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

                                    ---------
                                    FORM 10-K
(Mark One)
[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2005
                                       or
[ ]      TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from _________________  to __________________

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Based on the closing sales price of $40.65 per share of the registrant's  common
stock  on June 30,  2005,  as  reported  on the  American  Stock  Exchange,  the
aggregate  market  value  of  voting  and  non-voting   common  equity  held  by
non-affiliates  of the registrant was approximately  $108.6 million.  Solely for
purposes  of this  calculation,  directors  and  executive  officers  are deemed
affiliates.

As of March 1, 2006,  there were  2,954,455  shares of the  Registrant's  common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   Portions of 2005 Annual Report to Stockholders (Parts II and IV)
     2.   Portions  of  Proxy   Statement   for  the  2006  Annual   Meeting  of
          Stockholders. (Part III)

================================================================================
<PAGE>

                                IBT BANCORP, INC.
                           ANNUAL REPORT ON FORM 10-K
                   for the fiscal year ended December 31, 2005

                                     INDEX

<TABLE>
<CAPTION>
                                     PART I

                                                                                            Page
                                                                                            ----

<S>            <C>                                                                        <C>
Item 1.           Business................................................................    1
Item 1A.          Risk Factors............................................................   22
Item 1B.          Unresolved Staff Comments...............................................   25
Item 2.           Properties..............................................................   25
Item 3.           Legal Proceedings.......................................................   25
Item 4.           Submission of Matters to a Vote of Security Holders.....................   25

                                                      PART II

Item 5.           Market for Registrant's Common Equity, Related Stockholder Matters
                     and Issuer Purchases of Equity Securities............................   26
Item 6.           Selected Financial Data.................................................   26
Item 7.           Management's Discussion and Analysis of Financial Condition
                      and Results of Operation............................................   26
Item 7A.          Quantitative and Qualitative Disclosures About Market Risk..............   26
Item 8.           Financial Statements and Supplementary Data.............................   27
Item 9.           Changes in and Disagreements with Accountants on Accounting and
                      Financial Disclosure................................................   27
Item 9A.          Controls and Procedures.................................................   27
Item 9B.          Other Information.......................................................   27

                                                     PART III

Item 10.          Directors and Executive Officers of the Registrant......................   27
Item 11.          Executive Compensation..................................................   28
Item 12.          Security Ownership of Certain Beneficial Owners and Management
                      and Related Stockholder Matters.....................................   28
Item 13.          Certain Relationships and Related Transactions..........................   28
Item 14.          Principal Accounting Fees and Services..................................   29

                                                      PART IV

Item 15.          Exhibits, Financial Statement Schedules.................................   29

SIGNATURES        ........................................................................   31

</TABLE>

<PAGE>

                                     PART I

Forward-Looking Statements

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

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

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

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

General

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

         Irwin Bank & Trust Co. (the "Bank") was  incorporated in 1922 under the
laws of  Pennsylvania  as a  commercial  bank under the name "Irwin  Savings and
Trust  Company." The Bank engages in a  full-service  mortgage,  commercial  and
consumer  banking  business,  as well as trust and a variety of deposit services
provided to its customers.  At December 31, 2005, the Bank operated  through its
main office, six branch offices, two loan centers, and a trust office as well as
through four supermarket  branches under the name "Irwin Bank Extra." The Bank's
main  office,  full  service  branch  offices,  loan  centers,  trust office and
supermarket  branches are located in the  Pennsylvania  counties of Westmoreland
and Allegheny. The Bank's web site is located at "www.myirwinbank.com."
                                                  -------------------

                                        1

<PAGE>

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

Competition

         The  Registrant's  primary  market area  consists of  Westmoreland  and
Allegheny counties,  Pennsylvania, which are part of the Pittsburgh Metropolitan
Statistical Area ("Pittsburgh MSA") and it is one of many financial institutions
serving this market area. Based on data compiled by the FDIC as of June 30, 2005
(the latest date for which such data is available), the Bank was ranked sixth of
21 FDIC-insured  institutions in Westmoreland County with a 6.74% deposit market
share and 19th out of 38 institutions  in Allegheny  County with a 0.36% deposit
market  share.  The Bank was  ranked  13th out of 64  institutions  serving  the
Pittsburgh  MSA with a 0.91% market share.  Such data does not reflect  deposits
held by credit unions with which the Bank also  competes.  The  competition  for
deposit  products  comes  from  other  insured  financial  institutions  such as
commercial  banks,  thrift  institutions  and credit unions in the  Registrant's
market  area as well as with  out-of-market  financial  institutions  that offer
deposits  over  the  internet  and  through  other  delivery  channels.  Deposit
competition also includes a number of insurance  products such as annuities sold
by  local  agents  and  investment  products  such as  mutual  funds  and  other
securities sold by local and regional brokers. Loan competition comes from other
insured financial institutions such as commercial banks, thrift institutions and
credit unions.

Lending Activities

         The Bank's  principal  lending  activity  is the  origination  of loans
secured  primarily by first mortgage liens on properties in the Pittsburgh  MSA.
At December  31,  2005,  the Bank's loan  portfolio  included  $78.8  million of
residential  first  mortgage  loans,  $1.9 million of  residential  construction
loans, $168.0 million of commercial and multi-family real estate loans, and $4.0
million of commercial construction loans. In addition, the Bank's loan portfolio
includes  $19.7 million in home equity lines of credit which are also secured by
liens on residential  real estate.  The Bank also offers  commercial loans which
are generally  secured by non-real  estate  collateral  and had $63.5 million in
such loans in portfolio at December 31, 2005.  The Bank lends to  municipalities
and other governmental  entities and had $9.1 million of such loans in portfolio
at December 31,  2005.  The Bank also  engages in consumer  installment  lending
primarily  in the form of home  equity  term  loans  and  automobile  loans.  At
December  31,  2005,  the Bank had $92.7  million in home  equity term loans and
$757,000 in automobile  loans in  portfolio.  In addition,  the Bank  originates
education  loans  guaranteed by the  Pennsylvania  Higher  Education  Assistance
Agency  ("PHEAA")  and held $6.8  million in such loans at  December  31,  2005.
Substantially  all of the Bank's borrowers are located in the Pittsburgh MSA and
would be expected to be affected by economic and other  conditions in this area.
The Company does not believe that there are any other concentrations of loans or
borrowers exceeding 10% of total loans.

