IBT BANCORP INC.

Selected Financial Information
IBT Bancorp, Inc. & Subsidiary

<TABLE>
<CAPTION>
                                                                   At or for the Years Ended
                                                   --------------------------------------------------------
                                                     2002        2001        2000        1999        1998
                                                   --------    --------    --------    --------    --------
                                                         (Dollars in thousands, except per share amounts)
<S>                                               <C>         <C>         <C>         <C>         <C>
Selected Balance Sheet Data:
Assets                                             $584,035    $524,044    $496,379    $445,721    $412,366
Cash and cash equivalents                            15,066      25,219      21,746      19,264      43,396
Securities available for sale                       186,718     162,968     167,874     151,063     118,778
Securities held to maturity                              --          --          --          --       2,569
Loans receivable (net)                              359,872     315,132     291,914     260,502     238,304
Deposits                                            468,257     422,462     409,638     368,680     356,383
Repurchase agreements                                14,526      11,207       9,022       6,457          --
Federal funds purchased                                  --          --          --       7,000          --
FHLB advances                                        40,000      35,000      28,000      22,000      14,000
Shareholders' equity                                 56,151      49,725      44,615      37,905      38,201

Selected Results of Operations
Interest income                                    $ 33,560    $ 35,185    $ 33,787    $ 29,731    $ 27,768
Net interest income                                  20,732      18,226      17,200      16,087      15,182
Provision for loan losses                             1,100         500         300         300         300
Net interest income after provision
  for loan losses                                    19,632      17,726      16,900      15,787      14,882
Other income                                          5,317       4,009       2,946       2,764       2,093
Other expense                                        12,831      11,284      10,181       9,233       8,438
Net income                                            8,937       7,465       6,705       6,336       5,801

Per Share Data:
Net Income
  Basic                                            $   3.00    $   2.49    $   2.23    $   2.10    $   1.92
  Diluted                                              2.99        2.49        2.23        2.10        1.92
Cash dividends declared                                1.20        1.04        0.92        0.80        0.64

Selected Ratios:
Return on average assets                               1.61%       1.45%       1.44%       1.49%       1.54%
Return on average equity                              16.95%      15.57%      16.87%      16.54%      15.97%
Ratio of avg. equity to avg. assets                    9.47%       9.31%       8.52%       8.99%       9.63%
Dividend payout                                       40.00%      41.77%      41.26%      38.10%      33.33%
</TABLE>

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                        2 0 0 2 A N N U A L R E P O R T



A Message To Our Shareholders

Our financial performance.
2002 was truly a year of record-breaking  financial performance for IBT Bancorp,
Inc. Through its Irwin Bank and Trust Company  subsidiary,  IBT Bancorp achieved
significant  growth in assets,  strong  earnings and an  outstanding  efficiency
ratio.  As a result,  the value of our  shareholders'  investment in IBT Bancorp
stock improved  significantly.  The stock ended the year at $37.95 per share, an
increase of $9.45 per share or 33%. If dividends are included, the return on one
share of stock was 37%.  We are  pleased  to  provide  our  shareholders  with a
superior  return  on  their  investment.  Earnings  for  2002  increased  by  an
impressive 19.72%, to $2.99 per diluted share.  Dividends increased to $1.20 per
share, up 15% from 2001.

Interest rates, non-interest income and operating expenses.
The dominant  story for 2002 was the reduction in interest  rates.  From January
31,  2001 to November  6, 2002 the  Federal  Reserve cut the federal  funds rate
eleven  times,  from 6% to 1.25%.  Banks  responded by cutting the rates paid on
deposits  and the  rates  charged  for  loans.  By  year-end,  deposit  rates on
checking,  savings and money market  accounts were at historic  lows.  This left
little room for further adjustment against declining lending rates, causing what
is known as margin  compression.  Banks  nationwide  will be wrestling with this
condition  in 2003 as will this  Company.  Margin  compression  strains  the net
interest margin, a major component of net income.

In order to maintain or improve our  results it is  necessary  to manage  margin
compression,  increase  non-interest  income,  and continue to control operating
expenses. These objectives were a major influence on our decision-making in 2002
and will surely drive our thinking in 2003.  The Company  continues to emphasize
the addition of fee-based  services.  Debit cards and electronic banking are two
such products showing steady  increases in customer  popularity while generating
growth in non-interest  income. T/A of Irwin, our title insurance company formed
in 2000,  also  posted  strong  revenue,  due in part to the  record  number  of
mortgages closed in 2002. We will also continue to expand our Trust Division and
UVest Investment Services, providing our customers with alternative investments,
trusts, and pension plan administration.

Cost controls offer another positive impact on earnings,  and the Company excels
in this area. The Bank's overhead expense,  as a percentage of assets, was 2.25%
at September 30, 2002,  the most recent  measure.  According to data released by
the  FDIC  we  ranked  in the  18th  percentile  of  banks  in our  peer  group,
out-performing  82% of our peers.  For banks of our size the nationwide  average
for overhead expense is 3.02%.

Building on our success.
Although  we are  proud  of our  accomplishments  in  2002,  it is of  strategic
importance to analyze why we were  successful and develop a strategy to build on
that  success.  As Irwin Bank  continues  to grow,  challenges  emerge in how to
manage the  growing  enterprise.  We need to remain  focused on the needs of our
customers while maintaining the effectiveness of our leadership,  technology and
staffing. In 2002, we took steps to address these challenges.  First, the senior
management  organization  was  re-structured  to  better  focus on our three key
objectives of

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                            I B T   B A N C O R P   I N C


lending,  operations  and finance.  Second,  we continued to recruit,  train and
promote  where  needed to  effectively  fill and  improve  these and other staff
positions.  Third,  we improved our level of service to our  customers  with new
technology  and  training.  Fourth,  we addressed  the needs of the community by
providing both outstanding product value and significant financial and volunteer
contributions to many organizations.

Adapting to change in the marketplace.
2002 brought about major changes in our  marketplace  defined by several mergers
and  acquisitions  among our  competitors.  In order to  better  understand  the
impact of these events,  we conducted surveys of customers and non-customers for
their  opinions.  Their  overwhelming  response was that the Company's role as a
local banking institution is significant.  They also validated the fact that the
Irwin Bank and Trust Company  brand is built on our  commitment to the community
and on the personal service provided by our employees. As the cornerstone of our
marketing  strategy  we remain  committed  to  providing  our current and future
customers with the local banking relationship that is important to them.

We look forward to 2003 with much excitement and confidence. We will be offering
new products, improved technologies and an expanded presence in the marketplace.
In spite of pressure on the national economy,  Irwin Bank is uniquely positioned
for continued success and growth.


/s/Charles G. Urtin
Charles G. Urtin
President & Chief Executive Officer
IBT Bancorp, Inc.


/s/J. Curt Gardner
J. Curt Gardner
Chairman of the Board
IBT Bancorp, Inc.
<PAGE>
                        2 0 0 2   A N N U A L   R E P O R T


For our customers - improving skills, technology, and service.
Rather than rest on our  laurels,  we are taking  steps to build on success.  In
2002, Branch Managers participated in the Stickler Training Program for customer
service  and  sales  performance  development.  Also  in  2002,  on-line  teller
technology  was  implemented to give our tellers access to a wealth of real-time
account  information  to  better serve the customer.  Among the benefits for the
customer is the immediate verification of funds availability.  We  also improved
our  internet web site by  launching a unique  information  "portal" on our home
page and by adding  on-line  loan  application  capability.  The  result is more
convenience for our customers.

For our communities - broad support both financially and professionally.
Irwin  Bank  continues  to help weave the fiber of the  community.  Last year we
provided  financial support through grants,  donations and sponsorships  to over
200  public  safety,  school,  sporting,  social,  service  and  special  events
organizations.  Irwin Bank employees  contributed hundreds of hours of volunteer
time to these groups as well. We also feel an obligation to provide  outstanding
product  value  and  exceptional  service  as  part  of  our  community  banking
philosophy.  After all, we are  responsible  for helping our  customers  achieve
their piece of the American  dream  including  home  ownership,  prosperity  and
financial security.

                               [PICTURE OMITTED]

Keeping  abreast of  technology  is an  ongoing  management  priority.  In 2002,
"on-line" teller capability provided a good example of how the company is adding
new technology to improve customer service, productivity and efficiency.

                               [PICTURE OMITTED]

When  asked if it is  important  that  Irwin  Bank is a local,  community  bank,
customers  surveyed in 2002 responded with a resounding "YES"!  Supporting other
community  institutions  and  organizations  is one way the Bank  fulfills  this
responsibility in the communities it serves.

In 2002,  the Irwin Bank and Trust  Company  home page became a portal  offering
quick access to banking services and a new list of local  information.  The page
offers direct links to IBT e-link, UVest investments, trust accounts and product
information.  Dozens of local information  resources are now available including
local news,  weather,  stocks, and school  information.  The addition of on-line
loan  application has extended our marketing  reach with the internet  customer.
Monthly visits to www.myIrwinBank.com increased 62% in 2002 as a result.

<PAGE>
                           I B T   B A N C O R P   I N C

Adapting to growth:  a new senior management structure.
As Irwin  Bank  continues  to grow,  its  management  environment  becomes  more
complex.  To  keep  pace  with  this  challenge,  three  new  senior  management
positions were  established in 2002.  Management  objectives were focused on the
three key areas of lending,  operations  and finance.  Robert Bowell assumed the
position of Chief Lending  Officer,  responsible  for  Irwin Bank's consumer and
commercial  lending.  David  Finui  was  named  Chief  Operations  Officer  with
responsibility for retail,  branch and data processing  operations including the
Trust and Uvest  investment  divisions.  Raymond  Suchta,  was hired to fill the
position of Chief Financial  Officer,  responsible  for  shareholder  relations,
Securities and Exchange Commission  compliance,  asset and liability  management
and bank accounting.

