EXHIBIT 13

                    PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS

<PAGE>

                       2003 ANNUAL REPORT TO STOCKHOLDERS
                           AMERICAN BANK INCORPORATED

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                 Page

<S>                                                                                             <C>
Message to Our Stockholders..................................................................      1
Selected Consolidated Financial Information and Other Data...................................      2
Management's Discussion and Analysis of Financial Condition and Results of Operations........      3
Common Stock and Related Matters.............................................................     17
Independent Auditors' Report.................................................................    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
</TABLE>

<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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of American Bank Incorporated and related notes included elsewhere herein.
<TABLE>
<CAPTION>
                                                                       AT DECEMBER 31,
                                                 ----------------------------------------------------------
                                                   2003          2002        2001        2000        1999
                                                 ---------    ---------   ---------   ---------   ---------
                                                                       (IN THOUSANDS)
<S>                                              <C>          <C>         <C>         <C>         <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets...................................  $ 481,992    $ 453,265   $ 368,709   $ 244,256   $ 112,333
Loans receivable, net..........................    204,832      134,926     135,589     120,614      53,313
Securities available for sale..................    236,746      276,569     175,177      63,221      47,044
Securities held to maturity....................     15,361       13,466      14,822      17,498       1,137
Deposits.......................................    332,286      306,751     253,763     182,495      89,143
Short-term debt................................      6,909        7,784       4,237          --       3,000
Long-term debt.................................     96,357       97,791      83,238      37,456       8,194
Mandatory redeemable convertible debentures....     10,200       10,200          --          --          --
Stockholders' equity...........................     34,963       28,593      25,508      23,255      11,620

                                                               FOR THE YEAR ENDED DECEMBER 31,
                                                 ----------------------------------------------------------
                                                   2003          2002        2001        2000        1999
                                                 ---------    ---------   ---------   ---------   ---------
                                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED OPERATING DATA:
------------------------
Total interest income...........................  $  19,225   $  20,489   $  19,995   $  11,916   $   6,087
Total interest expense..........................     11,937      12,409      13,123       7,535       3,478
                                                  ---------   ---------   ---------   ---------   ---------
Net interest income.............................      7,288       8,080       6,872       4,381       2,609
Provision for loan losses.......................        405         212         651         475         259
                                                  ---------   ---------   ---------   ---------   ---------
Net interest income after provision for loan
 losses.........................................      6,883       7,868       6,221       3,906       2,350
                                                  ---------   ---------   ---------   ---------   ---------
Fees and service charges........................        165         160         131          75          34
Net realized gains on sale of mortgage loans....        401         296         164          77          86
Net realized gains (losses) on sale of
 securities.....................................        862         112         (13)         --          --

Earnings on bank owned life insurance...........        318         160          --          --          --
Other income....................................        255         229         193         214          73
                                                  ---------   ---------   ---------   ---------   ---------
Total other income..............................      2,001         957         475         366         193
Total other expenses............................      5,111       5,212       5,061       3,589       2,661
                                                  ---------   ---------   ---------   ---------   ---------
      Income (loss) before taxes on income......      3,773       3,613       1,635         683        (118)
Taxes on income.................................      1,136       1,097         297         254          --
                                                  ---------   ---------   ---------   ---------   ---------
Net income (loss)...............................  $   2,637   $   2,516   $   1,338   $     429   $    (118)
                                                  =========   =========   =========   =========   =========

Dividend payout ratio per share.................         --          --          --          --          --
Earnings (loss) per share-basic(1)..............  $    0.41   $    0.42   $    0.22   $    0.08   $   (0.03)
Earnings (loss) per share-diluted(1)............  $    0.39   $    0.40   $    0.22   $    0.08   $   (0.03)

PERFORMANCE RATIOS:
-------------------
Return on assets (ratio of net income (loss) to
 average total assets)..........................       0.56%       0.62%       0.43%       0.26%      (0.13)%
Return on equity (ratio of net income (loss) to
 average equity)................................       8.27%       9.51%       5.48%       2.54%      (1.15)%
Interest rate spread information:
Average during period...........................       1.37%       1.89%       2.14%       2.37%       2.60%
End of period...................................       1.57%       1.60%       2.18%       1.97%       2.51%
Net interest margin (ratio of net interest
 income divided by average earning assets)......       1.59%       2.08%       2.40%       2.73%       2.94%
Ratio of operating expense to average total
 assets.........................................       1.07%       1.28%       1.60%       2.07%       2.88%
Ratio of average interest-earning assets to
 average interest-bearing liabilities...........     108.48%     106.18%     105.55%     107.70%     108.61%

ASSET QUALITY RATIOS:
---------------------
Non-performing assets to total assets at end of
 period.........................................         --          --          --          --          --
Allowance for loan losses to non-performing
 loans..........................................        n/a         n/a         n/a         n/a         n/a
Allowance for loan losses to loans receivable,
 net............................................       1.16%       1.28%       1.47%       1.02%       1.41%

CAPITAL RATIOS:
Stockholders' equity to total assets at end of
 period.........................................       7.25%       6.31%       6.92%       9.52%      10.34%
Average stockholders' equity to average assets..       6.77%       6.52%       8.33%      10.58%      11.02%

(1)  Adjusted to reflect three-for-two stock split declared in January 2002.
</TABLE>

                                       2
<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.

GENERAL

         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 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.

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

                                       3
<PAGE>

         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 2003 would have been
         reduced by $35,000, from $2,637,000 to $2,602,000, and basic earnings
         per share would have been reduced by $0.01, from $0.41 to $0.40.

                  We calculate the compensation cost of the options using the
         Black-Scholes model to determine the fair value of the options granted.
         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.
         Management has no current plans to begin recognizing expense associated
         with the options.

         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.

                                       4
<PAGE>

         The following table illustrates our gap position at December 31, 2003.
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 10%, 20%, 15%, 15%, 25%, and
15% during the time-frames shown on the following table.
<TABLE>
<CAPTION>
                                                                                         DECEMBER 31, 2003
                                                           ------------------------------------------------------------------------
                                                                                     MATURITIES AND REPRICINGS
                                                             WITHIN
                                                             1 YEAR      1-2 YEARS      2-3 YEARS     3-5 YEARS      5-10 YEARS
                                                           ----------    ----------     ----------    ----------     ----------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                        <C>           <C>            <C>           <C>            <C>
Interest-earning assets:
Interest bearing deposit with bank and Federal funds sold  $      237    $       --     $       --    $       --     $       --
Loans receivable .....................................         74,417         7,368          7,609        77,597         18,191
Mortgage-backed securities............................         50,328        57,337         86,848         4,986          1,966
Investment securities  ...............................         35,988           880          1,113           396             --
Restricted investments in bank stock..................          6,994            --             --            --             --
                                                           ----------    ----------     ----------    ----------     ----------
  Total interest-earning assets.......................     $  167,964    $   65,585     $   95,570    $   82,979     $   20,157
                                                           ==========    ==========     ==========    ==========     ==========

Interest-bearing liabilities:

Demand................................................     $   10,321    $   20,642     $   15,482    $   15,482     $   25,801
Savings...............................................          9,047        18,095         13,571        13,571         22,619
Time..................................................         64,721        24,353          6,556        23,008             --
Borrowings............................................         75,022        20,262          7,748           232             --
Mandatory redeemable convertible debentures...........             --            --             --            --             --
                                                           ----------    ----------     ----------    ----------     ----------
  Total interest-bearing liabilities..................     $  159,110    $   83,352     $   43,357    $   52,294     $   48,420
                                                           ==========    ==========     ==========    ==========     ==========

Interest sensitivity gap..............................     $    8,854    $  (17,767)    $   52,213    $   30,685     $  (28,263)
                                                           ==========    ===========    ==========    ==========     ===========
Cumulative interest sensitivity gap...................     $    8,854    $   (8,913)    $   43,300    $   73,985     $   45,722
                                                           ==========    ===========    ==========    ==========     ==========
Ratio of gap to total assets..........................            1.8%         (3.7)%         10.8%          6.4%          (5.8)%
                                                           ===========   ============   ===========   ===========    ===========
Ratio of cumulative gap to total assets...............            1.8%         (1.9)%          8.9%         15.3%           9.5%
                                                           ===========   ============   ===========   ===========    ===========
[RESTUBBED]
<CAPTION>

                                                                 DECEMBER 31, 2003
                                                           ---------------------------
                                                            MATURITIES AND REPRICINGS
                                                               OVER
                                                              10 YEARS        TOTAL
                                                             ----------    ----------
                                                             (DOLLARS IN THOUSANDS
<S>                                                          <C>           <C>
Interest-earning assets:
Interest bearing deposit with bank and Federal funds sold    $       --    $      237
Loans receivable .....................................           21,855       207,037
Mortgage-backed securities............................              607       202,072
Investment securities  ...............................           11,658        50,035
Restricted investments in bank stock..................               --         6,994
                                                             ----------    ----------
  Total interest-earning assets.......................       $   34,120    $  466,375
                                                             ==========    ==========

Interest-bearing liabilities:

Demand................................................       $   15,482    $  103,210
Savings...............................................           13,571        90,474
Time..................................................               --       118,638
Borrowings............................................               --       103,266
Mandatory redeemable convertible debentures...........           10,200        10,200
                                                             ----------    ----------
  Total interest-bearing liabilities..................       $   39,253    $  425,786
                                                             ==========    ==========

Interest sensitivity gap..............................       $   (5,133)   $   40,589
                                                             ===========   ==========
Cumulative interest sensitivity gap...................       $   40,589    $   40,589
                                                             ==========    ==========
Ratio of gap to total assets..........................             (1.1)%         8.4%
                                                             ===========   ===========
Ratio of cumulative gap to total assets...............              8.4%          8.4%
                                                             ===========   ===========
</TABLE>

                                       5
<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,
2003, we were asset sensitive over a time horizon of up to twelve months. This
"positive gap" of $8.9 million within such time frame resulted principally from
growth in transaction deposit accounts and stockholders' equity, resulting from
the exercise of warrants, used to fund increases in loans and securities that
had similar or shorter 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 or longer 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 negative 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.