                                        2

<PAGE>

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

<TABLE>
<CAPTION>
                                                                           At December 31,
                                --------------------------------------------------------------------------------------------------
                                      2005                  2004                 2003               2002                2001
                                ----------------     ------------------   -----------------    ---------------     ---------------
                                   $         %          $           %        $          %         $        %          $       %
                                -------   ------     -------     ------   -------    ------    -------  ------     -------  ------
                                                                    (Dollars in Thousands)

<S>                           <C>         <C>      <C>           <C>    <C>          <C>     <C>        <C>      <C>        <C>
Mortgage.....................  $252,699    56.65%   $252,114      57.37% $244,923     58.33%  $210,244   57.87%   $173,214   54.55%
Installment..................    93,428    20.95      84,673      19.27    78,327     18.65     59,321   16.33      64,053   20.17
Commercial...................    63,508    14.24      61,140      13.91    59,591     14.19     58,634   16.14      55,185   17.38
Home equity lines of credit..    19,684     4.41      23,201       5.28    21,963      5.23     15,832    4.36      11,001    3.47
PHEAA........................     6,781     1.52       7,355       1.67     7,834      1.87      6,900    1.90       6,950    2.19
Municipal....................     9,149     2.05      10,050       2.29     6,268      1.49     11,190    3.08       5,369    1.69
Credit cards.................        62     0.01          45       0.01        38      0.01         32    0.01          32    0.01
Other........................       744     0.17         855       0.20       965      0.23      1,148    0.31       1,715    0.54
                               --------   ------    --------     ------  --------    ------   --------  ------    --------  ------
      Total loans............   446,055   100.00%    439,433     100.00%  419,909    100.00%   363,301  100.00%    317,519  100.00%
                                          ======                 ======              ======             ======              ======
Less:
  Unearned discount..........        --                   --                   --                   --                  --
  Deferred loan origination
    fees and costs...........       266                  291                  338                  557                 273
  Allowance for loan losses..     3,564                2,594                3,285                2,873               2,114
                               --------             --------             --------             --------            --------
      Total loans, net.......  $442,225             $436,548             $416,286             $359,871            $315,132
                               ========             ========             ========             ========            ========

</TABLE>

                                        3

<PAGE>

         Loan Maturity  Table.  The following  table sets forth  maturities  and
interest rate  sensitivity  for all categories of loans as of December 31, 2005.
Scheduled  repayments are reported in the maturity  category in which payment is
due.

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

<S>                            <C>            <C>             <C>         <C>        <C>        <C>       <C>       <C>   <C>
1 year or less............      $ 12,382       $19,684         $12,108     $ 6,704    $   --     $9,149    $   62    $744  $ 60,833
After 1 year:
  1 to 5 years............        59,994            --          40,682      19,531     6,781         --        --      --   126,988
  After 5 years...........       180,323            --          40,638      37,273        --         --        --      --   258,234
                                 -------    ----------          ------      ------  --------  ---------   -------  ------   -------
Total due after one year..       240,317            --          81,320      56,804     6,781         --        --      --   385,222
                                 -------   -----------          ------      ------     -----  ---------    ------   -----   -------
Total amount due..........      $252,699       $19,684         $93,428     $63,508    $6,781     $9,149    $   62    $744  $446,055
                                 =======        ======          ======      ======     =====     ======     =====     ===   =======
</TABLE>

----------------------
(1)  PHEAA loans are sold when  repayment  begins;  assumption is that all PHEAA
     loans will mature in 1 to 5 years.
(2)  Home equity  credit lines and credit card loans have no stated  maturities;
     therefore they are classified as due in one year or less.

         Loan Sensitivity  Table. The following table sets forth, as of December
31, 2005, the dollar amount of all loans due after December 31, 2006, based upon
fixed rates of interest or floating or adjustable interest rates.

                                              Floating or
                           Fixed Rates      Adjustable Rates           Total
                           -----------      ----------------           -----
                                             (In Thousands)

Mortgage(1)  ......          $216,158            $24,159              $240,317
Installment........            79,652              1,668                81,320
Commercial.........            28,772             28,032                56,804
PHEAA..............                --              6,781                 6,781
                             --------            -------              --------
     Total.........          $324,582            $60,640              $385,222
                             ========            =======              ========
--------------------------
(1)  Included in the mortgage loans  portfolio are commercial real estate loans.
     Commercial  real  estate  loans are  fixed-rate  loans  that are  primarily
     callable loans,  which reprice every three,  five or ten years,  based upon
     the interest rate on similar loans at the time of repricing.  See "Mortgage
     Loans."

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

         The Registrant had  approximately  $78.8 million of one-to-four  family
residential  mortgage loans in its mortgage loan portfolio at December 31, 2005.
The Registrant  generally  originates  one-to-four family  residential  mortgage
loans in amounts of up to 80% of the appraised  value of the mortgaged  property
without requiring mortgage insurance.  The Registrant will originate residential
mortgage  loans in an amount  up to 95% of the  appraised  value of a  mortgaged
property; however, the borrower is required to obtain mortgage insurance for the
amount in excess of 80%. The Registrant offers residential  fixed-rate loans and
adjustable-rate  loans  with  amortization  periods ranging from 15 to 30 years.
Interest rates for residential  adjustable-rate loans residences adjust every 12
months  based  upon the  weekly  average  yield on the  one-year  U.S.  Treasury
securities, plus a margin of 2.75 percentage points. These adjustable-rate loans
have an interest rate cap of two  percentage  points per year and six percentage
points  over the life of the  loan,  and are  originated  for  retention  in the
portfolio.