Irwin Bank and Trust Company Officers

J.Curt Gardner, Chairman of the Board
Charles G. Urtin, President / Chief Executive Officer
Robert A. Bowell, Executive Vice President /
     Secretary-Treasurer / Chief Lending Officer
David A. Finui, Senior Vice President /
     Chief Operations Officer
Raymond G. Suchta, CPA, Vice President /
     Chief Financial Officer
Leslie F. Petras, Senior Vice President / Commercial Lending
Wayne J. Brentzel, Vice President / Branch Administration /
     Business Development
Scott J. Fisher, Vice President / Trust
Jay Gordon, Vice President / Commercial Lending
Alan Lazar, Vice President / Commercial Lending
Joseph A. Mignogna, Vice President / Compliance Officer
John J. Minkel, Vice President / Consumer Lending
Scott D. Porterfield, Vice President / Commercial Lending
Stacey G. Winfield, Vice President / Commercial Lending
Barbara A. Burzio, Assistant Vice President /
     Commercial Lending
Lisa A. Dawson, Assistant Vice President / Collections
Barbara DelBene, Assistant Vice President /
     Branch Manager - White Oak
Keith Frid, Assistant Vice-President / Auditor
Beverly A. Hahn, Assistant Vice President /
     Branch Manager - Penn Township
Donald D. Henderson III, Assistant Vice President /
     Operations
Debra S. Hopper, Assistant Vice-President /
     Human Resources
Nancy J. McCullough, Assistant Vice President /
     Branch Manager - Route 30
Robert G. Michaud, Assistant Vice President / Marketing
Darwin H. Poole, Assistant Vice President / Data Processing
Kristin S. Robertucci, Assistant Vice President /Accounting
Nancy A. Smith, Assistant Vice President / Mortgage Lending
Linda D. Shaner, Assistant Vice President /
     Branch Manager - Haymaker Village
Georganne L. Shuster, Assistant Vice President /
     Commercial Lending
Thomas R. Stephenson, Assistant Vice-President /
     Loan Review
Gene Bender, Assistant Trust Officer
Carolyn Sue Bozzick, Consumer Loan Officer
Sheli L. Fyock, Assistant Secretary / Marketing Officer
Maurine J. Peer, Retail Banking Officer / Main Office
Denise Y. Poole, Operations Officer
Sandra L. Schwaderer, Retail Banking Officer, Pitcairn

                               [PICTURE OMITTED]

Raymond G. Suchta       Robert A. Bowell        David A. Finui
              Charles G. Urtin
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                        2 0 0 2   A N N U A L   R E P O R T

Success is driven by our people.
Irwin Bank and Trust  Company's  performance  could not be  achieved  without an
exceptional effort from each and every employee.  The Company's success reflects
the spirit of dedication our employees  bring to work each day and the hard work
that results from it. In recently conducted  surveys,  our customers told us how
much they like this Bank and the people who work here.

In addition,  the Pennsylvania  Bankers Association recently inducted six of our
employees into the 40 Year Club.  These employees were recognized for serving 40
or more years in the  Pennsylvania  banking  industry and  maintaining a regular
membership in the PBA. The inductees are: Wayne J. Brentzel 42 years in banking,
William C. Davies (since retired) 45 years in banking,  J. Curt Gardner (current
Chairman of the Board) 40 years in banking, Beverly A. Hahn 41 years in banking,
Nancy J. McCullough 42 years in banking, Joseph A. Mignogna 40 years in banking.

We are proud to honor  these  employees  for their many  years of  distinguished
service to Pennsylvania banking.

We are also pleased to recognize our officers who achieved higher rank and those
who joined Irwin Bank and Trust Company last year.

                               [PICTURES OMITTED]

Promotions & New Hires
Robert A. Bowell (opposite page)
Executive Vice President/CLO
Promoted January, 2002

David A. Finui (opposite page)
Senior Vice President/COO
Promoted January, 2002

Raymond G. Suchta (opposite page)
Vice President/CFO
Hired January, 2002

1)  Carolyn Sue Bozzick
    Consumer Loan Officer
    Promoted April, 2002

2)  Barbara A. Burzio
    Assistant Vice President/
    Commercial Lending
    Hired February, 2002

3)  Barbara J. DelBene
    Assistant Vice President/
    Branch Manager -White Oak Office
    Promoted April, 2002

4)  Mary Ann Ernette
    Investment Consultant/
    UVEST Investment Services
    Hired June, 2002

5)  Scott D. Porterfield
    Vice President/Commercial Lending
    Hired November, 2002

6)  Scott J. Fisher
    Vice President/Trust Officer
    Hired February, 2002

7)  Robert G. Michaud
    Assistant Vice President/Marketing
    Promoted April, 2002

8)  Sandra L. Schwaderer
    Retail Banking Officer/
    Branch Manager-Pitcairn Office
    Promoted April, 2002

9)  Linda D. Shaner
    Assistant Vice President/
    Branch Manager - Haymaker Office
    Hired April, 2002

10) Georganne L. Shuster
    Assistant Vice President/
    Commercial Lending
    Hired July, 2002

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                           I B T   B A N C O R P   I N C

                               [PICTURE OMITTED]

Serving as the financial  institution for several  government and organizational
entities is an  important  responsibility  in which we take great  pride.  These
relationships offer testimony to the capabilities of our systems and our staff.

                               [PICTURE OMITTED]

The deposit processing and cash management needs of merchants can be fast-paced,
diverse and  aggressive.  We continue  to seek out and add new  capabilities  to
provide the highest level of service to our commercial clients.

Commercial banking services
Several Western Pennsylvania community banks have recently changed hands through
mergers and  acquisitions.  This has  resulted  in Irwin Bank and Trust  Company
gaining  attention as a leader in providing  the local banking  relationship  so
many businesses  desire. The Company is highly respected as a regional financial
institution  that is small  enough  to still  connect  with its  customers.  Two
examples  bear this out:  First,  a growing  list of  municipalities  and school
districts  have been  attracted to Irwin Bank and Trust  Company for banking and
financial  services.  These large institutions  recognize the Bank as skilled in
providing  the value and service  they expect and  deserve.  Second,  the Bank's
Trust  Division  continues to grow on its reputation for competence and its high
level of service and commitment to smaller trust relationships.

Irwin Bank and Trust Company  continues to expand its capabilities in commercial
banking  and  lending  while  expanding  its  market  reach  throughout  Western
Pennsylvania.  In addition to  satisfying  the  traditional  lending and deposit
needs of its customers,  several other commercial banking solutions are offered.
For higher volume deposit customers,  the Bank's operations staff can review the
specific  transaction  patterns  for each  client  and  custom-tailor  a banking
solution to best fit those needs. This service is called Account Analysis and it
includes a variety of diverse  capabilities  including ACH, cash and receivables
deposit options, and internet banking solutions.  Cash Management is another way
that the Bank  services  its  larger  depositors  through  the  convenience  and
interest-bearing  benefits of sweep accounts which automatically move funds from
multiple accounts into and out of overnight investment instruments.

To improve customer cash flow, Irwin Bank

<PAGE>
                        2 0 0 2   A N N U A L   R E P O R T


and Trust Company offers Business Manager, a service that turns receivables into
cash.  As an  alternative  to  traditional  lending,  the  Company  also  offers
equipment  leasing.  These  capabilities  are  overviewed  in a  new  Commercial
Services Guide created by the Company in 2002.

A strong performance in real estate financing and installment lending
The low interest rate  environment in 2002 provided a big  opportunity for Irwin
Bank and Trust  Company to service  the  lending  needs of its  customers.  Real
estate  loans led the way,  with a record  number of  mortgages  and  refinances
continuing  throughout the year. Consumer installment loan volume was also high,
although somewhat offset by the payoff of existing,  higher rate loans. A strong
increase in lines of credit,  both in number and in utilization,  helped make up
the difference. Consumer response to the aggressive promotion of lines of credit
in the fourth  quarter was  noteworthy,  highlighted  by a steady and increasing
number of  applications  being  received  on-line  from the Irwin Bank  internet
website.  The Bank's lending  department put forth an exceptional  effort in the
origination,  processing  and  closing  of 2002's  record  volume  of  activity,
providing  another  example of how  dedicated  the Bank's  employees  are to its
customers.

At a glance,  all of these  financial  services  represent the essence of modern
banking.  As a Community Bank,  however, we like to think of it as servicing the
progress  and  growth of Western  Pennsylvania  and the  financial  needs of its
citizens.

                               [PICTURE OMITTED]

Commercial lending fuels the engine of economic progress. When the job calls for
capital expansion of facilities or equipment, our Business Relationship Managers
find a way and have the tools to "make it happen".

                               [PICTURE OMITTED]

The region is currently enjoying growth in new residential construction, and the
Bank is providing financing for developers and home-builders. Low interest rates
in 2002 brought many buyers to these new homes,  and a record  number of new and
refinanced mortgages to the Bank.

