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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934
         For the Fiscal Year Ended December 31, 2006
                                       or
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from _________________  to __________________

                         Commission File Number: 1-31655
                                                 -------

                                IBT BANCORP, INC.
                                -----------------
             (Exact name of registrant as specified in its charter)

         Pennsylvania                                   25-1532164
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

  309 Main Street, Irwin, Pennsylvania                                  15642
---------------------------------------                               ----------
(Address of principal executive offices)                              (Zip Code)

       Registrant's telephone number, including area code: (724) 863-3100
                                                           --------------

           Securities registered pursuant to Section 12(b) of the Act:

     Title of each class               Name of each exchange on which registered
-----------------------------          -----------------------------------------
Common Stock, $1.25 par value                  American Stock Exchange
-----------------------------                  -----------------------
    Stock Purchase Rights                      American Stock Exchange
    ---------------------                      -----------------------

        Securities registered pursuant to Section 12(g) of the Act: None
                                                                    ----

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. [ ] YES [X] NO

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] YES [X] NO

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. [X] YES [ ] NO

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] YES  [X] NO

Based on the closing  sales price of the  registrant's  common stock on June 30,
2006, as reported on the American Stock Exchange,  the aggregate market value of
voting and non-voting common equity held by non-affiliates of the registrant was
approximately  $100.42  million.   Solely  for  purposes  of  this  calculation,
directors,  executive  officers  and  greater  than 5%  stockholders  are deemed
affiliates.

As of March 1, 2007,  there were  5,882,040  shares of the  Registrant's  common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   Portions of 2006 Annual Report to Stockholders (Parts II and IV)

     2.   Portions  of  Proxy   Statement   for  the  2007  Annual   Meeting  of
          Stockholders. (Part III)

================================================================================


<PAGE>

                                IBT BANCORP, INC.
                           ANNUAL REPORT ON FORM 10-K
                   for the fiscal year ended December 31, 2006

                                      INDEX


                                     PART I

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----

<S>                                                                                                            <C>
Item 1.           Business....................................................................................    1
Item 1A.          Risk Factors................................................................................   22
Item 1B.          Unresolved Staff Comments...................................................................   24
Item 2.           Properties..................................................................................   24
Item 3.           Legal Proceedings...........................................................................   24
Item 4.           Submission of Matters to a Vote of Security Holders.........................................   24

                                                      PART II

Item 5.           Market for Registrant's Common Equity, Related Stockholder Matters
                     and Issuer Purchases of Equity Securities................................................   25
Item 6.           Selected Financial Data.....................................................................   25
Item 7.           Management's Discussion and Analysis of Financial Condition
                      and Results of Operation................................................................   25
Item 7A.          Quantitative and Qualitative Disclosures About Market Risk..................................   25
Item 8.           Financial Statements and Supplementary Data.................................................   26
Item 9.           Changes in and Disagreements with Accountants on Accounting and
                      Financial Disclosure....................................................................   26
Item 9A.          Controls and Procedures.....................................................................   26
Item 9B.          Other Information...........................................................................   26

                                                     PART III

Item 10.          Directors, Executive Officers and Corporate Governance......................................   26
Item 11.          Executive Compensation......................................................................   27
Item 12.          Security Ownership of Certain Beneficial Owners and Management
                      and Related Stockholder Matters.........................................................   27
Item 13.          Certain Relationships and Related Transactions, and Director Independence...................   27
Item 14.          Principal Accounting Fees and Services......................................................   28

                                                      PART IV

Item 15.          Exhibits, Financial Statement Schedules.....................................................   28

SIGNATURES        ............................................................................................   30
</TABLE>



<PAGE>



                                     PART I

Forward-Looking Statements

     IBT Bancorp,  Inc. (the  "Company" or  "Registrant")  may from time to time
make  written  or  oral  "forward-looking   statements,"   including  statements
contained in the Company's  filings with the Securities and Exchange  Commission
(including  this Annual  Report on Form 10-K and the exhibits  thereto),  in its
reports to stockholders and in other  communications  by the Company,  which are
made in good faith by the Company  pursuant to the "safe  harbor"  provisions of
the Private Securities Litigation Reform Act of 1995.

     These forward-looking  statements involve risks and uncertainties,  such as
statements  of the  Company's  plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's  control  including those discussed under Item
1A. Risk Factors).  The following  factors,  among others,  could also cause the
Company's financial performance to differ materially from the plans, objectives,
expectations,   estimates  and  intentions  expressed  in  such  forward-looking
statements:  the  strength  of the United  States  economy  in  general  and the
strength of the local economies in which the Company  conducts  operations;  the
effects  of, and changes  in,  trade,  monetary  and fiscal  policies  and laws,
including  interest  rate  policies  of the Board of  Governors  of the  Federal
Reserve System, inflation, interest rate, market and monetary fluctuations;  the
timely development of and acceptance of new products and services of the Company
and the  perceived  overall  value of these  products  and  services  by  users,
including the features,  pricing and quality  compared to competitors'  products
and services;  the willingness of users to substitute  competitors' products and
services for the Company's products and services;  the success of the Company in
gaining  regulatory  approval of its products and services,  when required;  the
impact of changes in financial  services' laws and  regulations  (including laws
concerning taxes,  banking,  securities and insurance);  technological  changes,
acquisitions; changes in consumer spending and saving habits; and the success of
the Company at managing the risks involved in the foregoing.

     The Company  cautions that the foregoing  list of important  factors is not
exclusive.  The  Company  does  not  undertake  to  update  any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the Company.

Item 1.  Business
-----------------

General

     IBT Bancorp,  Inc. is a Pennsylvania  corporation  headquartered  in Irwin,
Pennsylvania,  which  provides a full range of commercial and retail banking and
trust services through its wholly-owned  banking subsidiary,  Irwin Bank & Trust
Co. (collectively, the "Company").

     Irwin Bank & Trust Co. (the "Bank") was incorporated in 1922 under the laws
of  Pennsylvania  as a commercial  bank under the name "Irwin  Savings and Trust
Company." The Bank engages in a full-service  mortgage,  commercial and consumer
banking business, as well as trust and a variety of deposit services provided to
its customers.  At December 31, 2006, the Bank operated through its main office,
six branch  offices,  two loan  centers,  and a trust  office as well as through
three  supermarket  branches  under the name "Irwin Bank Extra." The Bank's main
office, full service branch offices, loan centers,  trust office and supermarket
branches are located in the Pennsylvania counties of Westmoreland and Allegheny.
The Bank's web site address is "www.myirwinbank.com."

     References  to the Company or  Registrant  used  throughout  this  document
generally  refers to the  consolidated  entity which includes the main operating
company, the Bank, unless the context indicates otherwise.


                                        1

<PAGE>

Competition

     The Registrant's primary market area consists of Westmoreland and Allegheny
counties,   Pennsylvania,   which  are  part  of  the  Pittsburgh   Metropolitan
Statistical Area ("Pittsburgh MSA") and it is one of many financial institutions
serving  this  market  area.  Based  on data  compiled  by the  Federal  Deposit
Insurance  Corporation  ("FDIC")  as of June 30, 2006 (the latest date for which
such  data  is  available),  the  Bank  was  ranked  sixth  of  22  FDIC-insured
institutions in  Westmoreland  County with a 6.53% deposit market share and 19th
out of 39  institutions  in Allegheny  County with a 0.33% deposit market share.
The Bank was ranked 13th out of 63 institutions  serving the Pittsburgh MSA with
a 0.87% market share.  Such data does not reflect deposits held by credit unions
with which the Bank also competes.  The competition  for deposit  products comes
from other  insured  financial  institutions  such as commercial  banks,  thrift
institutions and credit unions in the  Registrant's  market area as well as with
out-of-market  financial  institutions that offer deposits over the internet and
through other delivery channels.  Deposit  competition also includes a number of
insurance  products  such as  annuities  sold by  local  agents  and  investment
products  such as mutual funds and other  securities  sold by local and regional
brokers.  Loan competition comes from other insured financial  institutions such
as commercial banks, thrift institutions and credit unions.

Lending Activities

     The Bank's  principal  lending activity is the origination of loans secured
primarily  by first  mortgage  liens on  properties  in the  Pittsburgh  MSA. At
December  31,  2006,  the  Bank's  loan  portfolio  included  $89.3  million  of
residential  first  mortgage  loans,  $1.3 million of  residential  construction
loans, $173.4 million of commercial and multi-family real estate loans, and $3.5
million of commercial construction loans. In addition, the Bank's loan portfolio
includes  $16.6 million in home equity lines of credit which are also secured by
liens on residential  real estate.  The Bank also offers  commercial loans which
are generally  secured by non-real  estate  collateral  and had $74.2 million in
such loans in portfolio at December 31, 2006.  The Bank lends to  municipalities
and other governmental  entities and had $8.4 million of such loans in portfolio
at December 31,  2006.  The Bank also  engages in consumer  installment  lending
primarily  in the form of home  equity  term  loans  and  automobile  loans.  At
December 31, 2006, the Bank had $97.9 million in home equity term loans and $1.1
million in  automobile  loans in  portfolio.  In addition,  the Bank  originates
education  loans  guaranteed by the  Pennsylvania  Higher  Education  Assistance
Agency  ("PHEAA")  and held $6.5  million in such loans at  December  31,  2006.
Substantially  all of the Bank's borrowers are located in the Pittsburgh MSA and
would be expected to be affected by economic and other  conditions in this area.
The Company does not believe that there are any other concentrations of loans or
borrowers exceeding 10% of total loans.








                                        2

<PAGE>

     Loan Portfolio Composition.  The following table sets forth the composition
of the  Registrant's  loan portfolio in dollar amounts and in percentages of the
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                          At December 31,
                              ------------------------------------------------------------------------------------------------------
                                      2006                 2005                 2004                 2003                 2002
                              ------------------   ------------------   ------------------   ------------------   ------------------
                                  $         %          $         %          $         %          $         %          $         %
                              --------   -------   --------   -------   --------   -------   --------   -------   --------   -------
                                                                      (Dollars in Thousands)

<S>                         <C>          <C>     <C>         <C>      <C>         <C>      <C>         <C>      <C>         <C>
Mortgage ...................  $267,530     6.59%   $252,699    56.65%   $252,114    57.37%   $244,923    58.33%   $210,244    57.87%
Installment ................    99,044     0.95      93,428    20.95      84,673    19.27      78,327    18.65      59,321    16.33
Commercial .................    74,168     5.69      63,508    14.24      61,140    13.91      59,591    14.19      58,634    16.14
Home equity lines of credit.    16,598     3.51      19,684     4.41      23,201     5.28      21,963     5.23      15,832     4.36
PHEAA ......................     6,471     1.37       6,781     1.52       7,355     1.67       7,834     1.87       6,900     1.90
Municipal ..................     8,375     1.77       9,149     2.05      10,050     2.29       6,268     1.49      11,190     3.08
Credit cards ...............       100     0.02          62     0.01          45     0.01          38     0.01          32     0.01
Other ......................       456     0.10         744     0.17         855     0.20         965     0.23       1,148     0.31
                              --------   ------    --------   ------    --------   ------    --------   ------    --------   ------
      Total loans ..........   472,742   100.00%    446,055   100.00%    439,433   100.00%    419,909   100.00%    363,301   100.00%
                                         ======               ======               ======               ======               ======
Less:
  Unearned discount.........        --                   --                   --                   --                   --
  Deferred loan
    origination fees and
    costs...................       252                  266                  291                  338                  557
  Allowance for loan losses.     4,769                3,564                2,594                3,285                2,873
                              --------             --------             ---------            --------             --------
      Total loans, net......  $467,721             $442,225             $436,548             $416,286             $359,871
                              ========             ========             =======              ========             ========
</TABLE>



                                                                 3

<PAGE>

     Loan Maturity Table. The following table sets forth maturities and interest
rate sensitivity for all categories of loans as of December 31, 2006.  Scheduled
repayments are reported in the maturity category in which payment is due. Demand
loans,  loans having no stated  maturity,  and overdrafts are reported as due in
one year or less.