                                        4

<PAGE>

         Fixed-rate  residential  mortgage loans are  underwritten in accordance
with FannieMae  guidelines.  Currently,  loans  underwritten  in accordance with
FannieMae  guidelines are generally sold in the secondary market.  However,  the
number of saleable loans could vary materially as a result of market conditions.
The  Registrant  generally  charges  a higher  interest  rate if  loans  are not
saleable under FannieMae guidelines. At December 31, 2005, $218.6 million of the
Registrant's  mortgage  portfolio  consisted of long-term,  fixed-rate  mortgage
loans of which $300,000 were  classified as  held-for-sale.  The Registrant does
not service any loans that are sold and the  Registrant  is generally not liable
for these loans (i.e., "nonrecourse loans").

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

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

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

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

         As of December 31, 2005, the Registrant's  commercial real estate loans
totaled $118.8 million of the mortgage  portfolio.  Typically,  commercial  real
estate loans are  originated in amounts up to 80% of the appraised  value of the
mortgaged property.

         The Registrant  also  originates  loans to finance the  construction of
one-to-four  family  dwellings and commercial real estate.  The Registrant makes
construction  loans both to individuals  constructing their own residence and to
developers constructing homes for resale.  Generally,  the Registrant only makes
interim  construction  loans  to  individuals  if it also  makes  the  permanent
mortgage loan on the property.  Interim  construction loans generally have terms
of up to 12  months  with  fixed  rates  of  interest.  At  December  31,  2005,
construction loans totaled $19.4 million with $13.5 million of that total yet to
be disbursed.

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

         Installment  Loans.  Installment loans primarily consist of home equity
term  loans and to a lesser  extent  automobile  loans.  Home  equity  loans are
secured primarily by one-to-four  family residences.  The Registrant  originates
these  loans with fixed  rates  with  terms of up to 20 years.  These  loans are
subject to 90% combined  loan-to-value  limitation,  including  any  outstanding
mortgages or liens,  without requiring mortgage  insurance.  The Registrant will
originate  home  equity  loans  in an  amount  up 100% of the  appraised  value,

                                        5

<PAGE>

however,  mortgage  insurance for the borrower may be required.  The  Registrant
originates automobile loans with fixed rates of interest and terms of up to five
years. At December 31, 2005, home equity term loans totaled $92.7 million.

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

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

         Home Equity Lines of Credit.  Revolving home equity lines of credit are
secured  primarily by one- to-four  family  residences.  The lines of credit are
generally  subject to an 80% combined  loan-to-value  limitation,  including all
outstanding mortgages and liens.

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

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

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

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

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

         Loans to One  Borrower  Limits.  By  statute,  the  maximum  amount  of
indebtedness  that the Bank may have from any one customer may not exceed 15% of
the Bank's capital accounts.  Pursuant to the national bank parity provisions of
the Pennsylvania  Banking Code, the Bank may also lend up to the

                                        6

<PAGE>

maximum  amounts  permissible for national banks which are allowed to make loans
to  one  borrower  of up to  25% of  capital  and  surplus  in  certain  limited
circumstances. At December 31, 2005, the Bank's loans-to- one-borrower limit was
$10 million and the largest amount of indebtedness  from any single customer was
$9.2 million. This indebtedness consisted of 26 loans to one borrower secured by
multi-unit apartment buildings and one-to-four family dwellings.

         Loan  Commitments.   Written   commitments  are  given  to  prospective
borrowers on all approved  mortgage loans.  Generally,  the commitment  requires
acceptance  within  7 days of the  date  of  issuance.  At  December  31,  2005,
commitments to cover originations of loans totaled $9.9 million.

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

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

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

                                                At December 31
                             ---------------------------------------------------
                              2005       2004       2003       2002       2001
                             -------    -------    -------    -------    -------
                                                (In Thousands)

Special Mention .........    $43,069    $24,770    $19,022    $13,044    $12,885
Substandard .............      7,798      3,940      8,756      9,518      3,174
Doubtful ................        240        259        668          9         --
Loss ....................         --         --         --         --         --
                             -------    -------    -------    -------    -------
      Total .............    $51,107    $28,969    $28,446    $22,571    $16,032
                             =======    =======    =======    =======    =======

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

         Other Real Estate Owned.  Real estate  acquired by the  Registrant as a
result of  foreclosure  or by deed in lieu of foreclosure is classified as other
real estate owned until such time as it is sold. When other

                                       7

<PAGE>

real estate owned is acquired, it is recorded at the lower of the unpaid balance
of the related loan or its fair value less  disposal  costs.  Any  write-down of
other real estate owned is charged to operations.

Nonperforming and Problem Assets

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

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

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

<TABLE>
<CAPTION>
                                                                            At December 31,
                                                       -----------------------------------------------------------
                                                         2005        2004         2003         2002          2001
                                                         ----        ----         ----         ----          ----
                                                                        (Dollars In Thousands)
<S>                                                     <C>        <C>          <C>          <C>           <C>
Loans accounted for on a non-accrual basis:
  Mortgage...........................................  $  111      $  120       $  567       $  446        $  940
  Home equity lines of credit........................      --          --           --           --            --
  Installment........................................      26          --           --           77            27
  Commercial.........................................      --          --           --           96            60
  PHEAA..............................................      --          --           --           --            --
  Municipal..........................................      --          --           --           --            --
  Credit cards.......................................      --          --           --           --            --
  Other..............................................      --          --           --           --            --
                                                       ------      ------       ------       ------        ------
     Total...........................................  $  137      $  120       $  567       $  619        $1,027
                                                       ------      ------       ------       ------        ------
Accruing loans which are contractually past
  due 90 days or more:
  Mortgage...........................................     541       3,618          704          728           559
  Installment........................................      14           9           10           --             3
  Commercial.........................................     161         954           14           41             7
  Home equity lines of credit........................      --          --           --           --            --
  PHEAA..............................................      --          --           --           --            --
  Municipal..........................................      --          --           --           --            --
  Credit cards.......................................      --          --           --           --            --
  Other..............................................      --          --           --           --            --
                                                       ------      ------       ------       ------        ------
     Total...........................................     716       4,581          728          769           569
                                                       ------      ------       ------       ------        ------
Total non-accrual and 90-day past due loans..........     853       4,701        1,295        1,388         1,596
                                                       ------      ------       ------       ------        ------
Other real estate owned..............................      48       1,767          254          637           239
                                                       ------      ------       ------       ------        ------
Total non-performing assets..........................  $  901      $6,468       $1,549       $2,025        $1,835
                                                       ======      ======       ======       ======        ======
Total non-accrual and accrual loans to net loans.....   0.19%       1.08%        0.31%        0.39%         0.51%
                                                       ======      ======       ======       ======        ======