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                           I B T   B A N C O R P   I N C


                               [PICTURE OMITTED]

IBT Bancorp, Inc. Board of Directors

(Back row:) Charles G. Urtin,  President / CEO, Edwin A. Paulone,  Director, Dr.
Grant J.  Shevchik,  Director,  Robert  Rebich,  Director,  Robert  C.  Whisner,
Director,  Richard J. Hoffman, Director, (Front row:) Richard L. Ryan, Director,
Thomas Beter, Director, J. Curt Gardner, Chairman

IBT Bancorp Management

J. Curt Gardner,  Chairman, Charles G. Urtin, President / CEO, Robert A. Bowell,
Executive Vice  President /  Secretary-Treasurer,  Raymond G. Suchta,  CPA, Vice
President / Chief Financial Officer

                               [PICTURE OMITTED]

                     William D. Fawcett, Director Emeritus

In 2002,  Mr.  Fawcett  was  named  Director  Emeritus  in  recognition  for his
outstanding  contribution  to the Company during his 19 year tenure on the Board
of  Directors.  Mr.  Fawcett is President of the  Lee-Thompson-Fawcett  Company,
which sells over 700 food products in 14 states under the "Bell View" brand.

<PAGE>

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

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

GENERAL

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

FINANCIAL CONDITION

     At December 31, 2002,  total assets  increased $60.0 million,  or 11.5%, to
$584.0  million from $524.0  million at December 31, 2001. The increase in total
assets  was  primarily  the  result  of a $45.1  million  increase  in net loans
receivable and a net increase of $23.8 million in securities available for sale.
Such  increases were  partially  offset by a $10.1 million  decrease in cash and
cash  equivalents.  The growth in total deposits of $45.8 million and additional
FHLB advances of $5.0 million were used primarily to fund the growth in the loan
portfolio and for the purchase of available for sale securities.

     The increase in available for sale securities was the result of investments
in obligations of U.S. government agencies and mortgage related securities. Such
investments  were short-term fixed rate and amortizing  securities,  positioning
the portfolio should interest rates increase while maintaining ample liquidity.

     The increase in the loan  portfolio  was primarily the result of the growth
of fixed  rate  one-to  four-family  mortgage  loans,  multi-family  properties,
commercial  mortgages,  and loans made to municipalities of $5.4 million,  $11.1
million,  $17.3  million,  and $5.8 million,  respectively.  The loan  portfolio
continues to grow due to the Company's  offering of competitive  market interest
rates.

     At December 31, 2002, total liabilities  increased $53.6 million, or 11.3%,
to $527.9  million from $474.3  million at December  31, 2001.  The increase was
primarily  related to the increase in total deposits of $45.8  million.  Of this
increase,  non-interest  bearing and  interest-bearing  deposits  increased $4.2
million  and $41.6  million,  respectively.  The  increase  in  interest-bearing
deposits  resulted  mainly from increases in certificates of deposit and savings
accounts of $27.4 million and $8.1 million,  respectively.  Such  increases were
the result of a growing deposit base and competitive pricing.

     Non-interest  bearing  deposits  increased $4.2 million to $74.3 million at
December  31,  2002 from $70.1  million at December  31,  2001.  Such  increases
reflect  additions to  non-interest  bearing  deposits of $7.5 million offset by
$3.3 million in investments in repurchase agreements at December 31, 2002. Under
the terms of the  agreements,  deposits  in  designated  demand  accounts of the
customer are put into an  investment  vehicle which is used daily to purchase an
interest in designated U.S. Government or Agencies'  securities.  The Company in
turn  agrees  to  repurchase  these  investments  on a daily  basis  and pay the
customers the daily interest earned based on the current market rate. See Note 8
to the consolidated financial statements.

     At December 31, 2002, total stockholders'  equity increased $6.5 million to
$56.2  million  from $49.7  million at  December  31,  2001.  The  increase  was
primarily  due to net income of $8.9  million for the period and a $1.4  million
increase in accumulated other comprehensive income (net of income taxes), offset
by the  purchase  of  $258,000  of Company  stock,  and  dividends  paid of $3.6
million. Accumulated other comprehensive income increased as a result of changes
in the  net  unrealized  gain  on  the  available  for  sale  securities  due to
fluctuations  in  interest  rates.  Because of  interest  rate  volatility,  the
Company's  accumulated other comprehensive income could materially fluctuate for
each  interim  period and  year-end.  See Note 2 to the  consolidated  financial
statements.

                                       1
<PAGE>

ANALYSIS OF NET INTEREST INCOME

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

RESULTS OF OPERATIONS

     Net Income: Net income increased  approximately $1.4 million,  or 19.7%, to
$8.9 million for the year ended December 31, 2002 from $7.5 million for the year
ended  December 31, 2001. The increase in net income for fiscal 2002 compared to
fiscal 2001 was primarily due to a $1.9 million  increase in net interest income
after  provision  for loan  losses.  The  increase  in net income was  primarily
attributable   to  a  $31.0  million   increase  in  the  average   balances  of
interest-earning  assets  offset by a  73-basis  point  decline  in the yield on
average interest earning assets.

     At December 31,  2001,  net income  increased  approximately  $760,000,  or
11.3%,  to $7.5 million from $6.7 million for the year ended  December 31, 2000.
The increase in net income for fiscal 2001 compared to fiscal 2000 was primarily
due to an $800,000  increase in net  interest  income after  provision  for loan
losses. Such increase was primarily  attributable to a $49.9 million increase in
the average  balances  of interest  earning  assets  offset by a 16-basis  point
decline in the yield on average interest earning assets.

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

     Net interest income  increased $2.5 million,  or 13.7% to $20.7 million for
2002 compared to $18.2  million for 2001.  The increase was primarily due to the
increase in average loans of $33.5  million and average  other  interest-earning
assets  (primarily  federal funds sold) of $1.2 million  offset by a decrease in
average investment securities available for sale of $3.8 million and a 73- basis
point decrease in the yield on average interest earning assets to 6.38% for 2002
from  7.11% for 2001.  The  decrease  in the yield on average  interest  earning
assets was primarily the result of yield  decreases in average loans and average
investment securities of 69-basis points and 86-basis points, respectively.  The
decrease  in the  average  yields  reflects  the  changes in the  interest  rate
environment including the Federal Reserve easing of interest rates during fiscal
2002.  Average  interest-bearing  liabilities  increased $29.4 million in fiscal
2002 offset by a 126-basis  point  decrease in the average  cost of funds.  As a
result,  the interest rate spread for fiscal 2002 increased  53-basis  points to
3.38% from 2.85% in fiscal 2001.

     Net interest income  increased $1.0 million,  or 5.8%, to $18.2 million for
2001 compared to $17.2  million for 2000.  The increase was primarily due to the
increase in average  loans of $24.6  million and average  investment  securities
available for sale of $17.9 million  offset by a 48-basis  point decrease in the
yield on average  interest earning assets to 7.11% for 2001 from 7.59% for 2000.
The decrease in the yield on average  interest  earning assets was primarily the
result of yield decreases in average loan and average  investment  securities of
16-basis points and 81-basis points,  respectively.  Such decreases  reflect the
effects  of the  interest  rate  environment.  Though  average  interest-bearing
liabilities  increased $35.3 million in fiscal 2001,  interest  expense remained
relatively unchanged from fiscal 2000 due to a 32-basis point decline in average
cost of funds in fiscal 2001.

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

                                       2
<PAGE>
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                              -------------------------------------------------------------------------------------------------
                                           2002                                  2001                      2000
                              -------------------------------  -------------------------------  -------------------------------
                                                     Average                          Average                          Average
                                Average              Yield/      Average              Yield/      Average              Yield/
                                Balance    Interest   Cost       Balance    Interest   Cost       Balance    Interest   Cost
                              ---------- ----------  --------  ---------- ----------  --------  ---------- ----------  --------
                                                                     (Dollars in Thousands)
<S>                          <C>          <C>        <C>      <C>         <C>        <C>       <C>         <C>        <C>
Interest-earning assets:
   Loans receivable    (1)     $337,600     $24,687     7.31%   $304,080    $24,320      8.00%   $279,400    $22,808      8.16%
   Investment securities
     available for sale (2)     173,472       8,615     4.97%    177,263     10,337      5.83%    159,394     10,578      6.64%
   Investment securities
     held to maturity                 -           -        -           -          -         -           -          -
   Other interest-earning
     assets (5)                  15,086         258     1.71%     13,850        527      3.81%      6,464        401      6.20%
                               --------     -------     ----    --------    -------      ----    --------    -------      ----
     Total interest
       earning assets          $526,158     $33,560     6.38%   $495,193    $35,184      7.11%   $445,258    $33,787      7.59%

Non-interest earning
  assets (7)                     30,550                           20,404                           21,558
                               --------                         --------                         --------
     Total assets              $556,708                         $515,597                         $466,816
                               ========                         ========                         ========
Interest-bearing
liabilities:
   Money market accounts         60,735       1,234     2.03%     55,020      1,751      3.18%     56,079      2,275      4.06%
   Certificates of Deposit      208,789       7,935     3.80%    205,242     11,286      5.50%    182,465     10,364      5.68%
   Other liabilities            157,629       3,660     2.32%    137,481      3,921      2.85%    123,928      3,949      3.19%
                               --------     -------     ----    --------    -------      ----    --------    -------      ----
     Total interest-
       bearing liabilities     $427,153     $12,829     3.00%   $397,743    $16,958      4.26%   $362,472    $16,588      4.58%

