EXHIBIT 13

<PAGE>
<TABLE>
<CAPTION>
                                                                    Selected Financial Information
                                                                    IBT Bancorp, Inc. & Subsidiary
                                                                At or for the Years Ended December 31,
                                                    -------------------------------------------------------------
                                                     1999        1998        1997        1996           1995
                                                     ----        ----        ----        ----           ----
(Dollars in thousands, except per share amounts)
<S>                                               <C>         <C>         <C>         <C>            <C>
Selected Balance Sheet Data:
Assets .........................................   $445,721    $412,366    $366,457    $331,416       $299,435
Cash and cash equivalents ......................     19,264      43,396      27,700      24,853         20,202
Securities available for sale ..................    149,099     118,778     107,801      95,343         86,045
Securities held to maturity ....................       --         2,569       5,855       7,955          8,075
Loans receivable (net) .........................    260,502     238,304     216,487     194,677        176,998
Deposits .......................................    368,680     356,383     324,317     292,699        268,654
Repurchase agreements ..........................      6,457        --          --          --             --
Federal funds purchased ........................      7,000        --          --          --             --
FHLB advances ..................................     22,000      14,000       4,000       4,000           --
Shareholders' equity ...........................     37,905      38,201      34,302      30,090         26,827
Selected Results of Operations:
  Interest income ..............................    $29,442     $27,528     $25,290     $22,695        $20,995
  Net interest income ..........................     15,799      14,942      13,773      12,505         11,482
  Provision for loans losses ...................        300         300         300         410            380
  Net interest income after provision for loan
      losses ...................................     15,499      14,642      13,473      12,095         11,102
  Other income .................................      3,052       2,333       1,792       1,471          1,276
  Other expense ................................      9,233       8,438       7,683       7,076          6,925
  Net income ...................................      6,336       5,801       5,193       4,458          3,751
Per Share Data:
  Net income
      Basic ....................................   $   2.10    $   1.92    $   1.72    $   1.47    $      1.24
      Diluted ..................................       2.10        1.92        1.72        1.47           1.24
  Cash dividends declared ......................        .80         .64         .51         .42            .35
Selected Ratios:
  Return on average assets .....................       1.42%       1.47%       1.45%       1.37%          1.27%
  Return on average equity .....................      16.69       15.29       15.57       15.47          14.18
  Ratio of average equity to average assets ....       8.53        9.60        9.30        8.86           8.92
  Dividend payout ..............................      38.10       33.33       29.65       28.57          28.23

</TABLE>

                                      -1-

<PAGE>
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

The  Private  Securities  Litigation  Reform Act of 1995  contains  safe  harbor
provisions regarding forward-looking  statements.  When used in this discussion,
the words  "believes",  "anticipates",  "contemplates",  "expects",  and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties  which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest  rates,  risks  associated  with the effect of opening a new
branch, the ability to control costs and expenses,  year 2000 issues and general
economic  conditions.  IBT Bancorp,  Inc.  undertakes  no obligation to publicly
release the results of any revisions to those forward looking  statements  which
may be made to  reflect  events or  circumstances  after  the date  hereof or to
reflect the occurrence of unanticipated events.

Overview

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

During the second  quarter of 2000,  IBT  Bancorp and a third party plan to form
Irwin Bank Financial  Services,  LLC , which will offer insurance and investment
services to customers and the general public.

Financial Condition

At December 31, 1999, total assets  increased $33.3 million,  or 8.1%, to $445.7
million from $412.4 million at December 31, 1998. Of this  increase,  securities
available for sale increased $31.6 million, net loans receivable increased $22.2
million and cash and due from banks increased $8.4 million.  Such increases were
primarily  offset by a $25.4  million  decrease in federal funds sold and a $7.1
million decrease in interest bearing deposits in banks.

In connection  with a reassessment of the Company's  asset/liability  management
strategy,  the  Company  did not  maintain a  portfolio  of  securities  held to
maturity at December 31,  1999.  Federal  funds sold of $25.4  million and $10.0
million of long term debt (which  consisted of Federal Home Loan Bank  advances)
were used to take  advantage of the lower  interest rate  environment by funding
purchases of securities  available  for sale.  At December 31, 1999,  securities
available  for sale  totaled  $149.1  million as compared  to $117.5  million at
December 31, 1998.

The growth in interest  bearing  deposits of $13.4  million and the  decrease of
$7.1 million of interest  -bearing deposits in banks were used primarily to fund
the  growth  in the loan  portfolio.  The  increase  in the loan  portfolio  was
primarily due to the growth of the fixed rate one- to four- family mortgage loan
and installment loan portfolios of $6.8 million and $9.6 million,  respectively.
The Company's loan portfolio  continues to grow due to the Company's offering of
competitive market interest rates.

Interest-bearing deposits increased $13.4 million to $311.6 at December 31, 1999
from $298.2 million at December 31, 1998. The most significant areas of increase
were in the  Certificate  of Deposit and IBMA Gold accounts which reached $168.9
million and $38.3  million at December  31, 1999,  respectively,  an increase of
$10.3 million and $6.6 million from $158.6 million and  $31.7million at December
31, 1998, respectively. Customers continue to be attracted to these products due
to the competitive rates being offered.


                                       -2-
<PAGE>

At December  31, 1999,  federal  funds  purchased  totaled  $7.0  million.  Such
advances were borrowed on an over-night  basis and deposited  into cash and cash
due from banks to meet potential year 2000 liquidity requirements.

Non-interest  bearing  deposits  decreased  $1.1  million  to $57.1  million  at
December  31,  1999 from $58.2  million at December  31,  1998.  Such  decreases
reflect  additions to  non-interest  bearing  deposits of $5.4 million offset by
$6.5 million in  investments  in repurchase  products.  During 1999, the Company
began to offer its corporate  customers an investment  product  fashioned in the
form of a repurchase  agreement.  Under the terms of the agreement,  deposits in
designated  demand  accounts of the customer are put into an investment  vehicle
which is used daily to purchase an interest in  designated  U.S.  Government  or
Agencies' securities. The Company in turn agrees to repurchase these investments
on a daily basis and pay the  customer  the daily  interest  earned based on the
current market rate. At December 31, 1999,  the amount of repurchase  agreements
was $6.5 million. See Note 6 to the consolidated financial statements.

At December 31, 1999, total  stockholders'  equity  decreased  $300,000 to $37.9
million from $38.2 million at December 31, 1998.  The decrease was primarily due
to a $4.1 million loss in accumulated other  comprehensive  income and dividends
paid of $2.4  million,  offset by net  income of $6.3  million  for the  period.
Additionally,  on November  18, 1999,  the Board of  Directors  approved a stock
repurchase plan. The Company repurchased  approximately 2,600 shares of stock at
an average cost of approximately  $33 a share.  During fiscal 2000, based on the
availability, the Company plans to repurchase up to 148,000 of its shares.

Accumulated other  comprehensive  income decreased as a result of changes in the
net unrealized  (loss) on the available for sale  securities due to fluctuations
in  interest  rates.  Pursuant  to  generally  accepted  accounting  principles,
securities  available  for sale are  recorded  at current  market  value and net
unrealized gains or losses on such securities are excluded from current earnings
and  reported  net of  income  taxes,  as part of  comprehensive  income,  until
realized.  Because of interest rate volatility,  the Company's accumulated other
comprehensive  income could  materially  fluctuate  for each interim  period and
year-end.  The majority of the  accumulated  unrealized  loss  resulted from the
Company's investment in U.S. government agencies and mortgage backed securities.
The decrease in market value of the investment  securities available for sale is
considered  temporary  in nature and will not affect  the  Company's  net income
until the securities are sold. The Company plans to hold these  securities until
maturity or until the market values of these securities increase.

Analysis of Net Interest Income

The Company's results of operations are primarily  dependent on its net interest
income,  which is the difference  between the interest  income earned on assets,
primarily  loans and  investments,  and the  interest  expense  on  liabilities,
primarily  deposits  and  borrowings.   Net  interest  income  may  be  affected
significantly  by general  economic and  competitive  conditions and policies of
regulatory  agencies,  particularly those with respect to market interest rates.
The  results of  operations  are also  influenced  by the level of  non-interest
expenses,  such as employee  salaries  and benefits  and other  income,  such as
loan-related fees and fees on deposit-related services.

                                      -3-
<PAGE>

Results of Operations

Net income increased  approximately  $535,000,  or 9.2%, to $6.3 million for the
year ended  December 31, 1999 from $5.8 million for the year ended  December 31,
1998.  At December  31, 1998,  net income  increased  approximately  $600,000 or
11.5%,  to $5.8 million from $5.2 million for the year ended  December 31, 1997.
The increase in net income for 1999 and 1998 was primarily  attributable  to the
increases in the average  balances of interest  earning  assets of $49.4 million
and $33.9 million, respectively.

Net Interest Income:  Net interest income is the most  significant  component of
the Company's  income from  operations.  Net interest  income is the  difference
between  interest  received  on  interest-earning  assets  (primarily  loan  and
investment  securities)  and  interest  paid  on  interest-bearing   liabilities
(primarily  deposits and borrowed  funds).  Net interest  income  depends on the
volume and rate earned on  interest-earning  assets and the volume and  interest
rate paid on interest-bearing liabilities.

Net  interest  income  increased  $900,000,  or 6.0%,to  $15.8  million  for1999
compared to $14.9  million  for 1998.  The  increase  was  primarily  due to the
increase in average  loans of $24.6  million and average  investment  securities
available  for sale of $30.4 million  coupled with a 27 basis point  decrease in
average  cost of funds to 4.15% for 1999 from 4.42% for 1998.  The  increase  in
average  loans  and  average  investment  securities  available  for  sale  were
partially  funded by the increase in average  interest  bearing  liabilities  of
$43.7  million.  Offsetting  the increase in net interest  income was a 46 basis
point decline in the yield on average  interest earning assets to 7.22% for 1999
from 7.68% for 1998. The yield on average  interest-earning  assets declined for
1999 due to a  decrease  in  yields on loans  receivable  to 7.84% for 1999 from
8.38% for 1998, which was the result of loans refinancing at lower rates.

Net interest income  increased $1.1 million,  or 8.0%, to $14.9 million for 1998
compared to $13.8  million  for 1997.  The  increase  was  primarily  due to the
increase  for  average  loans of  $21.6  million  and the  increase  in  average
investment securities available for sale of $12.8 million.  Partially offsetting
the increase in net interest income was a 12 basis point decline in the yield on
average interest earning assets to 7.68% for 1998 from 7.80% for 1997. The yield
on average interest-earning assets declined for 1998 primarily due to a 27 basis
point decrease in yields on average investment  securities available for sale to
6.67% for 1998  from  6.94% for  1997,  which was the  result of lower  rates of
interest and dividends.

The  following  table sets forth certain  information  relating to the Company's
average balance sheet and, reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid.  Such yields and costs are  derived by  dividing  income or expense by the
average  balance  of  assets  or  liabilities,  respectively,  for  the  periods
presented. Average balances are derived from daily balances.