Total non-accrual and accrual loans to total assets..   0.12%       0.70%        0.21%        0.24%         0.30%
                                                       ======      ======       ======       ======        ======
Total non-performing assets to total assets..........   0.13%       0.96%        0.25%        0.35%         0.35%
                                                       ======      ======       ======       ======        ======
</TABLE>

                                       8
<PAGE>

         As of December 31, 2005, there were no loans not reflected in the above
as to which  management  had serious  doubts as to the ability of  borrowers  to
comply with present loan repayment loans.

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

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

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

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

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

                                        9

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                     ---------------------------------------------------------------------
                                                       2005            2004           2003           2002           2001
                                                     --------        --------       --------       --------       --------
                                                                            (Dollars in Thousands)

<S>                                                 <C>             <C>            <C>            <C>            <C>
Total loans outstanding........................      $445,789        $439,142       $419,571       $362,744       $317,246
                                                     ========        ========       ========       ========       ========
Average loans outstanding......................      $436,906        $430,543       $393,743       $337,600       $304,080
                                                     ========        ========       ========       ========       ========
Allowance balance (at beginning of  period)....      $  2,594        $  3,285       $  2,873       $  2,114       $  1,919
                                                     --------        --------       --------       --------       --------
Provision......................................         1,200             600            600          1,100            500
Charge-Offs:
   Mortgage....................................           (64)         (1,204)           (11)          (219)          (203)
   Installment.................................          (188)           (127)           (84)           (68)           (92)
   Commercial..................................           (19)             (8)          (148)          (154)           (50)
   Home equity lines of credit.................            --              --             --             --             --
   PHEAA.......................................            --              --             --             --             --
   Municipal...................................            --              --             --             --             --
   Credit cards................................            --              --             --             --             --
   Other.......................................            --              --             --             --             --
                                                     --------        --------       --------       --------       --------
      Total charge-offs........................          (271)         (1,339)          (243)          (441)          (345)
Recoveries:
  Mortgage.....................................             7              --             --             --             --
  Installment..................................            21               3             20              9              2
  Commercial...................................            13              45             35             91             45
  Home equity lines of credit..................            --              --             --             --             --
  PHEAA........................................            --              --             --             --             --
  Municipal....................................            --              --             --             --             --
  Credit cards.................................            --              --             --             --              2
  Other........................................            --              --             --             --             --
                                                     --------        --------       --------       --------       --------
      Total recoveries.........................            41              48             55            100             39
Net charge-offs................................          (230)         (1,291)          (188)          (341)          (306)
                                                     --------        --------       --------       --------       --------
Allowance balance (at end of period)...........      $  3,564        $  2,594       $  3,285       $  2,873       $  2,114
                                                     ========        ========       ========       ========       ========
Allowance for loan losses as a percent
  of total loans outstanding...................          0.80%           0.59%          0.78%          0.79%          0.67%
                                                     ========        ========       ========       ========       ========
Net loans charged off as a percent of
  average loans outstanding....................          0.05%           0.30%          0.05%          0.10%          0.10%
                                                     ========        ========       ========       ========       ========
</TABLE>

                                       10

<PAGE>

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

<TABLE>
<CAPTION>
                                                                           At December 31,
                                   ------------------------------------------------------------------------------------------------
                                        2005                 2004              2003                2002               2001
                                   ------------------  ------------------ -----------------  -----------------   ------------------
                                              % of                % of              % of               % of                  % of
                                              Loans               Loans             Loans              Loans                Loans
                                             to Total            to Total          to Total           to Total             to Total
                                   Amount     Loans     Amount    Loans   Amount   Loans      Amount   Loans      Amount    Loans
                                   ------     -----     ------    -----   ------   -----      ------   -----      ------    -----
                                                                       (Dollars in Thousands)
<S>                               <C>        <C>       <C>       <C>     <C>        <C>      <C>        <C>      <C>        <C>
At end of period allocated to:
  Mortgage.......................  $1,853     56.65%    $1,110    57.37%  $  806     58.33%   $  515     57.87%   $1,120     54.55%
  Installment....................     282     29.95        338    19.27      109     18.65       188     16.33       409     20.17
  Commercial.....................   1,395     14.24        889    13.91    2,217     14.19     2,100     16.14       501     17.38
  Home equity lines of credit....      32      4.41         43     5.28      138      5.23        64      4.36        60      3.47
  PHEAA..........................       1      1.52          4     1.67        5      1.87         2      1.90        11      2.19
  Municipal......................       1      2.05        210     2.29        9      1.49         4      3.08         8      1.69
  Credit cards...................      --      0.01         --     0.01       --      0.01        --      0.01        --      0.01
  Other..........................      --      0.17         --     0.20        1      0.23        --      0.31         5      0.54
                                   ------    ------     ------   ------   ------    ------    ------    ------    ------    ------
      Total......................  $3,564    100.00%    $2,594   100.00%  $3,285    100.00%   $2,873    100.00%   $2,114    100.00%
                                   ======    ======     ======   ======   ======    ======    ======    ======    ======    ======
</TABLE>

                                       11

<PAGE>

Investment Activities

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

         Current accounting standards regarding investment securities (including
mortgage backed securities)  require the Registrant to categorize  securities as
"held to maturity," "available-for-sale" which included FHLB stock or "trading."
As  of  December  31,  2005,  the   Registrant  had  securities   classified  as
"available-for-  sale"  (which  included  FHLB  stock)  in the  amount of $201.5
million and had no securities  classified as "held-  to-maturity"  or "trading."
Securities  classified  as  "available-for-sale"   are  reported  for  financial
reporting purposes at the fair market value with net changes in the market value
from period to period included as a separate component of stockholders'  equity,
net  of  income  taxes.  At  December  31,  2005,  the  Registrant's  securities
available-for-sale  had an amortized  cost of $202.5 million and market value of
$201.5 million. Changes in the market value of securities  available-for-sale do
not affect the  Company's  income.  In addition,  changes in the market value of
securities  available-for-sale  do not  affect  the  Bank's  regulatory  capital
requirements or its loan-to-one borrower limit.