<TABLE>
<CAPTION>
                                          Home
                                         equity
                                        lines of                                                   Credit
                             Mortgage   credit(2)  Installment  Commercial  PHEAA(1)   Municipal   Cards(2)    Other     Total
                             --------   --------   -----------  ----------  --------   --------   --------   --------   --------
                                                                     (In Thousands)

<C>                        <C>        <C>         <C>          <C>        <C>        <C>        <C>        <C>        <C>
1 year or less ...........   $ 16,957   $ 16,598    $ 12,547     $ 11,210   $     --   $  3,272   $    100   $    456   $ 61,140
After 1 year:
  1 to 5 years ...........     60,372         --      41,246       19,208      6,471         49         --         --    127,346
  After 5 years ..........    190,201         --      45,251       43,750         --      5,054         --         --    284,256
                             --------   --------    --------     --------   --------   --------   --------   --------   --------
Total due after one year .    250,573         --      86,497       62,958      6,471      5,103        100         --    411,602
                             --------   --------    --------     --------   --------   --------   --------   --------   --------
Total amount due .........   $267,530   $ 16,598    $ 99,044     $ 74,168   $  6,471   $  8,375   $    100   $    456   $472,742
                             ========   ========    ========     ========   ========   ========   ========   ========   ========
</TABLE>
------------------------
(1)  PHEAA loans are sold when  repayment  begins;  assumption is that all PHEAA
     loans will mature in 1 to 5 years.
(2)  Home equity  credit lines and credit card loans have no stated  maturities;
     therefore they are classified as due in one year or less.

     Loan Sensitivity  Table. The following table sets forth, as of December 31,
2006,  the dollar  amount of all loans due after  December 31, 2007,  based upon
fixed rates of interest or floating or adjustable interest rates.

                                               Floating or
                           Fixed Rates      Adjustable Rates        Total
                           -----------      ----------------        -----
                                             (In Thousands)
Mortgage(1)  .........      $202,557            $48,016           $250,573
Installment...........        84,813              1,684             86,497
Commercial............        25,762             37,196             62,958
PHEAA.................            --              6,471              6,471
Municipal  ...........         5,103                 --              5,103
                            --------            -------           --------
     Total............      $318,235            $93,367           $411,602
                            ========            =======           ========
--------------------------
(1)  Included in the mortgage loans  portfolio are commercial real estate loans.
     Commercial  real  estate  loans are  fixed-rate  loans  that are  primarily
     callable loans,  which reprice every three,  five or ten years,  based upon
     the interest rate on similar loans at the time of repricing.  See "Mortgage
     Loans."

     Mortgage Loans. The Registrant's  primary lending activity  consists of the
origination of residential and commercial  mortgage loans secured by property in
its primary  market area.  The mortgage loan  portfolio  consists of one-to-four
family  residential  mortgage loans,  multi-family real estate,  commercial real
estate loans, and construction loans.

     The  Registrant  had  approximately  $89.3  million of  one-to-four  family
residential  mortgage loans in its mortgage loan portfolio at December 31, 2006.
The Registrant  generally  originates  one-to-four family  residential  mortgage
loans in amounts of up to 80% of the appraised  value of the mortgaged  property
without requiring mortgage insurance.  The Registrant will originate residential
mortgage  loans in an amount  up to 95% of the  appraised  value of a  mortgaged
property; however, the borrower is required to obtain mortgage insurance for the
amount in excess of 80%. The Registrant offers residential  fixed-rate loans and
adjustable-  rate loans with  amortization  periods ranging from 15 to 30 years.
Interest rates for residential  adjustable-rate loans residences adjust every 12
months  based  upon the  weekly  average  yield on the  one-year  U.S.  Treasury
securities, plus a margin of 2.75 percentage points. These adjustable-rate loans
have an interest rate cap of

                                        4

<PAGE>

two percentage  points per year and six  percentage  points over the life of the
loan, and are originated for retention in the portfolio.

     Fixed-rate  residential  mortgage loans are underwritten in accordance with
FannieMae guidelines. Currently, loans underwritten in accordance with FannieMae
guidelines are generally sold in the secondary  market.  However,  the number of
saleable  loans  could vary  materially  as a result of market  conditions.  The
Registrant  generally  charges a higher  interest rate if loans are not saleable
under  FannieMae  guidelines.  At  December  31,  2006,  $216.8  million  of the
Registrant's  mortgage  portfolio  consisted of long-term,  fixed-rate  mortgage
loans of which $226,000 were  classified as  held-for-sale.  The Registrant does
not service any loans that are sold and the  Registrant  is generally not liable
for these loans (i.e., "nonrecourse loans").

     Substantially all of the Registrant's  one-to-four family mortgages include
"due on sale" clauses,  which are provisions  giving the Registrant the right to
declare a loan immediately  payable if the borrower sells or otherwise transfers
an interest in the property to a third party.

     Property  appraisals on real estate securing the  Registrant's  one-to-four
family  residential  loans over $250,000 are made by appraisers  approved by the
Board of  Directors.  Appraisals  are performed in  accordance  with  applicable
regulations and policies. The Registrant obtains title insurance policies on all
purchase money first mortgage real estate loans originated.

     The Registrant's  commercial real estate mortgage loans are long-term loans
secured  primarily by  multi-family  dwelling units and commercial  real estate.
Essentially  all originated  commercial  real estate loans are within its market
area.  Commercial  real  estate  loans are  originated  at  adjustable  rates of
interest.

     Adjustable-rate  commercial mortgage loans have interest rates that reprice
every 3, 5 or 10 years and are based on the corresponding FHLB advance rate plus
up  to  2.75  percentage  points.   Adjustable-rate  commercial  mortgage  loans
generally have terms of up to 20 years and no maximum interest rate.

     As of December  31, 2006,  the  Registrant's  commercial  real estate loans
totaled $123.8 million of the mortgage  portfolio.  Typically,  commercial  real
estate loans are  originated in amounts up to 80% of the appraised  value of the
mortgaged property.

     The  Registrant  also  originates  loans to  finance  the  construction  of
one-to-four  family  dwellings and commercial real estate.  The Registrant makes
construction  loans both to individuals  constructing their own residence and to
developers constructing homes for resale.  Generally,  the Registrant only makes
interim  construction  loans  to  individuals  if it also  makes  the  permanent
mortgage loan on the property.  Interim  construction loans generally have terms
of up to 12  months  with  fixed  rates  of  interest.  At  December  31,  2006,
construction  loans totaled $10.3 million with $5.5 million of that total yet to
be disbursed.

     Construction  financing is generally  considered to involve a higher degree
of risk of loss than long- term  financing  on improved,  occupied  real estate.
Risk of loss on a  construction  loan is dependent  largely upon the accuracy of
the initial  estimate of the property's  value at completion of construction and
the estimated cost (including interest) of construction. During the construction
phase,  a number of factors  could  result in delays and cost  overruns.  If the
estimate of  construction  costs proves to be inaccurate,  the Registrant may be
required  to advance  funds  beyond the amount  originally  committed  to permit
completion. If the estimate of value proves to be inaccurate, the Registrant may
be confronted,  at or prior to the maturity of the loan, with a project having a
value which is insufficient to assure full repayment.

     Installment Loans.  Installment loans primarily consist of home equity term
loans and to a lesser  extent  automobile  loans.  Home equity loans are secured
primarily by one-to-four  family  residences.  The Registrant  originates  these
loans with fixed rates with terms of up to 20 years.  These loans are subject to
90%

                                        5

<PAGE>

combined loan-to-value limitation, including any outstanding mortgages or liens,
without requiring mortgage insurance.  The Registrant will originate home equity
loans in an amount up 100% of the appraised value,  however,  mortgage insurance
for the borrower may be required.  The Registrant  originates  automobile  loans
with fixed rates of  interest  and terms of up to five  years.  At December  31,
2006, home equity term loans totaled $97.9 million.

     Commercial  Loans.  Commercial loans consist of loans secured by equipment,
accounts  receivables,  inventory,  and other business purpose loans. Such loans
are generally secured by either the underlying collateral and/or by the personal
guarantees of the borrower.

     Unlike residential mortgage loans, which generally are made on the basis of
the  borrower's  ability to make  repayment from his or her employment and other
income  and which are  secured by real  property  whose  value  tends to be more
easily ascertainable,  commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business  loans may be  substantially  dependent  on the success of the business
itself and the general economic environment.

     Home Equity  Lines of Credit.  Revolving  home  equity  lines of credit are
secured  primarily by one- to-four  family  residences.  The lines of credit are
generally  subject to a 90% combined  loan-to-value  limitation,  including  all
outstanding mortgages and liens.

     PHEAA. The Bank originates  education loans under PHEAA's Keystone Stafford
and PHEAA's Plus programs.  These programs are open to residents of Pennsylvania
and parents of students at Pennsylvania  post-secondary schools.  Interest rates
on these loans are currently equal to the 91-day U.S.  Treasury bill rate plus a
margin of 3.1 percentage  points.  Borrowers may defer and  capitalize  interest
during periods of educational enrollment, unemployment or economic hardship. The
Bank generally sells these loans to the PHEAA when repayment begins. Payments of
principal and interest on these loans are  guaranteed by the PHEAA and reinsured
by the U.S.  Department of Education  under the Federal  Family  Education  Loan
Program.

     Municipal Loans. The Bank makes loans to various local municipalities. Such
loans are generally  unsecured  and are obtained  through  competitive  bidding.
Municipal loans have terms of between 1 and 15 years and provide for payments of
principal and interest during their terms. The interest earned on these loans is
tax-exempt.