                                       -4-

<PAGE>
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                            ----------------------------------------------------------------------------------------
                                                       1999                          1998                        1997
                                             ----------------------------- --------------------------- -----------------------------
                                             Average             Average   Average           Average   Average             Average
                                             Balance   Interest Yield/Cost Balance Interest Yield/Cost Balance  Interest  Yield/Cost
                                             -------   -------- ---------- ------- -------- ---------- -------- --------  ----------
                                                                              (Dollars in Thousands)
<S>                                          <C>       <C>       <C>     <C>      <C>       <C>    <C>         <C>        <C>
Interest-earning assets:
   Loans receivable(1)......................  $251,574  $19,711    7.84%  $226,984 $19,019    8.38% $205,399    $17,420     8.48%
   Investment securities available for
     sale(2)................................   144,544    9,195    6.36    114,078   7,606    6.67   101,301      7,035     6.94
   Investment securities held to maturity...     1,208       36    2.98      3,228     143    4.43     7,443        293     3.94
   Other interest-earning assets(3).........    10,319      500    4.85     13,956     760    5.45    10,237        542     5.29
                                               -------   ------             ------  ------           -------     ------
     Total interest earning assets..........   407,645   29,442    7.22    358,246  27,528    7.68   324,380     25,290     7.80

Non-interest earning assets.................    18,655                      19,033                    18,140
                                               -------                     -------                   -------
     Total assets...........................  $426,300                    $377,279                  $342,520
                                              ========                     =======                   =======

Interest-bearing liabilities:
  Money market accounts.....................   $56,731    2,069    3.65   $ 47,023   1,864    3.96  $ 40,347      1,521     3.77
  Certificates of deposit...................   162,668    8,418    5.17    149,598   8,322    5.56   140,039      7,851     5.61
  Other liabilities.........................   109,061    3,157    2.89     88,180   2,400    2.72    81,233      2,145     2.64
                                               -------   ------            -------  ------           -------  --  -----
     Total interest-bearing liabilities.....   328,460   13,644   4.15%    284,801  12,586   4.42%   261,619     11,517    4.40%
                                                         ------                     ------                       ------

Non-interest-bearing liabilities............    59,530                      56,150                    48,982
                                                ------                     -------                   -------
     Total liabilities......................   387,990                     340,951                   310,601
Retained earnings(4)........................    38,310                      36,328                    31,919
                                                ------                     -------                   -------
     Total liabilities and stockholders'
       equity...............................  $426,300                    $377,279                  $342,520
                                              ========                     =======                   =======
Net interest income.........................            $15,798                    $14,942                      $13,773
                                                         ======                     ======                       ======
Interest rate spread(5).....................                       3.07%                      3.26%                         3.40%
Net yield on interest-earning assets(6).....                       3.88%                      4.17%                         4.25%
Ratio of average interest-earning assets
   to average interest-bearing liabilities..                     124.11%                    125.79%                       123.99%
</TABLE>

--------------
(1)  Average balances include  non-accrual  loans, and are net of deferred loans
     fees.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Includes federal funds sold.
(4)  Includes  capital stock,  surplus and unrealized  holding (losses) gains on
     available for sale securities.
(5)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(6)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest earning assets.

                                       -5-
<PAGE>

The following table shows the effect of changes in volumes and rates on interest
income and interest expense. The changes in interest income and interest expense
attributable   to  changes  in  both   volume  and  rate  have  been   allocated
proportionately  to the changes  due to volume and the changes due to rate.  Tax
exempt  income  was  not  recalculated  on a tax  equivalent  basis  due  to the
immateriality of the change to the table resulting from a recalculation.

<TABLE>
<CAPTION>
                                                     Year Ended                       Year Ended
                                                     December 31,                     December 31,
                                          -------------------------------   -------------------------------
                                                   199 vs. 1998                      1998 vs. 1997
                                          -------------------------------   -------------------------------
                                                  Increase (Decrease)              Increase (Decrease)
                                                      Due to                            Due to
                                                      ------                            ------
                                           Volume      Rate       Net        Volume      Rate       Net
                                          ---------  ---------   -------    -------    --------   --------
                                                                     (In Thousands)
<S>                                       <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
  Loans receivable .....................   $ 2,060    $(1,368)   $   692    $ 1,831    $  (232)   $ 1,599
  Investment securities available for
     sale ..............................     2,031       (442)     1,589        887       (316)       571
  Investment securities held to maturity       (89)       (18)      (107)      (166)        16       (150)
  Other interest earning assets ........      (198)       (62)      (260)       197         21        218
                                           -------    -------    -------    -------    -------    -------
     Total interest-earning assets .....     3,804     (1,890)     1,914      2,749       (511)     2,238
                                           -------    -------    -------    -------    -------    -------

Interest expense:
  Money market accounts ................       385       (180)       205        252         91        343
  Certificates of deposit ..............       727       (631)        96        536        (65)       471
  Other liabilities ....................       568        189        757        183         72        255
                                           -------    -------    -------    -------    -------    -------
     Total interest-bearing liabilities      1,680       (622)     1,058        971         98      1,069
                                           -------    -------    -------    -------    -------    -------

Net change in interest income ..........   $ 2,124    $(1,268)   $   856    $ 1,778    $  (609)   $ 1,169
                                           =======    =======    =======    =======    =======    =======
</TABLE>


Provision for Loan Losses:  The Company  recorded a provision for loan losses of
$300,000 for 1999,  1998, and 1997. The evaluation for determining the provision
includes evaluations of concentrations of credit, past loss experience,  current
economic  conditions,  amount and  composition of the loan portfolio  (including
loans being  specifically  monitored  by  management),  estimated  fair value of
underlying collateral,  loan commitments outstanding,  delinquencies,  and other
information available at such times.

The Company  will  continue to monitor  its  allowance  for loan losses and make
future  adjustments  to the  allowance  through the provision for loan losses as
economic  conditions dictate.  Management  continues to offer a wider variety of
loan  products  coupled  with the  continued  success of changing the mix of the
products offered in the loan portfolio from lower yielding loans (i.e., one- to-
four family loans) to higher  yielding  loans (i.e.,  equity loans,  multifamily
(five or more units)  buildings,  and  commercial  (non-residential  mortgages).
Although the Company  maintains its allowance for loan losses at a level that it
considers  to be adequate to provide for the  inherent  risk of loss in its loan
portfolio,  there  can be no  assurance  that  future  losses  will  not  exceed
estimated  amounts or that  additional  provisions  for loan  losses will not be
required in future  periods due to the higher  degree of credit risk which might
result from the change in the mix of the loan portfolio.

Other Income: Total other income increased  approximately $800,000, or 34.8%, to
$3.1 million for the year ended December 31, 1999 from $2.3 million for the year
ended  December 31, 1998.  This  increase was  primarily the result of overdraft
service charges on deposit  accounts,  a larger deposit base, and ATM surcharges
assessed  on  non-customers  of Irwin  Bank.  The  Company  began to assess  ATM
surcharges in January  1999.  Service fees and loan fees  increased  $400,000 to
$1.8  million  for 1999  from $1.4  million  for 1998.  Other  income  increased
$300,000 to $1.2 million for 1999 from $900,000 for 1998.

                                       -6-
<PAGE>

For the year ended December 31, 1998, total other income increased approximately
$500,000,  or 27.8%,  to $2.3  million  from  $1.8  million  for the year  ended
December 31, 1997.  This increase was primarily the result of overdraft  service
charges on deposit accounts, a larger deposit base, gains on sales of loans, and
net  investment   security  gains.  Loan  fees  and  service  charges  increased
approximately  $300,000 to $1.4 million for 1998 from $1.1 million for 1997. Net
security gains (losses) increased $65,000 to $40,000 for 1998 from ($25,000) for
1997.  Other income  increased  $162,000 to $863,000 for 1998 from  $701,000 for
1997,  primarily  due to the  recognition  of  $48,000 in gains on sale of loans
originated for sale.

Other Expenses:  Total other expenses increased approximately $800,000, or 9.5%,
to $9.2  million for 1999 from $8.4  million  for 1998.  This  increase  was the
result of pension and other employee  benefits  increasing  $176,000 to $995,000
for 1999 from $819,000 for 1998.  During 1999,  pension expense increased due to
the Company's change in accrual  assumptions  regarding the funding of the plan.
ATM expense increased $49,000 to $348,000 for 1999 from $299,000 for 1998 due to
the increase of seven  additional  automated teller machines during fiscal 1998.
Other expenses increased $500,000 to $2.8 million for 1999 from $2.3 million for
1998,  primarily  as a result of normal  costs in running a public  company.  It
should be noted that salaries remained relatively  unchanged in 1999 as compared
to1998,  primarily due to the  retirement on January 1, 1999 of two key officers
of the Company.

Total other expenses increased  approximately $700,000, or 9.1%, to $8.4 million
for 1998 from $7.7 million for 1997. This increase was mainly due to an increase
in compensation and employee  benefits of $355,000 to $4.4 million for 1998 from
$4.0  million for 1997,  as a result of an increase in the staff of the Company.
Data processing fees and ATM expenses  increased $52,000 and $32,000 to $505,000
and $299,000, respectively for 1998 from $453,000 and $267,000, respectively for
1997.  These  increases  for 1998 were  mainly due to the  addition of three new
supermarket branch locations and seven additional automated teller machines.

Year 2000

The Company relies on computers to conduct its business and information  systems
processing.  Industry  experts  were  concerned  that on January  1, 2000,  some
computers might not be able to interpret the new year properly, causing computer
malfunctions. Some banking industry experts remain concerned that some computers
may not be able to interpret  additional  dates in the year 2000  properly.  The
Company has operated and  evaluated  its computer  operating  systems  following
January 1, 2000 and has not identified  any errors or  experienced  any computer
system  malfunctions.  The Company  will  continue  to monitor  its  information
systems to assess whether its systems are at risk of misinterpreting  any future
dates and will develop, if needed,  appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers.

However,  it is too soon to conclude that there will not be any problems arising
from the Year 2000 problem. The Company will continue to monitor its significant
vendors  of goods and  services  and  customers  with  respect  to any Year 2000
problems they may encounter, as those issues may effect the Company's ability to
continue operations,  or might adversely affect its financial position,  results
of operations  and cash flows.  At this time,  the Company does not believe that
these  potential  problems  will  materially  impact the ability to continue its
operations or effect its financial statements. Any delays, mistakes, or failures
could  have a  significant  impact  on the  Company's  financial  condition  and
profitability.

                                       -7-
<PAGE>

Liquidity And Capital Resources

The  Company's  primary  sources  of  funds  includes  savings,  deposits,  loan
repayments  and  prepayments,  cash flow from  operations and borrowing from the
Federal Home Loan Bank.  The Company uses its capital  resources  principally to
fund  loan  origination  and  purchases,  repay  maturing  borrowings,  purchase
investments,  and for short-term liquidity needs. The Company expects to be able
to  fund  or  refinance,  on a  timely  basis,  its  commitments  and  long-term
liabilities.  As of December 31,  1999,  the Company had  commitments  to extend
credit of $51.9 million.