                                       6
<PAGE>
<TABLE>
<CAPTION>

                                                              FOR THE YEARS ENDED DECEMBER 31,
                                ----------------------------------------------------------------------------------------------
                                                     2003                                          2002
                                ------------------------------------------      -------------------------------------------
                                   AVERAGE         INTEREST                       AVERAGE         INTEREST
                                 OUTSTANDING        EARNED/       YIELD/        OUTSTANDING        EARNED/         YIELD/
                                   BALANCE           PAID          RATE           BALANCE           PAID            RATE
                                -------------   -----------     ----------      -------------    -----------     ----------
                                                                 (DOLLARS IN THOUSANDS)
<S>                             <C>             <C>                   <C>       <C>              <C>                   <C>
Interest-earning assets:
Interest bearing deposits and
    federal funds sold.....     $       5,307   $        54           1.02%     $       7,748    $       113           1.46%
Loans receivable...........           164,289         9,984           6.08            132,262          9,508           7.19
Mortgage-backed securities.           233,866         6,534           2.79            133,011          5,538           4.16
Investment securities......            47,134         2,485           5.27            110,005          5,132           4.67
Restricted bank stock......             6,730           168           2.50              5,099            198           3.88
                                -------------   -----------     ----------      -------------    -----------     ----------
  Total interest-earning
    assets ...............            457,326        19,225           4.20            388,125         20,489           5.28
                                -------------   -----------     ----------      -------------    -----------     ----------

Interest-bearing liabilities:
Demand.....................            94,011         1,263           1.34             76,535          1,673           2.19
Savings....................            91,416         1,386           1.52             85,818          1,975           2.30
Time.......................           120,628         4,163           3.45            103,007          4,115           3.99
Borrowings.................           105,302         4,513           4.29             93,213          4,229           4.54
Mandatory redeemable
    convertible debentures             10,200           612           6.00              6,950            417           6.00
                                -------------   -----------     ----------      -------------    -----------     ----------
  Total interest-bearing
    liabilities...........            421,557        11,937           2.83            365,523         12,409           3.39
                                -------------   -----------     ----------      -------------    -----------     ----------

Net interest income........                     $     7,288                                      $     8,080
                                                ===========                                      ===========
Net interest rate spread...                                           1.37%                                            1.89%
                                                                ===========                                      ==========
Net earning assets.........     $      35,769                                   $      22,602
                                =============                                   =============

Net yield on average
interest-earning assets...                                            1.59%                                            2.08%
                                                                ===========                                      ==========

Ratio of interest-earning
assets to interest bearing
liabilities................             108.48%                                         106.18%
                                ===============                                 ==============

[RESTUBBED[
<CAPTION>

                                          FOR THE YEARS ENDED DECEMBER 31,
                                   ------------------------------------------
                                                      2001
                                   ------------------------------------------
                                    AVERAGE         INTEREST
                                  OUTSTANDING        EARNED/         YIELD/
                                    BALANCE           PAID            RATE
                                   ------------    -----------     ----------
                                              (DOLLARS IN THOUSANDS)
<S>                                <C>             <C>                   <C>
Interest-earning assets:
Interest bearing deposits and
    federal funds sold.....        $      6,994    $       258           3.69%
Loans receivable...........             129,941         10,301           7.93
Mortgage-backed securities.              46,839          3,096           6.61
Investment securities......              98,990          6,064           6.13
Restricted bank stock......               4,145            276           6.66
                                   ------------    -----------     ----------
  Total interest-earning
    assets ...............              286,909         19,995           6.97
                                   ------------    -----------     ----------

Interest-bearing liabilities:
Demand.....................              52,993          1,795           3.39
Savings....................              48,955          2,188           4.47
Time.......................              94,130          5,394           5.73
Borrowings.................              75,732          3,746           4.95
Mandatory redeemable
    convertible debentures                   --             --             --
                                   ------------    -----------     ----------
  Total interest-bearing
    liabilities...........              271,810         13,123           4.83
                                   ------------    -----------     ----------

Net interest income........                        $     6,872
                                                   ===========
Net interest rate spread...                                              2.14%
                                                                   ==========
Net earning assets.........        $     15,099
                                   ============

Net yield on average
interest-earning assets...                                               2.40%
                                                                   ==========

Ratio of interest-earning
assets to interest bearing
liabilities................                105.55%
                                   ==============
</TABLE>

                                       7
<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,
                                                     2003 V. 2002                          2002 V. 2001
                                       ---------------------------------        -----------------------------------
                                        INCREASE/DECREASE                         INCREASE/DECREASE
                                             DUE TO               TOTAL                DUE TO               TOTAL
                                       -------------------       INCREASE       --------------------       INCREASE/
                                       VOLUME        RATE        DECREASE       VOLUME        RATE         DECREASE
                                       ------        ----        --------       ------        ----         --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                   <C>           <C>           <C>           <C>          <C>           <C>
Interest-earning assets:
Interest bearing deposits and
 Federal funds sold ............      $   (33)      $   (26)      $   (59)      $    21      $  (166)      $  (145)

Loans receivable ...............        2,060        (1,584)          476           179         (972)         (793)

Mortgage-backed securities .....        4,196        (3,200)          996         4,589       (2,147)        2,442

Investment securities ..........       (3,136)          489        (2,647)          613       (1,545)         (932)

Other ..........................           53           (83)          (30)           53         (131)          (78)
                                      -------       -------       -------       -------      -------       -------

  Total interest-earning assets         3,140        (4,404)       (1,264)        5,455       (4,961)          494
                                      -------       -------       -------       -------      -------       -------

Interest-bearing liabilities:
Demand deposits ................          313          (723)         (410)          598         (720)         (122)
Savings deposits ...............          110          (699)         (589)        1,115       (1,328)         (213)
Time deposits ..................          699          (651)           48            52       (1,331)       (1,279)
Borrowings .....................          549          (265)          284         1,064         (581)          483
Mandatory redeemable convertible
  debentures ...................          195            --           195           417           --           417
                                      -------       -------       -------       -------      -------       -------
  Total interest-bearing
    liabilities ................        1,866        (2,338)         (472)        3,246       (3,960)         (714)
                                      -------       -------       -------       -------      -------       -------

Net interest income ............      $ 1,274       $(2,066)      $  (792)      $ 2,209      $(1,001)      $ 1,208
                                      =======       =======       =======       =======      =======       =======
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2003 AND 2002

OVERVIEW

         Total assets increased to $482.0 million at December 31, 2003 from
$453.3 million at December 31, 2002, an increase of $28.7 million, or 6.3%.
Investment securities decreased by $37.9 million, or 13.1%, to $252.1 million at
December 31, 2003 compared to $290.0 million at December 31, 2002. Loans
outstanding increased by $69.9 million, or 51.8%, to $204.8 million at December
31, 2003, compared to $134.9 million at December 31, 2002. The growth in assets
was funded by an increase in deposits of $25.5 million. In addition,
stockholders' equity increased $6.4 million to $35.0 million at December 31,
2003 from $28.6 million at December 31, 2002.

LOANS

         Loans receivable, net of allowance for loan losses and deferred
origination fees and costs, were $204.8 million at December 31, 2003, an
increase of $69.9 million, or 51.8%, compared to the December 31, 2002 balance
of $134.9 million. Loans receivable represented 42.5% of total assets at
December 31, 2003, compared to 29.8% of total assets at December 31, 2002.
During 2003, we emphasized the origination of commercial and consumer loans.
These types of loans generally have higher interest rates and shorter maturities
than residential real estate loans.

                                       8
<PAGE>

         Commercial real estate loans increased $31.0 million, or 47.3%, to
$96.6 million, compared to $65.6 million at December 31, 2002. Commercial loans
secured by other than real estate increased by $16.7 million, or 66.3%, to $41.9
million at December 31, 2003, from $25.2 million at December 31, 2002. Consumer
loans increased by $1.3 million, or 9.4%, to $15.1 million at December 31, 2003,
from $13.8 million at December 31, 2002.

         Residential real estate loans increased to $53.4 million at December
31, 2003, an increase of $21.1 million, or 65.3%, compared to $32.3 million at
December 31, 2002. The increase resulted from the significant increase in
refinancing activity during 2003 with the historically low interest rate
environment. 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 $6.1 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 $25.0 million of fixed-rate residential mortgage loans
during the year 2003. 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.

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, 2003
had recorded charge-offs on three loans. In addition, we have had very limited
amounts of loan delinquencies. As a result, we rely upon the past experience and
knowledge of management, gained at other banking institutions where they have
worked and the experience of our peer group, as a basis for 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.

                                       9
<PAGE>

         At December 31, 2003 and December 31, 2002, we had an allowance for
loan losses of approximately $2,412,000 and $1,759,000, respectively. Management
believes that the allowance for loan losses at December 31, 2003 was adequate 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 $37.9 million, or 13.1%, to
$252.1 million at December 31, 2003 from $290.0 million at December 31, 2002.
Investment securities classified as available for sale decreased by $39.8
million, or 14.4%, to $236.7 million, while investment securities classified as
held to maturity increased by $1.9 million, or 14.1%, to $15.4 million. The
decrease in our portfolio of securities available for sale, which resulted
primarily from securities being called and from prepayments of mortgage backed
securities, was used to fund the growth in our loan portfolio.

