit are estimated using a discounted cash
     flow calculation that applies interest rates currently being offered on
     certificates of deposit to a schedule of aggregated expected monthly
     maturities on time deposits.


--------------------------------------------------------------------------------
                                      F-29
<PAGE>

AMERICAN BANK INCORPORATED
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     The carrying amounts approximate their fair value.

LONG-TERM DEBT

     The fair value of long-term debt is calculated on the discounted value of
     contractual cash flows, using rates currently available for borrowings from
     the FHLB with similar maturities.

JUNIOR SUBORDINATED DEBENTURES

     The fair value of junior subordinated debentures is based on a quoted
     market price.

OFF-BALANCE SHEET INSTRUMENTS

     Off-balance sheet instruments consist of letters of credit, loan
     commitments and unfunded lines of credit. Fair values for off-balance sheet
     instruments are based on fees currently charged to enter into similar
     agreements, taking into account the remaining terms of the agreements and
     the counterparties' credit standing. Any fees charged are immaterial.

A summary of the estimated fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>

                                                                 2004                      2003
                                                        ---------------------     ---------------------
                                                        CARRYING       FAIR       CARRYING       FAIR
                                                         AMOUNT       VALUE        AMOUNT        VALUE
                                                        --------     --------     --------     --------
                                                                        (IN THOUSANDS)
<S>                                                     <C>          <C>          <C>          <C>
Financial assets:
     Cash and due from banks                            $  6,510     $  6,510     $  4,623     $  4,623
     Interest-bearing deposit with bank                      216          216          237          237
     Securities                                          234,391      234,797      252,107      252,330
     Loans receivable, net                               242,348      243,934      204,832      206,684
     Restricted investments in bank stock                  6,887        6,887        6,994        6,994
     Accrued interest receivable                           2,122        2,122        1,973        1,973

Financial liabilities:
     Deposits                                            345,732      346,138      332,286      333,972
     Securities sold under agreements to repurchase        6,991        6,991        6,909        6,909
     Long-term debt                                       96,095       97,005       96,357       98,614
     Mandatory redeemable convertible debentures              --           --       10,200       12,300
     Junior subordinated debentures                       10,187       13,183           --           --
     Accrued interest payable                                646          646          629          629

Off-balance sheet financial instruments:
     Commitments to extend credit                             --           --           --           --
     Unfunded commitment under lines of credit                --           --           --           --
     Outstanding letters of credit                            --           --           --           --
</TABLE>


--------------------------------------------------------------------------------
                                      F-30
<PAGE>

                             STOCKHOLDER INFORMATION

                                        INDEPENDENT REGISTERED PUBLIC ACCOUNTING
ANNUAL MEETING                          FIRM

The Annual Meeting of Stockholders      Beard Miller Company LLP
will be held at 9:00 a.m. on April      2609 Keiser Blvd. P.O. Box 311 Reading,
20, 2005 at The Holiday Inn West,       P.O. Box 311 Reading,
Route 100 and Interstate 78             Pennsylvania 19603
Fogelsville, Pennsylvania.
                                        TRANSFER AGENT
STOCK LISTING
                                        StockTrans, Inc.
Our common stock trades on the          44 West Lancaster Ave.
Nasdaq SmallCap Market under the        Ardmore, Pennsylvania 19003
symbol "AMBK".
                                        ANNUAL REPORT ON FORM 10-KSB

American Capital Trust I's              A copy of our Form 10-KSB for the
preferred stock trades on the OTC       fiscal year ended December 31,
Bulletin Board under the symbol         2004, will be furnished without
"AMBKP.OB."                             charge to stockholders of record as
                                        of March 18, 2005, upon written
SPECIAL COUNSEL                         request to the Secretary, American
                                        Bank Incorporated, 4029 West
Luse Gorman Pomerenk & Schick, P.C.     Tilghman Street, Allentown,
5335 Wisconsin Avenue, N.W., Suite      Pennsylvania 18104.
400 Washington, D.C. 20015



STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS

Stockholders of American Bank Incorporated may communicate with the Board or any
individual Director through our website at www.pcbanker.com or by writing to:

                           American Bank Incorporated
                          Attention: Board of Directors
                            Mark W. Jaindl, Chairman
                            4029 West Tilghman Street
                               Allentown, PA 18104



<PAGE>

                             DIRECTORS AND OFFICERS

                 * Denotes officer of American Bank Incorporated

                     DIRECTORS                        OFFICERS
                 ----------------            ----------------------------
                 Mark W. Jaindl *            Mark W. Jaindl *
                 Chairman                    Chairman, President and
                                                 Chief Executive Officer
                 David M. Jaindl
                 Vice Chairman               Harry C. Birkhimer *
                                             Senior Vice President, Treas.
                                                 Chief Financial Officer
                 Elizabeth B. Gaul
                                             Sandra A. Berg *
                 Anne L. Jaindl              Senior Vice President, Sec.
                                                 Chief Operating Officer
                 John C. Long
                                             Chris J. Persichetti
                 J. Scott Pidcock            Senior Vice President and
                                                 Chief Lending Officer
                 Philip S. Schwartz
                                             Robert W. Turner
                 Martin F. Spiro             Senior Vice President and
                                                 Chief Information Officer

<PAGE>























                               [GRAPHIC OMITTED]


                            4029 West Tilghman Street
                               Allentown, PA 18104
                             Phone: (610) 366 - 1800
                              Fax: (610) 366 - 1900
                                www.pcbanker.com
                          E-mail: service@pcbanker.com