         At December 31, 2005,  the  Registrant's  investment  portfolio  policy
allowed investments in instruments such as: (i) U.S. Treasury obligations;  (ii)
U.S.   federal  agency  or  federally   sponsored  agency   obligations;   (iii)
mortgage-backed   securities;   (iv)   municipal   obligations;   (v)   banker's
acceptances;  (vi) certificates of deposit; and (vii) investment-grade corporate
bonds,  and commercial  paper.  The board of directors may authorize  additional
investments.

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

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

                                       12

<PAGE>

right  to call or  prepay  obligations  with or  without  prepayment  penalties.
Mortgage-backed  securities issued by FreddieMac,  GinnieMae, and FannieMae make
up a majority of the pass-through certificates market.

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

<TABLE>
<CAPTION>
                                                            At December 31
                                                    ------------------------------
                                                      2005       2004       2003
                                                    --------   --------   --------
                                                            (In Thousands)
<S>                                                   <C>        <C>        <C>
Securities available-for-sale:
  Obligations of U.S. government agencies ..........   $ 78,874   $ 71,103   $ 82,969
  Mortgage-backed securities .......................     53,827     65,004     37,656
  Obligations of state and political subdivisions...     54,808     46,446     37,921
  Federal Home Loan Bank stock .....................      5,470      5,683      4,541
  Equity securities ................................      8,288      7,940      8,621
  Other securities .................................        196        716        740
                                                       --------   --------   --------
     Total securities available-for-sale ...........   $201,463   $196,892   $172,448
                                                       ========   ========   ========
</TABLE>

                                       13

<PAGE>

         Investment Portfolio Maturities. The following table sets forth certain
information  regarding carrying values,  weighted average yields, and maturities
of the  Registrant's  investment  securities  portfolio as of December 31, 2005.
Actual maturities may differ from contractual  maturities as certain instruments
have call features which allow prepayment of obligations.

<TABLE>
<CAPTION>
                                                                    As of December 31, 2005
                                ----------------------------------------------------------------------------------------------------
                                                                          After Five        More than               Total
                                 One Year or Less  One to Five Years     to Ten Years       Ten Years        Investment Securities
                                -----------------  -----------------  ----------------- -----------------   ------------------------
                                Carrying  Average  Carrying  Average  Carrying  Average Carrying  Average Carrying Average  Market
                                  Value    Yield    Value     Yield    Value     Yield   Value     Yield   Value    Yield    Value
                                 -------  -------  -------   -------  -------   ------- -------   ------- -------  -------  ------
                                                                     (Dollars in Thousands)
<S>                             <C>        <C>    <C>         <C>    <C>         <C>   <C>        <C>    <C>        <C>    <C>
Obligations of U.S.
    government agencies......... $   --      --%   $3,006      5.31%  $69,788     4.20% $ 6,080    4.06%  $ 78,874   4.23%  $78,874
Mortgage-backed securities......     --      --     3,731      3.68    14,312     4.11   35,784    4.87     53,827   4.59    53,827
Obligations of state and
    political subdivisions (1)..     --      --     1,887      5.01    10,710     4.90   42,211    4.45     54,808   4.56    54,808
Federal Home Loan Bank stock....     --      --        --        --        --       --    5,470    2.45      5,470   2.45     5,470
Equity securities...............     --      --        --        --        --       --    8,288    2.66      8,288   2.66     8,288
Other securities  ..............     --      --        25      4.25        --       --      171    2.66        196   2.86       196
                                 ------            ------             -------           -------           --------         --------
     Total...................... $   --      --%   $8,649      4.54%  $94,810    4.27%  $98,004    4.32%  $201,463   4.30% $201,463
                                 ======            ======             =======           =======           ========         ========
</TABLE>

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

                                       14

<PAGE>

Sources of Funds

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

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

<TABLE>
<CAPTION>
                                                            At December 31,
                                      ------------------------------------------------------------                      ----
                                            2005                 2004                 2003
                                      ------------------   -----------------    ------------------                      ----
                                      Average    Average   Average   Average    Average    Average
                                      Balance     Rate     Balance     Rate     Balance     Rate
                                      -------     ----     -------     ----     -------     ----
                                                         (Dollars in thousands)
<S>                                 <C>         <C>      <C>         <C>      <C>         <C>
Checking accounts:
   Non-interest-bearing.......       $ 81,926        --%  $ 80,423        --%  $ 77,862       --%
   Interest-bearing...........         51,881      0.60     45,791      0.39     54,788     0.58
Passbook and club accounts....         75,734      0.52     76,356      0.51     76,641     0.70
Money market accounts.........         62,225      1.67     58,103      0.89     61,138     1.05
Certificate accounts..........        245,654      3.31    245,881      3.09    221,186     3.30
                                     --------      ----    -------      ----    -------     ----
         Total................       $517,420      1.91%  $506,554      1.71%  $491,615     1.79%
                                     ========      ====   ========      ====   ========     ====
</TABLE>

         The following  table indicates the amount of certificates of deposit of
$100,000 or more by time remaining at December 31, 2005 (in thousands).


                                                          Certificates of
          Maturity Periods                                    Deposit
          ----------------                                ---------------
          Three months or less......................           $15,718
          Over three through six months.............            11,934
          Over six through twelve months............            17,750
          Over twelve months........................            19,283
                                                               -------
                Total...............................           $64,685
                                                               =======

         Borrowings.   Deposits  are  the  primary   source  of  funds  for  the
Registrant's  lending and investment  activities as well as for general business
purposes. Should the need arise, the Registrant has a maximum borrowing capacity
with the FHLB of $301.9 million.  At December 31, 2005,  there were  outstanding
$68.7 million of long-term FHLB borrowings.