     Loan  Approval  Authority  and  Underwriting.  The  Registrant  establishes
various  lending  limits  for its  officers  and  maintains  an  officer  review
committee.  Certain  officers  generally  have  authority to approve loans up to
$500,000.  Loans up to $1,000,000  are approved by an officer  review  committee
("ORC").  The ORC  consists of the  President  and at least four other  officers
appointed by the President.  All loans over $1,000,000 are approved by the Board
of Directors.

     Upon receipt of a completed loan application from a prospective borrower, a
credit report is ordered.  Income and certain other information is verified.  If
necessary,  additional financial  information may be requested.  An appraisal or
other  estimate of value of the real estate  intended to be used as security for
the  proposed  loan  is  obtained.   Appraisals  are  performed  by  independent
appraisers.

     Title  insurance  is generally  required on all purchase  money real estate
mortgage loans.  Borrowers also must obtain fire and casualty  insurance.  Flood
insurance  is also  required on loans  secured by property  that is located in a
flood zone.


                                        6

<PAGE>

     Loans  to  One  Borrower  Limits.   By  statute,   the  maximum  amount  of
indebtedness  that the Bank may have from any one customer may not exceed 15% of
the Bank's capital accounts.  Pursuant to the national bank parity provisions of
the Pennsylvania  Banking Code, the Bank may also lend up to the maximum amounts
permissible  for national  banks which are allowed to make loans to one borrower
of up to 25% of  capital  and  surplus  in  certain  limited  circumstances.  At
December 31, 2006, the Bank's loans-to- one-borrower limit was $10.0 million and
the largest amount of  indebtedness  from any single  customer was $9.8 million.
This  indebtedness  consisted of 31 loans to one borrower  secured by multi-unit
apartment buildings and one-to-four family dwellings.

     Loan Commitments. Written commitments are given to prospective borrowers on
all approved  mortgage  loans.  Generally,  the commitment  requires  acceptance
within 7 days of the date of  issuance.  At December 31,  2006,  commitments  to
cover originations of loans totaled $4.8 million.

         Classified  Assets.  Federal bank regulators require insured depository
institutions to regularly  review their loan portfolios and to assign ratings to
weak loans according to a prescribed  asset  classification  system.  Under this
classification  system, problem assets of insured institutions are classified as
"substandard,"  "doubtful" or "loss." An asset is considered "substandard" if it
is  inadequately  protected by the current net worth and paying  capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct  possibility"  that the insured  institution will
sustain "some loss" if the deficiencies are not corrected.  Assets classified as
"doubtful" have all the weaknesses  inherent in those classified  "substandard,"
with the added  characteristic  that the weaknesses  present make "collection of
principal in full," on the basis of currently  existing  facts,  conditions  and
values,  "highly  questionable and improbable."  Assets classified as "loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Assets  that  do not  expose  the  Registrant  to  risk  sufficient  to  warrant
classification in one of the above categories,  but which possess some weakness,
are required to be designated "special mention" by management.

     When  an  insured   institution   classifies   problem   assets  as  either
"substandard"  or "doubtful," it may establish  allowances for loan losses in an
amount deemed  prudent by  management.  When an insured  institution  classifies
problem  assets as "loss," it is required  either to establish an allowance  for
losses  equal to 100% of that portion of the assets so  classified  or to charge
off such amount. An institution's  determination as to the classification of its
assets and the amount of its  allowances  is subject to review by the FDIC which
may order the establishment of additional loss allowances.

     The  following  table  sets  forth the  Registrant's  classified  assets in
accordance with its classification system at the dates indicated.


                                         At December 31
                     -------------------------------------------------------
                      2006        2005        2004        2003        2002
                     -------     -------     -------     -------     -------
                                          (In Thousands)

Special Mention..    $32,672     $43,069     $24,770     $19,022     $13,044
Substandard .....     14,438       7,798       3,940       8,756       9,518
Doubtful ........        136         240         259         668           9
Loss ............         --          --          --          --          --
                     -------     -------     -------     -------     -------
      Total .....    $47,246     $51,107     $28,969     $28,446     $22,571
                     =======     =======     =======     =======     =======

     The increases in  substandard  assets are due to the addition of commercial
loans secured by real estate,  which were classified due to either the financial
condition  of  the  individual   borrower  or  the  lack  of  current  financial
information on the borrower.


                                        7

<PAGE>

     Other Real Estate Owned. Real estate acquired by the Registrant as a result
of  foreclosure  or by deed in lieu of  foreclosure  is classified as other real
estate  owned  until such time as it is sold.  When other real  estate  owned is
acquired,  it is recorded at the lower of the unpaid balance of the related loan
or its fair value less disposal costs. Any write-down of other real estate owned
is charged to operations.

Nonperforming and Problem Assets

     Loan  Delinquencies.  When a loan  becomes  16 days past  due,  a notice of
nonpayment is sent to the borrower.  Telephone  collection calls, letters and/or
visits to the borrower are  initiated at or after 16 days of the due date missed
in an effort to resolve the delinquency.  Generally,  if the loan continues in a
delinquent  status for 90 days past due and no repayment  plan has been reached,
foreclosure, liquidation or other legal proceedings may be initiated.

     Loans are  reviewed  on a monthly  basis  and are  placed on a  non-accrual
status  when the loan  becomes  more than 90 days  delinquent  and when,  in our
opinion, the collection of additional interest is doubtful.  Normally,  interest
accrued and unpaid at the time a loan is placed on nonaccrual  status is charged
against  interest  income.  Subsequent  interest  payments,  if any,  are either
applied to the  outstanding  principal  balance or recorded as interest  income,
depending on the assessment of the ultimate collectibility of the loan.

     Nonperforming  Assets. The following table sets forth information regarding
nonaccrual  loans and real estate owned,  as of the dates  indicated.  As of the
dates  indicated,  no loans were  categorized  as troubled  debt  restructurings
within the meaning of Statement of Financial  Accounting  Standards ("SFAS") No.
15. At December 31, 2006,  the Company had $1.1 million in impaired loans within
the meaning of SFAS No. 114, as amended by SFAS 118.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                                           ---------------------------------------------------
                                                             2006       2005       2004       2003       2002
                                                            ------     ------     ------     ------     ------
                                                                               (Dollars In Thousands)
<S>                                                       <C>        <C>        <C>        <C>        <C>
Loans accounted for on a non-accrual basis:
  Mortgage ............................................     $   --     $  111     $  120     $  567     $  446
  Home equity lines of credit .........................         --         --         --         --         --
  Installment .........................................         43         26         --         --         77
  Commercial ..........................................          6         --         --         --         96
  PHEAA ...............................................         --         --         --         --         --
  Municipal ...........................................         --         --         --         --         --
  Credit cards ........................................         --         --         --         --         --
  Other ...............................................         --         --         --         --         --
                                                            ------     ------     ------     ------     ------
     Total ............................................     $   49     $  137     $  120     $  567     $  619
                                                            ------     ------     ------     ------     ------
Accruing loans which are contractually past
  due 90 days or more:
  Mortgage ............................................      2,657        541      3,618        704        728
  Installment .........................................          1         14          9         10         --
  Commercial ..........................................        108        161        954         14         41
  Home equity lines of credit .........................         --         --         --         --         --
  PHEAA ...............................................         --         --         --         --         --
  Municipal ...........................................         --         --         --         --         --
  Credit cards ........................................         --         --         --         --         --
  Other ...............................................         --         --         --         --         --
                                                            ------     ------     ------     ------     ------
     Total ............................................      2,766        716      4,581        728        769
                                                            ------     ------     ------     ------     ------
Total non-accrual .....................................      2,815        853      4,701      1,295      1,388
                                                            ------     ------     ------     ------     ------
Other real estate owned ...............................         49         48      1,767        254        637
                                                            ------     ------     ------     ------     ------
Total non-performing assets ...........................     $2,864     $  901     $6,468     $1,549     $2,025
                                                            ======     ======     ======     ======     ======

Total non-accrual and accrual loans to net loans.......      0.60%      0.19%      1.08%      0.31%      0.39%
                                                             ====       ====      =====       ====       ====
Total non-accrual and accrual loans to total assets....      0.38%      0.12%      0.70%      0.21%      0.24%
                                                             ====       ====      =====       ====       ====
Total non-performing assets to total assets............      0.39%      0.13%      0.96%      0.25%      0.35%
                                                             ====       ====      =====       =====      ====
</TABLE>


                                        8

<PAGE>

     As of December 31, 2006,  there were no loans not reflected in the above as
to which  management had serious doubts as to the ability of borrowers to comply
with present loan repayment loans.

     Allowance  for Loan Losses.  The Company  maintains  an allowance  for loan
losses to absorb potential losses inherent in the loan portfolio.  The allowance
is  reviewed  monthly  and a  provision  for  loan  losses  is  charged  against
operations to bring the allowance to a level which, in management's judgment, is
adequate in light of the nature of the portfolio, credit concentrations,  trends
in historical loss experience, specific impaired loans, and economic conditions.

     Large groups of homogeneous  loans, such as residential real estate,  small
commercial real estate loans and home equity and consumer loans are evaluated in
the aggregate  using  historical loss factors and other data. The amount of loss
reserve is calculated  using  historical loss rates, net of recoveries on a five
year rolling weighted average, adjusted for environmental, and other qualitative
factors such as industry, geographical,  economic and political factors that can
effect loss rates or loss measurements.

     Large balance and/or more complex loans such as multi-family and commercial
real estate loans may be evaluated on an individual basis and are also evaluated
in  the  aggregate  to  determine  adequate  reserves.  As  specific  loans  are
determined to be impaired  specific  reserves are assigned based upon collateral
value,  market  value,  if  determinable,  or the present value of the estimated
future cash flows of the loan.

     The allowance is increased by a provision for loan loss which is charged to
expense,  and reduced by  charge-offs,  net of  recoveries.  Loans are placed on
non-accrual  status when they are 90 days past due,  unless they are  adequately
collateralized and in the process of collection.

     The  allowance  for loan losses is  maintained  at a level that  represents
management's best estimate of losses in the portfolio at the balance sheet date.
However,  there  can be no  assurance  that the  allowance  for  losses  will be
adequate to cover losses which may be realized in the future and that additional
provisions for losses will not be required.