DEPOSITS

         Total deposits increased by $25.5 million, or 8.3%, to $332.3 million
at December 31, 2003 from the December 31, 2002 balance of $306.8 million.
Interest-bearing checking accounts grew $18.4 million, or 21.7%, to $103.2
million, at December 31, 2003, compared to $84.8 million at December 31, 2002.
Non-interest bearing demand deposits decreased $400,000, or 2.0%, to $20.0
million at December 31, 2003, from $20.4 million at December 31, 2002. Savings
deposits, including money market accounts, increased $4.9 million, or 5.7%, to
$90.5 million at December 31, 2003, from the balance of $85.6 million at
December 31, 2002. Total certificates of deposit increased by $2.6 million, or
2.2%, to $118.6 million from the December 31, 2003 balance of $116.0 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 $6.9 million at
December 31, 2003, a decrease of $0.9 million, or 11.5%, from the total of $ 7.8
million at December 31, 2002. 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, 2003, the amount of advances outstanding from the
FHLB was $96.4 million, a decrease of $1.4 million, or 1.4%, compared to the
$97.8 million outstanding at December 31, 2002. The decrease resulted from the
maturity of a $1.0 million advance with an interest rate of 5.11% and 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, 2003 American Bank's maximum borrowing capacity was $253.4
million.

                                       10
<PAGE>

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 1,200,000 shares of common
stock at December 31, 2003. 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. 46 (FIN 46) which provides
guidance for the consolidation of variable interest entities (VIEs). Management
has determined that the under the provisions of FIN 46, American Capital Trust I
must be de-consolidated as of March 31, 2004. Upon adoption of FIN 46 the junior
subordinated debentures issued to the Trust will 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 will be reported in "Other assets".
Please refer to Notes 2 and 11 to the Consolidated Financial Statements for
additional discussion of FIN 46.

         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, 2003 the entire $10.2 million of the
debentures qualified as Tier 1 capital of American Bank Incorporated. The
Federal Reserve Board has indicated that the preferred securities will continue
to qualify as Tier I Capital, subject to the above noted limitations, until
further notice.

STOCKHOLDERS' EQUITY

         Stockholders' equity at December 31, 2003 was $35.0 million, an
increase of $6.4 million, or 22.4%, from the December 31, 2002 balance of $28.6
million. This increase was attributable to net income of $2.6 million, the
exercise of warrants by warrant holders, which resulted in an increase of $4.8
million, the exercise of options by option holders, which resulted in an
increase of $166,000 and a decrease in the unrealized gain on investment
securities classified as available for sale (net of the related tax effect) of
$1.2 million.

         As part of the our public offering of common stock during June 2000,
each purchaser in the offering was granted one warrant for each two shares of
common stock purchased. Each warrant entitled the holder to purchase one share
of common stock. The warrants were exercisable at any time through June 30,
2003, at an exercise price of $6.67 per share (adjusted for the three-for-two
stock split declared in January 2002). The total number of warrants issued in
connection with the public offering was 760,205. As of June 30, 2003, the
expiration date of the warrants, 727,588 warrants were exercised.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

NET INCOME

         For the year ended December 31, 2003 we reported net income of $2.6
million, or $0.41 per basic share and $0.39 per diluted share for a return on
average assets of 0.56% and a return on average equity of 8.27%. This was an
increase of $121,000, or 4.8%, over net income of $2.5 million for the year
ended December 31, 2002, or $0.42 per basic and $0.40 per diluted share. The
increase in net income was primarily the result of an increase of $1.0 million
in non-interest income, partially offset by a decrease of $792,000 of net
interest income.

                                       11
<PAGE>

NET INTEREST INCOME

         Net interest income, which is the sum of interest and certain 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
decreased by $792,000 or 9.8%, to $7.3 million for the year ended December 31,
2003, as compared to $8.1 million for the year ended December 31, 2002. Average
interest-earning assets grew to $457.3 million for the year ended December 31,
2003, an increase of $69.2 million, or 17.8%, as compared to the average of
$388.1 million for the year ended December 31, 2002. Average interest-bearing
liabilities grew to $421.6 million for the year ended December 31, 2003, an
increase of $56.1 million, or 15.4%, compared to the average of $365.5 million
for the year ended December 31, 2002. The yield on average interest-earning
assets was 4.20% for the year ended December 31, 2003, a decrease of 108 basis
points from the yield of 5.28% for the year ended December 31, 2002. The
decrease in the yield on earning assets resulted from declining market interest
rates during the year ended December 31, 2003. The historic low interest rates
in 2003 provided borrowers the opportunity to refinance loans to lower rates. In
addition, prepayments on mortgage-backed securities increased dramatically and
accelerated the amortization of the premiums paid for these securities, thereby
reducing the yield realized for these investments. The cost of funds was 2.83%
for the year ended December 31, 2003, a decrease of 56 basis points from the
cost of 3.39% for the year ended December 31, 2002, also a result of the decline
in market interest rates. During this period, we reduced our deposit rates at a
slower pace than the rate of decline in market rates and the rate of decline of
our assets. We maintain higher deposit rates than our competition as a means to
attract new customers and the related banking relationships those customers
bring. As a result our net interest margin (net interest income as a percentage
or average interest-earning assets) decreased 49 basis points, to 1.59%, for the
year ended December 31, 2003, as compared to 2.08%, for the year ended December
31, 2002.

PROVISION FOR LOAN LOSSES

         Management records a provision for loan losses in amounts that result
in an allowance for loan losses sufficient to absorb losses believed to be
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, 2003, the provision for loan losses amounted to
$405,000, an increase of $193,000, or 91.0%, from the $212,000 provision for the
year ended December 31, 2002. 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 $251,000 of a loan charged-off in the prior year. At December
31, 2003, the allowance for loan losses as a percentage of outstanding loans was
1.16%, as compared to 1.28% at December 31, 2002. Management considers the
allowance for loan losses at December 31, 2003 to be adequate for the inherent
risks of loss in the loan portfolio at that date.

NON-INTEREST INCOME

         Total non-interest income for the year ended December 31, 2003 was
$2,001,000, an increase of $1,044,000, or 109.1%, compared to $957,000 for the
year ended December 31, 2002. Net realized gains on the sale of securities
totaled $862,000 for the year ended December 31, 2003, compared to $112,000 for
year 2002. The net realized gains for the years ended December 31, 2003 and
2002, resulted from management's desire and ability to reposition the securities
portfolio to achieve its interest rate risk objectives. Service charges on
deposit accounts increased to $165,000 for the year 2003, compared to $160,000
for the year 2002. The increase of $5,000, or 3.1%, was the result of increases
in the number of deposit accounts. Gain on sale of loans increased $105,000, or
35.5%, to $401,000 in 2003 compared to $296,000 in 2002. This increase resulted
from an increase in residential real estate loans originated and sold, which
primarily resulted from an increase in the volume of loan refinancing activity
due to the historic low interest rate environment. 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 increased
$26,000, or 11.4%, to $255,000 for year ended December 31, 2003, compared to
$229,000 for the year ended December 30, 2002. The increases in these fees were
due to greater volume of transactions. The increase in the carrying value of
bank-owned life insurance included in income for the year ended December 31,
2003, was $318,000, compared to $160,000 for the year ended December 31, 2002.
The bank-owned life insurance was purchased during July 2002. As such, the
earnings shown for the year 2002 were for less than a full year. In November
2003 the Bank purchased an additional $2.0 million of bank owned life insurance,
which had a minor impact on 2003 earnings and no impact on 2002 earnings.

                                       12
<PAGE>

NON-INTEREST EXPENSE

         Non-interest expense for the year ended December 31, 2003 decreased
$101,000, or 1.9%, to $5,111,000, as compared to $5,212,000 for the year ended
December 31, 2002. Our efficiency ratio (ratio of non-interest expense to the
sum of net interest income and non-interest income) improved to 55.0% for the
year ended December 31, 2003, as compared to 57.7% for the year ended December
31, 2002. Salaries and wages for the year ended December 31, 2003 totaled $1.7
million, a decrease of $146,000, or 7.9%, as compared to salaries and wages for
the year ended December 31, 2002, primarily the result of a decrease of two
employees and an increase in the amount of salary cost deferred as direct loan
origination costs in the current year. Net occupancy expense of $784,000
represented an increase of $32,000, or 4.3%, compared to the prior year, due to
scheduled increases in base rents provided for in our lease agreements and
increased utility cost. Loan origination and product management expense
decreased $49,000, or 12.0%, to $361,000 for the year ended December 31, 2003
from $410,000 for the year ended December 31, 2002, primarily the result of
increased direct loan origination costs being deferred, the result of increased
loan origination volume. Professional fees decreased by $61,000, or 23.3%, to
$201,000 for the year ended December 31, 2003, compared to $262,000 for the year
ended December 31, 2002. For the year 2002, professional fees included legal,
accounting and other consulting fees associated with the formation of American
Bank Incorporated as American Bank's holding company, the registration of our
common stock and warrants with the Securities and Exchange Commission and our
application and listing on the Nasdaq SmallCap Market. Pennsylvania bank shares
tax increased $59,000, to $176,000, as a result of a higher amount of capital
subject to tax in the year 2003 compared to the year 2002. Other operating
expense decreased $7,000, to $636,000 for the year ended December 31, 2003,
representing a 1.6% decrease from the year ended December 31, 2002.