Non-interest-bearing
  liabilities (7)                76,818                           69,904                           64,591
                               --------                         --------                         --------
    Total liabilities          $503,971                         $467,647                         $427,063
Retained Earnings (6)            52,737                           47,950                           39,753
                               --------                         --------                         --------
    Total liabilities and
      stockholders' equity     $556,708                         $515,597                         $466,816
                               ========                         ========                         ========
Net interest income                         $20,731                         $18,226                          $17,199
                                            =======                         =======                          =======
Interest rate spread (3)                                3.38%                            2.85%                            3.01%
                                                        ====                             ====                             ====
Net yield on interest-
  earning assets (4)                                    3.94%                            3.68%                            3.86%
                                                        ====                             ====                             ====
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                        123.18%                          124.50%                          122.84%
                                                      ======                           ======                           ======
</TABLE>
(1)  Average  balances include  non-accrual  loans, and are net of deferred loan
     fees.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest earning assets.
(5)  Includes federal funds sold.
(6)  Includes capital stock, surplus and accumulated other comprehensive income,
     less treasury stock.
(7)  For 2001, deferred taxes on increases in market value of available-for-sale
     securities  have  been  reclassified  to  conform  to  the  current  year's
     classifications.   This  reclassification  increased  non-interest  earning
     assets and non-interest bearing  liabilities,  stockholders' equity and net
     income were not effected.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                       Year Ended December 31,         Year Ended December 31,
                                     -----------------------------    -----------------------------
                                            2002 vs. 2001                   2001 vs. 2000
                                     -----------------------------    -----------------------------
                                         Increase (Decrease)            Increase (Decrease)
                                               Due to                          Due to
                                     -----------------------------    -----------------------------
                                      Volume     Rate        Net       Volume      Rate       Net
                                     -------    -------    -------    -------    -------    -------
                                                             (In Thousands)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
Loans receivable                     $ 2,681    $(2,314)   $   367    $ 2,014    $  (502)   $ 1,512
Investment securities available
    for sale                            (221)    (1,501)    (1,722)     1,186     (1,427)      (241)
Investment securities held to
    maturity                              --         --         --         --         --         --
Other interest earning assets             47       (316)      (269)       458       (332)       126
                                     -------    -------    -------    -------    -------    -------
Total interest-earning assets          2,507     (4,131)    (1,624)     3,658     (2,261)     1,397
                                     -------    -------    -------    -------    -------    -------

Interest expense:
Money market accounts                    182       (699)      (517)       (43)      (481)      (524)
Certificates of deposit                  195     (3,546)    (3,351)     1,294       (372)       922
Other liabilities                        574       (836)      (262)       432       (460)       (28)
                                     -------    -------    -------    -------    -------    -------
Total interest-bearing liabilities       951     (5,081)    (4,130)     1,683     (1,313)       370
                                     -------    -------    -------    -------    -------    -------
Net change in interest income        $ 1,556    $   950    $ 2,506    $ 1,975    $  (948)   $ 1,027
                                     =======    =======    =======    =======    =======    =======
</TABLE>

     Provision for Loan Losses: The Company recorded a provision for loan losses
of $1.1 million,  $500,000 and $300,000 for 2002, 2001, and 2000,  respectively.
The  $600,000  increase  in the  provision  for loan  losses  for the year ended
December  31,  2002 was  precipitated  by net charge  offs of  $341,000  and the
increase in the loan portfolio.

     It is the policy of  management  to maintain an allowance  for loan losses,
which is adequate to absorb  potential losses inherent in the loan portfolio for
unidentified  loans  as well as  classified  loans.  The  allowance  is based on
management's  evaluation of the collectibility of the loan portfolio,  including
the nature of the portfolio,  credit  concentrations,  trends in historical loss
experience,  specific impaired loans, and economic  conditions.  Large groups of
smaller balance  homogeneous loans are valued  collectively for impairment.  The
amount of the loss reserve is calculated  using  historical  loss rates,  net of
recoveries,  adjusted for environmental,  and other qualitative  factors such as
industry,  geographical,  economic  and  political  factors that can affect loss
rates or loss  measurements.  Allowances for losses on  specifically  identified
loans that are  determined to be impaired are calculated  based upon  collateral
value,  market value, if determinable,  or the present value of estimated future
cash flows. The allowance is increased by a charge to operations, and reduced by
charge-offs, net of recoveries.

                                       4
<PAGE>

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

     Other Income:  Total other income increased  approximately $1.3 million, or
32.5% to $5.3 million for the year ended December 31, 2002 from $4.0 million for
the year ended  December 31, 2001.  Such  increase was the result of $516,000 in
additional  service fees primarily  generated from overdraft  fees,  $499,000 in
increased  cash  surrender  value from bank owned life  insurance and other life
insurance  policies,  and $456,000 in other income. The increase in other income
resulted  primarily  from an additional  $142,000 in gains  generated  from loan
sales,  net gains from the sale of real estate of $104,000 and $186,000  from TA
of Irwin,  L.P., a partnership  formed by the Company in October 2000 to provide
title insurance to the general public. Such increases in fiscal 2002 were offset
by a decrease of $258,000 in net  investment  security  gains compared to fiscal
2001.

     Total other income increased  approximately $1.1 million, or 37.9%, to $4.0
million  for the year ended  December  31,  2001 from $2.9  million for the year
ended  December 31, 2000.  The increase was  primarily  the result of gains from
available for sale securities,  originally purchased at a discount, of $453,000,
where the issuing  agencies  exercised their option to call the securities prior
to their  maturity.  Also,  service fees  increased  $300,000 due primarily to a
$122,000  increase  in  miscellaneous  loan fee income  generated  through  rate
modification fees on existing loans, $78,000 in additional overdraft fees due to
the  increased  deposit  base,  and  $43,000  in service  fees from the  "extra"
checking  product.  Debit card fees  increased  $119,000  a result of  increased
usage.  Other income increased $200,000 primarily due to income of $102,000 from
T.A.  of Irwin,  L.P.,  $43,000  in  additional  income  generated  through  the
Company's Trust Department, and $49,000 in commissions received from the sale of
investment products through UVest Financial  Services,  a company which provides
alternative investment products.

     Other Expenses:  Total other expense  increased $1.5 million,  or 13.3%, to
$12.8  million  for  2002  from  $11.3  million  for  2001.  Of  this  increase,
approximately $939,000 was the result of increased salaries,  which reached $5.3
million at  December  31,  2002 from $4.4  million at  December  31,  2001.  The
increase in salaries  was a  combination  of  additional  staff and annual merit
increases.  Pension  and other  employee  benefits  increased  $238,000  to $1.3
million at December  31,  2002  primarily  due to a $117,000  increase in health
insurance  premiums.  Occupancy expense increased $119,000 to $1.3 million,  for
2002 from $1.2  million at December  31,  2001  predominately  due to  increased
depreciation  and real estate tax expense of $77,000 and $17,000,  respectively.
Other expenses increased $206,000 to $3.0 million for 2002 from $2.8 million for
2001. This increase was mainly due to increased postage, check collection costs,
and  losses as a result of bad  checks and ATM fraud of  $29,000,  $45,000,  and
$64,000,  respectively.  All of these increases were  non-material in nature and
are due to the normal cost of doing business.

     Total other expenses  increased  approximately  $1.1 million,  or 10.8%, to
$11.3 million for 2001 from $10.2 million for 2000.  This increase was primarily
the result of an increase in salaries of approximately  $300,000 to $4.4 million
for 2001 from $4.1  million  for 2000.  Such  increase  was mainly due to annual
merit  increases  and net staff  increases of 5 full-time  employees.  Occupancy
expense  increased  $200,000 to $1.2  million in 2001 from $1.0  million in 2000
primarily due to increased  depreciation,  rental, real estate tax expense,  and
building  maintenance  expense  of  $80,000,   $27,000,  $24,000,  and  $28,000,
respectively.  Data  processing  and ATM  expenses  increased  $178,000  to $1.2
million in 2001 from $972,000 in 2000. Such increases were a result of increased
fees from the Company's  processors.  Other expenses  increased $500,000 to $3.5
million for 2001 from $3.0 million for 2000.  Such increase was primarily due to
increased  legal fees of $76,000,  increased  losses from bad checks of $59,000,
increased  costs related to debit card usage of $53,000,  and increased  postage
expense of $41,000.  All of these increases were  non-material in nature and are
due to the normal cost of doing business.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's  primary  sources of funds include  savings,  deposits,  loan
repayments and prepayments, cash from operations and borrowings from the Federal
Home Loan Bank. The Company uses its capital resources  principally to fund loan
originations  and  purchases,   to  repay  maturing   borrowings,   to  purchase
investments,  and for short-term liquidity needs. The Company expects to be able
to  fund  or  refinance,  on a  timely  basis,  its  commitments  and  long-term
liabilities.  As of December 31,  2002,  the Company had  commitments  to extend
credit of $75.5 million.

                                       5
<PAGE>

     The Company's  liquid assets  consist of cash and cash  equivalents,  which
include short-term investments.  The levels of these assets are dependent on the
Company's  operating,  financing,  and  investment  activities  during any given
period. At December 31, 2002, cash and cash equivalents totaled $15.1 million.

     Net cash from  operating  activities  for 2002  totaled  $8.7  million,  as
compared to net cash used by  operating  activities  of $377,000  for 2001.  The
decrease in cash due to changes in other assets in 2001 was primarily the result
of a $10.0  million  purchase  of bank owned life  insurance.  See Note 6 to the
consolidated  financial  statements.  Net cash from operating activities totaled
$7.3 million for 2000.