                                        9

<PAGE>

     Activity in the Allowance for Loan Losses.  The following  table sets forth
information  with respect to the  Registrant's  allowance for loan losses at the
dates indicated:



<TABLE>
<CAPTION>
                                                                      December 31,
                                              -------------------------------------------------------------
                                                2005         2005         2004         2003         2002
                                              ---------    ---------    ---------    ---------    ---------
                                                                          (Dollars in Thousands)

<S>                                         <C>          <C>          <C>          <C>          <C>
Total loans outstanding ...................   $ 472,490    $ 445,789    $ 439,142    $ 419,571    $ 362,744
                                              =========    =========    =========    =========    =========
Average loans outstanding .................   $ 462,036    $ 436,906    $ 430,543    $ 393,743    $ 337,600
                                              =========    =========    =========    =========    =========
Allowance balance (at beginning of  period)   $   3,564    $   2,594    $   3,285    $   2,873    $   2,114
                                              ---------    ---------    ---------    ---------    ---------
Provision .................................       1,500        1,200          600          600        1,100
Charge-Offs:
   Mortgage ...............................          --          (64)      (1,204)         (11)        (219)
   Installment ............................         (63)        (100)        (127)         (84)         (68)
   Commercial .............................        (192)         (19)          (8)        (148)        (154)
   Home equity lines of credit ............          --           --           --           --           --
   PHEAA ..................................          --           --           --           --           --
   Municipal ..............................          --           --           --           --           --
   Credit cards ...........................          (2)          --           --           --           --
   Other ..................................         (91)         (88)          --           --           --
                                              ---------    ---------    ---------    ---------    ---------
      Total charge-offs ...................        (348)        (271)      (1,339)        (243)        (441)
Recoveries:
  Mortgage ................................          --            7           --           --           --
  Installment .............................           5           10            3           20            9
  Commercial ..............................          30           13           45           35           91
  Home equity lines of credit .............          --           --           --           --           --
  PHEAA ...................................          --           --           --           --           --
  Municipal ...............................          --           --           --           --           --
  Credit cards ............................          --           --           --           --           --
  Other ...................................          18           11           --           --           --
                                              ---------    ---------    ---------    ---------    ---------
      Total recoveries ....................          53           41           48           55          100
Net charge-offs ...........................        (295)        (230)      (1,291)        (188)        (341)
                                              ---------    ---------    ---------    ---------    ---------
Allowance balance (at end of period) ......   $   4,769    $   3,564    $   2,594    $   3,285    $   2,873
                                              =========    =========    =========    =========    =========
Allowance for loan losses as a percent
  of total loans outstanding...............        1.01%        0.80%        0.59%        0.78%        0.79%
                                              =========    =========    =========    =========    =========
Net loans charged off as a percent of
  average loans outstanding................        0.06%        0.05%        0.30%        0.05%        0.10%
                                              =========    =========    =========    =========    =========
</TABLE>


                                                        10

<PAGE>

     Allocation of the Allowance For Loan Losses.  The following table shows the
allocation  of the  Registrant's  allowance for loan losses by loan category and
the  percentage  of total loans  represented  by each loan  category at the date
indicated.


<TABLE>
<CAPTION>
                                                                         At December 31,
                                 ---------------------------------------------------------------------------------------------
                                       2006               2005               2004              2003               2002
                                 ----------------   -----------------  ----------------  -----------------  ------------------
                                          % of                % of              % of               % of                % of
                                          Loans               Loans             Loans              Loans               Loans
                                         to Total            to Total          to Total           to Total            to Total
                                 Amount   Loans     Amount    Loans    Amount   Loans     Amount   Loans     Amount    Loans
                                 ------  --------   ------   -------   ------  --------   ------  -------    ------   --------
                                                                    (Dollars in Thousands)

<S>                            <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
At end of period allocated to:
  Mortgage ...................   $2,714    56.59%   $1,853    56.65%   $1,110    57.37%   $  806    58.33%   $  515    57.87%
  Installment ................      308    20.95       282    29.95       338    19.27       109    18.65       188    16.33
  Commercial .................    1,693    15.69     1,395    14.24       889    13.91     2,217    14.19     2,100    16.14
  Home equity lines of credit        26     3.51        32     4.41        43     5.28       138     5.23        64     4.36
  PHEAA ......................        1     1.37         1     1.52         4     1.67         5     1.87         2     1.90
  Municipal ..................       16     1.77         1     2.05       210     2.29         9     1.49         4     3.08
  Credit cards ...............       --     0.02        --     0.01        --     0.01        --     0.01        --     0.01
  Other ......................       11     0.10        --     0.17        --     0.20         1     0.23        --     0.31
                                 ------   ------    ------   ------    ------   ------    ------   ------    ------   -------
      Total ..................   $4,769   100.00%   $3,564   100.00%   $2,594   100.00%   $3,285   100.00%   $2,873   100.00%
                                 ======   ======    ======   ======    ======   ======    ======   ======    ======   ======
</TABLE>



                                       11

<PAGE>

Investment Activities

     The  Registrant  maintains a level of liquid assets,  including  short-term
securities and certain other  investments,  which varies  depending upon several
factors, including: (i) the yields on investment alternatives; (ii) management's
judgment as to the  attractiveness  of the yields then  available in relation to
other  opportunities;  (iii)  expectation  of  future  yield  levels;  and  (iv)
management's  projections  as to the short-  term demand for funds to be used in
loan  origination  and  other  activities.   Investment  securities,   including
mortgage-backed  securities,  are classified at the time of purchase, based upon
management's  intentions  and  abilities,  as  securities   held-to-maturity  or
securities  available-for-sale.  Debt  securities  acquired  with the intent and
ability to hold to maturity are classified as held-to-maturity and are stated at
cost and adjusted for  amortization of premium and accretion of discount,  which
are  computed  using the level yield method and  recognized  as  adjustments  of
interest income. All other debt securities are classified as  available-for-sale
to serve principally as a source of liquidity.

     Current accounting  standards regarding  investment  securities  (including
mortgage backed securities)  require the Registrant to categorize  securities as
"held-to-maturity," "available-for-sale," or "trading." As of December 31, 2006,
the Registrant had securities classified as "available-for-sale" (which included
the stock we are  required  to hold in the  Federal  Home Loan Bank  ("FHLB") of
Pittsburgh  as a member ) in the amount of $226.4  million and had no securities
classified  as   "held-to-maturity"   or  "trading."  Securities  classified  as
"available-for-sale"  are reported for financial  reporting purposes at the fair
market value with net changes in the market value from period to period included
as a  separate  component  of  stockholders'  equity,  net of income  taxes.  At
December  31,  2006,  the  Registrant's  securities  available-for-sale  had  an
amortized cost of $226.6 million and market value of $226.4 million.  Changes in
the market value of securities  available-for-  sale do not affect the Company's
income.  In addition,  changes in the market value of securities  available-for-
sale do not affect the Bank's regulatory capital requirements or its loan-to-one
borrower limit.

     At December 31, 2006, the Registrant's  investment portfolio policy allowed
investments in instruments  such as: (i) U.S.  Treasury  obligations;  (ii) U.S.
federal agency or federally sponsored agency obligations;  (iii) mortgage-backed
securities;   (iv)  municipal  obligations;   (v)  banker's  acceptances;   (vi)
certificates  of  deposit;  and  (vii)  investment-grade  corporate  bonds,  and
commercial paper. The board of directors may authorize additional investments.

     As a  source  of  liquidity  and to  supplement  the  Registrant's  lending
activities,   the  Registrant   has  invested  in  residential   mortgage-backed
securities.  Mortgage-backed  securities  can serve as collateral for borrowings
and, through repayments,  as a source of liquidity.  Mortgage-backed  securities
represent a participation  interest in a pool of  single-family or other type of
mortgages.  Principal  and  interest  payments  are  passed  from  the  mortgage
originators, through intermediaries (generally quasi-governmental agencies) that
pool and repackage the  participation  interests in the form of securities.  The
quasi-governmental  agencies  guarantee the payment of principal and interest to
investors  and include  FreddieMac,  Government  National  Mortgage  Association
("GinnieMae"), and FannieMae.

     Mortgage-backed  securities  typically  are issued  with  stated  principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying  pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate risk  characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable  rate) and the prepayment  risk, are passed on to the  certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities

                                       12

<PAGE>

will differ from contractual  maturities due to scheduled repayments and because
borrowers  may have the  right to call or  prepay  obligations  with or  without
prepayment   penalties.   Mortgage-backed   securities   issued  by  FreddieMac,
GinnieMae,  and FannieMae  make up a majority of the  pass-through  certificates
market.

     Investment Portfolio.  The following table sets forth the carrying value of
the Registrant's investment securities portfolio at the dates indicated:


<TABLE>
<CAPTION>
                                                           At December 31,
                                                    ------------------------------
                                                      2006       2005       2004
                                                    --------   --------   --------
                                                             (In Thousands)
<S>                                               <C>        <C>        <C>
Securities available-for-sale:
  Obligations of U.S. government agencies .......   $ 95,325   $ 78,874   $ 71,103
  Mortgage-backed securities ....................     61,046     53,827     65,004
  Obligations of state and political subdivisions     64,598     54,808     46,446
  FHLB stock ....................................      5,197      5,470      5,683
  Equity securities .............................        234      8,288      7,940
  Other securities ..............................         47        196        716
                                                    --------   --------   --------
     Total securities available-for-sale ........   $226,447   $201,463   $196,892
                                                    ========   ========   ========
</TABLE>


                                       13

<PAGE>

     Investment  Portfolio  Maturities.  The following  table sets forth certain
information  regarding carrying values,  weighted average yields, and maturities
of the  Registrant's  investment  securities  portfolio as of December 31, 2006.
Actual maturities may differ from contractual  maturities as certain instruments
have call features which allow prepayment of obligations.

<TABLE>
<CAPTION>
                                                                             At December 31, 2006
                              -----------------------------------------------------------------------------------------------------
                                                                      After Five        More than
                              One Year or Less  One to Five Years    to Ten Years       Ten Years       Total Investment Securities
                              ----------------  ----------------- -----------------  -----------------  ---------------------------
                              Carrying Average  Carrying Average  Carrying  Average  Carrying  Average  Carrying  Average  Market
                               Value    Yield    Value    Yield    Value     Yield    Value     Yield    Value     Yield   Value
                              -------- -------  -------- -------  --------  -------  --------  -------- --------  -------  ------
                                                                       (Dollars in thousands)
<S>                          <C>      <C>     <C>        <C>     <C>       <C>     <C>         <C>    <C>         <C>    <C>
Obligations of U.S. .........
  government agencies .......  $  --      --%   $ 6,962    4.60%   $80,210   4.73%   $  8,153    5.54%  $ 95,325    4.79%  $ 95,325
Mortgage-backed securities ..     --      --      9,609    3.96      3,634   3.93      47,803    5.05     61,046    4.81     61,046
Obligations of state and
  political subdivisions(1) .    740    5.03      1,740    4.78     11,231   4.92      50,887    4.45     64,598    4.55     64,598
FHLB stock ..................     --      --         --      --         --     --       5,197    5.83      5,197    5.83      5,197
Equity securities ...........     --      --         --      --         --     --         234    3.86        234    3.86        234
Other securities ............     --      --         25    6.25         --     --          22    5.10         47    5.71         47
                               -----            -------            -------           --------           --------           ---------
     Total ..................  $ 740    5.03%   $18,336    4.28%   $95,075   4.72%   $112,296    4.85%  $226,447    4.75%  $226,447
                               =====            =======            =======           ========           ========           ========
</TABLE>

--------------------
(1)  Average yields have not been computed on a tax-equivalent basis.