INCOME TAX EXPENSE

         Income tax expense for the year ended December 31, 2003, amounted to
$1,136,000, an increase of $39,000 from the $1,097,000 incurred for the year
ended December 31, 2002, due primarily to the increase in pretax income. Our
effective tax rate for the year 2003 was 30.1%, as compared to 30.4% for the
year 2002. The effective tax rate for the ended December 31, 2003 benefited from
our acquiring assets with preferential tax treatment.

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, 2003, 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.

                                       13
<PAGE>

         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, 2003, American Bank Incorporated and American Bank exceeded all
applicable capital adequacy requirements.

         At December 31, 2003, 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, 2003:
Total Capital (to risk weighted assets)... $   39,548         14.86%   $     21,288        8.00%   $    26,610       10.00%
Tier I Capital (to risk weighted assets)..     37,136         13.96          10,644        4.00         15,966        6.00
Tier I Capital (to average assets)........     37,136          7.81          19,016        4.00         23,770        5.00
</TABLE>

         At December 31, 2003, 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, 2003:
Total Capital (to risk weighted assets)...  $   47,782         17.68%   $     21,690        8.00%
Tier I Capital (to risk weighted assets)..      45,106         16.69          10,845        4.00
Tier I Capital (to average assets)........      45,106          9.40          19,200        4.00
</TABLE>

         American Bank Incorporated's 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, 2003 totaled $51.2 million. This
consisted of $6.9 million in commitments to fund commercial business, commercial
real estate, residential real estate and commercial and residential construction
loans, $40.5 million under lines of credit, including $5.2 million in home
equity lines of credit and $3.8 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, 2003.
<TABLE>
<CAPTION>

                                                    DUE AFTER       DUE AFTER
                                                   DECEMBER 31,    DECEMBER 31,
                                     DUE BY        2004 THROUGH    2006 THROUGH     DUE AFTER
                                  DECEMBER 31,     DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                      2004             2006            2008            2008            TOTAL
                                 -------------    -------------   -------------   -------------    -------------
                                                                  (IN THOUSANDS)

<S>                              <C>              <C>             <C>             <C>              <C>
   Time deposits.............    $      64,721    $      30,909   $      23,008   $          --    $     118,638
   Short-term debt...........            6,909               --              --              --            6,909
   Long-term debt............              261              361          18,235          77,500           96,357
   Manditory redeemable
     convertible debentures..               --               --              --          10,200           10,200
   Operating leases..........              331              641             295              --            1,267
                                 -------------    -------------   -------------   -------------    -------------
     Total...................    $      72,222    $      31,911   $      41,538   $      87,700    $     233,171
                                 =============    =============   =============   =============    =============
</TABLE>

                                       14
<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. American Bank Incorporated
has a strong capital position. Stockholders' equity at December 31, 2003 totaled
$35.0 million, an increase of $6.4 million over $28.6 million at December 31,
2002. The increase was the result of net income of $2.6 million, the exercise of
warrants by warrant holders of $4.8 million, the exercise of options by option
holders of $166,000 and a decrease 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, 2003, we had no loans delinquent more than 30 days, no
loans classified as non-performing or non-accrual, and no assets acquired in
settlement of loans. During the year ended December 31, 2003, we charged-off two
loans with unpaid balances totaling $3,000. During the year we recovered
$251,000 of a loan charged-off the previous year.

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, 2003 and 2002, 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, 2003.

                                       15
<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, 2003, the aggregate amount of our assets classified as
"Special Mention" and "Substandard" were $1,550,000 and $1,432,000,
respectively. No assets were classified as "Doubtful," and no assets were
classified as "Loss."

IMPACT OF NEW ACCOUNTING STANDARDS

         In November 2002, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This Interpretation expands the disclosures to be made
by a guarantor in its financial statements about its obligations under certain
guarantees and requires the guarantor to recognize a liability for the fair
value of an obligation assumed under certain specified guarantees. Under FIN 45,
we do not issue any guarantees that would require liability recognition or
disclosure, other than its standby letters of credit, as discussed in Note 19.
Adoption of FIN 45 did not have a significant impact on our financial condition
or results of operations.

         In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51." FIN 46 was revised in December 2003. This
Interpretation provides new guidance for the consolidation of variable interest
entities ("VIEs") and requires such entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risk among the parties
involved. The Interpretation also adds disclosure requirements for investors
that are involved with unconsolidated VIEs. The consolidation requirements apply
to companies that have interests in special-purpose entities for periods ending
after December 31, 2003. Consolidation of other types of VIEs is required in
financial statements for periods ending after December 15, 2004.

         We have evaluated the impact of FIN 46 on American Capital Trust I, a
variable interest entity, currently consolidated into our financial statements.
Management has determined that the provisions of FIN 46 will require
de-consolidation of the subsidiary trust, which issued mandatorily redeemable
convertible preferred capital securities to third-party investors. Upon adoption
of FIN 46 as of March 31, 2004, the trust will be de-consolidated and our junior
subordinated debentures will continue to be reported in the Consolidated Balance
Sheets as "Long-term debt". Our equity interest in the trust of $315,469 will be
reported in "Other assets". For regulatory reporting purposes, the Federal
Reserve Board has indicated that the preferred securities will continue to
qualify as Tier I Capital subject to previously specified limitations, until
further notice. Additional information on the trust is summarized in Notes 2 and
11. The adoption of this interpretation did not have and is not expected to have
a significant impact on our results of operations or liquidity.

                                       16
<PAGE>

         In  April  2003,  the  Financial   Accounting  Standards  Board  issued
Statement No. 149,  "Amendment of Statement No. 133,  Accounting  for Derivative
Instruments and Hedging  Activities." This Statement clarifies the definition of
a derivative and incorporates certain decisions made by the Board as part of the
Derivatives  Implementation  Group  process.  This  Statement is  effective  for
contracts  entered  into or modified  and for hedging  relationships  designated
after June 30, 2003 and should be applied  prospectively.  The provisions of the
statement  that relate to  implementation  issues  addressed by the  Derivatives
Implementation  Group that have been effective  should continue to be applied in
accordance with their respective  dates.  Adoption of this standard did not have
an impact on our financial condition or results of operations.

         In May 2003, the Financial Accounting Standards board issued Statement
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity." This Statement requires that an issuer classify a
financial instrument that is within its scope as a liability. Many of these
instruments were previously classified as equity. This Statement was effective
for financial instruments entered into or modified after May 31, 2003 and
otherwise was effective beginning July 1, 2003. The adoption of this standard
did not have an impact on our financial condition or results of operations

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 26, 2004, we had six registered market
makers, 708 stockholders of record (excluding the number of persons or entities
holding stock in street name through various brokerage firms), and 7,184,092
shares outstanding.

                                       17
<PAGE>

         The following tables set forth market price and dividend information
for the common stock for the last two fiscal years, as adjusted to reflect the
three-for-two stock split declared in January 2002.
<TABLE>
<CAPTION>

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

YEAR ENDED DECEMBER 31, 2002       HIGH                LOW            CASH DIVIDENDS DECLARED
---------------------------    ---------         -----------         -----------------------
Fourth Quarter                 $    9.91         $      7.15            $        --
Third Quarter                       7.60                6.55                     --
Second Quarter                      9.60                7.00                     --
First Quarter                      10.00                7.53                     --
</TABLE>

STOCKHOLDER INFORMATION

ANNUAL MEETING

The Annual Meeting of Stockholders will be held at 9:00 a.m. on April 27, 2004
at The Holiday Inn West, Route 100 and Interstate 78 Fogelsville, Pennsylvania.

STOCK LISTING

Our common stock trades on the Nasdaq SmallCap Market under the symbol "AMBK".

American Capital Trust I's preferred stock trades on the OTC Bulletin Board
under the symbol "AMBKP.OB."

SPECIAL COUNSEL

Luse Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015

INDEPENDENT AUDITORs

Beard Miller Company LLP
2609 Keiser Blvd.
P.O. Box 311
Reading, Pennsylvania 19603

TRANSFER AGENT

StockTrans, Inc.
44 West Lancaster Ave.
Ardmore, Pennsylvania  19003

ANNUAL REPORT ON FORM 10-KSB

A copy of our Form 10-KSB for the fiscal year ended December 31, 2003, will be
furnished without charge to stockholders of record as of March 26, 2004, upon
written request to the Secretary, American Bank Incorporated, 4029 West Tilghman
Street, Allentown, Pennsylvania 18104.