     Net cash used by investing  activities for 2002 totaled $69.1  million,  as
compared to cash used of $14.7 million for 2001 and $44.0 million for 2000.  The
increase of $54.4 million for 2002 was primarily due to an increase in purchases
of securities available for sale of $26.4 million, an increase in net loans made
to customers of $22.5 million, and a decrease in the proceeds from maturities of
securities available for sale of $26.2 million, offset by proceeds from sales of
securities  available for sale of $23.6  million.  The decrease of $29.3 million
for 2001 was mainly  attributed to an increase of $86.6 million in proceeds from
maturities of securities  held to maturity and a decrease of $8.0 million in net
loans made to  customers,  offset by $69.8  million in purchases  of  securities
available for sale.

     Net cash from  financing  activities  for the year ended  December 31, 2002
totaled  $50.3  million,  as compared to net cash from  financing  activities of
$18.5 million for 2001 and $39.2 million for 2000. The $31.8 million increase in
cash from  financing  activities  for 2002 was  primarily  the result of a $33.0
million increase in deposits.  The $20.7 million decrease in cash from financing
activities for 2001 was due to a $28.2 million decrease in deposits offset by an
increase of $7.0 million in federal funds purchased.

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

MARKET RISK

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

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

                                       6
<PAGE>

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

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

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

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

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

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

     The following  table shows the  Company's  financial  instruments  that are
sensitive  to changes in interest  rates,  categorized  by expected  maturity or
repricing  maturity,  and the  instruments'  fair values at December  31,  2002.
Market risk sensitive  instruments  are generally  defined as those  instruments
that can be adversely  impacted by changes in market interest rates. The Company
currently does not participate in hedging programs, interest rate swaps or other
activities   involving  the  use  of  off-balance  sheet  derivative   financial
instruments,  but  may do so in the  future  to  mitigate  interest  rate  risk.
Expected  maturities  are  contractual  maturities  adjusted for  prepayments of
principle.  The Company uses  certain  assumptions  to estimate  fair values and
expected maturities.  For assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principle. For interest earning
assets,  no  prepayments  are assumed.  Interest  bearing  liabilities,  such as
negotiable order of withdrawal  ("NOW")  accounts,  money market  accounts,  and
similar interest bearing demand accounts are subject to immediate  withdrawal or
repricing and are therefore presented in the earliest period in the table.

                                       7
<PAGE>

TABLE

Expected Maturity/Principal Repayment at December 31,

<TABLE>
<CAPTION>
                                                                                Total       Book      Fair
                              2003       2004      2005      2006      2007   Thereafter    Value     Value
                              ----       ----      ----      ----      ----   ----------    -----     -----
                                                        (Dollars in thousands)
<S>                        <C>       <C>        <C>       <C>       <C>         <C>       <C>       <C>
Interest-earning assets
-----------------------
Mortgage loans                8,326     9,055     9,759    12,160    15,114      155,830   210,244   224,153
Home equity loans,
    second mortgage
    loans, student loans,
    other loans              26,410    10,109     8,959     7,548     6,522       17,852    83,233    83,273
Commercial loans,
    municipal loans          29,708     4,875     3,897     3,218     2,058       26,068    69,824    71,943
Investment securities
    available for sale        5,374    12,099     3,496        --     4,760      154,185   179,523   183,565

Interest-bearing
liabilities
-----------------------
NOW and other
    transaction accounts     13,542        --        --        --        --           --    13,542    13,542
Money market and
    other savings
    accounts                153,046        --        --        --        --           --   153,046   153,046
Certificates of
    deposits                120,389    34,279    43,876     6,587    13,301        8,899   227,330   232,917
Federal home loan
    bank of Pittsburgh
    advances                     --    10,000        --        --     2,000       28,000    40,000    50,395
</TABLE>

                                       8
<PAGE>

EDWARDS
SAUER &
OWENS
------------------------------
Certified Public Accountants &
Business Advisors



                          INDEPENDENT AUDITORS' REPORT




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


We have audited the  accompanying  consolidated  balance  sheets of IBT Bancorp,
Inc. (the  Bancorp),  and  subsidiary as of December 31, 2002 and 2001,  and the
related consolidated  statements of income,  changes in stockholders' equity and
cash flows for each of the three years in the period  ended  December  31, 2002.
These consolidated  financial statements are the responsibility of the Bancorp's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of IBT Bancorp,  Inc.
and  subsidiary  as of  December  31,  2002 and 2001,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.


/s/Edwards Sauer & Owens

Pittsburgh, Pennsylvania
January 29, 2003




<PAGE>

                           CONSOLIDATED BALANCE SHEET
                        IBT BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                    ------------------------------
                                                                          2002             2001
                                                                    -------------    -------------
<S>                                                               <C>              <C>
ASSETS
     Cash and due from banks                                        $  12,677,160    $  16,751,407
     Interest-bearing deposits in banks                                   760,118        7,373,528
     Federal funds sold                                                 1,629,000        1,094,000
     Certificate of deposit                                               100,000          100,000
     Securities available for sale                                    183,564,960      160,866,698
     Federal Home Loan Bank stock, at cost                              3,152,600        2,101,800
     Loans, net of allowance for loan losses of
         $2,873,067 in 2002 and $2,113,806 in 2001                    359,871,514      315,131,774
     Premises and equipment, net                                        4,759,015        4,655,510
     Other assets                                                      17,520,354       15,969,430
                                                                    -------------    -------------
Total Assets                                                        $ 584,034,721    $ 524,044,147
                                                                    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
     Deposits
          Non-interest bearing                                      $  74,339,035    $  70,121,716
          Interest-bearing                                            393,918,292      352,340,377
                                                                    -------------    -------------
          Total deposits                                              468,257,327      422,462,093

     Repurchase agreements                                             14,525,836       11,207,072
     Accrued interest and other liabilities                             5,100,380        5,650,276
     FHLB advances                                                     40,000,000       35,000,000
                                                                    -------------    -------------
     Total liabilities                                                527,883,543      474,319,441

Stockholders' Equity

     Capital stock, par value $1.25,  50,000,000  shares
          authorized,  3,023,799 shares issued,  2,977,655
          and 2,985,695 shares outstanding at December
          31, 2002 and December 31, 2001, respectively                  3,779,749        3,779,749
     Surplus                                                            2,073,102        2,073,102
     Retained earnings                                                 48,974,137       43,613,936
     Accumulated other comprehensive income                             2,667,456        1,342,672
                                                                    -------------    -------------
                                                                       57,494,444       50,809,459
     Less: Treasury stock, at cost                                     (1,343,266)      (1,084,753)
                                                                    -------------    -------------
     Total stockholders' equity                                        56,151,178       49,724,706
                                                                    -------------    -------------
Total Liabilities and Stockholders' Equity                          $ 584,034,721    $ 524,044,147
                                                                    =============    =============

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

</TABLE>
                                        9
<PAGE>

                       CONSOLIDATED STATEMENTS OF INCOME
                        IBT BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                    2002            2001            2000
                                                ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
Interest Income
     Loans, including fees                      $ 24,687,048    $ 24,320,407    $ 22,807,718
     Investment securities                         8,614,876      10,337,309      10,578,510
     Federal funds sold                              258,302         527,021         400,886
                                                ------------    ------------    ------------
     Total interest income                        33,560,226      35,184,737      33,787,114
Interest Expense
     Deposits                                     10,537,451      14,773,560      14,603,671
     FHLB advances                                 2,113,678       1,833,212       1,586,859
     Repurchase agreements                           177,464         351,473         362,684
     Federal funds purchased                              --              --          34,354
                                                ------------    ------------    ------------
     Total interest expense                       12,828,593      16,958,245      16,587,568
                                                ------------    ------------    ------------
Net Interest Income                               20,731,633      18,226,492      17,199,546
Provision for Loan Losses                          1,100,000         500,000         300,000
                                                ------------    ------------    ------------
Net Interest Income after Provision
     for Loan Losses                              19,631,633      17,726,492      16,899,546
Other Income (Losses)
     Service fees                                  2,370,568       1,854,595       1,645,913
     Investment security gains                       158,670         452,890              --
     Investment security losses                      (24,925)        (60,792)       (106,974)
     Cash surrender value increases                  584,847          85,914          49,707
     Debit card fees                                 615,517         520,393         401,080
     Other income                                  1,612,378       1,155,822         956,715
                                                ------------    ------------    ------------
     Total other income                            5,317,055       4,008,822       2,946,441
Other Expenses
     Salaries                                      5,297,750       4,359,468       4,084,817
     Pension and other employee benefits           1,318,944       1,081,027       1,056,116
     Occupancy expense                             1,329,170       1,209,779       1,020,734
     Data processing expense                         729,548         750,896         588,193
     Advertising expense                             406,898         340,513         301,686
     Pennsylvania shares tax                         391,557         341,823         307,337
     ATM expense                                     349,311         398,986         383,935
     Other expenses                                3,007,900       2,801,664       2,438,469
                                                ------------    ------------    ------------
     Total other expenses                         12,831,078      11,284,156      10,181,287
                                                ------------    ------------    ------------
Income Before Income Taxes                        12,117,610      10,451,158       9,664,700
Provision for Income Taxes                         3,180,311       2,985,824       2,959,439
                                                ------------    ------------    ------------
Net income                                      $  8,937,299    $  7,465,334    $  6,705,261
                                                ============    ============    ============
Basic Earnings per Share                        $       3.00    $       2.49    $       2.23
                                                ============    ============    ============
Diluted Earnings per Share                      $       2.99    $       2.49    $       2.23
                                                ============    ============    ============