                                       14

<PAGE>

Sources of Funds

     General.  Deposits  are the  major  source  of the  Registrant's  funds for
lending and other investment purposes.  In addition to deposits,  the Registrant
derives funds from the amortization,  prepayment or sale of loans, maturities of
investment securities and operations.  Scheduled loan principal repayments are a
relatively  stable source of funds,  while deposit inflows and outflows and loan
prepayments are  significantly  influenced by general  interest rates and market
conditions. The Bank can also borrow from the FHLB of Pittsburgh.

     Deposits.  Consumer and commercial deposits are attracted  principally from
within the  Registrant's  primary  market area  through the  offering of a broad
selection of deposit  instruments  including  checking,  regular savings,  money
market deposits,  term certificate accounts and individual  retirement accounts.
The Bank also  offers a  variety  of  deposit-related  services  for  commercial
customers,  including merchant card processing, ACH origination, wire transfers,
safe deposit boxes, and lock-box services.  Deposit account terms vary according
to the  minimum  balance  required,  the time  periods  the funds must remain on
deposit and the interest  rate,  among other factors.  The Registrant  regularly
evaluates  the  internal  cost of funds,  surveys  rates  offered  by  competing
institutions,  reviews the Registrant's  cash flow  requirements for lending and
liquidity and executes rate changes when deemed appropriate. The Registrant does
not  obtain  funds  through  brokers,  nor does it  solicit  funds  outside  the
Commonwealth of Pennsylvania.


<TABLE>
<CAPTION>
                                                            At December 31,
                                ----------------------------------------------------------------------
                                        2006                     2005                     2004
                                --------------------     --------------------     --------------------
                                Average      Average     Average      Average     Average      Average
                                Balance       Rate       Balance       Rate       Balance       Rate
                                                        (Dollars in thousands)

<S>                           <C>                      <C>                      <C>
Checking accounts:
   Non-interest-bearing .....   $ 81,682        --%      $ 81,926        --%      $ 80,423       --%
   Interest-bearing .........     56,294      0.66         51,881      0.60         45,791      0.39
Passbook and club accounts...     69,717      0.51         75,734      0.52         76,356      0.51
Money market accounts .......     52,671      2.54         62,225      1.67         58,103      0.89
Certificate accounts ........    274,047      4.17        245,654      3.31        245,881      3.09
                                --------      ----       --------      ----       --------      ----
         Total ..............   $534,441      2.52%      $517,420      1.91%      $506,554      1.71%
                                ========      ====       ========      ====       ========      ====
</TABLE>

     The  following  table  indicates the amount of  certificates  of deposit of
$100,000 or more by time remaining at December 31, 2006 (in thousands).


                                               Certificates of
  Maturity Periods                                 Deposit
  ----------------                             ---------------
  Three months or less......................       $26,149
  Over three through six months.............        15,336
  Over six through twelve months............        42,444
  Over twelve months........................         9,948
                                                   -------
        Total...............................       $93,877
                                                   =======

     Borrowings.  Deposits are the primary source of funds for the  Registrant's
lending and  investment  activities  as well as for general  business  purposes.
Should the need arise, the Registrant has a maximum

                                       15

<PAGE>

borrowing  capacity with the FHLB of Pittsburgh of $313.0  million.  At December
31, 2006, there were outstanding $67.5 million of long-term FHLB borrowings.

     The  Bank  offers  its  commercial   checking  customers  a  sweep  account
arrangement in which account balances are invested in U.S. Government and Agency
securities  on an  overnight  basis to provide a higher  rate of return to these
customers.  The  Bank's  obligation  to  repurchase  these  securities  the next
business day is classified  as a borrowing by the Bank for  financial  reporting
purposes.

     The  following  table sets forth certain  information  regarding the Bank's
repurchase agreements which were the only category of short-term borrowings (due
within one year or less) whose average balance for the past fiscal year exceeded
30% of stockholders equity at December 31, 2006.


<TABLE>
<CAPTION>
                                                               At or for the Year Ended December 31,
                                                            ------------------------------------------
                                                               2006            2005            2004
                                                            ----------      ----------      ----------
                                                                       (Dollars in Thousands)
<S>                                                        <C>             <C>              <C>
Average balance outstanding................................  $30,747         $20,209          $15,205
Maximum amount outstanding at any
  month-end during the period..............................  $41,869         $38,686          $24,682
Weighted average interest rate during the period...........    4.62%           2.79%            1.01%
Balance outstanding at end of period.......................  $27,417         $18,443          $15,157
Weighted average interest rate at end of period...........     4.87%           3.51%            1.51%
</TABLE>

Trust Services

     The Bank offers a variety of trust  services  including  trust  management,
estate  planning and  administration,  investment  counseling and management and
retirement  planning.  The Bank  serves as  trustee  for  testamentary,  living,
irrevocable and charitable trusts,  administers  investment  agencies,  employee
benefit plans, guardianships, special needs trusts and offers separately managed
accounts.  The Bank's fees for these  services are generally a percentage of the
assets under management. As of December 31, 2006, the Bank had $126.9 million in
assets under  management  compared to $115.1  million at December 31, 2005.  The
increase  in assets  under  management  in 2006 was  primarily  due to new trust
accounts.  For the year ended December 31, 2006, the Bank had income of $466,000
from its trust services.

Personnel

     As of December 31, 2006,  the Registrant had 181 full-time and 52 part-time
employees.  None of the  Registrant's  employees are represented by a collective
bargaining group.



                                       16

<PAGE>

                           SUPERVISION AND REGULATION

Regulation of the Company

     Set forth below is a brief description of certain laws which related to the
regulation of the Company and the Ba4nk.  The description does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.

     General.  The Company,  as a bank holding company registered under the Bank
Holding Company Act of 1956, as amended,  is subject to regulation,  supervision
and  examination by the Board of Governors of the Federal  Reserve System and by
the  Pennsylvania  Department  of Banking.  The Company is also required to file
annually  a  report  of  its  operations   with  the  Federal  Reserve  and  the
Pennsylvania  Department of Banking.  This regulation and oversight is generally
intended to ensure that the Company  limits its  activities  to those allowed by
law and that it  operates in a safe and sound  manner  without  endangering  the
financial health of the Bank.

     Under the Bank  Holding  Company  Act,  the  Company  must obtain the prior
approval of the Federal Reserve before it may acquire control of another bank or
bank holding  company,  merge or consolidate  with another bank holding company,
acquire all or  substantially  all of the assets of another bank or bank holding
company, or acquire direct or indirect ownership or control of any voting shares
of any bank or bank  holding  company if,  after such  acquisition,  the Company
would directly or indirectly own or control more than 5% of such shares.

     Federal  statutes  impose  restrictions  on the  ability of a bank  holding
company and its nonbank  subsidiaries  to obtain  extensions  of credit from its
subsidiary bank, on the subsidiary bank's investments in the stock or securities
of the  holding  company,  and on the  subsidiary  bank's  taking of the holding
company's  stock or securities as collateral  for loans to any borrower.  A bank
holding company and its subsidiaries are also prevented from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property, or furnishing of services by the subsidiary bank.

     A bank holding  company is required to serve as a source of  financial  and
managerial  strength to its subsidiary  banks and may not conduct its operations
in an unsafe or unsound  manner.  In addition,  it is the Federal Reserve policy
that a bank holding  company  should stand ready to use  available  resources to
provide  adequate  capital to its  subsidiary  banks during periods of financial
stress  or  adversity  and  should   maintain  the  financial   flexibility  and
capital-raising  capacity  to obtain  additional  resources  for  assisting  its
subsidiary  banks. A bank holding  company's  failure to meet its obligations to
serve  as a source  of  strength  to its  subsidiary  banks  will  generally  be
considered by the Federal Reserve to be an unsafe and unsound  banking  practice
or a violation of the Federal Reserve regulations, or both.

     Non-Banking  Activities.  The business activities of the Company, as a bank
holding company,  are restricted by the Bank Holding Company Act. Under the Bank
Holding Company Act and the Federal Reserve's bank holding company  regulations,
the  Company  may only  engage in, or acquire or control  voting  securities  or
assets of a company engaged in, (1) banking or managing or controlling banks and
other  subsidiaries  authorized  under the Bank Holding  Company Act and (2) any
non-banking activity the Federal Reserve has determined to be so closely related
to banking or managing or  controlling  banks to be a proper  incident  thereto.
These include any incidental  activities necessary to carry on those activities,
as well as a lengthy list of activities  that the Federal Reserve has determined
to be so closely  related to the business of banking as to be a proper  incident
thereto.

                                       17

<PAGE>

     Financial   Modernization.   The  Gramm-Leach-Bliley  Act  permits  greater
affiliation  among  banks,  securities  firms,  insurance  companies,  and other
companies under a new type of financial  services  company known as a "financial
holding  company." A financial  holding  company  essentially  is a bank holding
company with  significantly  expanded powers.  Financial  holding  companies are
authorized by statute to engage in a number of financial  activities  previously
impermissible for bank holding  companies,  including  securities  underwriting,
dealing and market making;  sponsoring  mutual funds and  investment  companies;
insurance underwriting and agency; and merchant banking activities. The Act also
permits the Federal Reserve and the Treasury Department to authorize  additional
activities for financial  holding companies if they are "financial in nature" or
"incidental"  to  financial  activities.  A bank  holding  company  may become a
financial  holding company if each of its subsidiary banks is well  capitalized,
well managed,  and has at least a "satisfactory" CRA rating. A financial holding
company  must  provide  notice  to the  Federal  Reserve  within  30 days  after
commencing activities previously determined by statute or by the Federal Reserve
and  Department of the Treasury to be  permissible.  In fiscal 2000, the Company
submitted  the  required  notice to the  Federal  Reserve and became a financial
holding company.

     Regulatory  Capital  Requirements.  The Federal Reserve has adopted capital
adequacy guidelines under which it assesses the adequacy of capital in examining
and supervising a bank holding company and in analyzing applications to it under
the Bank Holding Company Act. The Federal Reserve's capital adequacy  guidelines
are  similar  to those  imposed  on the Bank by the  Federal  Deposit  Insurance
Corporation. See "Regulation of the Bank - Regulatory Capital Requirements."

     Restrictions on Dividends.  The Pennsylvania  Banking Code states, in part,
that dividends may be declared and paid only out of accumulated net earnings and
may not be declared or paid unless surplus (retained earnings) is at least equal
to  contributed  capital.  The Bank has not declared or paid any dividends  that
have  caused its  retained  earnings  to be reduced  below the amount  required.
Finally,  dividends  may not be  declared  or paid if the Bank is in  default in
payment of any assessment due the Federal Deposit Insurance Corporation.