The Company's liquid assets consist of cash and cash equivalents,  which include
investments in short-term  investments.  The level of these assets are dependent
on the Company's operating financing and investment  activities during any given
period. At December 31, 1999, cash and cash equivalents total $19.2 million.

Net cash from operating activities for 1999 totaled $6.4 million, as compared to
$5.7 million for 1998 and $6.1 million for 1997.

Net cash  used by  investing  activities  for 1999  totaled  $61.8  million,  as
compared to cash used of $30.1 million for 1998 and $32.3 million for 1997.  The
increase of $31.7  million for 1999 was mainly  attributed  to net  increases in
purchases of available for sale securities.  Net cash used to purchase available
for sale securities for 1999 totaled $32.5 million. The decrease of $2.2 million
for 1998 was mainly  attributed  to a net decrease in  purchases  of  investment
securities  available for sale. Net cash used to purchase investment  securities
totaled $7.4 million for 1998 compared to cash used of $9.4 million for 1997.

Net cash from financing  activities for the year ended December 31, 1999 totaled
$31.2 million,  as compared to cash from  financing  activities of $40.1 million
for 1998 and $29.1  million  for 1997.  The $8.8  million  decrease in cash from
financing  activities  for 1999  was a result  of a $19.8  million  decrease  in
deposits  and  repayment  of $2.0  million  in long term debt.  Offsetting  such
decrease was the  introduction of securities sold under agreements to repurchase
totaling $6.5 million and federal funds purchased which totaled $7.0 million for
the year ended  December  31,  1999.  The $11.0  million  increase  in cash from
financing  activities for 1998 was a result of net increases in deposits of $1.5
million and long term Federal Home Loan Bank advances of $10.0 million for 1998.

Liquidity may be adversely  affected by unexpected  deposit outflows,  excessive
interest rates paid by competitors,  and similar  matters.  Management  monitors
projected  liquidity needs and determines the level desirable,  based in part on
the  Company's  commitment  to make  loans and  management's  assessment  of the
Company's  ability to generate  funds.  The  Company is also  subject to federal
regulations that impose certain minimum capital requirements.

                                       -8-
<PAGE>

MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's  market risk arises  primarily from interest rate risk inherent in
its  lending,   investment   and  deposit  taking   activities.   The  Company's
profitability  is  affected by  fluctuations  in  interest  rates.  A sudden and
substantial  increase in interest rates may adversely impact the Bank's earnings
to the extent that the  interest  rates borne by assets and  liabilities  do not
change at the same speed,  to the same extent or on the same basis. To that end,
management actively monitors and manages its interest rate risk exposure.

The  principal  objective of the Company's  interest rate risk  management is to
evaluate the interest  rate risk  inherent in certain  balance  sheet  accounts,
determine the level of risk appropriate given the Company's  business  strategy,
operating  environment,  capital and  liquidity  requirements,  and  performance
objectives,  and mange the risk consistent with the Board of Directors' approved
guidelines.   Through  such  management,  the  Company  seeks  to  minimize  the
vulnerability  of its  operations  to changes in interest  rates.  The Company's
Board of  Directors  reviews  the  interest  rate  risk  position  monthly.  The
Company's  Asset/Liability  Committee  is  comprised  of  the  Company's  senior
management under the direction of the Board of Directors, with senior management
responsible  for  reviewing  with the  Board of  Directors  its  activities  and
strategies, the effect of those strategies on the Company's net interest margin,
the market value of the portfolio and the effect that changes in interest  rates
will have on the Company's portfolio and the Company's exposure limits.

The Company utilizes the following strategies to manage interest rate risk:

     o    when market conditions  permit, to originate and hold in its portfolio
          adjustable rate loans;

     o   sell  fixed rate  mortgage  loans  that  conform  to  Federal  National
         Mortgage  Association  guidelines  when sales can be  achieved on terms
         favorable to the Company;

     o   lengthen the maturities of its  liabilities  when deemed cost effective
         through the utilization of Federal Home Loan Bank advances;

     o   purchase   mortgage-backed   securities  for  the  available  for  sale
         securities  portfolio  with cash flows that can be reinvested in higher
         earning instruments when interest rates rise; and

     o   generally, maintain securities in the available for sale portfolio that
         are short  term to offset  the risk of long term  fixed  rate  mortgage
         loans in a rising rate environment.

                                      -9-
<PAGE>

The following table shows the Company's financial instruments that are sensitive
to changes in interest  rates,  categorized  by expected  maturity or  repricing
maturity,  and the  instruments'  fair values at December 31, 1999.  Market risk
sensitive  instruments are generally  defined as those  instruments  that can be
adversely  impacted by changes in market interest rates.  The Company  currently
does  not  participate  in  hedging  programs,  interest  rate  swaps  or  other
activities   involving  the  use  of  off-balance  sheet  derivative   financial
instruments,  but  may do so in the  future  to  mitigate  interest  rate  risk.
 .Expected  maturities are  contractual  maturities  adjusted for  prepayments of
principal.  The Company uses  certain  assumptions  to estimate  fair values and
expected maturities.  For assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principal. For interest earning
assets, no prepayments are assumed. For interest bearing liabilities, negotiable
order of  withdrawal  ("NOW")  accounts,  money  market  accounts,  and  similar
interest  bearing  demand  accounts  are  subject  to  immediate  withdrawal  or
repricing and are therefore presented in the earliest period in the table.

Expected Maturity/Principal Repayment at December 31,

<TABLE>
<CAPTION>
                                                                                      Total        Book      Fair
                                 2000       2001       2002       2003       2004   Thereafter     Fair      Value
                               --------   --------   --------   --------   -------- ----------   --------   --------
                                                                 (Dollars in thousands)
<S>                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest-earning assets
Mortgage loans .............   $ 12,121   $  6,479   $  6,505   $  6,339   $  6,624   $ 92,280   $130,348   $129,163
Home equity loans,
  second mortgage
  loans, student loans,
  credit cards, other
  loans ....................     21,246     11,689     10,427      8,941      6,557     20,166     79,026     80,225
Commercial loans,
  municipal loans ..........     22,607      3,963      3,346      2,530      1,953     19,242     53,641     51,011
Investment securities
  available for sale .......      1,398     12,044     14,143      8,098     10,111    108,121    153,915    149,099

Interest-bearing liabilities
NOW and other
  transaction accounts .....     30,963         --         --         --         --         --     30,963     30,974
Money market and
  other savings
  accounts .................    111,688         --         --         --         --         --    111,688    111,860
Certificates of
  deposits .................    114,991     20,001     11,114     13,475      4,305      5,045    168,931    169,312
Federal home loan
  bank of Pittsburgh
  advances .................         --      2,000         --         --     10,000     10,000     22,000     20,186

</TABLE>

                                      -10-
<PAGE>
EDWARDS   Certified Public Accountants                A Professional Corporation
LEAP &    ----------------------------------------------------------------------
SAUER     500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
          Phone: 412-281-9211 Fax: 412-281-2407

                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors
IBT Bancorp, Inc.
Irwin, Pennsylvania


       We have  audited  the  accompanying  consolidated  balance  sheets of IBT
Bancorp, Inc. (the Bancorp), and subsidiary as of December 31, 1999 and 1998 and
the related consolidated  statements of income,  changes in stockholders' equity
and cash flows for each of the three  years in the  period  ended  Decmeber  31,
1999. These  consolidated  financial  statements are the  responsibliity  of the
Bancorp's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

       In our opinion,  the consolidated  financial statements referred to above
present fairly, in all material respects, the financial position of IBT Bancorp,
Inc. and  subsidiary  as of December  31, 1999 and 1998,  and the results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1999 in conformity with generally accepted accounting principles.




/s/Edwards, Leap & Sauer

Pittsburgh, Pennsylvania
February 1, 2000



                                      -11-
<PAGE>

                          CONSOLIDATED BALANCE SHEETS

                        IBT BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                   ------------------------------
                                                                                       1999             1998
                                                                                   -------------    -------------
<S>                                                                               <C>              <C>
 ASSETS
      Cash and due from banks ..................................................   $  19,171,977    $  10,767,316
      Interest-bearing deposits in banks .......................................          92,590        7,196,998
      Federal funds sold .......................................................            --         25,432,000
      Certificates of deposit ..................................................       3,000,000             --
      Securities available for sale ............................................     149,098,906      117,469,947
      Securities held to maturity (Market value of
           $2,554,545 at December 31, 1998) ....................................            --          2,569,215
      Federal Home Loan Bank stock, at cost ....................................       1,964,300        1,308,100
      Loans, net ...............................................................     260,502,270      238,304,491
      Premises and equipment, net ..............................................       4,728,702        4,879,133
      Other assets .............................................................       7,162,670        4,438,743
                                                                                   -------------    -------------

Total Assets ...................................................................   $ 445,721,415    $ 412,365,943
                                                                                   =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
      Deposits
           Non-interest bearing ................................................   $  57,097,999    $  58,208,466
           Interest-bearing ....................................................     311,582,486      298,174,672
                                                                                   -------------    -------------

           Total deposits ......................................................     368,680,485      356,383,138

      Repurchase agreements ....................................................       6,456,597             --
      Federal funds purchased ..................................................       7,000,000             --
      Accrued interest and other liabilities ...................................       3,679,053        3,781,876
      Long-term debt ...........................................................      22,000,000       14,000,000
                                                                                   -------------    -------------

      Total liabilities ........................................................     407,816,135      374,165,014

Stockholders' Equity
      Capital stock, par value $1.25,  50,000,000 shares  authorized,
           shares issued, 3,021,174 and 3,023,799 shares outstanding at December
           31, 1999 and December 31, 1998, respectively ........................       3,779,749        3,779,749
      Surplus ..................................................................       2,073,102        2,073,102
      Retained earnings ........................................................      35,318,637       31,401,922
      Accumulated other comprehensive income ...................................      (3,178,596)         946,156
                                                                                   -------------    -------------
                                                                                      37,992,892       38,200,929
      Less:  Treasury stock, at cost ...........................................         (87,612)            --
                                                                                   -------------    -------------
      Total stockholders' equity ...............................................      37,905,280       38,200,929
                                                                                   -------------    -------------

Total Liabilities and Stockholders' Equity .....................................   $ 445,721,415    $ 412,365,943
                                                                                   =============    =============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements

                                      -12-
<PAGE>
                       CONSOLIDATED STATEMENTS OF INCOME

                        IBT BANCORP, INC. AND SUBSIDIARY

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          Years ended December 31,
                                                 ------------------------------------------
                                                      1999           1998           1997
                                                 ------------   ------------   ------------
<S>                                             <C>            <C>            <C>
Interest Income
        Loans ................................   $ 19,711,127   $ 19,019,181   $ 17,419,848
        Investment securities ................      9,231,496      7,748,537      7,328,166
        Federal funds sold ...................        499,811        760,495        541,950
                                                 ------------   ------------   ------------