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

</TABLE>

                                       10
<PAGE>
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                              Accumulated
                                                                                 Other
                                   Capital                       Retained     Comprehensive    Treasury
                                    Stock        Surplus         Earnings        Income          Stock            Total
                                -----------   -----------     ------------    ------------    ---------       ------------
<S>                            <C>           <C>             <C>             <C>            <C>             <C>
Balance at
December 31, 1999               $ 3,779,749   $ 2,073,102     $ 35,318,637    $ (3,178,596)  $  (87,612)      $ 37,905,280

Comprehensive Income
  Net income                                                     6,705,261                                       6,705,261
  Other comprehensive
    income, net of tax:
      Change in net
        unrealized holding
        gains on securities
        available for sale,
        net of deferred
        income tax
        of $1,722,575                                                            3,343,822                       3,343,822

      Reclassification
        adjustment, net of
        deferred income
        tax of $12,415                                                              24,100                          24,100
                                                                                                              ------------
                                                                                                                 3,367,922
                                                                                                              ------------
      Total Comprehensive
        Income                                                                                                  10,073,183

Cash dividends ($0.92)                                          (2,762,018)                                     (2,762,018)

Purchase of Treasury Stock                                                                    (601,864)           (601,864)
                                -----------   -----------     ------------    ------------    ---------       ------------
Balance at
December 31, 2000               $ 3,779,749   $ 2,073,102     $ 39,261,880    $    189,326   $(689,476)       $ 44,614,581


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

</TABLE>

                                       11
<PAGE>
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                              Accumulated
                                                                                 Other
                                   Capital                       Retained     Comprehensive    Treasury
                                    Stock        Surplus         Earnings        Income          Stock            Total
                                -----------   -----------     ------------    ------------    ---------       ------------
<S>                            <C>           <C>             <C>             <C>            <C>             <C>
Balance at
December 31, 2000               $ 3,779,749   $ 2,073,102     $ 39,261,880    $    189,326  $  (689,476)      $ 44,614,581

Comprehensive Income
  Net income                                                     7,465,334                                       7,465,334
  Other comprehensive
    income, net of tax:
      Change in net
        unrealized holding
        gains on securities
        available for sale,
        net of deferred
        income tax
        of $747,292                                                              1,450,626                       1,450,626

      Reclassification
        adjustment, net of
        deferred income
        tax of $153,144                                                           (297,280)                       (297,280)
                                                                                                              ------------
                                                                                                                 1,153,346
                                                                                                              ------------
      Total Comprehensive
        Income                                                                                                   8,618,680

Cash dividends ($1.04)                                           (3,113,278)                                    (3,113,278)

Purchase of Treasury Stock                                                                     (395,277)          (395,277)
                                -----------   -----------     ------------    ------------  -----------       ------------
Balance at
December 31, 2001               $ 3,779,749   $ 2,073,102     $ 43,613,936    $  1,342,672  $(1,084,753)      $ 49,724,706


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

</TABLE>

                                       12
<PAGE>
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                              Accumulated
                                                                                 Other
                                   Capital                       Retained     Comprehensive    Treasury
                                    Stock        Surplus         Earnings        Income          Stock            Total
                                -----------   -----------     ------------    ------------    ---------       ------------
<S>                            <C>           <C>             <C>             <C>            <C>             <C>
Balance at
December 31, 2001               $ 3,779,749   $ 2,073,102     $ 43,613,936    $  1,342,672  $(1,084,753)      $ 49,724,706

Comprehensive Income
  Net income                                                     8,937,299                                       8,937,299
  Other comprehensive
    income, net of tax:
      Change in net
        unrealized holding
        gains on securities
        available for sale,
        net of deferred
        income tax
        of $718,036                                                              1,393,742                       1,393,742

      Reclassification
        adjustment, net of
        deferred income
        tax of $35,524                                                             (68,958)                        (68,958)
                                                                                                              ------------
                                                                                                                 1,324,784
                                                                                                              ------------
      Total Comprehensive
        Income                                                                                                  10,262,083

Cash dividends ($1.20)                                           (3,577,098)                                    (3,577,098)

Purchase of Treasury Stock                                                                     (258,513)          (258,513)
                                -----------   -----------     ------------    ------------  -----------       ------------
Balance at
December 31, 2002               $ 3,779,749   $ 2,073,102     $ 48,974,137    $  2,667,456  $(1,343,266)      $ 56,151,178
                                ===========   ===========     ============    ============  ===========       ============

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

</TABLE>

                                       13
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        IBT BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>

                                                                                              Years Ended December 31,
                                                                                  -----------------------------------------------
                                                                                       2002             2001             2000
                                                                                  -------------    -------------    -------------
<S>                                                                             <C>              <C>              <C>

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                      $   8,937,299    $   7,465,334    $   6,705,261
  Adjustments to reconcile net cash
    from operating activities:
      Depreciation                                                                      684,731          607,993          528,335
      Increase in cash surrender value of insurance                                    (584,847)         (85,914)         (49,707)
      Net amortization/accretion of
        premiums and discounts                                                          429,379          102,482           (9,800)
      Net investment security (gains) losses                                           (133,745)        (392,098)         106,974
      Provision for loan losses                                                       1,100,000          500,000          300,000
      Increase (decrease) in cash due to
        changes in assets and liabilities:
          Other assets                                                                 (540,772)      (8,527,117)      (1,560,516)
          Accrued interest and other liabilities                                     (1,232,409)         (48,024)       1,327,616
                                                                                  -------------    -------------    -------------
  Net Cash From (Used By) Operating Activities                                        8,659,636         (377,344)       7,348,163

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of certificates of deposit                                                        --       (2,606,400)      (2,700,000)
  Proceeds from maturity of certificates of deposit                                          --        5,206,400        3,000,000
  Proceeds from sales of securities available for sale                               31,725,398        8,128,240        6,153,348
  Proceeds from maturities of securities available for sale                          72,493,575       98,681,479       12,000,998
  Purchase of securities available for sale                                        (125,205,572)     (99,729,469)     (29,959,587)
  Net loans made to customers                                                       (46,265,045)     (23,829,098)     (31,821,372)
  Purchases of premises and equipment                                                  (788,236)        (363,726)        (699,410)
  Purchase of Federal Home Loan Bank stock                                           (1,050,800)        (137,500)              --
                                                                                  -------------    -------------    -------------
  Net Cash Used By Investing Activities                                             (69,090,680)     (14,650,074)     (44,026,023)

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                                                           45,795,234       12,823,631       40,957,977
  Net increase in securities sold
    under agreements to repurchase                                                    3,318,764        2,184,882        2,565,593
  Net decrease in federal funds purchased                                                    --               --       (7,000,000)
  Dividends                                                                          (3,577,098)      (3,113,278)      (2,762,018)
  Proceeds from FHLB advances                                                         7,000,000        9,000,000        7,000,000
  Repayment of FHLB advances                                                         (2,000,000)      (2,000,000)      (1,000,000)
  Purchase of treasury stock                                                           (258,513)        (395,277)        (601,864)
                                                                                  -------------    -------------    -------------
  Net Cash From Financing Activities                                                 50,278,387       18,499,958       39,159,688
                                                                                  -------------    -------------    -------------
Net Change in Cash and Cash Equivalents                                             (10,152,657)       3,472,540        2,481,828
Cash and Cash Equivalents at Beginning of Year                                       25,218,935       21,746,395       19,264,567
                                                                                  -------------    -------------    -------------
Cash and Cash Equivalents at End of Year                                          $  15,066,278    $  25,218,935    $  21,746,395
                                                                                  =============    =============    =============

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

</TABLE>
                                       14
<PAGE>
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                           ---------------------------------------
                                               2002         2001          2000
                                           -----------   -----------   -----------
<S>                                      <C>           <C>           <C>

SUPPLEMENTAL DISCLOSURES

    Cash payments for:
      Interest                             $13,225,782   $18,089,680   $15,052,496
      Income taxes                         $ 3,543,379   $ 3,003,600   $ 2,904,000

NON CASH TRANSACTIONS

    Recorded unrealized gains on
      securities available for sale
      at December 31                       $ 4,041,600   $ 2,034,303   $   286,857
    Deferred income taxes on recorded
      unrealized gains on securities
      available for sale at December 31    $ 1,374,144   $   691,631   $    97,531
    Loans transferred to foreclosed real
      estate during the year               $   857,681   $   432,376   $   320,992
    Recorded nonmonetary gain on
      securities available for sale
      at December 31                       $     1,986   $    81,092   $        --

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

</TABLE>

                                       15
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation:  The consolidated  financial statements include the
accounts of the Bancorp and the Bank. All significant intercompany accounts have
been eliminated in the consolidation.

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

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

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

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

Advertising  Costs:  Advertising  costs are  expensed as  incurred.  Advertising
expense totaled $406,898 for 2002, $340,513 for 2001 and $301,686 for 2000.

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

                                       16
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

The allowance for loan losses is  maintained at a level which,  in  management's
judgement,  is  adequate  to  absorb  potential  losses  inherent  in  the  loan
portfolio.  The amount of the allowance is based on  management's  evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations,  trends in historical loss experience,  specific impaired
loans,  and economic  conditions.  Large groups of smaller  balance  homogeneous
loans are valued  collectively  for  impairment.  The amount of loss  reserve is
calculated  using  historical  loss  rates,  net  of  recoveries,  adjusted  for
environmental,  and other  qualitative  factors such as industry,  geographical,
economic and politcal factors that can affect loss rates or loss measurements.