     The Federal  Reserve has issued a policy  statement  on the payment of cash
dividends by bank holding companies,  which expresses the Federal Reserve's view
that a bank holding  company  should pay cash  dividends only to the extent that
the holding  company's  net income for the past year is sufficient to cover both
the cash dividends and a rate of earnings  retention that is consistent with the
holding company's capital needs, asset quality and overall financial  condition.
The Federal Reserve also indicated that it would be inappropriate  for a company
experiencing  serious  financial  problems  to  borrow  funds to pay  dividends.
Furthermore, under the federal prompt corrective action regulations, the Federal
Reserve may  prohibit a bank holding  company  from paying any  dividends if the
holding company's bank subsidiary is classified as "undercapitalized."

Regulation of the Bank

     General. As a Pennsylvania-chartered  commercial bank with deposits insured
by the  Federal  Deposit  Insurance  Corporation  which is not a  member  of the
Federal Reserve,  the Bank is subject to extensive regulation and examination by
the  Pennsylvania  Department  of Banking and by the Federal  Deposit  Insurance
Corporation,  which insures its deposits to the maximum extent permitted by law.
The federal and state laws and regulations  applicable to banks regulate,  among
other  things,  the scope of their  business,  their  investments,  the reserves
required  to be  kept  against  deposits,  the  timing  of the  availability  of
deposited  funds and the nature and amount of and  collateral for certain loans.
The laws and regulations  governing the Bank generally have been  promulgated to
protect  depositors  and not for the purpose of  protecting  stockholders.  This
regulatory structure also gives the federal and state banking agencies extensive
discretion in connection with their  supervisory and enforcement  activities and
examination policies, including policies with respect

                                       18

<PAGE>

to the  classification  of assets and the  establishment  of adequate  loan loss
reserves for regulatory purposes. Any change in such regulation,  whether by the
Pennsylvania Department of Banking, the Federal Deposit Insurance Corporation or
the United States Congress,  could have a material impact on the Company and its
operations.

     Federal law provides the federal banking regulators,  including the Federal
Deposit  Insurance   Corporation  and  the  Federal  Reserve,  with  substantial
enforcement powers. This enforcement authority includes, among other things, the
ability to assess civil money penalties,  to issue  cease-and-desist  or removal
orders,  and to initiate  injunctive  actions against banking  organizations and
institution-affiliated  parties,  as  defined.  In  general,  these  enforcement
actions may be initiated for  violations of laws and  regulations  and unsafe or
unsound  practices.  Other  actions  or  inactions  may  provide  the  basis for
enforcement  action,   including  misleading  or  untimely  reports  filed  with
regulatory authorities.

     Pennsylvania  Banking Law. The Pennsylvania  Banking Code ("Code") contains
detailed provisions governing the organization,  location of offices, rights and
responsibilities  of trustees,  officers,  and  employees,  as well as corporate
powers,  savings and investment operations and other aspects of the Bank and its
affairs.  The Code  delegates  extensive  rule-making  power and  administrative
discretion to the Pennsylvania Department of Banking so that the supervision and
regulation  of state  chartered  commercial  banks may be  flexible  and readily
responsive  to  changes  in  economic  conditions  and in  savings  and  lending
practices.  In addition to the powers specifically  granted, the Code authorizes
state-chartered  banks to engage in activities  authorized to national banks and
federal  savings  associations  subject  to  the  conditions,   limitations  and
restrictions otherwise imposed.

     The Code also provides state-chartered  commercial banks with the powers to
make certain  leeway  investments,  subject to  regulation  by the  Pennsylvania
Department of Banking.  The Federal Deposit Insurance  Corporation Act, however,
prohibits a state-chartered bank from making new investments, loans, or becoming
involved  in  activities  as  principal  and  equity  investments  which are not
permitted  for  national  banks  unless  (1)  the  Federal   Deposit   Insurance
Corporation  determines  the activity or investment  does not pose a significant
risk of loss to the  appropriate  deposit  insurance fund and (2) the bank meets
all  applicable  federal  capital  requirements.   Accordingly,  the  additional
operating authority provided to the Bank by the Code is significantly restricted
by the Federal Deposit Insurance Act.

     Federal Deposit Insurance.  The Federal Deposit Insurance Corporation is an
independent federal agency that insures the deposits, up to prescribed statutory
limits, of federally  insured banks and savings  institutions and safeguards the
safety and  soundness  of the banking and savings  industries.  Previously,  the
Federal Deposit Insurance Corporation administered two separate insurance funds,
the Bank Insurance Fund ("BIF"),  which  generally  insured  commercial bank and
state  savings  bank  deposits,  and  the  Savings  Association  Insurance  Fund
("SAIF"), which generally insured savings association deposits.

     Under the Federal Deposit  Insurance  Reform Act of 2005,  which was signed
into law on February 15,  2006:  (i) the BIF and the SAIF were merged into a new
combined fund,  called the Deposit Insurance Fund effective March 31, 2006, (ii)
the current  $100,000 deposit  insurance  coverage will be indexed for inflation
(with  adjustments  every five years,  commencing  January 1,  2011);  and (iii)
deposit  insurance  coverage  for  retirement  accounts  have been  increased to
$250,000 per participant subject to adjustment for inflation.  The FDIC has been
given greater  latitude in setting the assessment  rates for insured  depository
institutions which could be used to impose minimum assessments.

     The FDIC is authorized  to set the reserve ratio for the Deposit  Insurance
Fund annually at between 1.15% and 1.5% of estimated  insured  deposits.  If the
Deposit Insurance Fund's reserves exceed the designated  reserve ratio, the FDIC
is required to pay out all or, if the reserve ratio is less than 1.5%, a portion

                                       19

<PAGE>



of the excess as a  dividend  to insured  depository  institutions  based on the
percentage  of  insured   deposits  held  on  December  31,  1996  adjusted  for
subsequently  paid  premiums.  Insured  depository  institutions  that  were  in
existence on December 31, 1996 and paid assessments prior to that date (or their
successors) are entitled to a one-time credit against future  assessments  based
on their past contributions to the BIF or SAIF.

     Pursuant  to the  Reform  Act,  the FDIC has  determined  to  maintain  the
designated  reserve ratio at its current 1.25%.  The FDIC has also adopted a new
risk-based  premium system that provides for quarterly  assessments  based on an
insured  institution's  ranking  in one of four risk  categories  based on their
examination  ratings and capital  ratios.  Beginning  in 2007,  well-capitalized
institutions  with the CAMELS ratings of 1 or 2 will be grouped in Risk Category
I and will be assessed  for deposit  insurance at an annual rate of between five
and seven basis points with the assessment rate for an individual institution to
be  determined  according  to a  formula  based  on a  weighted  average  of the
institution's  individual  CAMEL  component  ratings plus either five  financial
ratios or the  average  ratings  of its  long-term  debt.  Institutions  in Risk
Categories  II,  III and IV will be  assessed  at annual  rates of 10, 28 and 43
basis points, respectively.  The Bank anticipates that it will be able to offset
its deposit insurance premium for 2007 with the special assessment credit.

     In addition,  all institutions with deposits insured by the Federal Deposit
Insurance  Corporation are required to pay assessments to fund interest payments
on  bonds  issued  by the  Financing  Corporation,  an  agency  of  the  Federal
government  established to recapitalize the predecessor to the SAIF. The current
quarterly  assessment rate is approximately  0.0146% of insured deposits.  These
assessments will continue until the Financing Corporation bonds mature in 2017.

         Regulatory   Capital   Requirements.   The  Federal  Deposit  Insurance
Corporation has promulgated  capital adequacy  requirements for  state-chartered
banks  that,  like the Bank are not members of the Federal  Reserve  System.  At
December 31, 2006, the Bank exceeded all regulatory capital requirements and was
classified as "well capitalized."

     The Federal Deposit Insurance Corporation's capital regulations establish a
minimum  3% Tier 1  leverage  capital  requirement  for the  most  highly  rated
state-chartered, non-member banks, with an additional cushion of at least 100 to
200  basis  points  for  all  other  state-chartered,  non-member  banks,  which
effectively  increases the minimum Tier 1 leverage ratio for such other banks to
4% to 5% or more. Under the Federal Deposit Insurance Corporation's  regulation,
the highest-rated banks are those that the Federal Deposit Insurance Corporation
determines are not anticipating or experiencing significant growth and have well
diversified  risk,  including no undue  interest rate risk  exposure,  excellent
asset  quality,  high  liquidity,  good  earnings  and,  in  general,  which are
considered a strong banking  organization,  rated  composite 1 under the Uniform
Financial  Institutions  Rating System. Tier 1 or core capital is defined as the
sum of common stockholders' equity (including retained earnings),  noncumulative
perpetual  preferred  stock and  related  surplus,  and  minority  interests  in
consolidated  subsidiaries,  minus all  intangible  assets  other  than  certain
mortgage  and   non-mortgage   servicing   assets  and  purchased   credit  card
relationships.

     The Federal Deposit Insurance  Corporation's  regulations also require that
state-chartered,  non- member  banks meet a  risk-based  capital  standard.  The
risk-based  capital standard requires the maintenance of total capital (which is
defined as Tier 1 capital and  supplementary  (Tier 2) capital) to risk weighted
assets of 8%. In determining  the amount of  risk-weighted  assets,  all assets,
plus certain off balance sheet assets,  are multiplied by a risk-weight of 0% to
100%, based on the risks the Federal Deposit Insurance  Corporation believes are
inherent in the type of asset or item.  The components of Tier 1 capital for the
risk-based standards are the same as those for the leverage capital requirement.
The components of supplementary  (Tier 2) capital include  cumulative  perpetual
preferred stock,  mandatory  subordinated  debt,  perpetual  subordinated  debt,
intermediate-term  preferred  stock,  up to 45% of  unrealized  gains on  equity
securities and a bank's allowance for loan and lease losses.  Allowance for loan
and lease losses includable in supplementary capital

                                       20

<PAGE>



is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
supplementary  capital that may be included in total  capital is limited to 100%
of Tier 1 capital.

     A bank that has less  than the  minimum  leverage  capital  requirement  is
subject to various  capital plan and activities  restriction  requirements.  The
Federal  Deposit  Insurance  Corporation's  regulations  also  provide  that any
insured  depository  institution  with a ratio of Tier 1 capital to total assets
that is less  than  2.0% is deemed  to be  operating  in an  unsafe  or  unsound
condition  pursuant to Section  8(a) of the Federal  Deposit  Insurance  Act and
could be subject to termination of deposit insurance.

     The Bank is also  subject to minimum  capital  requirements  imposed by the
Pennsylvania   Department  of  Banking  on   Pennsylvania-chartered   depository
institutions.   Under  the   Pennsylvania   Department   of  Banking's   capital
regulations,  a  Pennsylvania  bank or  savings  bank  must  maintain  a minimum
leverage ratio of Tier 1 capital (as defined under the Federal Deposit Insurance
Corporation's  capital  regulations)  to total  assets of 4%. In  addition,  the
Pennsylvania  Department of Banking has the supervisory  discretion to require a
higher  leverage  ratio  for  any  institutions   based  on  the   institution's
substandard  performance in any of a number of areas. The Bank was in compliance
with  both  the  Federal  Deposit  Insurance  Corporation  and the  Pennsylvania
Department of Banking capital requirements as of December 31, 2006.