        Total interest income ................     29,442,434     27,528,213     25,289,964

Interest Expense
        Deposits .............................     12,473,855     12,174,469     11,270,826
        Long-term debt .......................        974,405        411,647        246,440
        Repurchase agreements ................        195,328           --             --
                                                 ------------   ------------   ------------

        Total interest expense ...............     13,643,588     12,586,116     11,517,266
                                                 ------------   ------------   ------------

Net Interest Income ..........................     15,798,846     14,942,097     13,772,698

Provision for Loan Losses ....................        300,000        300,000        300,000
                                                 ------------   ------------   ------------

Net Interest Income after Provision ..........     15,498,846     14,642,097     13,472,698
for Loan Losses

Other Income (Losses)
        Service fees .........................      1,786,055      1,430,426      1,116,493
        Net investment security gains (losses)         23,507         40,411        (24,890)
        Other income .........................      1,242,698        862,674        701,154
                                                 ------------   ------------   ------------

        Total other income ...................      3,052,260      2,333,511      1,792,757

Other Expenses
        Salaries .............................      3,566,947      3,573,257      3,249,465
        Pension and other employee benefits ..        994,960        818,669        787,345
        Occupancy expense ....................        949,662        903,112        847,073
        Data processing expense ..............        535,108        505,484        452,899
        ATM expense ..........................        348,414        298,843        267,071
        FDIC insurance .......................         40,332         38,206         35,988
        Other expenses .......................      2,797,538      2,300,531      2,043,339
                                                 ------------   ------------   ------------

        Total other expenses .................      9,232,961      8,438,102      7,683,180
                                                 ------------   ------------   ------------

Income Before Income Taxes ...................      9,318,145      8,537,506      7,582,275

Provision for Income Taxes ...................      2,982,391      2,736,576      2,388,759
                                                 ------------   ------------   ------------

Net income ...................................   $  6,335,754   $  5,800,930   $  5,193,516
                                                 ============   ============   ============

Net Income per Share of Capital Stock ........   $       2.10   $       1.92   $       1.72
                                                 ============   ============   ============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements

                                      -13-

<PAGE>
                      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                    IBT BANCORP, INC. AND SUBSIDIARY

--------------------------------------------------------------------------------

  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                     Accumulated
                                                                                        Other
                                 Capital                             Retained       Comprehensive      Treasury
                                  Stock            Surplus           Earnings           Income          Stock              Total
                              ---------------  ----------------   ----------------  ----------------   ---------   ----------------
<S>                          <C>              <C>                <C>               <C>                <C>          <C>
Balance at
December 31, 1996............ $    1,200,000   $     2,400,000    $    26,134,707   $       355,093    $       -    $    30,089,800

Comprehensive Income
    Net income...............                                           5,193,516                                         5,193,516
    Other comprehensive
      income, net of tax:
      Change in net
        unrealized holding
        gains on securities
        available for sale,
        net of deferred
        income tax of
        $285,672.............                                                               554,542                         554,542
                                                                                                                    ----------------

          Total Comprehensive
          Income.............                                                                                             5,748,058

Cash dividends...............                                          (1,536,000)                                       (1,536,000)
                              ---------------  ----------------   ----------------  ----------------     --------   ----------------
Balance at
December 31, 1997............ $    1,200,000   $     2,400,000    $    29,792,223   $       909,635            -    $    34,301,858

Comprehensive Income
    Net income...............                                           5,800,930                                         5,800,930
    Other comprehensive
      income, net of tax:
      Change in net
        unrealized holding
        gains on securities
        available for sale,
        net of deferred
        income tax of
        $43,853..............                                                                85,127                          85,127

      Less: reclassification
        adjustment, net of
        deferred income
        tax benefit of
        $25,039..............                                                               (48,606)                        (48,606)
                                                                                                                      --------------
                                                                                                                             36,521
                                                                                                                      --------------
          Total Comprehensive
          Income.............                                                                                             5,837,451

Cash dividends...............                                          (1,938,380)                                       (1,938,380)
5% stock dividend............         59,916         2,192,935         (2,252,851)

Three-for-one stock split....      2,519,833        (2,519,833)
                                -------------  ----------------   ----------------  ----------------     --------   ----------------
Balance at
December 31, 1998............ $    3,779,749   $     2,073,102    $    31,401,922   $       946,156    $       -    $    38,200,929

</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements

                                      -14-
<PAGE>
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY  (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       Years Ended December 31, 1999, 1998 and 1997
                          ----------------------------------------------------------------------------------------------------------
                                                                                     Accumulated
                                                                                        Other
                               Capital                              Retained        Comprehensive       Treasury
                                Stock            Surplus            Earnings             Income          Stock           Total
                           ----------------- -----------------  ------------------  ----------------- ------------  ---------------
<S>                       <C>               <C>                <C>                 <C>               <C>           <C>
Balance at
December 31, 1998..........$      3,779,749  $      2,073,102   $      31,401,922   $        946,156  $         -   $   38,200,929

Comprehensive Income
    Net income.............                                             6,335,754                                        6,335,754
    Other comprehensive
      income, net of tax:
      Change in net
        unrealized holding
        gains on securities
        available for sale,
        net of deferred
        income benefit of
        $2,034,128.........                                                               (3,948,601)                   (3,948,601)

      Less: reclassification
        adjustment, net of
        deferred income
        tax benefit of
        $90,744............                                                                 (176,151)                     (176,151)
                                                                                                                      -------------
                                                                                                                        (4,124,752)
                                                                                                                      -------------
        Total Comprehensive
          Income...........                                                                                              2,211,002

Cash dividends.............                                            (2,419,039)                                      (2,419,039)

Purchase of Treasury Stock.                                                                               (87,612)         (87,612)
                           ----------------- -----------------  ------------------  ----------------- ------------  ---------------

Balance at
December 31, 1999..........$      3,779,749  $      2,073,102   $      35,318,637   $     (3,178,596) $   (87,612)  $   37,905,280
                           ================= =================  ==================  ================= ============  ===============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements

                                      -15-
<PAGE>
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        IBT BANCORP, INC. AND SUBSIDIARY

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                                  --------------------------------------------
                                                                      1999            1998            1997
                                                                  ------------    ------------    ------------
<S>                                                              <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income ..............................................   $  6,335,754    $  5,800,930    $  5,193,516
      Adjustments to reconcile net cash
      from operating activities:
      Depreciation ............................................        499,068         482,000         422,349
      Net amortization/accretion of
      premiums and discounts ..................................         20,934             971          21,528
      Net investment security (gains) losses ..................        (23,507)        (40,411)         24,890
      Provision for loan losses ...............................        300,000         300,000         300,000
      Increase (decrease) in cash due to
      changes in assets and liabilities:
      Other assets ............................................       (599,055)       (770,061)       (117,583)
      Accrued interest and other liabilities ..................       (102,823)        (56,069)        227,984
                                                                  ------------    ------------    ------------

Net Cash From Operating Activities ............................      6,430,371       5,717,360       6,072,684

CASH FLOWS FROM INVESTING ACTIVITIES
      Net change in certificate of deposit ....................     (3,000,000)           --              --
      Proceeds from sales of securities available for sale ....      7,579,149       2,166,459       5,542,274
      Proceeds from maturities of securities held to maturity .      2,569,215       3,285,760       2,099,919
      Proceeds from maturities of securities available for sale     50,293,783      48,173,553      32,334,987
      Purchase of securities available for sale ...............    (95,748,942)    (61,085,311)    (49,392,205)
      Net loans made to customers .............................    (22,497,779)    (22,117,884)    (22,109,893)
      Purchases of premises and equipment .....................       (348,637)       (433,875)       (633,603)
      Purchase of Federal Home Loan Bank stock ................       (656,200)       (137,400)       (149,000)
                                                                  ------------    ------------    ------------

Net Cash Used By Investing Activities .........................    (61,809,411)    (30,148,698)    (32,307,521)

CASH FLOWS FROM FINANCING ACTIVITIES
      Net increase in deposits ................................     12,297,347      32,065,713      30,617,935
      Net increase in securities sold
      under agreements to repurchase ..........................      6,456,597            --              --
      Federal funds purchased .................................      7,000,000            --              --
      Dividends ...............................................     (2,419,039)     (1,938,380)     (1,536,000)
      Proceeds from long-term debt ............................     10,000,000      10,000,000            --
      Repayment of long-term debt .............................     (2,000,000)           --              --
      Purchase of treasury stock ..............................        (87,612)           --              --
                                                                  ------------    ------------    ------------

Net Cash From Financing Activities ............................     31,247,293      40,127,333      29,081,935
                                                                  ------------    ------------    ------------

Net Change in Cash and Cash Equivalents .......................    (24,131,747)     15,695,995       2,847,098

Cash and Cash Equivalents at Beginning
of Year .......................................................     43,396,314      27,700,319      24,853,221
                                                                  ------------    ------------    ------------

Cash and Cash Equivalents at End of Year ......................   $ 19,264,567    $ 43,396,314    $ 27,700,319
                                                                  ============    ============    ============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements

                                      -16-
<PAGE>
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                     -------------------------------------------
                                                         1999           1998             1997
                                                     ------------   ------------   -------------

<S>                                                 <C>             <C>            <C>
SUPPLEMENTAL DISCLOSURES

       Cash payments for:
           Interest ..............................   $ 13,736,652    $ 12,629,351    $ 11,145,980

           Income taxes ..........................   $  2,987,643    $  2,716,954    $  2,281,582


NON CASH TRANSACTIONS

       Recorded unrealized (losses) gains
           on securities available for sale
           at December 31.........................   $ (4,816,056)   $  1,433,568    $  1,378,233

       Deferred income (benefit) taxes on recorded
           unrealized (losses) gains on securities
           available for sale at December 31 .....   $ (1,637,460)   $    487,412    $    468,598

       Loans transferred to foreclosed real estate
           during the year .......................   $    211,410    $    178,548    $      7,200

       Capital stock distributed as dividend

           Capital stock .........................   $       --      $     59,916    $       --
           Surplus ...............................   $       --      $  2,192,935    $       --

       Three-for-one stock split in the form of a
           stock dividend

           Capital stock .........................   $       --      $  2,519,833    $       --
           Surplus ...............................   $       --      $ (2,519,833)   $       --
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements

                                      -17-

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: IBT Bancorp, Inc. (the Bancorp), is a bank holding company
whose  principal  activity is the ownership  and  management of its wholly owned
subsidiary,  Irwin Bank and Trust Company (the Bank). The Bank is a full service
state  chartered  commercial  banking  institution  and  provides  a variety  of
financial  services to  individuals  and  corporate  customers  through its five
branch offices, a loan center, four supermarket branches and main office located
in  Southwestern   Pennsylvania.   The  Bank's  primary  deposit   products  are
non-interest  and  interest-bearing  checking  accounts,  savings  accounts  and
certificates of deposit.  Its primary  lending  products are  single-family  and
multi-family residential loans, installment loans and commercial loans.