Allowances for losses on specifically identified loans that are determined to be
impaired  are  calculated  based  upon  collateral   value,   market  value,  if
determinable,  or the present  value of the  estimated  future  cash flows.  The
allowance  is  increased  by a provision  for loan  losses,  which is charged to
expense,  and reduced by  charge-offs,  net of  recoveries.  Loans are placed on
nonaccrual  status when they are 90 days past due,  unless  they are  adequately
collateralized and in the process of collection.

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

Other Real Estate Owned (OREO):  Real estate  properties  acquired through or in
lieu of loan  foreclosure  are  initially  recorded  at the lower of the  Bank's
carrying  amount  or fair  value  less  estimated  selling  cost at the  date of
foreclosure.  Any  write-downs  based on the  asset's  fair value at the date of
acquisition  are charged to the  allowance for loan losses.  After  foreclosure,
these assets are carried at the lower of their new cost basis or fair value less
cost to sell.  Costs  of  significant  property  improvements  are  capitalized,
whereas  costs  relating  to  holding  property  are  expensed.  Valuations  are
periodically  performed  by  management,  and  any  subsequent  write-downs  are
recorded as a charge to operations,  if necessary,  to reduce the carrying value
of a property to the lower of its cost or fair value less cost to sell.

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

Earnings  per  Share:  Earnings  per  share are  calculated  on the basis of the
weighted  average  number of shares  outstanding.  The weighted  average  shares
outstanding was 2,980,282,  2,993,693 and 3,003,334 for the years ended December
31, 2002, 2001 and 2000, respectively.

                                       17
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

NOTE 2 -- INVESTMENT SECURITIES

Investment securities available for sale consist of the following:

<TABLE>
<CAPTION>
                                                  December 31, 2002
                             ---------------------------------------------------------------
                                                  Gross            Gross
                                Amortized       Unrealized       Unrealized        Market
                                  Cost            Gains            Losses          Value
                             -------------   -------------    -------------    -------------
<S>                        <C>             <C>              <C>              <C>
Obligations of
  U.S. Government Agencies   $  78,956,706   $   1,547,905    $      (1,852)   $  80,502,759
Obligations of State and
  political sub-divisions       37,252,772       1,668,700          (31,994)      38,889,478
Mortgage-backed securities      52,300,534       1,803,446             --         54,103,980
Other securities                   706,015          44,506             --            750,521
Equity securities               10,307,333         102,647       (1,091,758)       9,318,222
                             -------------   -------------    -------------    -------------

                             $ 179,523,360   $   5,167,204    $  (1,125,604)   $ 183,564,960
                             =============   =============    =============    =============
</TABLE>

<TABLE>
<CAPTION>
                                                  December 31, 2001
                             ---------------------------------------------------------------
                                                  Gross            Gross
                                Amortized       Unrealized       Unrealized        Market
                                  Cost            Gains            Losses          Value
                             -------------   -------------    -------------    -------------
<S>                        <C>             <C>              <C>              <C>
Obligations of
  U.S. Government Agencies   $  61,214,870   $   1,380,083    $     (50,859)   $  62,544,094
Obligations of State and
  political sub-divisions       31,530,177         510,233         (196,927)      31,843,483
Mortgage-backed securities      55,151,710         502,991         (128,591)      55,526,110
Other securities                   700,745          38,458             --            739,203
Equity securities               10,234,892          69,873          (90,957)      10,213,808
                             -------------   -------------    -------------    -------------
                             $ 158,832,394   $   2,501,638    $    (467,334)   $ 160,866,698
                             =============   =============    =============    =============
</TABLE>

                                       18
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)

Gross  realized  gains  and  losses  on calls  and  sales of  available-for-sale
securities were:

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                     ------------------------------
                                                       2002       2001       2000
                                                     --------   --------   --------
<S>                                                <C>        <C>        <C>
Gross realized gains:
  Obligations of U.S. Government Agencies            $ 42,922   $358,639   $     --
  Obligations of state and political sub-divisions        760      5,348         --
  Mortgage-backed securities                          113,002        606         --
  Equity securities                                     1,986     88,297         --
                                                     --------   --------   --------
                                                     $158,670   $452,890   $     --
                                                     ========   ========   ========

Gross realized losses:
  Obligations of U.S. Government Agencies            $     --   $  2,616   $106,974
  Mortgage-backed securities                           24,925     58,176         --
                                                     --------   --------   --------
                                                     $ 24,925   $ 60,792   $106,974
                                                     ========   ========   ========
</TABLE>

The  amortized  cost and  estimated  market value of the  investment  securities
available  for sale at December 31, 2002,  by  contractual  maturity,  are shown
below.  Expected  maturities  will differ from  contractual  maturities  because
issuers  have the right to call or prepay  obligations  with or without  call or
prepayment penalties.

                                                    Amortized         Market
                                                       Cost           Value
                                                  ------------   ------------

Due in one year or less                           $  5,374,461   $  5,421,136
Due after one year through five years               20,355,099     21,048,263
Due after five years through ten years              67,267,268     68,845,796
Due after ten years, includes equity securities     86,526,532     88,249,765
                                                  ------------   ------------
                                                  $179,523,360   $183,564,960
                                                  ============   ============


As a member of the  Federal  Home Loan Bank of  Pittsburgh  (FHLB),  the Bank is
required to  maintain a minimum  amount of FHLB  stock.  The  minimum  amount is
calculated  based  on  level  of  assets,  residential  real  estate  loans  and
outstanding FHLB advances. The Bank held $3,152,600 and $2,101,800 of FHLB stock
at December 31, 2002 and 2001.

                                       19
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 3 -- LOANS

Major classifications of loans are as follows:

                                    December 31,
                              ---------------------------
                                  2002           2001
                              ------------   ------------
Mortgage                      $210,244,046   $173,213,532
Home equity credit              15,832,462     11,001,475
Installment                     59,321,023     64,053,168
Commercial                      58,633,722     55,185,161
PHEAA                            6,899,585      6,949,783
Municipal                       11,190,265      5,368,664
Credit cards                        32,445         31,940
Other                            1,147,661      1,715,479
                              ------------   ------------
                               363,301,209    317,519,202

Less:
  Allowance for loan losses      2,873,067      2,113,806
  Deferred loan fees               556,628        273,622
                              ------------   ------------
                              $359,871,514   $315,131,774
                              ============   ============


The  aggregate  amount of  demand  deposits  reclassified  as loan  balances  at
December 31, 2002 and 2001 amounted to $490,961 and $643,226,  respectively  and
are included in other loans.

The total recorded investment in impaired loans amounted to $619,326 at December
31, 2002 and  $1,026,975  at December 31, 2001.  The  allowance  for loan losses
related to impaired loans amounted to $309,663 and $154,069 at December 31, 2002
and 2001, respectively.

Changes in the allowance for loan losses were as follows:

                                             Years Ended December 31,
                                    -----------------------------------------
                                        2002           2001           2000
                                    -----------    -----------    -----------
Balance, beginning of year          $ 2,113,806    $ 1,919,327    $ 2,365,874
  Provision charged to operations     1,100,000        500,000        300,000
  Loans charged off                    (440,728)      (344,909)      (767,486)
  Recoveries                             99,989         39,388         20,939
                                    -----------    -----------    -----------
Balance, end of year                $ 2,873,067    $ 2,113,806    $ 1,919,327
                                    ===========    ===========    ===========


                                       20
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTE 4 -- PREMISES AND EQUIPMENT

Premises and equipment which are stated at cost are as follows:

                                        December 31,
                                 -------------------------
                                      2002          2001
                                 -----------   -----------

Land                             $   450,466   $   450,466
Buildings and improvements         5,053,222     5,053,222
Furniture and equipment            5,932,750     5,144,515
                                 -----------   -----------
                                  11,436,438    10,648,203
Less: Accumulated depreciation     6,677,424     5,992,693
                                 -----------   -----------
                                 $ 4,759,014   $ 4,655,510
                                 ===========   ===========

Depreciation  expense  was  $684,731 in 2002,  $607,993 in 2001 and  $528,335 in
2000.

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

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

For the year ended December 31,
                                2003                $   212,072
                                2004                    211,722
                                2005                    165,387
                                2006                     85,922
                                2007                     59,116
                                2008 and thereafter     337,700
                                                    -----------
                                                    $ 1,071,919
                                                    ===========

Rental expense under these operating leases was $183,005,  $178,437 and $149,043
for the years ended December 31, 2002, 2001 and 2000, respectively.

In November 2002, the Board approved a commercial  lease  agreement  between the
Bank and Banco Business Park. The lease is for a term of three years  commencing
on March 1, 2003 and contains renewal options for additional two-year terms. The
three year lease has a base rental rate of $2,921 per month.  The first  month's
rent and security  deposit of the same amount or a total of $5,842 is due at the
signing  of the lease.  The Bank  signed  the  agreement  and paid the $5,842 in
January  2003.  Lease  payments  for this  agreement  are included in the future
minimum lease payment scheduled above.

                                       21

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 5 -- JOINT VENTURES

The Bancorp has an 85% limited partnership  interest in T.A. of Irwin, L.P. This
partnership commenced operations in October 2000 and provides title insurance to
the  general  public.  The  Bancorp  uses the equity  method to account  for its
investment in the partnership. As of December 31, 2002 and 2001, the partnership
is  reflected in the other  assets  section of the balance  sheet at $82,140 and
$53,704, respectively.