     Affiliate Transaction Restrictions. Federal laws strictly limit the ability
of banks to engage in transactions with their  affiliates,  including their bank
holding  companies.  In  particular,  loans by a  subsidiary  bank to its parent
company or the nonbank  subsidiaries  of the bank holding company are limited to
10% of a bank subsidiary's  capital and surplus and, with respect to such parent
company and all such  nonbank  subsidiaries,  to an aggregate of 20% of the bank
subsidiary's capital and surplus.  Further, loans and other extensions of credit
generally  are  required  to be  secured by  eligible  collateral  in  specified
amounts.  Federal law also requires that all transactions between a bank and its
affiliates  be  on  terms  as  favorable  to  the  bank  as  transactions   with
non-affiliates.

     Federal  Home Loan Bank  System.  The Bank is a member of the Federal  Home
Loan Bank of  Pittsburgh,  which is one of 12 regional  Federal Home Loan Banks.
Each  Federal Home Loan Bank serves as a reserve or central bank for its members
within its  assigned  region.  It is funded  primarily  from funds  deposited by
member  institutions  and proceeds from the sale of consolidated  obligations of
the Federal Home Loan Bank system. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of directors of
the Federal Home Loan Bank.

     As a member,  it is required to purchase and maintain  stock in the Federal
Home Loan Bank of Pittsburgh  in an amount from 4.5% to 6.0% of its  outstanding
residential  mortgage  loans  plus 0% to 1.5% of its  unused  maximum  borrowing
capacity.   At  December  31,  2006,  the  Bank  was  in  compliance  with  this
requirement.

     Federal  Reserve  System.  The  Federal  Reserve  requires  all  depository
institutions  to maintain non-  interest  bearing  reserves at specified  levels
against their  transaction  accounts  (primarily  checking and NOW accounts) and
non-personal  time  deposits.  The  balances  maintained  to  meet  the  reserve
requirements imposed by the Federal Reserve may be used to satisfy the liquidity
requirements that are imposed by the Department.  At December 31, 2006, the Bank
met its reserve requirements.



                                       21

<PAGE>

Item 1A. Risk Factors
---------------------

     Investing in our securities may involve certain risks,  including the risks
described below. You should carefully  consider these risk factors together with
all other  available  information  and data  before  you decide to invest in our
securities.

Our loan  portfolio  includes a substantial  amount of commercial and commercial
real estate loans.

     Our commercial  loan  portfolio,  including real estate and non-real estate
loans, was $162.8 million at December 31, 2006, comprising 34.4% of total loans.
Commercial  loans  generally  involve a greater  degree of risk of nonpayment or
late  payment  than  home  equity  loans  or  residential  mortgage  loans.  Any
significant  failure to pay or late  payments  by our  customers  would hurt our
earnings.  The increased  credit risk  associated with these types of loans is a
result of several factors, including the concentration of principal in a limited
number of loans and borrowers, the size of loan balances, the effects of general
economic conditions on income-producing  properties and the increased difficulty
of  evaluating  and  monitoring  these  types of loans.  A number of factors may
affect a borrower's  ability to make or refinance a balloon  payment,  including
the  financial  condition  of  the  borrower,   the  prevailing  local  economic
conditions and the prevailing interest rate environment.

     Furthermore,  the repayment of loans  secured by commercial  real estate is
typically dependent upon the successful  operation of the related real estate or
commercial project. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired. This cash flow shortage may result in
the failure to make loan payments.  In such cases, we may be compelled to modify
the terms of the loan. In addition,  the nature of these loans is such that they
are generally less predictable and more difficult to evaluate and monitor.  As a
result,  repayment of these loans may to a greater extent than residential loans
be subject to adverse conditions in the real estate market or economy.

Our  concentration  of loans in the Pittsburgh  area exposes us to the risk of a
possible economic downturn affecting that area.

     Because our loans are concentrated in the Pittsburgh area, a decline in the
general economic conditions of this area could have a material adverse effect on
our financial condition,  results of operations and cash flows. In recent years,
Pittsburgh has  experienced  the loss of several major employers and is expected
to experience additional job losses and a decline in population.  The Pittsburgh
area is  characterized  by an aging  population and household  incomes below the
national  average.  These factors may tend to limit economic growth and business
opportunities.

If we have failed to provide an adequate allowance for loan losses,  there could
be a significant negative impact on our earnings.

     The risk of loan losses varies with,  among other things,  general economic
conditions,  the type of loan being made, the  creditworthiness  of the borrower
over the term of the loan and, in the case of a  collateralized  loan, the value
of  the  collateral  for  the  loan.  Based  upon  factors  such  as  historical
experience,  an  evaluation  of  economic  conditions  and a  regular  review of
delinquencies  and  loan  portfolio   quality,   our  management  makes  various
assumptions  and  judgments  about  the  ultimate  collectibility  of  the  loan
portfolio and provides an allowance for loan losses.  At December 31, 2006,  our
allowance for loan losses was $4.8 million which represented 1.0% of total loans
and 166.5% of nonperforming loans. If our management's assumptions and judgments
prove to be incorrect  and the allowance for loan losses is inadequate to absorb
future credit losses,

                                       22

<PAGE>

or if the bank regulatory authorities require the Bank to increase its allowance
for loan losses, our earnings could be significantly and adversely affected.

     As our loan  portfolio has  increased,  we have increased our allowance for
loan losses.  Future  additions to the allowance in the form of  provisions  for
loan losses may be necessary due to changes in economic  conditions or growth of
our loan portfolio. As a result of the recent growth in our lending practices, a
significant  portion of our total loan  portfolio may be considered  unseasoned.
Accordingly,  specific  payment  and loss  experience  for this  portion  of the
portfolio  has not yet been fully  established,  and there is the  potential for
additional loan losses.

Future changes in interest rates may reduce our profits.

     Our ability to make a profit  largely  depends on our net interest  income,
which could be negatively  affected by changes in interest  rates.  Net interest
income is the difference between:

     o    the interest income we earn on interest-earning  assets, such as loans
          and investment securities; and

     o    the interest expense we pay on our interest-bearing  liabilities, such
          as deposits and amounts we borrow.

If more interest-earning  assets than  interest-bearing  liabilities re-price or
mature during a time when interest  rates are  declining,  then our net interest
income   may   be   reduced.   If   more   interest-bearing   liabilities   than
interest-earning assets re-price or mature during a time when interest rates are
rising,  then our net interest income may be reduced.  At December 31, 2006, our
interest-earning  liabilities maturing or repricing within one year exceeded our
interest-bearing assets maturing or repricing within one year by $395.9 million.
As a result, the yield on our  interest-earning  assets should adjust to changes
in  interest  rates at a  faster  rate  than  the  cost of our  interest-bearing
liabilities  and our net  interest  income may be reduced  when  interest  rates
decrease significantly for long periods of time.

The loss of any of our executive officers could hurt our operations

     We rely heavily on our executive  management  team,  the loss of any one of
whom could have an adverse effect on our  operations.  As a community  bank, our
executive  officers have more  responsibility  than would be typical at a larger
financial  institution  with more employees.  In addition,  we have fewer senior
level  managers  who  would  are  in  a  position  to  succeed  and  assume  the
responsibilities  of  our  executive  officers.   The  loss  of  their  business
experience  and  relationships  could  affect our ability to generate  loans and
deposits.

Our shareholder rights plan could have the effect of deterring  accumulations of
our common stock.

     The  Company has adopted a  shareholder  rights plan  pursuant to which the
Company has  distributed to each  shareholder of record one right for each share
held. The rights do not become  exercisable until a person (other than an exempt
person)  acquires  beneficial   ownership  of  10%  or  more  of  the  Company's
outstanding  common  stock or  commences a tender or  exchange  offer that would
result in the person becoming a 10% or greater  beneficial  owner (an "Acquiring
Person"). In that event, each rights holder other than the Acquiring Person will
be entitled to purchase shares of the Company's  common stock having value equal
to twice the exercise price of the rights.  In the event the Company merges with
an Acquiring  Person or an affiliate or associate of the Acquiring  Person,  the
rights entitle holders other than the Acquiring Person to

                                       23

<PAGE>



purchase a similar  amount of that entity's  stock at half price.  The effect of
the shareholder rights plan would be to significantly dilute the ownership of an
Acquiring  Person which may deter persons from  accumulating  large positions in
our common stock.

Various other  provisions in our  governing  documents  could have the effect on
insulating management from a hostile takeover.

     The Company's  Articles of  Incorporation  and Bylaws contain various other
provisions that could have the effect of deterring  changes in control which are
not approved in advance by our Board of Directors, including:

     o    Supermajority Vote Required for Business Combinations;
     o    Consideration of Non-Monetary Factors in Evaluating Tender Offers;
     o    Classified Board of Directors;
     o    Restriction on Number of Directors and Filling Board Vacancies;
     o    Additional Shares of Authorized Common Stock; and
     o    Supermajority Vote Required for Charter Amendments.

     These  provisions could have the effect of deterring a change in control of
the Company.  As a result,  shareholders  who wish to participate in a change in
control transaction may not have the opportunity to do so.

Item 1B.  Unresolved Staff Comments
-----------------------------------

         Not applicable.

Item 2.  Properties
-------------------

     At December 31, 2006,  the  Registrant  operated from its main office,  six
branch offices and three  supermarket  branch offices and two loan offices and a
trust office, all located in southwestern Pennsylvania. The total net book value
of the  Registrant's  investment in premises and equipment at December 31, 2006,
was approximately  $5.3 million.  The main office of the Company and of the Bank
and three branch  offices are owned by the Bank and the  remaining  three branch
offices,  three supermarket branch offices,  and the Bank's trust division and a
loan center,  are leased by the Bank.  These leases have initial terms of one to
twenty years, and all leases contain renewal options for additional periods of 1
to 5 years.

Item 3.  Legal Proceedings
--------------------------

     The  Registrant  is  periodically  involved as a plaintiff  or defendant in
various  legal  actions,   such  as  actions  to  enforce  liens,   condemnation
proceedings  on properties in which the  Registrant  holds  mortgage  interests,
matters  involving the making and servicing of mortgage  loans and other matters
incident to the  Registrant's  business.  In the opinion of management,  none of
these actions individually or in the aggregate is believed to be material to the
financial condition or results of operations of the Registrant.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 2006.

                                       24

<PAGE>




                                     Part II

Item 5. Market for Registrant's  Common Equity,  Related Stockholder Matters and
--------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------

     (a)  Market for Common Equity. The information  contained under the section
captioned  "Stock Market  Information" in the 2006 Annual Report to Stockholders
(the "Annual  Report") is incorporated  herein by reference.  The Registrant did
not sell any equity securities that were not registered under the Securities Act
of 1933 during the period under report.