Principles of Consolidation:  The consolidated  financial statements include the
accounts of the Bancorp and the Bank. All significant intercompany accounts have
been  eliminated  in the  consolidation.  IBT Bancorp,  Inc.  transacts no other
material business.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Material  estimates that are  particularly  susceptible  to  significant  change
relate to the  determination  of the allowance for loan losses and the valuation
of real estate  acquired in connection  with  foreclosures or in satisfaction of
loans.  In connection with the  determination  of the allowances for loan losses
and  foreclosed  real estate,  management  obtains  independent  appraisals  for
significant properties.

Investment  Securities:  All investments in debt and equity securities are to be
classified  into three  categories.  Securities  which  management  has positive
intent and ability to hold until  maturity are  classified  as held to maturity.
Securities  held to maturity are stated at cost,  adjusted for  amortization  of
premium and  accretion of discount  computed on a level yield basis.  Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading  securities.  All other securities are classified
as  available  for sale  securities.  Unrealized  holding  gains and  losses for
trading securities are included in earnings. Unrealized holding gains and losses
for available for sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized.  At
this time,  management  has no intention of  establishing  a trading  securities
classification.

Interest and dividends on securities are reported as interest income.  Gains and
losses  realized on sales of securities  represent the  differences  between net
proceeds and carrying values determined by the specific identification method.

Loans  and  Allowance  for Loan  Losses:  Loans are  stated at unpaid  principal
balances,  less the  allowance  for loan losses and net  deferred  loan fees and
unearned discounts.

Unearned  discounts on certain  loans are  recognized as income over the term of
the loans using a method that approximates the interest method.

Loan  origination  and commitment  fees, as well as certain  direct  origination
costs,  are deferred and amortized as a yield  adjustment  over the lives of the
related loans using the interest  method.  Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.

                                      -18-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The allowance for loan losses is  maintained at a level which,  in  management's
judgement,  is  adequate  to  absorb  potential  losses  inherent  in  the  loan
portfolio.  The amount of the allowance is based on  management's  evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations,  trends in historical loss experience,  specific impaired
loans,  and economic  conditions.  Allowances for impaired  loans  generally are
determined  based on collateral  values or the present  value of estimated  cash
flows.  The  allowance  is increased  by a provision  for loan losses,  which is
charged to expense,  and reduced by  charge-offs,  net of recoveries.  Loans are
placed on  nonaccrual  status  when they are 90 days past due,  unless  they are
adequately collateralized and in the process of collection.

Premises  and  Equipment:  Premises  and  equipment  are  stated  at  cost  less
accumulated  depreciation  computed on both the  straight-line  and  accelerated
methods over the estimated useful lives of the assets. Costs for maintenance and
repairs are expensed  currently.  Cost of major  additions or  improvements  are
capitalized.

Other Real Estate Owned (OREO):  Real estate  acquired in satisfaction of a loan
and  in-substance  foreclosures  are  reported  in  other  assets.  In-substance
foreclosures are properties in which a borrower, with little or no equity in the
collateral,  effectively  abandons  control of the  property  or has no economic
interest to continue  involvement  in the property.  The  borrower's  ability to
rebuild  equity  based  on  current  financial  conditions  also  is  considered
doubtful.  Properties acquired by foreclosure or deed in lieu of foreclosure and
properties  classified as in-substance  foreclosures are transferred to OREO and
recorded at the lower of cost or fair value less estimated costs to sell.  Costs
to maintain the assets,  subsequent  write-downs to reflect declines in the fair
value of the  property and  subsequent  gains and losses  attributable  to their
disposal are included in other income and expenses.

Income  Taxes:  The Bancorp  uses an asset and  liability  approach to financial
accounting and reporting for income taxes.  Deferred tax assets and  liabilities
are  recognized  for the future tax  consequences  attributable  to  differences
between  the  financial  statement  carrying  amounts  of  existing  assets  and
liabilities and their respective tax bases.  Deferred tax assets and liabilities
are measured  using enacted tax rates expected to apply to taxable income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled. Valuation allowances are established, when necessary to reduce deferred
tax assets to the amount expected to be realized.  Income tax expense is the tax
payable or refundable  for the period plus or minus the change during the period
in deferred tax assets and liabilities.  The Bancorp files consolidated  Federal
income tax returns with its subsidiary.

Earnings  per  Share:  Earnings  per  share are  calculated  on the basis of the
weighted  average  number of shares  outstanding.  The weighted  average  shares
outstanding,  giving  retroactive  effect of the stock dividend and stock split,
described in Note 17, was  $3,023,770,  $3,023,799  and $3,023,799 for the years
ended December 31, 1999, 1998, and 1997, respectively.

Cash  Equivalents:  For purposes of the  Statements  of Cash Flows,  the Bancorp
considers all highly liquid debt instruments  purchased with a maturity of three
months  or less to be cash  equivalents.  The  Bancorp  considers  all  cash and
amounts due from  depository  institutions,  interest-bearing  deposits in other
banks, except certificates of deposit with maturities of more than three months,
and federal funds sold to be cash  equivalents for purposes of the statements of
cash flows.

                                      -19-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassification of Prior Year's Statements: - Certain previously reported items
have been  reclassified  to conform to the current year's  classifications.  The
reclassifications  have  no  effect  on  total  assets,  total  liabilities  and
stockholders' equity, or net income.

NOTE 2 -- INVESTMENT SECURITIES

Investment securities available for sale consist of the following:
<TABLE>
<CAPTION>
                                                                               December 31, 1999
                                           -----------------------------------------------------------------------------------------
                                                                          Gross                 Gross
                                                Amortized              Unrealized             Unrealized               Market
                                                   Cost                   Gains                 Losses                  Value
                                           ---------------------   --------------------   -------------------   --------------------
<S>                                        <C>                     <C>                    <C>                   <C>
Obligations of
      U.S. Government Agencies             $         93,081,432    $                 -    $       (2,337,153)   $        90,744,279
Obligations of State and
      political sub-divisions                        10,855,620                  3,791              (323,614)            10,535,797
Mortgage-backed securities                           49,245,605                      -            (2,240,851)            47,004,754
Other securities                                        577,895                  5,713                     -                583,608
Equity securities                                       154,410                 76,058                     -                230,468
                                           ---------------------   --------------------   -------------------   --------------------
                                           $        153,914,962    $            85,562    $       (4,901,618)   $       149,098,906
                                           =====================   ====================   ===================   ====================
</TABLE>
<TABLE>
<CAPTION>

                                                                               December 31, 1998
                                           -----------------------------------------------------------------------------------------
                                                                          Gross                 Gross
                                                Amortized              Unrealized             Unrealized               Market
                                                   Cost                   Gains                 Losses                  Value
                                           ---------------------   --------------------   -------------------   --------------------
<S>                                        <C>                     <C>                    <C>                   <C>
U.S. Treasury securities                   $          5,516,405    $            99,700    $                -    $         5,616,105
Obligations of
      U.S. Government Agencies                       68,446,065              1,130,425               (36,510)            69,539,980
Obligations of State and
      political sub-divisions                         8,026,140                233,928               (59,756)             8,200,312
Mortgage-backed securities                           33,255,689                148,555              (177,050)            33,227,194
Other securities                                        637,670                      7                     -                637,677
Equity securities                                       154,410                 94,269                     -                248,679
                                           ---------------------   --------------------   -------------------   --------------------
                                           $        116,036,379    $         1,706,884    $         (273,316)   $       117,469,947
                                           =====================   ====================   ===================   ====================
</TABLE>
                                      -20-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)

Investment  securities held to maturity consist of the following at December 31,
1998. All of these securities matured during 1999.

<TABLE>
<CAPTION>

                                                                               December 31, 1998
                                                ------------------------------------------------------------------------------------
                                                                           Gross                 Gross
                                                    Amortized            Unrealized           Unrealized              Market
                                                       Cost                Gains                Losses                 Value
                                                -------------------  -------------------   ------------------   --------------------
<S>                                            <C>                  <C>                   <C>                  <C>
Obligations of
      U.S. Government Agencies                  $        2,500,000   $                -    $         (14,375)   $         2,485,625
Mortgage-backed securities                                  69,215                    -                 (295)                68,920
                                                -------------------  -------------------   ------------------   --------------------
                                                $        2,569,215   $                -    $         (14,670)   $         2,554,545
                                                ===================  ===================   ==================   ====================
</TABLE>

Gross  realized  gains  and  losses  on calls  and  sales of  available-for-sale
securities were:
<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                        ------------------------------------------------------------
                                                                             1999                 1998                  1997
                                                                        -------------------  -------------------  ------------------
<S>                                                                  <C>                   <C>                  <C>
Gross realized gains:
U.S. Treasury securities..................................           $           21,143    $               -    $                 -
Obligations of U.S. Government Agencies...................                        9,790               58,191                  8,108
Obligations of state and political sub-divisions..........                            -                3,121                      -
Mortgage-backed securities................................                       22,261                    -                      -
                                                                     -------------------   ------------------   --------------------
                                                                     $           53,194    $          61,312    $             8,108
                                                                     ===================   ==================   ====================

Gross realized losses:
Obligations of U.S. Government Agencies...................           $           29,687    $               -    $                 -
Mortgage-backed securities................................                            -               20,901                 32,998
                                                                     -------------------   ------------------   --------------------
                                                                     $           29,687    $          20,901    $            32,998
                                                                     ===================   ==================   ====================
</TABLE>
The  amortized  cost and  estimated  market value of the  investment  securities
available  for sale at December 31, 1999,  by  contractual  maturity,  are shown
below.  Expected  maturities  will differ from  contractual  maturities  because
issuers  have the right to call or prepay  obligations  with or without  call or
prepayment penalties.

                                      -21-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)

The  amortized  cost and  estimated  market value of the  investment  securities
available for sale at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
                                                                                       Amortized                  Market
                                                                                         Cost                      Value
                                                                                 ----------------------   ------------------------

<S>                                                                             <C>                      <C>
Due in one year or less..............................................            $           1,398,360    $             1,393,322
Due after one year through five years................................                       44,396,393                 43,639,538
Due after five years through ten years...............................                       39,721,291                 38,791,345
Due after ten years, includes equity securities......................                       68,398,918                 65,274,701
                                                                                 ----------------------   ------------------------
                                                                                 $         153,914,962    $           149,098,906
                                                                                 ======================   ========================
</TABLE>

As a member of the  Federal  Home Loan Bank of  Pittsburgh  (FHLB),  the Bank is
required to  maintain a minimum  amount of FHLB  stock.  The  minimum  amount is
calculated  based  on  level  of  assets,  residential  real  estate  loans  and
outstanding  FHLB  advances.  At  December  31,  1999 and  1998,  the Bank  held
$1,964,300 and $1,308,100, respectively, of FHLB stock.