                                       15

<PAGE>

         The following table sets forth certain information regarding the Bank's
repurchase agreements which were the only category of short-term borrowings (due
within one year or less) whose average balance for the past fiscal year exceeded
30% of stockholders equity at December 31, 2005.

<TABLE>
<CAPTION>
                                                  At or for the Year Ended December 31,
                                                  -------------------------------------
                                                       2005       2004       2003
                                                     -------    -------    -------
                                                        (Dollars in Thousands)
<S>                                                 <C>        <C>        <C>
Average balance outstanding ......................   $20,209    $15,205    $15,999
Maximum amount outstanding at any
  month-end during the period ....................   $38,686    $24,682    $22,212
Weighted average interest rate during the period..      2.79%      1.01%      0.84%
Balance outstanding at end of period .............   $18,443    $15,157    $12,611
Weighted average interest rate at end of period...      3.51%      1.51%      0.75%
</TABLE>

Trust Services

         The Bank offers a variety of trust services including trust management,
estate  planning and  administration,  investment  counseling and management and
retirement  planning.  The Bank  serves as  trustee  for  testamentary,  living,
irrevocable and charitable trusts,  administers  investment  agencies,  employee
benefit plans, guardianships, special needs trusts and offers separately managed
accounts.  The Bank's fees for these  services are generally a percentage of the
assets under management. As of December 31, 2005, the Bank had $115.1 million in
assets under  management  compared to $110.0  million at December 31, 2004.  The
increase in assets under  management  in 2005 was  primarily  due to increase in
401(k)  plans.  For the year ended  December  31,  2005,  the Bank had income of
$455,000 from its trust services.

Personnel

         As of December  31,  2005,  the  Registrant  had 186  full-time  and 53
part-time  employees.  None of the  Registrant's  employees are represented by a
collective bargaining group.

                                       16

<PAGE>

                           SUPERVISION AND REGULATION

Regulation of the Company

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

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

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

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

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

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

                                       17

<PAGE>

lengthy list of  activities  that the Federal  Reserve has  determined  to be so
closely related to the business of banking as to be a proper incident thereto.

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

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

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

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

Regulation of the Bank

         General.  As a  Pennsylvania-chartered  commercial  bank with  deposits
insured by the Federal Deposit  Insurance  Corporation  which is not a member of
the Federal Reserve, the Bank is subject to extensive regulation and examination
by the Pennsylvania  Department of Banking and by the Federal Deposit  Insurance
Corporation,  which insures its deposits to the maximum extent permitted by law.
The federal and state laws and regulations  applicable to banks regulate,  among
other  things,  the scope of their  business,  their  investments,  the reserves
required  to be  kept  against  deposits,  the  timing  of the  availability  of
deposited funds

                                       18

<PAGE>

and the nature and amount of and  collateral  for  certain  loans.  The laws and
regulations  governing  the Bank  generally  have been  promulgated  to  protect
depositors and not for the purpose of protecting  stockholders.  This regulatory
structure also gives the federal and state banking agencies extensive discretion
in connection with their supervisory and enforcement  activities and examination
policies,  including  policies with respect to the  classification of assets and
the  establishment of adequate loan loss reserves for regulatory  purposes.  Any
change in such regulation,  whether by the  Pennsylvania  Department of Banking,
the Federal Deposit Insurance  Corporation or the United States Congress,  could
have a material impact on the Company and its operations.

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

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

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

         Federal Deposit Insurance. The Federal Deposit Insurance Corporation is
an  independent  federal  agency that  insures the  deposits,  up to  prescribed
statutory  limits,  of  federally  insured  banks and savings  institutions  and
safeguards the safety and soundness of the banking and savings  industries.  The
Federal Deposit Insurance Corporation  administers two separate insurance funds,
the Bank Insurance  Fund,  which  generally  insures  commercial  bank and state
savings  bank  deposits,  and the  Savings  Association  Insurance  Fund,  which
generally insures savings association deposits. The Bank is a member of the Bank
Insurance  Fund and its deposit  accounts  are  insured by the  Federal  Deposit
Insurance Corporation, up to prescribed limits.

         The Federal  Deposit  Insurance  Corporation is authorized to establish
separate  annual  deposit  insurance  assessment  rates for  members of the Bank
Insurance  Fund and the  Savings  Association  Insurance  Fund,  and to increase
assessment rates if it determines such increases are appropriate to maintain the
reserves of either  insurance fund. In addition,  the Federal Deposit  Insurance
Corporation  is  authorized  to  levy  emergency  special  assessments  on  Bank
Insurance  Fund and Savings  Association  Insurance  Fund  members.  The Federal
Deposit Insurance  Corporation's deposit insurance premiums are assessed through
a risk-based

                                       19

<PAGE>

system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital  and  supervisory   evaluation,   with  the  assessment  rate  for  most
institutions set at 0%.

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

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

         The FDIC will be  authorized  to set the reserve  ratio for the Deposit
Insurance Fund annually at between 1.15% and 1.5% of estimated insured deposits.
If the Deposit  Insurance  Fund's reserves exceed the designated  reserve ratio,
the FDIC is required to pay out all or, if the reserve  ratio is less than 1.5%,
a portion of the excess as a dividend to insured  depository  institutions based
on the  percentage  of insured  deposits  held on December 31, 1996 adjusted for
subsequently  paid  premiums.  Insured  depository  institutions  that  were  in
existence on December 31, 1996 and paid assessments prior to that date (or their
successors) are entitled to a one-time credit against future  assessments  based
on their past contributions to the BIF or SAIF.

         Regulatory   Capital   Requirements.   The  Federal  Deposit  Insurance
Corporation has promulgated  capital adequacy  requirements for  state-chartered
banks  that,  like the Bank are not members of the Federal  Reserve  System.  At
December 31, 2005, the Bank exceeded all regulatory capital requirements and was
classified as "well capitalized."