                                       18
<PAGE>

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
                          Frederick J. Jaindl, Chairman
                            4029 West Tilghman Street
                               Allentown, PA 18104

                             DIRECTORS AND OFFICERS
                 * Denotes officer of American Bank Incorporated

              DIRECTORS                           OFFICERS
              ---------                           --------

          Frederick J. Jaindl*                 Mark W. Jaindl *
          CHAIRMAN                             PRESIDENT AND
                                                 CHIEF EXECUTIVE OFFICER
          Mark W. Jaindl
          VICE CHAIRMAN                        Sandra A. Berg *
                                               SENIOR VICE PRESIDENT,SECRETARY
          David M. Jaindl                        SENIOR OPERATING OFFICER

          Elizabeth B. Gaul                    Chris J. Persichetti
                                               SENIOR VICE PRESIDENT,
          John C. Long                           SENIOR LOAN OFFICER

          Philip S. Schwartz                   Harry C. Birkhimer *
                                               VICE PRESIDENT, TREASURER AND
          Martin F. Spiro                        CHIEF FINANCIAL OFFICER

                                               Robert W. Turner
                                                 VICE PRESIDENT, DIRECTOR
                                                   OF  TECHNOLOGY

                                       19
<PAGE>

[logo]
BEARD MILLER
COMPANY LLP
Certified Public Accountants and Consultants

                          INDEPENDENT AUDITOR'S REPORT

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, 2003 and
2002, 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 auditing standards generally
accepted in the United States of America. 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, 2003 and 2002, 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
January 30, 2004

                                      F-1
<PAGE>

AMERICAN BANK INCORPORATED
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                           DECEMBER 31,
                                                                                      2003            2002
                                                                                    ---------       ---------
                                                                               (DOLLARS IN THOUSANDS, EXCEPT PER
                                                                                           SHARE DATA)
ASSETS
<S>                                                                                 <C>             <C>
   Cash and due from banks                                                          $   4,623       $   3,291
   Interest bearing deposit with bank                                                     237             275
   Securities purchased under agreement to resell                                          --           6,874
                                                                                    ---------       ---------

       Cash and Cash Equivalents                                                        4,860          10,440

   Securities available for sale                                                      236,746         276,569
   Securities held to maturity, fair value 2003 $15,584; 2002 $13,644                  15,361          13,466
   Loans receivable, net of allowance for loan losses 2003 $2,412; 2002 $1,759        204,832         134,926
   Restricted investments in bank stocks                                                6,994           6,131
   Bank owned life insurance                                                            8,178           5,860
   Premises and equipment, net                                                          1,808           2,253
   Accrued interest receivable                                                          1,973           2,449
   Other assets                                                                         1,240           1,171
                                                                                    ---------       ---------

       TOTAL ASSETS                                                                 $ 481,992       $ 453,265
                                                                                    =========       =========

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

   Deposits:
      Non-interest bearing                                                          $  19,964       $  20,398
      Interest-bearing                                                                312,322         286,353
                                                                                    ---------       ---------

       Total Deposits                                                                 332,286         306,751
   Securities sold under agreements to repurchase                                       6,909           7,784
   Long-term debt                                                                      96,357          97,791
   Mandatory redeemable convertible debentures                                         10,200          10,200
   Accrued interest payable                                                               629             702
   Other liabilities                                                                      648           1,444
                                                                                    ---------       ---------

       TOTAL LIABILITIES                                                              447,029         424,672
                                                                                    ---------       ---------

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 2003 6,807,279 shares; 2002 6,077,827 shares                 681             608
   Paid-in capital                                                                     29,489          24,614
   Unallocated ESOP shares, at cost                                                      (117)           (139)
   Retained earnings                                                                    4,853           2,216
   Accumulated other comprehensive income                                                  57           1,294
                                                                                    ---------       ---------

       TOTAL STOCKHOLDERS' EQUITY                                                      34,963          28,593
                                                                                    ---------       ---------

       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $ 481,992       $ 453,265
                                                                                    =========       =========
</TABLE>

See notes to consolidated financial statements.

                                      F-2
<PAGE>

AMERICAN BANK INCORPORATED
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                                   ------------------------
                                                                       2003         2002
                                                                     -------      -------
                                                               (DOLLARS IN THOUSANDS, EXCEPT PER
                                                                          SHARE DATA)
<S>                                                                  <C>          <C>
INTEREST INCOME
   Loans receivable, including fees                                  $ 9,984      $ 9,508
   Securities, taxable                                                 9,187       10,868
   Interest-bearing deposit with bank                                     27           24
   Securities purchased under agreement to resell                         27           89
                                                                     -------      -------

       TOTAL INTEREST INCOME                                          19,225       20,489
                                                                     -------      -------

INTEREST EXPENSE
   Deposits                                                            6,812        7,763
   Short-term debt                                                        57           48
   Long-term debt                                                      4,456        4,181
   Mandatory redeemable convertible debentures                           612          417
                                                                     -------      -------

       TOTAL INTEREST EXPENSE                                         11,937       12,409
                                                                     -------      -------

       NET INTEREST INCOME                                             7,288        8,080

PROVISION FOR LOAN LOSSES                                                405          212
                                                                     -------      -------

       NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES             6,883        7,868
                                                                     -------      -------

OTHER INCOME
   Service fees                                                          165          160
   Net realized gains on sale of residential mortgage loans              401          296
   Net realized gains on sales of securities available for sale          862          112
   Earnings on bank owned life insurance                                 318          160
   Other                                                                 255          229
                                                                     -------      -------

       TOTAL OTHER INCOME                                              2,001          957
                                                                     -------      -------

OTHER EXPENSES
   Salaries and wages                                                  1,700        1,846
   Employee benefits                                                     413          373
   Occupancy                                                             784          752
   Equipment and data processing                                         697          698
   Marketing and business development                                    143          111
   Loan origination and product management                               361          410
   Professional services                                                 201          262
   Pennsylvania bank shares tax                                          176          117
   Other                                                                 636          643
                                                                     -------      -------

       TOTAL OTHER EXPENSES                                            5,111        5,212
                                                                     -------      -------

       INCOME BEFORE INCOME TAXES                                      3,773        3,613

INCOME TAXES                                                           1,136        1,097
                                                                     -------      -------

       NET INCOME                                                    $ 2,637      $ 2,516
                                                                     =======      =======
NET INCOME PER COMMON SHARE
   Basic                                                             $  0.41      $  0.42
                                                                     =======      =======

   Diluted                                                           $  0.39      $  0.40
                                                                     =======      =======
</TABLE>

See notes to consolidated financial statements.

                                      F-3
<PAGE>

AMERICAN BANK INCORPORATED
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003 AND 2002
<TABLE>
<CAPTION>
                                SHARES OF                                                         ACCUMULATED
                                 COMMON                                ALLOCATED      RETAINED       OTHER
                                 STOCK         COMMON      PAID-IN        ESOP        EARNINGS   COMPREHENSIVE
                                 ISSUED        STOCK       CAPITAL       SHARES       (DEFICIT)     INCOME         TOTAL
                                ---------    ---------    ---------    ---------     ---------     ---------     ---------
                                                               (DOLLARS IN THOUSANDS)

<S>                             <C>          <C>          <C>          <C>           <C>           <C>           <C>
BALANCE - DECEMBER 31, 2001     6,012,753    $     601    $  24,359    $     (86)    $    (300)    $     934     $  25,508
                                                                                                                 ---------
Comprehensive income:
    Net income                         --           --           --           --         2,516            --         2,516
    Net change in unrealized
     gains on securities
     available for
     sale, net of
     reclassification
     adjustment and tax
     effect                            --           --           --           --            --           360           360
                                                                                                                 ---------
    TOTAL COMPREHENSIVE
      INCOME                                                                                                         2,876
                                                                                                                 ---------

Purchase of shares by ESOP
  Trust                                --           --           --          (72)           --            --           (72)
Allocation of shares by ESOP
  Trust                                --           --           --           19            --            --            19
Exercise of stock options          58,500            6          210           --            --            --           216
Exercise of stock warrants          6,574            1           45           --            --            --            46
                                ---------    ---------    ---------    ---------     ---------     ---------     ---------

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
                                =========    =========    =========    =========     =========     =========     =========
</TABLE>

See notes to consolidated financial statements.

                                      F-4
<PAGE>

AMERICAN BANK INCORPORATED
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                                  -----------------------
                                                                                     2003         2002
                                                                                  ---------     ---------
                                                                                   (DOLLARS IN THOUSANDS)
<S>                                                                               <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                     $   2,637     $   2,516
   Adjustments to reconcile net income to net cash provided by operating
      activities:
         Provision for loan losses                                                      405           212
         Depreciation and amortization                                                  627           611
         Proceeds from sale of residential mortgage loans held for sale              25,394        19,988
         Net realized gains on sale of loans                                           (401)         (296)
         Originations of residential mortgage loans held for sale                   (24,993)      (19,692)
         Net amortization (accretion) of securities premiums and discounts            2,481        (1,991)
         Net realized gains on sales of securities                                     (862)         (112)
         Deferred tax expense (benefit)                                                (197)            2
         Income tax benefit on stock options exercised                                   99            --
         Earnings on bank owned life insurance                                         (318)         (160)
         Allocation of ESOP shares                                                       29            19
         (Increase) decrease in accrued interest receivable and other assets          1,100          (535)
         Increase (decrease) in accrued interest payable and other liabilities         (728)         (503)
                                                                                  ---------     ---------

         NET CASH PROVIDED BY OPERATING ACTIVITIES                                    5,273            59
                                                                                  ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES
   Securities available for sale:
      Purchases                                                                    (155,676)     (255,381)
      Maturities and principal repayments                                           174,291       155,725
      Sales                                                                          17,768           854
   Securities held to maturity:
      Purchases                                                                     (12,626)       (3,772)
      Maturities and principal repayments                                            10,678         5,188
   Net decrease in short-term investments                                                --        13,981
   Net (increase) decrease in loans receivable                                      (70,311)          451
   Purchase of bank owned life insurance                                             (2,000)       (5,700)
   Purchases of premises and equipment                                                 (182)         (365)
   Purchase of restricted investments in bank stock                                    (863)       (1,186)
                                                                                  ---------     ---------

         NET CASH USED IN INVESTING ACTIVITIES                                      (38,921)      (90,205)
                                                                                  ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in demand and savings deposits                                       22,894        29,938
   Net increase in time deposits                                                      2,641        23,050
   Net increase (decrease) in securities sold under agreements to repurchase           (875)        3,547
   Proceeds from long-term debt                                                          --        15,000
   Repayments on long-term debt                                                      (1,434)         (447)
   Proceeds from mandatory redeemable convertible debentures                             --        10,200
   Issuance of common stock                                                           4,842           262
   Purchase of common stock, ESOP Trust                                                  --           (72)
                                                                                  ---------     ---------

         NET CASH PROVIDED BY FINANCING ACTIVITIES                                   28,068        81,478
                                                                                  ---------     ---------

         NET DECREASE IN CASH AND CASH EQUIVALENTS                                   (5,580)       (8,668)

CASH AND CASH EQUIVALENTS - BEGINNING                                                10,440        19,108
                                                                                  ---------     ---------

CASH AND CASH EQUIVALENTS - ENDING                                                $   4,860     $  10,440
                                                                                  =========     =========

SUPPLEMENTARY CASH FLOWS INFORMATION
   Interest paid                                                                  $  12,010     $  12,432
                                                                                  =========     =========

   Income taxes                                                                   $   1,140     $   1,372
                                                                                  =========     =========
</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 subsidiaries, American Bank and
American Capital Trust I (collectively "American"). American Capital Trust I is
the trust formed for the purpose of issuing the mandatory redeemable debentures
on behalf of the Company. 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.