NOTE 3 -- LOANS

Major classifications of loans are as follows:
<TABLE>
<CAPTION>

                                                                                                    December 31,
                                                                                   -----------------------------------------------
                                                                                          1999                      1998
                                                                                   --------------------     ----------------------
<S>                                                                             <C>                      <C>
Mortgage.............................................................            $         130,347,599    $           123,494,185
Home equity credit...................................................                        8,885,737                  8,588,588
Installment..........................................................                       61,983,558                 52,418,443
Commercial...........................................................                       47,293,848                 45,232,281
PHEAA................................................................                        6,166,194                  5,043,415
Municipal............................................................                        6,346,773                  3,615,536
Credit cards.........................................................                        1,780,360                  1,807,547
Other................................................................                          210,097                    476,655
                                                                                 ----------------------   ------------------------
                                                                                           263,014,166                240,676,650
Less:
      Unearned discount                                                                              -                         46
      Allowance for loan losses......................................                        2,365,874                  2,228,214
      Deferred loan fees.............................................                          146,022                    143,899
                                                                                 ----------------------   ------------------------
                                                                                 $         260,502,270    $           238,304,491
                                                                                 ======================   ========================
</TABLE>
                                      -22-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 3 -- LOANS (CONTINUED)

At December 31, 1999 and 1998, the total  recorded  investment in impaired loans
amounted to approximately $150,000 and $13,000,  respectively. The allowance for
loan losses  related to impaired  loans  amounted to  approximately  $22,500 and
$2,000 at December 31, 1999 and 1998, respectively.

Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                  ----------------------------------------------------------
                                                                  1999                  1998                1997
                                                                  -------------------   -----------------   ----------------

<S>                                                              <C>                   <C>                 <C>
Balance, beginning of year................................        $        2,228,214    $      2,340,283    $     2,239,598
Provision charged to operations...........................                   300,000             300,000            300,000
Loans charged off.........................................                  (175,436)           (526,117)          (207,270)
Recoveries................................................                    13,096             114,048              7,955
                                                                  -------------------   -----------------   ----------------
Balance, end of year......................................        $        2,365,874    $      2,228,214    $     2,340,283
                                                                  ===================   =================   ================

</TABLE>

NOTE 4 -- PREMISES AND EQUIPMENT

Premises and equipment which are stated at cost are as follows:
<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                  ---------------------------------------
                                                                          1999                  1998
                                                                  -------------------   -----------------


<S>                                                              <C>                   <C>
      Land.............................................           $          450,466    $        450,466
      Buildings and improvements.......................                    4,814,040           4,814,040
      Furniture and equipment..........................                    4,320,561           3,971,924
                                                                  -------------------   -----------------
                                                                           9,585,067           9,236,430
      Less:  Accumulated depreciation                                      4,856,365           4,357,297
                                                                  -------------------   -----------------
                                                                  $        4,728,702    $      4,879,133
                                                                  ===================   =================
</TABLE>


     Depreciation  expense was $ 499,068 in 1999,  $482,000 in 1998 and $422,349
     in 1997.

     Seven of the Bank's branch office  buildings  and/or land are leased by the
     Bank.  These  leases have initial  terms of 1 to 20 years,  and all contain
     renewal options for additional years.

                                      -23-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 4 -- PREMISES AND EQUIPMENT (CONTINUED)

The  following is a summary of the future  minimum  lease  payments  under these
operating leases:

For the year ended December 31,
                              2000                          $    138,700
                              2001                               140,238
                              2002                               120,150
                              2003                               103,105
                              2004 and thereafter                723,081
                                                            -------------
                                                            $  1,225,274
                                                            =============

Rental expense under these operating  leases was $130,780,  $100,700 and $83,650
for the years ended December 31, 1999 , 1998, and 1997, respectively.

NOTE 5 -- DEPOSITS

Time deposits  maturing in years ending December 31, as of December 31, 1999 are
summarized as follows:


                              2000                          $  114,990,595
                              2001                              20,334,043
                              2002                              11,113,817
                              2003                              13,475,158
                              2004 and thereafter                9,042,123
                                                            ---------------
                                                            $  168,955,736
                                                            ===============

The Bank held related party deposits of approximately  $4,541,000 and $3,134,000
at December 31, 1999 and 1998, respectively.

The  Bank  held  time  deposits  that  exceeded   $100,000  of  $34,132,826  and
$23,584,545 at December 31, 1999 and 1998, respectively.

NOTE 6 -- REPURCHASE AGREEMENT

During 1999,  the Bank began  offering its  corporate  customers an  investments
product fashioned in the form of a repurchase agreement.  Under the terms of the
agreement,  deposits in designated  demand accounts of the customer are put into
an investment  vehicle which is used daily to purchase an interest in designated
U.S.  Government  or Agencies'  securities  owned by the Bank.  The Bank in turn
agrees to repurchase these investments on a daily basis and pay the customer the
daily  interest  earned on them. At December 31, 1999,  the amount of repurchase
agreements was $6,456,597.

                                      -24-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 7 -- PLEDGED ASSETS

At December 31, 1999 and 1998,  assets carried at $43,250,000  and  $42,000,000,
respectively,  were pledged to qualify for  fiduciary  powers,  to secure public
monies as required by law, for repurchase agreements, and for other purposes.


NOTE 8 -- INCOME TAXES

The provision for income taxes consists of:
<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                      --------------------------------------------------------------
                                                                              1999                  1998                  1997
                                                                      -------------------   -------------------   ------------------

<S>                                                                  <C>                   <C>                   <C>
      Currently payable...............................                $        3,012,368    $        2,618,602    $      2,388,935
      Deferred tax (benefit)..........................                           (29,977)              117,974                (176)
                                                                      -------------------     -----------------   ------------------
      Total...........................................                $        2,982,391    $        2,736,576    $      2,388,759
                                                                      ===================   ===================   ==================
</TABLE>

The significant  components of temporary differences for 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>

                                                                                          Years Ended December 31,
                                                                      --------------------------------------------------------------
                                                                               1999                  1998                  1997
                                                                      -------------------   -------------------   ------------------
<S>                                                                  <C>                   <C>                   <C>
      Provision for loan losses.......................                $          (46,906)   $           38,201    $        (34,233)
      Depreciation....................................                            (5,387)               10,559              20,576
      Valuation allowance.............................                               553                   550               8,621
      Pension.........................................                            38,301                67,732              (3,461)
      Deferred loan fees..............................                              (722)               10,222              13,346
      Other...........................................                           (15,816)               (9,290)             (5,025)
                                                                      -------------------   -------------------   ------------------
      Total...........................................                $          (29,977)   $          117,974    $           (176)
                                                                      ===================   ===================   ==================
</TABLE>

A  reconciliation  of the federal  statutory  tax rate to the effective tax rate
applicable to income before income taxes is as follows:
<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                      --------------------------------------------------------------
                                                                                             % of Pretax Income
                                                                      --------------------------------------------------------------
                                                                              1999                  1998                 1997
                                                                      ----------------------  --------------------  ----------------

<S>                                                                               <C>                   <C>                 <C>
      Provision at statutory rate......................                             34.0 %                34.0 %              34.0 %
      Effect of tax free income........................                             (2.0)                 (2.0)               (2.7)
      Other............................................                                -                    .1                  .2
                                                                      ----------------------  --------------------  ----------------
      Effective tax rate...............................                             32.0 %                32.1 %              31.5 %
                                                                      ======================  ====================  ================
</TABLE>

                                      -25-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 8 -- INCOME TAXES (CONTINUED)

The deferred tax assets and  deferred  tax  liabilities  recorded on the balance
sheet as of December 31,1999 and 1998 are as follows:
<TABLE>
<CAPTION>

                                                             1999                                          1998
                                            -------------------------------------------   --------------------------------------
                                                          Deferred Tax                                 Deferred Tax
                                            -------------------------------------------   --------------------------------------
                                                    Assets             Liabilities             Assets            Liabilities
                                            -------------------   ---------------------   ------------------   -----------------
<S>                                        <C>                   <C>                     <C>                  <C>
Provision for loan losses..............     $          600,205    $                  -    $         553,299    $              -
Depreciation...........................                      -                 169,192                    -             174,579
Pension expense........................                      -                  36,339                1,962                   -
Other..................................                168,216                       -              152,231                   -
SFAS 115...............................              1,637,460                       -                    -             487,412
                                            -------------------   ---------------------   ------------------   -----------------
                                            $        2,405,881    $            205,531    $         707,492    $      661,991
                                            ===================   =====================   ==================   =================
</TABLE>


NOTE 9 -- LONG-TERM DEBT

At December 31, 1999, the Bank had the following  advances from the Federal Home
Loan Bank (FHLB).

         Amount               Interest Rate                     Maturity Date
      -------------------    ---------------------------------- ----------------

       $     2,000,000        5.88% Fixed                       March 13, 2001
            10,000,000        5.86% Fixed w/Strike Rate         July 22, 2004
             5,000,000        5.63% Fixed to Float              July 21, 2008
             5,000,000        4.86% Fixed to Float              October 23, 2008
      -------------------
       $    22,000,000
      ===================

Interest only is payable until  maturity on all long-term  debt.  Collateral for
all debt includes all qualifying mortgages.

As  of  December  31,  1998,  the  Bank  has a  line  of  credit  with  FHLB  of
approximately  $11,671,000.  During 1999 the FHLB discontinued offering lines of
credit.  In  addition,  the Bank has  maximum  borrowing  capacity  with FHLB of
approximately  $136,547,000  and  $131,856,000  at  December  31, 1999 and 1998,
respectively.

NOTE 10 -- EMPLOYEE BENEFIT PLANS
The Bank  maintained one  non-contributory  defined benefit pension plan for its
employees  prior to 1995 (Plan  #1).  In 1995,  various  plan  assumptions  were
changed  which  resulted in a reduction in benefits for older and  long-standing
employees.  To  compensate  for  this,  a  supplemental  non-qualified  plan was
installed for those  employees so affected  (Plan #2). The Bank's funding policy
is to  contribute  annually the maximum  amount that can be deducted for federal
income tax purposes for Plan #1.  Contributions are intended to provide not only
for  benefits  attributed  to service to date but also for those  expected to be
earned in the  future.  Assets for the plans  were  primarily  invested  in U.S.
Government  obligations,  corporate  obligations  and  equity  securities  whose
valuations are subject to fluctuations of the securities' market.