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

         The Federal Deposit  Insurance  Corporation's  regulations also require
that state-chartered,  non- member banks meet a risk-based capital standard. The
risk-based  capital standard requires the maintenance of total capital (which is
defined as Tier 1 capital and  supplementary  (Tier 2) capital) to risk weighted
assets of 8%. In determining  the amount of  risk-weighted  assets,  all assets,
plus certain off balance sheet assets,

                                       20

<PAGE>

are  multiplied by a risk-weight  of 0% to 100%,  based on the risks the Federal
Deposit  Insurance  Corporation  believes  are  inherent in the type of asset or
item. The components of Tier 1 capital for the risk-based standards are the same
as those for the leverage capital  requirement.  The components of supplementary
(Tier  2)  capital  include  cumulative  perpetual  preferred  stock,  mandatory
subordinated  debt,  perpetual  subordinated debt,  intermediate-term  preferred
stock, up to 45% of unrealized gains on equity securities and a bank's allowance
for loan and lease  losses.  Allowance  for loan and lease losses  includable in
supplementary  capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall,  the amount of  supplementary  capital  that may be  included  in total
capital is limited to 100% of Tier 1 capital.

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

         The Bank is also subject to minimum capital requirements imposed by the
Pennsylvania   Department  of  Banking  on   Pennsylvania-chartered   depository
institutions.   Under  the   Pennsylvania   Department   of  Banking's   capital
regulations,  a  Pennsylvania  bank or  savings  bank  must  maintain  a minimum
leverage ratio of Tier 1 capital (as defined under the Federal Deposit Insurance
Corporation's  capital  regulations)  to total  assets of 4%. In  addition,  the
Pennsylvania  Department of Banking has the supervisory  discretion to require a
higher  leverage  ratio  for  any  institutions   based  on  the   institution's
substandard  performance in any of a number of areas. The Bank was in compliance
with  both  the  Federal  Deposit  Insurance  Corporation  and the  Pennsylvania
Department of Banking capital requirements as of December 31, 2005.

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

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

         As a member,  it is  required  to purchase  and  maintain  stock in the
Federal  Home  Loan  Bank of  Pittsburgh  in an  amount  equal  to  4.55% of its
outstanding  residential  mortgage  loans  plus  0.55%  of  its  unused  maximum
borrowing  capacity.  At December 31, 2005, the Bank was in compliance with this
requirement.

         Federal  Reserve System.  The Federal  Reserve  requires all depository
institutions  to maintain non-  interest  bearing  reserves at specified  levels
against their  transaction  accounts  (primarily  checking and NOW accounts) and
non-personal  time  deposits.  The  balances  maintained  to  meet  the  reserve
requirements

                                       21

<PAGE>

imposed by the Federal Reserve may be used to satisfy the liquidity requirements
that are imposed by the  Department.  At  December  31,  2005,  the Bank met its
reserve requirements.

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

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

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

         Our  commercial  loan  portfolio,  including  real estate and  non-real
estate loans, was $146.9 million at December 31, 2005, comprising 32.9% of total
loans. Commercial loans generally involve a greater degree of risk of nonpayment
or late  payment  than home equity  loans or  residential  mortgage  loans.  Any
significant  failure to pay or late  payments  by our  customers  would hurt our
earnings.  The increased  credit risk  associated with these types of loans is a
result of several factors, including the concentration of principal in a limited
number of loans and borrowers, the size of loan balances, the effects of general
economic conditions on income-producing  properties and the increased difficulty
of  evaluating  and  monitoring  these  types of loans.  A number of factors may
affect a borrower's  ability to make or refinance a balloon  payment,  including
the  financial  condition  of  the  borrower,   the  prevailing  local  economic
conditions and the prevailing interest rate environment.

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

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

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

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

         The risk of loan  losses  varies  with,  among  other  things,  general
economic  conditions,  the type of loan being made, the  creditworthiness of the
borrower  over the term of the loan and, in the case of a  collateralized  loan,
the value of the collateral for the loan.  Based upon factors such as historical
experience,  an  evaluation  of  economic  conditions  and a  regular  review of
delinquencies  and  loan  portfolio   quality,   our  management  makes  various
assumptions  and  judgments  about  the  ultimate  collectibility  of  the  loan
portfolio and provides

                                       22

<PAGE>

an allowance  for loan losses.  At December 31,  2005,  our  allowance  for loan
losses  was $3.6  million  which  represented  0.80% of total  loans and 400% of
nonperforming  loans. If our management's  assumptions and judgments prove to be
incorrect  and the  allowance  for loan losses is  inadequate  to absorb  future
credit  losses,  or if the  bank  regulatory  authorities  require  the  Bank to
increase its allowance for loan losses,  our earnings could be significantly and
adversely affected.

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

Future changes in interest rates may reduce our profits.

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

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

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

If more interest-earning  assets than  interest-bearing  liabilities re-price or
mature during a time when interest  rates are  declining,  then our net interest
income   may   be   reduced.   If   more   interest-bearing   liabilities   than
interest-earning assets re-price or mature during a time when interest rates are
rising,  then our net interest income may be reduced.  At December 31, 2005, our
interest-earning  liabilities maturing or repricing within one year exceeded our
interest-bearing  assets maturing or repricing within one year by $71.8 million.
As a result, the yield on our  interest-earning  assets should adjust to changes
in  interest  rates at a  faster  rate  than  the  cost of our  interest-bearing
liabilities  and our net  interest  income may be reduced  when  interest  rates
decrease significantly for long periods of time.

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

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

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

         The Company has adopted a shareholder rights plan pursuant to which the
Company has  distributed to each  shareholder of record one right for each share
held. The rights do not become  exercisable until a person (other than an exempt
person)  acquires  beneficial   ownership  of  10%  or  more  of  the  Company's
outstanding  common  stock or  commences a tender or  exchange  offer that would
result in the person

                                       23
<PAGE>

becoming a 10% or greater  beneficial  owner (an  "Acquiring  Person").  In that
event,  each rights holder other than the  Acquiring  Person will be entitled to
purchase  shares of the  Company's  common stock having value equal to twice the
exercise price of the rights.  In the event the Company merges with an Acquiring
Person or an affiliate or associate of the Acquiring Person,  the rights entitle
holders  other than the  Acquiring  Person to purchase a similar  amount of that
entity's stock at half price. The effect of the shareholder rights plan would be
to  significantly  dilute the  ownership of an Acquiring  Person which may deter
persons from accumulating large positions in our common stock.