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 5 discusses the types of
     securities that the Company invests in. Note 6 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.

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, 2003 and 2002.

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.

     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.

                                      F-7
<PAGE>
AMERICAN BANK INCORPORATED
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

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.

     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.

                                      F-8
<PAGE>

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

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

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
     $8,178,000 and $5,860,000 at December 31, 2003 and 2002, 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 $70,000 and $62,000 are included
     in marketing and business development expenses for the years ended December
     31, 2003 and 2002, 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:
<TABLE>
<CAPTION>
                                                                                 2003       2002
                                                                               -------     -------
                                                                                 (IN THOUSANDS)

<S>                                                                            <C>         <C>
         Unrealized holding gains (losses) on securities available for sale    $(1,012)    $   659
         Reclassification adjustment for gains realized in net income             (862)       (112)
                                                                               -------     -------

                NET UNREALIZED GAINS (LOSSES)                                   (1,874)        547

         Tax effect                                                                637        (187)
                                                                               -------     -------

                NET OF TAX AMOUNT                                              $(1,237)    $   360
                                                                               =======     =======
</TABLE>

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 16 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
     2003 and 2002 was $2.61 and $2.69, 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 2003 and
     2002, respectively: dividend yield -0-%; expected volatility of 22% and
     31%; risk-free interest rates of 3.94% and 5.00% 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.
<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                                               2003        2002
                                                                             -------     -------
                                                                               (IN THOUSANDS)

<S>                                                                          <C>         <C>
         Net income, as reported                                             $ 2,637     $ 2,516
         Total stock based employee compensation expense determined under
              fair value based method for all awards, net of related tax
              effects                                                            (35)       (147)
                                                                             -------     -------

                PRO FORMA NET INCOME                                         $ 2,602     $ 2,369
                                                                             =======     =======
</TABLE>

                                      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,
                                            ------------------------
                                                2003       2002
                                                ----       ----

         Earnings per share:
              As reported:
                  Basic                      $  0.41     $ 0.42
                  Diluted                       0.39       0.40
              Pro forma:
                  Basic                         0.40       0.39
                  Diluted                       0.38       0.37

NEW ACCOUNTING STANDARDS

     In November 2002, the Financial Accounting Standards Board (FASB) issued
     FASB Interpretation No. 45 (FIN45), "Guarantor's Accounting and Disclosure
     Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
     of Others." This Interpretation expands the disclosures to be made by a
     guarantor in its financial statements about its obligations under certain
     guarantees and requires the guarantor to recognize a liability for the fair
     value of an obligation assumed under certain specified guarantees. Under
     FIN 45, the Company does not issue any guarantees that would require
     liability recognition or disclosure, other than its standby letters of
     credit, as discussed in Note 19. Adoption of FIN 45 did not have a
     significant impact on the Company's financial condition or results of
     operations.

     In January 2003, the Financial Accounting Standards Board issued FASB
     Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
     Entities, an Interpretation of ARB No. 51." FIN 46 was revised in December
     2003. This Interpretation provides new guidance for the consolidation of
     variable interest entities (VIEs) and requires such entities to be
     consolidated by their primary beneficiaries if the entities do not
     effectively disperse risk among the parties involved. The Interpretation
     also adds disclosure requirements for investors that are involved with
     unconsolidated VIEs. The consolidation requirements apply to companies that
     have interests in special-purpose entities for periods ending after
     December 31, 2003. Consolidation of other types of VIEs is required in
     financial statements for periods ending after December 15, 2004.

     The Company has evaluated the impact of FIN 46 on American Capital Trust I,
     a variable interest entity, currently consolidated by the Company.
     Management has determined that the provisions of FIN 46 will require
     de-consolidation of the subsidiary trust, which issued mandatorily
     redeemable convertible preferred capital securities to third-party
     investors. Upon adoption of FIN 46 as of March 31, 2004, the trust will be
     de-consolidated and the junior subordinated debentures of the Company will
     continue to be reported in the Consolidated Balance Sheets as "Long-term
     debt." The Company's equity interest in the trust of $315,000, will be
     reported in "Other assets." For regulatory reporting purposes, the Federal
     Reserve Board has indicated that the preferred securities will continue to
     qualify as Tier I Capital subject to previously specified limitations,
     until further notice. Additional information on the trust is summarized in
     Note 11. The adoption of this interpretation did not have and is not
     expected to have a significant impact on the Company's results of
     operations or liquidity.

                                      F-12
<PAGE>

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

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

NEW ACCOUNTING STANDARDS (CONTINUED)

     In April 2003, the Financial Accounting Standards Board issued Statement
     No. 149, "Amendment of Statement No. 133, Accounting for Derivative
     Instruments and Hedging Activities." This Statement clarifies the
     definition of a derivative and incorporates certain decisions made by the
     Board as part of the Derivatives Implementation Group process. This
     Statement is effective for contracts entered into or modified and for
     hedging relationships designated after June 30, 2003 and should be applied
     prospectively. The provisions of the statement that relate to
     implementation issues addressed by the Derivatives Implementation Group
     that have been effective should continue to be applied in accordance with
     their respective dates. Adoption of this standard did not have an impact on
     the Company's financial condition or results of operations.

     In May 2003, the Financial Accounting Standards board issued Statement No.
     150, "Accounting for Certain Financial Instruments with Characteristics of
     both Liabilities and Equity." This Statement requires that an issuer
     classify a financial instrument that is within its scope as a liability.
     Many of these instruments were previously classified as equity. This
     Statement was effective for financial instruments entered into or modified
     after May 31, 2003 and otherwise was effective beginning July 1, 2003. The
     adoption of this standard did not have an impact on the Company' financial
     condition or results of operations.

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, 2003 and 2002 were $112,000
and $131,000, respectively.

NOTE 4 - SECURITIES PURCHASED UNDER AGREEMENT TO RESELL

American Bank enters into purchases of securities under agreement to resell
substantially identical securities. Securities purchased under agreements to
resell at December 31, 2002 consist of U.S. Treasury securities.

The amounts advanced under these agreements are reflected as assets in the
balance sheet. It is American Bank's policy to take possession of securities
purchased under agreements to resell. Agreements with third parties specify the
Bank's rights to request additional collateral, based on its monitoring of the
fair value of the underlying securities on a daily basis. The securities are
delivered by appropriate entry into the Bank's account or a third-party
custodian's account designated by the Bank under a written custodial agreement
that explicitly recognizes American Bank's interest in the securities. At
December 31, 2002, these agreements matured within one day.

                                      F-13
<PAGE>

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

NOTE 5 - SECURITIES

The amortized cost and approximate fair value of securities as of December 31,
2003 and 2002 are summarized as follows:
<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>

                                      F-14
<PAGE>

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

NOTE 5 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>

                                                                   DECEMBER 31, 2002
                                                 --------------------------------------------------------
                                                                  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                    $  35,993      $     181       $      --       $  36,174
     Corporate notes                                26,759            570            (372)         26,957
     Mortgage-backed securities                    164,192          2,198            (179)        166,211
     Mutual funds, mortgage-backed
         mutual funds                               40,552             18              --          40,570
     U.S. Government agency preferred stock          2,505             27            (115)          2,417
     Common stock                                    2,622             --            (135)          2,487
     Trust preferred obligations                     1,985             --            (232)          1,753
                                                 ---------      ---------       ---------       ---------

                                                 $ 274,608      $   2,994       $  (1,033)      $ 276,569
                                                 =========      =========       =========       =========

SECURITIES HELD TO MATURITY:
     Trust preferred obligations                 $   5,451      $      82       $     (33)      $   5,500
     Corporate notes                                 2,249             36              --           2,285
     Mortgage-backed securities                      5,666             93              --           5,759
     Other                                             100             --              --             100
                                                 ---------      ---------       ---------       ---------

                                                 $  13,466      $     211       $     (33)      $  13,644
                                                 =========      =========       =========       =========
</TABLE>

Gross realized gains on the sale of securities available for sale totaled
$1,128,000 and $112,000 for the years ended December 31, 2003 and 2002,
respectively. Gross realized losses on the sale of securities available for sale
totaled $266,000 and $-0- for the years ended December 31, 2003 and 2002,
respectively.