                                      -26-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

The following is a summary of the plans as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
                                                                       1999             1998
                                                                    ------------   ------------
<S>                                                                <C>            <C>
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year .........................   $ 2,279,047    $ 1,986,373
Service cost ....................................................       180,192        160,189
Interest cost ...................................................       158,453        137,966
Actuarial loss due to settlement ................................       128,760           --
Benefits paid ...................................................       (19,100)       (18,667)
Plan settlement .................................................      (840,928)          --
Other - net .....................................................      (120,733)        13,186
                                                                    -----------    -----------
      Benefit obligation at end of year .........................   $ 1,765,691    $ 2,279,047
                                                                    ===========    ===========

Change in Fair Value of Plan Assets:
Plan assets at estimated
      fair value at beginning of year ...........................   $ 2,510,141    $ 2,207,486
Actual return on plan assets ....................................       177,449        177,907
Plan settlement .................................................      (840,928)          --
Benefits paid ...................................................       (19,100)       (18,667)
Employer contributions ..........................................       188,679        143,415
                                                                    -----------    -----------
      Fair value of plan assets at end of year ..................   $ 2,016,241    $ 2,510,141
                                                                    ===========    ===========

Funded status ...................................................   $   250,550    $   231,094
Unrecognized net loss from actuarial experience .................       149,953        134,196
Unrecognized prior service cost .................................      (256,748)      (275,010)
Unamortized net asset existing at date of adoption of SFAS No. 87       (73,879)       (80,912)
Settlement ......................................................       (17,717)          --
                                                                    -----------    -----------

      Prepaid (accrued) pension cost ............................   $    52,159    $     9,368
                                                                    ===========    ===========
</TABLE>

Net pension expense included the following components:
<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                      -------------------------------------------------------------
                                                                              1999                 1998                 1997
                                                                      ------------------   ------------------   -------------------

<S>                                                                  <C>                  <C>                  <C>
Service cost - benefits earned during the period..........            $         180,192    $         160,189    $          134,087
Interest cost on projected benefit obligation.............                      158,453              137,966               115,502
Actual return on plan assets..............................                     (177,449)            (177,907)             (244,191)
Net amortization and deferral.............................                      (33,025)              (6,042)               81,491
                                                                      ------------------   ------------------   -------------------

Net periodic pension cost.................................            $         128,171    $         114,206    $           86,889
                                                                      ==================   ==================   ===================
</TABLE>

The projected  benefit  obligation was determined using an assumed discount rate
of 7.0% for 1999 and 1998 and an expected rate of increase in compensation using
a graded scale which ranges from 3.5% to 5.5% for Plan #1, and 3.5% for Plan #2.
The assumed rate of return on the plans' investment  earnings was 7.0 % for 1999
and 1998.

                                      -27-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

The Bank also maintains  non-qualified  deferred  compensation plans for certain
directors,  which are generally funded by life insurance,  the premiums of which
have been paid for by the Bank.  The present value of these  benefits to be paid
under the programs is being accrued over the estimated  remaining service period
of the participants. The liability for these future obligations was $447,836 and
$402,945 at December 31, 1999 and 1998, respectively.

In addition,  the Bank maintains a qualified 401(k) - deferred compensation plan
for eligible employees. The plan is designed to provide a predetermined matching
contribution by the Bank based on compensation  deferrals by participants in the
plan. The Bank contributions,  including administrative fees, for 1999, 1998 and
1997 amounted to $42,228, $42,753 and $37,677, respectively.


NOTE 11 -- COMMITMENTS AND CONTINGENCIES

In the normal course of business,  there are various outstanding commitments and
certain  contingent  liabilities  which are not  reflected  in the  accompanying
financial  statements.  These commitments and contingent  liabilities  represent
financial  instruments  with  off-balance-sheet  risk.  The contract or notional
amounts of those  instruments  were  comprised of  commitments  to extend credit
approximating  $51,851,000  and  $41,445,000,  as of December 31, 1999 and 1998,
respectively, and approximate fair value.

The instruments  involve,  to varying  degrees,  elements of credit and interest
rate risk in excess of the amount  recognized  in the  balance  sheet.  The same
credit policies are used in making  commitments  and conditional  obligations as
for on-balance-sheet  instruments.  The amount of collateral obtained, if deemed
necessary upon extension of credit,  is based on management's  credit evaluation
of the  counterparty.  The terms are  typically  for a one year period,  with an
annual renewal option subject to prior approval by management.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the loan agreement.  These
commitments are comprised  primarily of available  commercial and personal lines
of credit.

The exposure to loss under these  commitments  is limited by subjecting  them to
credit approval and monitoring procedures.  Substantially all of the commitments
to extend credit are  contingent  upon  customers  maintaining  specific  credit
standards at the time of the loan funding.  Management  assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance  for loan losses.  Since many of the  commitments  are expected to
expire  without  being  drawn  upon,  the  total  contractual   amounts  do  not
necessarily represent future funding requirements.

The Bancorp and Bank are involved in various legal actions from normal  business
activities.  Management  believes that the liability,  if any, arising from such
actions  will not have a  material  adverse  effect on the  Bancorp  and  Bank's
financial position.

                                      -28-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 12 -- RELATED-PARTY TRANSACTIONS

At December 31, 1999 and 1998, certain officers and directors of the Bancorp and
the Bank, and companies in which they have beneficial  ownership,  were indebted
to the Bank in the aggregate amount of approximately  $5,651,000 and $6,950,000,
respectively.  During 1999, new loans to such related parties were approximately
$1,986,000 and repayments approximated $3,285,000.


NOTE 13 --  CONCENTRATION OF CREDIT

The Bank  primarily  grants  loans to  customers  in Western  Pennsylvania,  and
maintains a diversified  loan  portfolio and the ability of its debtors to honor
their  contracts  is not  substantially  dependent  on any  particular  economic
business  sector. A substantial  portion of the Bank's  investments in municipal
securities  are  obligations of state or political  subdivisions  located within
Pennsylvania.  As a whole,  the Bank's loan and investment  portfolios  could be
affected by the general  economic  conditions of Pennsylvania.  In addition,  at
December 31, 1999 and 1998, a significant portion of the Bank's "due from banks"
and "federal  funds sold" is maintained  with two large  financial  institutions
located in  Southwestern  Pennsylvania.  The Bank  maintains a cash  balance and
federal  funds sold at financial  institutions  that exceed the $100,000  amount
that is  insured  by the FDIC.  Amounts  in excess of  insured  limits,  per the
institution's records, were approximately $3,627,000 and $33,077,000 at December
31, 1999 and 1998, respectively.


NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.

Cash and cash equivalents:  The carrying amount is a reasonable estimate of fair
value.

Certificates of deposit:  The carrying  amounts of these short term  investments
approximate their fair value.

Investment  securities:  The fair value of  securities is equal to the available
quoted  market  price.  If no quoted  market price is  available,  fair value is
estimated using the quoted market price for similar securities.

Federal  Home  Loan  Bank  stock:  The  carrying  value of the  FHLB  stock is a
reasonable estimate of fair value due to restrictions on the securities.

Loans  receivable:  For certain  homogeneous  categories of loans, fair value is
estimated using the quoted market prices for securities  backed by similar loans
adjusted for differences in loan characteristics.  The fair value of other types
of loans is  estimated  by  discounting  the future cash flows using the current
rates at which similar  loans would be made to borrowers for the same  remaining
maturities.

                                      -29-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 14 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Deposit  liabilities:  The fair value of demand  deposits,  savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently  offered for deposits of similar
remaining maturities.

Short term  borrowings:  The carrying  amounts of federal  funds  purchased  and
borrowings under repurchase agreements are short term borrowings and approximate
their fair values.

Long term debt: The fair value of long term debt (FHLB  advances) was determined
using a discounted  cash flow  analysis  based on current FHLB advance rates for
advances with similar maturities.

The estimated fair value of the Bancorp's  financial  instruments as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>
                                                      Carrying                   Fair
                                                       Amount                   Value
                                                ---------------------    ---------------------
<S>                                            <C>                      <C>
Financial Assets:
      Cash and cash equivalents............     $         19,264,567     $         19,264,567

      Certificates of deposit..............     $          3,000,000     $          3,000,000

      Investment securities................     $        149,098,906     $        149,098,906

      Federal Home Loan Bank Stock.........     $          1,964,300     $          1,964,300

      Loans receivable.....................     $        260,502,270     $        260,399,319

Financial liabilities:
      Deposits.............................     $        368,680,485     $        369,243,833

      Short term borrowings................     $         13,456,597     $         13,456,597

      Long term debt.......................     $         22,000,000     $         20,186,433
</TABLE>

The market values of investments,  which are based upon quoted market prices are
contained in Note 2.

NOTE 15 -- REGULATORY MATTERS

The Bank is subject to legal  limitations on the amount of dividends that can be
paid to the Bancorp.  The  Pennsylvania  Banking Code  restricts  the payment of
dividends, generally to the extent of its retained earnings.

                                      -30-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 15 -- REGULATORY MATTERS (CONTINUED)

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities and certain  off-balance  sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain minimum amounts and ratios,  as set forth below, of
total  and Tier 1 capital  (as  defined  in the  regulations)  to  risk-weighted
assets,  and of Tier 1 capital to average  assets.  Management  believes,  as of
December  31,  1999  and  1998,  that  the  Bank  meets  all  capital   adequacy
requirements to which it is subjected.

The Bank's actual  capital  ratios as of December 31, 1999 and 1998, the minimum
ratios  required for capital  adequacy  purposes,  and the ratios required to be
considered  well  capitalized  under the Federal Deposit  Insurance  Corporation
Improvement Act of 1991 provisions are as follows:

<TABLE>
<CAPTION>

                                                  December 31,              Minimum             Well
                                       -----------------------------        Capital          Capitalized
                                           1999            1998           Requirements       Requirements
                                       -------------   -------------   -----------------   -------------------

<S>                                       <C>             <C>             <C>                <C>
Risk-based capital ratio                   16.5%           16.4%           8.0%               10.0% or higher
Leverage capital ratio                      9.0%            9.2%           3.0% to 4.0%        5.0% or higher
Tier 1 risk-based capital  ratio           15.6%           15.4%           4.0%                6.0% or higher
</TABLE>

Included in cash and due from banks are required  federal reserves of $5,033,000
and $4,403,000 at December 31, 1999 and 1998, respectively, for facilitating the
implementation  of monetary policy by the Federal  Reserve System.  The required
reserves  are computed by applying  prescribed  ratios to the classes of average
deposit balances. These reserves are held in the form of due from banks.

NOTE 16 -- RECENT ACCOUNTING PRONOUNCEMENTS

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments  Hedging  Activities."  This  Statement  establishes  accounting and
reporting standards for derivative  instruments and for hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value. In addition, certain provisions of this statement will permit, at
the date of initial  adoption  of this  Statement,  the  transfer of any held to
maturity security into either the available for sale or trading category and the
transfer of any available for sale security into the trading category. Transfers
from the held to maturity  portfolio  at the date of initial  adoption  will not
call into question the entity's intent to hold other debt securities to maturity
in the future.  This  Statement is effective  for all fiscal  quarters of fiscal
years  beginning  after June 15,  2000,  as amended by FASB No. 137,  and is not
expected to have any impact on the Bank.  The Bank does not intend to adopt SFAS
No. 133 earlier than required.