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

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

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

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

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

         Not applicable.

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

         At December 31, 2005, the Registrant operated from its main office, six
branch  offices and four  supermarket  branch offices and two loan offices and a
trust office, all located in southwestern Pennsylvania. The total net book value
of the  Registrant's  investment in premises and equipment at December 31, 2005,
was approximately  $5.6 million.  The main office of the Company and of the Bank
and three branch  offices are owned by the Bank and the  remaining  three branch
offices,  four supermarket  branch offices,  and the Bank's trust division and a
loan center,  are leased by the Bank.  These leases have initial terms of one to
twenty years, and all leases contain renewal options for additional periods of 1
to 5 years.

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

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

                                       24

<PAGE>

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended December 31, 2005.

                                     Part II

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

         (a) Market for  Common  Equity.  The  information  contained  under the
section  captioned  "Stock  Market  Information"  in the 2005  Annual  Report to
Stockholders  (the "Annual  Report") is  incorporated  herein by reference.  The
Registrant did not sell any equity securities that were not registered under the
Securities Act of 1933 during the period under report.

         (b) Use of Proceeds. Not applicable

         (c) Issuer Purchase of Equity Securities. Not applicable.

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

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

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

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

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

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

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

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

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

         Not applicable.

                                       25

<PAGE>

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

         (a)      Disclosure Controls and Procedures

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

         (b)      Internal Control Over Financial Reporting

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

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

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

         Not applicable.

                                    Part III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

         The information  contained under the sections  captioned "Section 16(a)
Beneficial  Ownership  Reporting  Compliance"  and  "Proposal  I --  Election of
Directors" and "--  Biographical  Information" in the definitive Proxy Statement
for the 2006 Annual Meeting of Stockholders  ("Proxy Statement") is incorporated
herein by reference.

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

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

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

                                       26

<PAGE>

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

         (a)      Security Ownership of Certain Beneficial Owners

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

         (b)      Security Ownership of Management

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

         (c)      Changes in Control

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

         (d)  Securities Authorized for Issuance Under Equity Compensation Plans

         Set forth below is  information as of December 31, 2005 with respect to
compensation   plans  under  which  equity  securities  of  the  Registrant  are
authorized for issuance.

<TABLE>
<CAPTION>
                                           EQUITY COMPENSATION PLAN INFORMATION
                                            (a)                   (b)                     (c)
                                                                                  Number of securities
                                   Number of securities    Weighted-average      remaining available for
                                     to be issued upon     exercise price of      future issuance under
                                        exercise of           outstanding       equity compensation plans
                                   outstanding options,    options, warrants      (excluding securities
                                   warrants and rights        and rights        reflected in column (a))
                                   --------------------       ----------        ------------------------
<S>                                      <C>                   <C>                      <C>
Equity compensation plans
approved by shareholders:
2000 Stock Option Plan...........         87,271                $30.86                   150,000
Equity compensation plans
not approved by shareholders.....            --                    --                       --
                                          ------                ------                   -------
     TOTAL.......................         87,271                $30.86                   150,000
                                          ======                ======                   =======
</TABLE>

<PAGE>

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

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

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

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

                                     Part IV

Item 15.  Exhibits, Financial Statements

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

                  1.       The consolidated statements of financial condition of
                           IBT Bancorp,  Inc. and  subsidiary as of December 31,
                           2005  and   2004,   and  the   related   consolidated
                           statements of income, changes in stockholders' equity
                           and  cash   flows  for  each  of  the  years  in  the
                           three-year  period ended December 31, 2005,  together
                           with the related notes and the independent  auditors'
                           report of Edwards  Sauer & Owens,  P.C.,  independent
                           registered public accounting firm.

                  2. Schedules omitted as they are not applicable.
<TABLE>
<CAPTION>

                  3.       Exhibits
                        <S>      <C>
                            3(i)   Articles of Incorporation of IBT Bancorp, Inc.*
                            3(ii)  Amended  Bylaws of IBT  Bancorp,  Inc.**
                            4.1    Rights Agreement, dated as of November 18, 2003 by and between IBT
                                   Bancorp, Inc. and Registrar and Transfer Company***
                           10 +    Change In Control Severance Agreement with Charles G. Urtin****
                           10.1 +  Deferred Compensation Plan For Bank Directors****
                           10.2 +  Death Benefit Only Deferred Compensation Plan For Bank Directors
                                   effective as of January 1, 1990****
                           10.3 +  Retirement and Death Benefit Deferred Compensation Plan For
                                   Bank Directors effective as of January 1, 1990****
                           10.4 +  2000 Stock Option Plan*****
                           10.5 +  Irwin Bank & Trust Company Supplemental Pension Plan******
                           10.6 +  Medical Insurance Continuation Agreement with Charles G. Urtin*******
                           13      Portions of the 2005 Annual Report to Shareholders
                           21      Subsidiaries
                           23      Consent of Edwards, Sauer & Owens, P.C.

                                       28

<PAGE>

                           31.1    Rule 13a-14(a) Certification of Chief Executive Officer
                           31.2    Rule 13a-14(a) Certification of Chief Financial Officer
                           32      Section 1350 Certification
</TABLE>

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

                                       29

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 8, 2006.

                                          IBT BANCORP, INC.


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

         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this report has been signed below as of March 8, 2006 by  the following  persons
on behalf of the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
<S>                                                     <C>

/s/Charles G. Urtin                                           /s/Thomas E. Deger
--------------------------------------------                  -----------------------------------
Charles G. Urtin, President, Chief Executive                  Thomas E. Deger
Officer, and Director                                         Director
(Principal Executive Officer)

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

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

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

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

</TABLE>