     (b)  Use of Proceeds. Not applicable

     (c)  Issuer Purchase of Equity Securities.


<TABLE>
<CAPTION>
                                                                         (c) Total Number         (d) Maximum Number
                                                                       of Shares (or Units)     (or Approximate Dollar
                               (a) Total               (b)              Purchased as Part        Value) of Shares (or
                                 Number           Average Price            of Publicly          Units) that May Yet Be
                             of Shares (or        Paid per Share         Announced Plans          Purchased Under the
Period                      Units) Purchased        (or Unit)              or Programs*            Plans or Programs
------                      ----------------        ---------              -----------             -----------------

<S>                            <C>                  <C>                     <C>                       <C>
October 1 to 31, 2006              400                $43.65                  84,029                    67,021
November 1 to 30, 2006             700                 42.17                  84,729                    66,371
December 1 to 31, 2006              --                    --                      --                        --
                                 -----                ------                  ------                    ------
    Total                        1,100                $42.71                  84,729                    66,371
                                 =====                ======                  ======                    ======
</TABLE>
----------------------
     *    On November 18, 1999 the Registrant  announced a stock repurchase plan
          for up to 151,100 shares.


Item 6.  Selected Financial Data
--------------------------------

     The information contained in the table captioned "Financial  Highlights" in
the Annual Report is incorporated herein by reference.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in the Annual
Report is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------

     The  information  contained in the section  captioned  "Market Risk" in the
Annual Report is incorporated herein by reference.


                                       25

<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

     The  Registrant's  financial  statements  listed  in  Item  15  herein  are
incorporated herein by reference from the Annual Report.

Item  9.  Changes in and Disagreements with Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------

     Not applicable.

Item 9A.  Controls and Procedures
---------------------------------

     (a)  Disclosure Controls and Procedures

     The Company's management evaluated, with the participation of the Company's
Chief Executive  Officer and Chief Financial  Officer,  the effectiveness of the
Company's  disclosure  controls  and  procedures,  as of the  end of the  period
covered by this report.  Based on that evaluation,  the Chief Executive  Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information  required to be disclosed by
the  Company  in the  reports  that it files or  submits  under  the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
time periods  specified in the  Securities and Exchange  Commission's  rules and
forms.

     (b)  Internal Control Over Financial Reporting

     Management's  Report on Internal  Control Over Financial  Reporting and the
Attestation  Report of its  Independent  Registered  Public  Accounting Firm are
incorporated herein by reference from the Annual Report.

     There were no changes in the  Company's  internal  control  over  financial
reporting  that  occurred  during the  Company's  last fiscal  quarter that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.

Item 9B.  Other Information
---------------------------

     Not applicable.

                                    Part III

Item 10.  Directors, Executive Officers and Corporate Governance
----------------------------------------------------------------

     The  information  contained  under the sections  captioned  "Section  16(a)
Beneficial  Ownership  Reporting  Compliance"  and  "Proposal  I --  Election of
Directors" and "--  Biographical  Information" in the definitive Proxy Statement
for the 2007 Annual Meeting of Stockholders  ("Proxy Statement") is incorporated
herein by reference.


                                       26

<PAGE>

     The  Company has  adopted a Code of Ethics  that  applies to its  principal
executive officer,  principal financial officer, principal accounting officer or
controller or persons performing similar functions. A copy of the Company's Code
of Ethics will be  furnished,  without  charge,  to any person who requests such
copy by writing to the Secretary,  IBT Bancorp,  Inc.,  309 Main Street,  Irwin,
Pennsylvania 15642.

Item 11.  Executive Compensation
--------------------------------

     The  information  contained  under  the  section  captioned  "Director  and
Executive  Compensation"  in the  Proxy  Statement  is  incorporated  herein  by
reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners

          Information  required by this item is incorporated herein by reference
          to the Section  captioned  "Voting  Securities  and Principal  Holders
          Thereof -- Security  Ownership  of Certain  Beneficial  Owners" of the
          Proxy Statement.

     (b)  Security Ownership of Management

          Information  required by this item is incorporated herein by reference
          to the sections  captioned  "Voting  Securities and Principal  Holders
          Thereof --  Security  Ownership  of  Certain  Beneficial  Owners"  and
          "Proposal I -- Election of Directors" of the Proxy Statement.

     (c)  Changes in Control

          Management  of the Company  knows of no  arrangements,  including  any
          pledge by any person of  securities  of the Company,  the operation of
          which may at a  subsequent  date  result in a change in control of the
          registrant.



                                       27

<PAGE>

     (d)  Securities Authorized for Issuance Under Equity Compensation Plans

     Set forth  below is  information  as of December  31, 2006 with  respect to
compensation   plans  under  which  equity  securities  of  the  Registrant  are
authorized for issuance.


                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                                 (a)                      (b)                           (c)
                                                                                               Number of securities
                                        Number of securities        Weighted-average          remaining available for
                                          to be issued upon         exercise price of      future issuance under equity
                                             exercise of               outstanding              compensation plans
                                        outstanding options,        options, warrants          (excluding securities
                                        warrants and rights            and rights            reflected in column (a))
                                        --------------------           ----------            ------------------------
<C>                                          <C>                       <C>                          <C>
Equity compensation plans
approved by shareholders:

2000 Stock Option Plan...............          230,874                   $17.30                       219,500

Equity compensation plans
not approved by shareholders.........               --                       --                            --
                                               -------                   ------                       -------
     TOTAL..........................           230,874                   $17.30                       219,500
                                               =======                   ======                       =======
</TABLE>

Item 13.  Certain Relationships and Related Transactions, and Director
----------------------------------------------------------------------
Independence
------------


         The  information  required  by this  item  is  incorporated  herein  by
reference  to the section  captioned  "Proposal I --  Election of  Directors  --
Certain Relationships and Related Transactions" of the Proxy Statement.

Item 14.  Principal Accounting Fees and Services
------------------------------------------------

     The information called for by this item is incorporated herein by reference
to the section  entitled  "Ratification  of Appointment of  Accountants"  in the
Proxy Statement.

                                     Part IV

Item 15.  Exhibits, Financial Statements
----------------------------------------

     (a)  Listed below are all financial  statements  and exhibits filed as part
          of this report, and are incorporated by reference.

          1.   The  consolidated   statements  of  financial  condition  of  IBT
               Bancorp,  Inc. and  subsidiary  as of December 31, 2006 and 2005,
               and the related  consolidated  statements  of income,  changes in
               stockholders'  equity and cash flows for each of the years in the
               three-year period ended December 31, 2006, together with the

                                       28

<PAGE>

               related  notes and the  independent  auditors'  report of Edwards
               Sauer & Owens,  P.C.,  independent  registered  public accounting
               firm.

          2.   Schedules omitted as they are not applicable.

          3.   Exhibits

               3(i)  Articles of Incorporation of IBT Bancorp, Inc.*
               3(ii) Amended Bylaws of IBT Bancorp, Inc.**
               4.1   Rights  Agreement,  dated as of  November  18,  2003 by and
                     between  IBT  Bancorp,  Inc.  and  Registrar  and  Transfer
                     Company***
               10+   Change In  Control  Severance  Agreement  with  Charles G.
                     Urtin****
               10.1+ Deferred Compensation Plan For Bank Directors****
               10.2+ Death  Benefit Only  Deferred  Compensation  Plan For Bank
                     Directors effective as of January 1, 1990****
               10.3+ Retirement and Death Benefit  Deferred  Compensation  Plan
                     For Bank Directors effective as of January 1, 1990****
               10.4+ 2000 Stock Option Plan*****
               10.5+ Irwin Bank & Trust Company Supplemental Pension Plan******
               10.6+ Medical Insurance  Continuation  Agreement with Charles G.
                     Urtin*******
               13    Portions of the 2006 Annual Report to Shareholders
               21    Subsidiaries
               23    Consent of Edwards, Sauer & Owens, P.C.
               31.1  Rule 13a-14(a) Certification of Chief Executive Officer
               31.2  Rule 13a-14(a) Certification of Chief Financial Officer
               32    Section 1350 Certification

-------------------------
+        Management contract or compensatory plan or arrangement.
*        Incorporated by reference to the identically  numbered  exhibits of the
         Registrant's Form 10 (File No. 0-25903) filed April 29, 1999.
**       Incorporated by reference to the identically  numbered  exhibits of the
         Registrant's  Annual  Report on Form  10-K for the  fiscal  year  ended
         December 31, 2002.
***      Incorporated  by reference to Amendment No. 1 to Form 8-A  Registration
         Statement (File No. 001-31655) filed with the SEC on November 20, 2003.
****     Incorporated by reference from the  Registrant's  Annual Report on Form
         10-K for the fiscal year ended December 31, 1999.
*****    Incorporated  by  reference to the  Registration  Statement on Form S-8
         (File No. 333- 40398) filed with the SEC on June 29, 2000.
******   Incorporated   by  reference  to   identically   numbered   exhibit  in
         Registrant's  Annual  Report on Form  10-K for the  fiscal  year  ended
         December 31, 2004.
*******  Incorporated by reference to Exhibit 10.1 to the  Registrant's  Current
         Report on Form 8-K filed March 6, 2006.


                                       29

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 16, 2007.

                                     IBT BANCORP, INC.


                                     By:      /s/ Charles G. Urtin
                                              ----------------------------------
                                              Charles G. Urtin, President and
                                              Chief Executive Officer
                                              (Duly Authorized Representative)

     Pursuant to the  requirement of the Securities  Exchange Act of 1934,  this
report has been signed  below as of March 16, 2007 by the  following  persons on
behalf of the registrant and in the capacities indicated.


<TABLE>
<CAPTION>
<S>                                                         <C>
/s/ Charles G. Urtin                                          /s/ Thomas E. Deger
-----------------------------------------------------         -----------------------------------------------------
Charles G. Urtin, President, Chief Executive                  Thomas E. Deger
Officer, and Director                                         Director
(Principal Executive Officer)


/s/ Richard L. Ryan                                           /s/ John N. Brenzia
-----------------------------------------------------         -----------------------------------------------------
Richard L. Ryan                                               John N. Brenzia
Director                                                      Director


                                                              /s/ Robert C. Whisner
-----------------------------------------------------         -----------------------------------------------------
Charles W. Hengenroeder                                       Robert C. Whisner
Director                                                      Director


/s/ Grant J. Shevchik
-----------------------------------------------------         -----------------------------------------------------
Grant J. Shevchik                                             Robert Rebich, Jr.
Director                                                      Director


/s/ Raymond G. Suchta
-----------------------------------------------------         -----------------------------------------------------
Raymond G. Suchta                                             Richard J. Hoffman
Senior Vice President and Chief Financial Officer             Director
(Principal Financial and Accounting Officer)
</TABLE>