                                      -31-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 17 -- CAPITAL STOCK

In January 1998,  the Bancorp  declared a 5% stock dividend to  stockholders  of
record at January 15, 1998,  payable  February 2, 1998.  Fractional  shares were
paid for in cash,  totaling $3,149.  The Bancorp issued 47,933 shares of capital
stock in conjunction with this dividend.  In addition, on December 28, 1998, the
Bancorp  declared a  three-for-one  stock split on the Bancorp's  capital stock,
which was effected in the form of a 200 percent stock dividend.

Two  additional  shares  were  issued for each  share of  capital  stock held by
shareholders  of record as of the close of  business  on January  6,  1999.  New
shares were  distributed  on January 29, 1999.  Capital  stock and surplus as of
December  31,  1998 have been  restated to reflect  this  split.  Par value will
remain  unchanged  at $1.25.  The number of shares  issued at December 31, 1998,
after giving effect to the split was 3,023,799  (1,007,933  shares issued before
the split). The effect of the stock split has been retroactively reflected as of
December 31, 1998 in the consolidated  balance sheet and statement of changes in
stockholders'  equity,  but prior periods were not restated in those statements.
All  references to the number of shares and per share  amounts  elsewhere in the
consolidated  financial  statements and related  footnotes have been restated as
appropriate to reflect the effect of the split for all periods presented.

NOTE 18 -- TREASURY STOCK

In December 1999, the Bancorp  repurchased 2,625 shares of its stock for $87,612
and is being held as treasury stock at December 31, 1999.


                                      -32-

<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 19 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA  (Unaudited)
<TABLE>
<CAPTION>
                                          Quarters ended 1999
                        --------------------------------------------------------
                           March 31          June 30    September 30    December 31
                        ------------      -----------  --------------   ------------
<S>                      <C>              <C>              <C>              <C>
Interest income           $7,020,239       $7,090,176       $7,538,273       $7,793,746
Interest expense           3,228,619        3,189,554        3,547,337        3,678,078
                          ----------       ----------       ----------       ----------
Net interest income        3,791,620        3,900,622        3,990,936        4,115,668
Provision for loan
losses                        45,000           45,000          105,000          105,000
Non-interest income          661,019          740,595          806,822          843,824
Non-interest expense       2,099,755        2,257,533        2,329,841        2,545,832
                          ----------       ----------       ----------       ----------
Income before income
taxes                      2,307,884        2,338,684        2,362,917        2,308,660
Income tax expense           741,114          747,492          760,121          733,664
                          ----------       ----------       ----------       ----------

Net income                $1,566,770       $1,591,192       $1,602,796       $1,574,996
                          ==========       ==========       ==========       ==========

Net income per Share of
Capital Stock             $     0.52       $     0.52       $     0.53       $     0.53
                          ==========       ==========       ==========       ==========

Weighted average shares
outstanding:
Basic                      3,023,799        3,023,799        3,023,799        3,023,684
                          ==========       ==========       ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                                Quarters ended 1998
                            -----------------------------------------------------------
                              March 31       June 30       September 30    December 31
                            -----------    ------------    -------------   ------------

<S>                         <C>             <C>             <C>             <C>
Interest income             $6,692,189      $6,837,205      $6,905,949      $7,092,870
Interest expense             3,048,949       3,089,614       3,149,389       3,298,164
                            ----------      ----------      ----------      ----------
Net interest income          3,643,240       3,747,591       3,756,560       3,794,706
Provision for loan losses      105,000         105,000          75,000          15,000
Non-interest income            503,300         567,213         609,828         653,170
Non-interest expense         2,048,583       1,989,057       2,149,467       2,250,995
                            ----------      ----------      ----------      ----------
Income before income
taxes                        1,992,957       2,220,748       2,141,921       2,181,881
Income tax expense             617,516         718,261         694,622         706,177
                            ----------      ----------      ----------      ----------

Net income                  $1,375,441      $1,502,487      $1,447,299      $1,475,704
                            ==========      ==========      ==========      ==========

Net income per Share of
Capital Stock               $     0.45      $     0.50      $     0.48      $     0.49
                            ==========      ==========      ==========      ==========

Weighted average shares
outstanding:
Basic                        3,023,799       3,023,799       3,023,799       3,023,799
                            ==========      ==========      ==========      ==========
</TABLE>

                                      -33-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 20 -- PARENT COMPANY FINANCIAL INFORMATION

The condensed  financial  information  for IBT Bancorp,  Inc. as of December 31,
1999 and 1998 and for the years ended  December  31,  1999,  1998 and 1997 is as
follows:

BALANCE SHEETS
                                                        December 31,
                                                  -------------------------
                                                     1999          1998
                                                  -----------   -----------
ASSETS
     Cash in bank................................ $       770   $       629
     Investment in subsidiary....................  36,975,372    37,184,369
     Securities available for sale...............     733,363       826,348
     Other assets................................     221,634       221,634
                                                  -----------   -----------
     Total Assets................................ $37,931,139   $38,232,980
                                                  ===========   ===========


LIABILITIES AND STOCKHOLDERS' EQUITY
     Liabilities................................. $    25,859   $    32,051

     Stockholders' Equity........................  37,905,280    38,200,929
                                                  -----------   -----------
     Total Liabilities and Stockholders' Equity.. $37,931,139   $38,232,980
                                                  ===========   ===========

STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                           ------------------------------------
                                                              1999         1998         1997
                                                           ----------   ----------   ----------
<S>                                                       <C>          <C>          <C>
Income
      Dividends from subsidiary...................         $2,500,000   $2,100,000   $1,700,000
      Other dividends.............................             33,586       32,157       25,062

Expenses
      Professional fees...........................             84,781       20,979       13,668
      Miscellaneous...............................             16,786       14,729       11,060
                                                           ----------   ----------   ----------

Income Before Income Taxes
      and Equity in Undistributed.................
      Earnings of Subsidiary......................          2,432,019    2,096,449    1,700,334

Equity in Undistributed
      Earnings of Subsidiary......................          3,903,735    3,704,481    3,493,182
                                                           ----------   ----------   ----------
Net Income........................................         $6,335,754   $5,800,930   $5,193,516
                                                           ==========   ==========   ==========
</TABLE>


                                      -34-
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        IBT BANCORP, INC. AND SUBSIDIARY

                  Years Ended December 31, 1999, 1998 and 1997

--------------------------------------------------------------------------------

NOTE 19 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)


STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                                      -----------------------------------------
                                                         1999           1998           1997
                                                      -----------    -----------    -----------
<S>                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

      Net income....................................  $ 6,335,754    $ 5,800,930    $ 5,193,516
      Adjustments to reconcile net income to
         net cash provided by operating activities:
             Decrease in cash due to changes
                in assets and liabilities:
                  Equity in undistributed earnings
                    of subsidiary...................   (3,903,735)    (3,704,481)    (3,493,182)
                  Other assets......................         --             --          (28,822)
                                                      -----------    -----------    -----------

Net Cash From Operating Activities..................    2,432,019      2,096,449      1,671,512

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from sale of securities available
         for sale...................................       74,773           --             --
      Purchase of securities available for sale.....         --         (158,861)      (135,663)
      Dividends paid................................   (2,419,039)    (1,938,380)    (1,536,000)
      Purchase of Treasury Stock....................      (87,612)          --             --
                                                      -----------    -----------    -----------

Net Cash Used by Financing Activities...............   (2,431,878)    (2,097,241)    (1,671,663)
                                                      -----------    -----------    -----------

Net Change in Cash and Cash Equivalents.............          141           (792)          (151)

Cash and Cash Equivalents at Beginning
      of Year.......................................          629          1,421          1,572
                                                      -----------    -----------    -----------
Cash and Cash Equivalents at End of Year............  $       770    $       629    $     1,421
                                                      ===========    ===========    ===========
</TABLE>

                                      -35-


<PAGE>
IBT Bancorp, Inc.
Corporate Profile

         IBT Bancorp, Inc. (the "Company"), a Pennsylvania  corporation,  is the
bank holding company for Irwin Bank & Trust Company  ("Irwin Bank").  Irwin Bank
is the principal  subsidiary of the Company.  During the second quarter of 2000,
the Company and a third party plan to form Irwin Bank Financial Services,  LLC ,
which will offer insurance and investment  services to customers and the general
public.

         Irwin Bank & Trust Company was  incorporated  in 1922 under the laws of
Pennsylvania  as  a  commercial  bank.  The  Bank  is  headquartered  in  Irwin,
Pennsylvania  and  conducts  business  through  8  full  service   branches,   4
supermarket  branches,  and a loan  office,  in  the  Pennsylvania  counties  of
Westmoreland  and  Allegheny.  Irwin Bank is a  diversified  financial  services
institution  providing a broad range of deposits,  commercial and retail banking
services,  as well as trust  services to consumers and  businesses.  Deposits in
Irwin  Bank  are  insured  by  the  Federal  Deposit  Insurance  Corporation  to
applicable limits.

Stock Market Information

         The  Company's  common stock is listed on the OTC Bulletin  Board under
the symbol "IBTB".  As of February 25, 2000, IBT Bancorp had 650 shareholders of
record and 3,003,003 shares of common stock issued and  outstanding.  The number
of  shareholders  does not reflect  persons or entities  who hold their stock in
nominee or "street" name through various brokerage firms.

         The  following  table  sets forth high and low bid prices per share for
the common stock for the calendar  quarters  indicated,  based upon  information
obtained from the OTC Bulletin Board.  All such bid prices reflect  inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent  actual  transactions.  On February 2, 1998 and January 29, 1999,  the
Company  paid a 5% stock  dividend  and a 200% stock  dividend (in the form of a
three for one stock split).,  respectively.  Cash dividend and market prices set
forth in the  table  below  have  also been  adjusted  for the  stock  dividends
declared and paid by the Company.

                                    Price Range
                                    -----------               Cash Dividends
                                High($)        Low ($)     Declared Per Share($)
                                -------        -------     ---------------------
1998
----
  First Quarter                  18.33           14.92              .16
  Second Quarter                 21.83           18.33              .16
  Third Quarter                  24.92           21.00              .16
  Fourth Quarter                 27.67           23.67              .16
1999
----
  First Quarter                  40.00           28.33              .20
  Second Quarter                 34.75           32.00              .20
  Third Quarter                  34.00           31.75              .20
   Fourth Quarter                33.38           29.00              .20


         The  ability of the  Company to pay  dividends  is  dependent  upon the
ability of Irwin Bank to pay  dividends to the Company.  Because Irwin Bank is a
depository  institution  insured  by  the  FDIC  it may  not  pay  dividends  or
distribute  capital  assets if it is in default on any  assessment due the FDIC.
Additionally,  Irwin Bank is subject to certain state banking  regulations  that
limit the ability of the Bank to pay  dividends  to the Company.  Under  Federal
Reserve

                                      -36-
<PAGE>

policy,  the Company is required to maintain adequate  regulatory capital and is
expected  to act as a source of  financial  strength to Irwin Bank and to commit
resources to support Irwin Bank in circumstances where it might not do so absent
such a policy.  This  policy  could  have the effect of  reducing  the amount of
dividends declarable by the Company.

                                      -37-