Securities with a carrying value of $31,367,000 and $30,020,000 at December 31,
2003 and 2002, 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-15
<PAGE>

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

NOTE 5 - 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, 2003.
<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:
     Mortgage-backed
         securities               $ 120,293     $    (990)    $   1,732     $      (9)    $ 122,025     $    (999)
     Mutual funds, mortgage-
         backed mutual funds         20,327          (100)           --            --        20,327          (100)
     U.S. Government agency
         preferred stock                 --            --         2,257          (273)        2,257          (273)
     Trust preferred
         obligations                     --            --         1,881          (104)        1,881          (104)
                                  ---------     ---------     ---------     ---------     ---------     ---------

                                    140,620        (1,090)        5,870          (386)      146,490        (1,476)
SECURITIES HELD TO MATURITY:
     Trust preferred
         obligations                  3,200           (78)        1,121           (16)        4,321           (94)
                                  ---------     ---------     ---------     ---------     ---------     ---------

       TOTAL TEMPORARILY
           IMPAIRED SECURITIES    $ 143,820     $  (1,168)    $   6,991     $    (402)    $ 150,811     $  (1,570)
                                  =========     =========     =========     =========     =========     =========
</TABLE>

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, 2003, 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.
<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                     $    250      $    250      $  7,687      $  7,811
Due after one year through five years             --            --        14,995        15,034
Due after five years through ten years           100           100            --            --
Due after ten years                           11,530        11,699         4,552         4,209
Mortgage-backed securities                     3,481         3,535       184,774       184,464
Mutual funds                                      --            --        20,427        20,327
Common stock                                      --            --         4,224         4,901
                                            --------      --------      --------      --------

                                            $ 15,361      $ 15,584      $236,659      $236,746
                                            ========      ========      ========      ========
</TABLE>

                                      F-16
<PAGE>

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

NOTE 6 - LOANS RECEIVABLE

The composition of net loans receivable at December 31, 2003 and 2002 is as
follows:

                                                    2003            2002
                                                 ---------       ---------
                                                      (IN THOUSANDS)

         Commercial                              $  41,937       $  25,249
         Commercial mortgage                        96,609          65,569
         Residential mortgage                       53,393          32,344
         Consumer                                   15,098          13,762
                                                 ---------       ---------

                                                   207,037         136,924

         Net deferred loan (fees) and costs            207            (239)
         Allowance for loan losses                  (2,412)         (1,759)
                                                 ---------       ---------

                NET LOANS RECEIVABLE             $ 204,832       $ 134,926
                                                 =========       =========

NOTE 7 - ALLOWANCE FOR LOAN LOSSES

The following table presents changes in the allowance for loan losses for the
years ended December 31, 2003 and 2002:

                                                  2003            2002
                                                -------          -------
                                                     (IN THOUSANDS)
         Balance, beginning                     $ 1,759          $ 1,998
              Provision for loan losses             405              212
              Charge-offs                            (3)            (455)
              Recoveries                            251                4
                                                -------          -------

         Balance, ending                        $ 2,412          $ 1,759
                                                =======          =======

At December 31, 2003 and 2002, the Company had no impaired loans. At December
31, 2003 and 2002, the Company had no loans that were in non-accrual status nor
were there any loans that were delinquent more than 90 days and still accruing
interest.

                                      F-17
<PAGE>

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

NOTE 8 - PREMISES AND EQUIPMENT

The components of premises and equipment at December 31, 2003 and 2002 are as
follows:
<TABLE>
<CAPTION>

                                                                2003          2002
                                                              -------       -------
                                                                  (IN THOUSANDS)
<S>                                                           <C>           <C>
         Leasehold improvements                               $   885       $   885
         Furniture, fixtures and equipment                      1,053         1,026
         Computer equipment and data processing software        2,497         2,342
                                                              -------       -------

                                                                4,435         4,253
         Accumulated depreciation                              (2,627)       (2,000)
                                                              -------       -------

                                                              $ 1,808       $ 2,253
                                                              =======       =======
</TABLE>

NOTE 9 - DEPOSITS

The components of deposits at December 31, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>

                                                            2003              2002
                                                          --------         --------
                                                                (IN THOUSANDS)
<S>                                                       <C>              <C>
         Demand, non-interest bearing                     $ 19,964         $ 20,398
         Demand, interest-bearing                          103,210           84,761
         Savings                                            90,474           85,595
         Time, $100,000 and over                            26,354           24,014
         Time, other                                        92,284           91,983
                                                          --------         --------

                                                          $332,286         $306,751
                                                          ========         ========
</TABLE>

At December 31, 2003, the scheduled maturities of time deposits approximated the
following (in thousands):

         2004                                                    $ 64,721
         2005                                                      24,353
         2006                                                       6,556
         2007                                                      19,298
         2008                                                       3,710
                                                                 --------

                                                                 $118,638
                                                                 ========

                                      F-18
<PAGE>

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

NOTE 10 - 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,
                                                                       ------------------------
                                                                       2003             2002
                                                                       ----             ----
                                                                        (DOLLARS IN THOUSANDS)
<S>                                                                 <C>              <C>
         Average balance during the year                            $    7,502       $   6,172
         Average interest rate during the year                            0.67%           0.49%
         Maximum month-end balance during the year                      15,895           9,557
         Weighted average interest rate at the end of the year            0.75%           0.10%
</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 $253,400,000, of which $96,357,000 was outstanding at
December 31, 2003.

The FHLB advances require the Bank to provide collateral, which may be in the
form of a blanket lien on the Bank's assets or through a pledge, assignment or
delivery of specific assets. At December 31, 2003, the Bank had pledged
securities with a carrying value of approximately $14,360,000 as specific
collateral for advances outstanding.

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, 2003,
American Bank was in compliance with these requirements.

At December 31, 2003, 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, 2003 range from 2.74% to 6.07%, with a weighted average interest
rate of 4.50%.

At December 31, 2003, there are $857,000 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.

                                      F-19
<PAGE>

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

NOTE 10 - DEBT (CONTINUED)

Scheduled repayments are as follows (in thousands):

               2004                                                 $   261
               2005                                                     248
               2006                                                     113
               2007                                                  15,119
               2008                                                   3,116
               Thereafter                                            77,500
                                                                    -------

                                                                    $96,357
                                                                    =======

NOTE 11 - MANDATORY REDEEMABLE CONVERTIBLE 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 1,200,000 shares of common stock at December 31, 2003. 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.

NOTE 12 - 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 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 chairman and a principal shareholder
of the Company. 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 2004.

                                      F-20
<PAGE>

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

NOTE 12 - LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE (CONTINUED)

Future minimum lease payments by year are as follows:

                                          MINIMUM      MINIMUM
                                          ANNUAL       ANNUAL
                                           LEASE        LEASE
                                         PAYMENTS     PAYMENTS
                                        TO RELATED    TO THIRD
                                           PARTY       PARTIES     TOTAL
                                        ----------    --------     -----
                                                   (IN THOUSANDS)
         2004                              $  303    $   28      $  331
         2005                                 305        11         316
         2006                                 322         3         325
         2007                                 295        --         295
                                           ------    ------      ------

                                           $1,225    $   42      $1,267
                                           ======    ======      ======

Rental expense, which includes accruals for common charges, was $335,000 and
$329,000 for the years ended December 31, 2003 and 2002, respectively, including
$303,000 and $288,000, respectively, to the related party.

NOTE 13 - 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 14 - 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 and 6,574 were exercised
during 2002.

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-21
<PAGE>

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

NOTE 15 - 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, 2003 and 2002:
<TABLE>
<CAPTION>
                                                                                   2003        2002
                                                                                  ------      ------
                                                                              (IN THOUSANDS, EXCEPT PER
                                                                                      SHARE DATA)
<S>                                                                               <C>         <C>
         Numerator, basic earnings per share, net income                          $2,637      $2,516
         Interest paid on mandatory redeemable debentures, net of tax effect         404         275
                                                                                  ------      ------

         Numerator, diluted earnings per share                                    $3,041      $2,791
                                                                                  ======      ======

         Denominators:
              Average basic shares outstanding                                     6,458       6,034
              Average dilutive option effect                                          83          75
              Average dilutive warrant effect                                         87         127
              Average dilutive mandatory redeemable debentures effect              1,200         818
                                                                                  ------      ------

                AVERAGE DILUTED SHARES OUTSTANDING                                 7,828       7,054
                                                                                  ======      ======

         Net income per common share:
              Basic                                                               $ 0.41      $ 0.42
                                                                                  ======      ======

              Diluted                                                             $ 0.39      $ 0.40
                                                                                  ======      ======
</TABLE>

Options to purchase 58,600 and 56,000 shares of common stock outstanding at
December 31, 2003 and 2002, respectively, were not included in dilutive earnings
per share since their exercise price exceeded the weighted average fair value of
the related common stock.

NOTE 16 - 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 $43,000 and $40,000 for the years
ended December 31, 2003 and 2002, respectively.

The Company has a Non-Qualified Stock Option Plan (the "Plan") that includes
officers and independent directors. The Plan covers 371,973 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-22
<PAGE>

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

NOTE 16 - EMPLOYEE BENEFITS (CONTINUED)

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

                                                                      YEARS ENDED DECEMBER 31,
                                                       -----------------------------------------------------
                                                                 2003                         2002
                                                       ------------------------     ------------------------
                                                                       WEIGHTED                    WEIGHTED
                                                                       AVERAGE                      AVERAGE
                                                                       EXERCISE                     EXERCISE
                                                        OPTIONS          PRICE       OPTIONS         PRICE
                                                       ---------       --------     ---------       --------
<S>                                                      <C>           <C>            <C>           <C>
         Outstanding at the beginning of the year        265,250       $   6.02       282,000       $   5.27
              Granted                                      2,338           9.31        54,500           7.70
              Exercised                                  (12,000)          5.58       (58,500)          3.70
              Forfeited                                       --             --       (12,750)          9.42
                                                       ---------       --------     ---------       --------

         Outstanding at the end of the year              255,588       $   6.07       265,250       $   6.02
                                                       =========       ========     =========       ========

         Exercisable at December 31                      216,750       $   5.76       192,750       $   5.13
                                                       =========       ========     =========       ========
</TABLE>

At December 31, 2003, 177,000 outstanding options had exercise prices ranging
from $3.33 to $7.67 per share. The weighted average remaining life of these
options is 6.0 years. In addition, at December 31, 2003, 78,588 outstanding
options had exercise prices ranging from $7.68 to $9.42 per share. The weighted
average remaining life of these options is 7.0 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, 2003 were 116,385.

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 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, leaving 15,775 shares of stock being held as unallocated at year end.
The fair value of the unallocated ESOP shares at December 31, 2003 was $154,000.

                                      F-23
<PAGE>

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

NOTE 16 - EMPLOYEE BENEFITS (CONTINUED)

During the year ended December 31, 2002, the Trust acquired 11,000 shares of the
common stock of the Company. During 2002, the Company made contributions to the
Plan, recognized expense of $19,000 and authorized the allocation of 2,500
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, 2003, the liability for the Plan was $42,000, which
was the amount charged to expense in connection with the Plan for the year ended
December 31, 2003.

NOTE 17 - INCOME TAXES

The provision for federal income taxes for the years ended December 31, 2003 and
2002 consisted of the following:

                                              2003                2002
                                            -------             -------
                                                  (IN THOUSANDS)

         Current                            $ 1,333             $ 1,095
         Deferred                              (197)                  2
                                            -------             -------

                                            $ 1,136             $ 1,097
                                            =======             =======

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

                                                      2003          2002
                                                    -------       -------
                                                        (IN THOUSANDS)

         Computed statutory tax expense             $ 1,283       $ 1,228
         Earnings on bank owned life insurance         (108)          (54)
         Dividends received deduction                   (44)          (44)
         Other, net                                       5           (33)
                                                    -------       -------

                                                    $ 1,136       $ 1,097
                                                    =======       =======

The income tax provision applicable to net realized gains on the sale of
securities was $293,000 in 2003 and $38,000 in 2002.

                                      F-24
<PAGE>

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

NOTE 17 - INCOME TAXES (CONTINUED)

At December 31, 2003 and 2002, the significant components of deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
                                                                     2003        2002
                                                                     -----       -----
                                                                      (IN THOUSANDS)
<S>                                                                  <C>         <C>
         Deferred tax assets:
              Allowance for loan losses                              $ 809       $ 580
              Other                                                      2          --
                                                                     -----       -----

                TOTAL DEFERRED TAX ASSETS                              811         580
                                                                     -----       -----

         Deferred tax liabilities:
              Depreciation                                             (88)        (34)
              Cash basis adjustment, net                                --         (20)
              Unrealized gains on securities available for sale        (30)       (667)
                                                                     -----       -----

                TOTAL DEFERRED TAX LIABILITIES                        (118)       (721)
                                                                     -----       -----

                NET DEFERRED TAX ASSET (LIABILITY)                   $ 693       $(141)
                                                                     =====       =====
</TABLE>

NOTE  18  -  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 $15,839,000 and
$16,645,000 at December 31, 2003 and 2002, respectively. Loans to related
parties totaled $229,000 and $272,000 at December 31, 2003 and 2002,
respectively. During 2003, $-0- of new loans were made and repayments totaled
$43,000. In addition, the Company leases property from a related party (see Note
12).

NOTE 19 - 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-25
<PAGE>

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

NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)

A summary of the Company's financial instrument commitments at December 31, 2003
and 2002 is as follows:

                                                           2003         2002
                                                           ----         ----
                                                             (IN THOUSANDS)

         Commitments to extend credit                    $ 6,870      $22,042
         Unfunded commitments under lines of credit       40,477       23,973
         Outstanding letters of credit                     3,842        2,640

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, 2003 for guarantees under standby letters of credit
issued is not material.

NOTE 20 - 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, 2003, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.

                                      F-26
<PAGE>

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

NOTE 20 - REGULATORY MATTERS (CONTINUED)

As of December 31, 2003, 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,
2003 and 2002 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, 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

AS OF DECEMBER 31, 2002:
     Total capital (to risk-weighted assets):
         Consolidated                               $39,092         15.05%     $=>20,779       =>8.0%           N/A         N/A
         Bank                                        34,050         13.25       =>20,552       =>8.0     $=>25,689      =>10.0%
     Tier 1 capital (to risk-weighted assets):
         Consolidated                                36,177         13.93       =>10,390       =>4.0           N/A         N/A
         Bank                                        32,282         12.57       =>10,276       =>4.0      =>15,414       =>6.0
     Tier 1 capital (to average assets):
         Consolidated                                36,177          8.13       =>17,828       =>4.0           N/A         N/A
         Bank                                        32,282          7.29       =>17,702       =>4.0      =>22,127       =>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-27
<PAGE>

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

NOTE 21 - CONDENSED FINANCIAL  INFORMATION OF AMERICAN BANK INCORPORATED (PARENT
          COMPANY ONLY)

BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                   --------------------
                                                                                     2003         2002
                                                                                   -------      -------
                                                                                      (IN THOUSANDS)
                   ASSETS

<S>                                                                                <C>          <C>
         Cash and equivalents                                                      $ 3,359      $ 2,150
         Investment in common stock                                                  4,974        2,487
         Investment in bank subsidiary                                              36,808       33,665
         Other assets                                                                  162          491
                                                                                   -------      -------

                TOTAL ASSETS                                                       $45,303      $38,793
                                                                                   =======      =======

              LIABILITIES AND STOCKHOLDERS' EQUITY

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

         Stockholders' equity                                                       34,963       28,593
                                                                                   -------      -------

                TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $45,303      $38,793
                                                                                   =======      =======
</TABLE>

STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                           YEARS ENDED DECEMBER 31,
                                                                           ------------------------
                                                                             2003         2002
                                                                           -------       -------
                                                                               (IN THOUSANDS)
<S>                                                                        <C>           <C>
         Dividend income on common stock                                   $    96       $    66
         Interest expense on corporate obligation for mandatory
              redeemable convertible debentures                               (612)         (417)
         Gains on sales of investments                                         976           109
         Operating expenses                                                   (149)          (56)
                                                                           -------       -------

                INCOME (LOSS) BEFORE INCOME TAXES                              311          (298)

         Income tax expense (benefits)                                          96           (92)
                                                                           -------       -------

                INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS          215          (206)
                    OF BANK SUBSIDIARY

         Equity in undistributed earnings of bank subsidiary                 2,422         2,722
                                                                           -------       -------

                NET INCOME                                                 $ 2,637       $ 2,516
                                                                           =======       =======
</TABLE>

                                      F-28
<PAGE>

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

NOTE 21 - CONDENSED FINANCIAL INFORMATION OF AMERICAN BANK INCORPORATED
     (PARENT COMPANY ONLY) (CONTINUED)

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                      YEARS ENDED DECEMBER 31,
                                                                      -----------------------
                                                                        2003             2002
                                                                      --------       --------
                                                                           (IN THOUSANDS)
<S>                                                                   <C>            <C>
         CASH FLOWS FROM OPERATING ACTIVITIES
              Net income                                              $  2,637       $  2,516
              Adjustments to reconcile net income to
                  net cash provided by operating
                  activities:
                  Net gains realized on sales of securities               (976)          (109)
                  Deferred tax benefit                                    (276)           (92)
                  Income tax benefit on stock options exercised             99             --
                  (Increase) decrease in other assets                      329           (399)
                  Increase in other liabilities                            175             --
                  Equity in undistributed earnings of bank
                       subsidiary                                       (2,422)        (2,722)
                                                                      --------       --------

                       Net cash used in operating activities              (434)          (806)
                                                                      --------       --------

         CASH FLOWS FROM INVESTING ACTIVITIES
              Securities available for sale:
                  Purchases                                             (7,127)        (3,282)
                  Sales                                                  6,428            776
              Capital contribution in bank subsidiary                   (2,500)        (5,000)
                                                                      --------       --------

                       Net cash used in investing activities            (3,199)        (7,506)
                                                                      --------       --------

         CASH FLOWS FROM FINANCING ACTIVITIES
              Proceeds from mandatory redeemable convertible
                  debentures                                                --         10,200
              Issuance of common stock                                   4,842            262
                                                                      --------       --------

                       Net cash provided by financing activities         4,842         10,462
                                                                      --------       --------

                       Increase in cash and cash equivalents             1,209          2,150

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

              Ending                                                  $  3,359       $  2,150
                                                                      ========       ========
</TABLE>

                                      F-29
<PAGE>

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

NOTE 22 - 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-30
<PAGE>

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

NOTE 22 - 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.

MANDATORY REDEEMABLE CONVERTIBLE DEBENTURES

     The fair value of mandatory redeemable convertible 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>
                                                                   2003                       2002
                                                          ---------------------      ----------------------
                                                          CARRYING       FAIR        CARRYING        FAIR
                                                           AMOUNT        VALUE        AMOUNT         VALUE
                                                          -------       -------       -------       -------
                                                                          (IN THOUSANDS)
<S>                                                      <C>           <C>           <C>           <C>
Financial assets:
     Cash and due from banks                             $  4,623      $  4,623      $  3,291      $  3,291
     Interest-bearing deposit with bank                       237           237           275           275
     Securities purchased under agreement to resell            --            --         6,874         6,874
     Securities                                           252,107       252,330       290,035       290,213
     Loans receivable, net                                204,832       206,684       134,926       135,304
     Restricted investments in bank stock                   6,994         6,994         6,131         6,131
     Accrued interest receivable                            1,973         1,973         2,449         2,449

Financial liabilities:
     Deposits                                             332,286       333,972       306,751       308,458
     Securities sold under agreements to repurchase         6,909         6,909         7,784         7,784
     Long-term debt                                        96,357        98,614        97,791        99,107
     Mandatory redeemable convertible debentures           10,200        12,300        10,200        13,800
     Accrued interest payable                                 629           629           702           702

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

                                      F-31