NOTE 6 -- BANK OWNED LIFE INSURANCE

In 2001, the Bank purchased  single premium life insurance  policies on officers
of the Bank at a cost of  $10,000,000.  At December 31, 2002 and 2001,  the cash
surrender value of these policies was $10,584,859 and $10,031,160,  respectively
and is included in the other assets section of the balance  sheet.  The increase
in cash  surrender  value of these  policies is  recorded as other  non-interest
income.

NOTE 7 -- DEPOSITS

Time deposits  maturing in years ending December 31, as of December 31, 2002 are
summarized as follows:

                                2003                    $ 120,389,212
                                2004                       34,278,474
                                2005                       43,875,582
                                2006                        6,587,107
                                2007                       13,300,645
                                2008 and thereafter         8,899,032
                                                        -------------
                                                        $ 227,330,052
                                                        =============


The Bank held related party deposits of approximately  $3,600,000 and $3,166,000
at December 31, 2002 and 2001, respectively.

The  Bank  held  time  deposits  that  exceeded   $100,000  of  $47,748,416  and
$35,499,455 at December 31, 2002 and 2001, respectively.

                                       22
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 8 -- REPURCHASE AGREEMENTS

The Bank offers its corporate  customers an investment  product fashioned in the
form of a repurchase  agreement.  Under the terms of the agreement,  deposits in
designated  demand  accounts of the customer are put into an investment  vehicle
which is used daily to purchase an interest in  designated  U.S.  Government  or
Agencies'  securities  owned by the Bank.  The Bank in turn agrees to repurchase
these  investments  on a daily  basis and pay the  customer  the daily  interest
earned  on them.  The  amount  of  repurchase  agreements  was  $14,525,836  and
$11,207,072 at December 31, 2002 and 2001, respectively.


NOTE 9 -- PLEDGED ASSETS

At December 31, 2002 and 2001, U.S.  Government  Agency  obligations  carried at
approximately $42,800,000 and $35,700,000 respectively,  were pledged to qualify
for fiduciary powers, to secure public monies and for other purposes required or
permitted  by law.  At  December  31,  2002 and  2001,  the  carrying  amount of
securities pledged to secure repurchase agreements was approximately $27,900,000
and $17,600,000 respectively.

NOTE 10 -- INCOME TAXES

The provision for income taxes consists of:

                                  Years Ended December 31,
                         -----------------------------------------
                             2002           2001           2000
                         -----------    -----------    -----------

Currently payable        $ 3,527,269    $ 3,072,885    $ 2,815,429
Deferred tax (benefit)      (346,958)       (87,061)       144,010
                         -----------    -----------    -----------
Total                    $ 3,180,311    $ 2,985,824    $ 2,959,439
                         ===========    ===========    ===========

The significant  components of temporary differences for 2002, 2001 and 2000 are
as follows:


                                  Years Ended December 31,
                            -----------------------------------
                               2002         2001         2000
                            ---------    ---------    ---------

Provision for loan losses   $(299,256)   $ (86,543)   $ 151,347
Depreciation                   32,400      (30,397)     (12,665)
Valuation allowance                --           --          550
Pension                        28,461       37,532       20,168
Deferred loan fees            (96,222)     (32,695)     (10,689)
Other                         (12,341)      25,042       (4,701)
                            ---------    ---------    ---------
Total                       $(346,958)   $ (87,061)   $ 144,010
                            =========    =========    =========

                                       23
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 10 -- INCOME TAXES (CONTINUED)

A  reconciliation  of the federal  statutory  tax rate to the effective tax rate
applicable to income before income taxes is as follows:

                                             Years Ended December 31,
                                            -------------------------
                                               % of Pretax Income
                                            -------------------------
                                            2002      2001      2000
                                            ----      ----      ----
Provision at statutory rate                 34.0 %    34.0 %    34.0 %
Effect of tax free income                   (5.4)     (4.3)     (3.1)
Other                                       (2.4)     (1.2)     (0.3)
                                            ----      ----      ----
        Effective tax rate                  26.2 %    28.5 %    30.6 %
                                            ====      ====      ====

The deferred tax assets and  deferred  tax  liabilities  recorded on the balance
sheet as of December 31, 2002 and 2001 are as follows:

                                      2002                     2001
                            -----------------------   -----------------------
                                  Deferred Tax             Deferred Tax
                            -----------------------   -----------------------
                               Assets    Liabilities     Assets    Liabilities
                            ----------   ----------   ----------   ----------

Provision for loan losses   $  833,868   $       --   $  534,922   $       --
Depreciation                        --      165,059           --      126,131
Pension expense                     --      122,499           --       94,039
Other                          301,741           --      190,709           --
SFAS 115                            --    1,374,144           --      691,631
                            ----------   ----------   ----------   ----------
                            $1,135,609   $1,661,702   $  725,631   $  911,801
                            ==========   ==========   ==========   ==========

NOTE 11 -- FHLB ADVANCES

At December  31, 2002 and 2001,  the Bank had the  following  advances  from the
Federal Home Loan Bank (FHLB).

       2002         2001            Interest Rate           Maturity Date
       ----         ----            -------------           -------------
$          -    $ 2,000,000         7.01% Fixed             August 8, 2002
  10,000,000     10,000,000     5.86% Fixed w/Strike Rate   July 22, 2004
   2,000,000              -         3.67% Fixed             September 5, 2007
   5,000,000      5,000,000      5.63% Fixed to Float       July 21, 2008
   5,000,000      5,000,000      4.86% Fixed to Float       October 23, 2008
   4,000,000      4,000,000     5.18% Fixed w/Strike Rate   February 23, 2011
   4,000,000      4,000,000      4.98% Fixed to Float       March 23, 2011
   5,000,000      5,000,000    4.947% Fixed w/Strike Rate   August 29, 2011
   5,000,000              -    4.607% Fixed w/Strike Rate   January 30, 2012
------------   ------------
$ 40,000,000   $ 35,000,000
============   ============

Interest only is payable until maturity on all FHLB advances. Collateral for all
advances includes all qualifying mortgages.

The Bank had maximum borrowing capacity with FHLB of approximately  $261,519,000
and $245,229,000 at December 31, 2002 and 2001, respectively.

                                       24
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 12 -- EMPLOYEE BENEFIT PLANS

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

The actuarial  measurement period of October 15, through October 14, was used to
determine  the  components  of the net periodic  pension cost and the  financial
disclosures  for both plans.  The actuarial  measurement  date of October 15 was
used in determining the plans' liabilities and asset information.  The following
is a combined summary of the plans' components as of December 31, 2002, 2001 and
2000,  even  though  the  information  has  been  compiled  on the  basis of the
actuarial measurement period.

<TABLE>
<CAPTION>
                                                       2002           2001           2000
                                                  -----------    -----------    -----------
<S>                                             <C>            <C>            <C>
Change in Projected Benefit Obligation:
  Benefit obligation at beginning of year         $ 2,253,576    $ 1,840,408    $ 1,765,691
  Service cost                                        179,307        151,433        150,403
  Interest cost                                       162,431        141,430        122,204
  Actuarial loss due to settlement                         --             --             --
  Benefits paid                                      (161,570)       (68,612)       (75,139)
  Plan settlement                                          --             --             --
  Other - net                                         305,372        188,917       (122,751)
                                                  -----------    -----------    -----------
    Benefit obligation at end of year             $ 2,739,116    $ 2,253,576    $ 1,840,408
                                                  ===========    ===========    ===========

Change in Fair Value of Plan Assets:
  Plan assets at estimated
    fair value at beginning of year               $ 2,350,244    $ 2,215,142    $ 2,016,241
  Actual return on plan assets, net of expenses      (207,196)         4,280        105,065
  Plan settlement                                          --             --             --
  Benefits paid                                      (161,570)       (68,612)       (75,139)
  Employer contributions                              219,868        199,434        168,975
                                                  -----------    -----------    -----------
    Fair value of plan assets at end of year      $ 2,201,346    $ 2,350,244    $ 2,215,142
                                                  ===========    ===========    ===========

Funded status                                     $  (537,770)   $    96,668    $   374,734
Unrecognized net loss from actuarial experience     1,057,676        377,432         27,502
Unrecognized prior service cost                      (201,962)      (220,224)      (238,486)
Unamortized net asset existing at date
  of adoption of SFAS No. 87                          (31,173)       (35,271)       (39,369)
Settlement                                                 --             --             --
                                                  -----------    -----------    -----------
  Prepaid pension cost                            $   286,771    $   218,605    $   124,381
                                                  ===========    ===========    ===========
</TABLE>

                                       25
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 12 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

Net pension expense included the following components:

<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                                   -----------------------------------
                                                      2002         2001         2000
                                                   ---------    ---------    ---------

<S>                                              <C>          <C>          <C>
Service cost - benefits earned during the period   $ 179,307    $ 151,433    $ 150,403
Interest cost on projected benefit obligation        162,431      141,430      122,204
Actual return on plan assets, net of expenses        207,196       (4,280)    (105,065)
Recognized net actual loss                             8,199           --           --
Net amortization and deferral                       (405,431)    (183,373)     (70,789)
                                                   ---------    ---------    ---------
Net periodic pension cost                          $ 151,702    $ 105,210    $  96,753
                                                   =========    =========    =========
</TABLE>

The projected  benefit  obligation for Plan #1 was  determined  using an assumed
discount  rate of 6.75%  for  2002,  7.25%  for 2001 and  7.75%  for 2000 and an
expected rate of increase in compensation using a graded scale ranging from 3.5%
to 5.5%. The projected  benefit  obligation for Plan #2 was determined  using an
assumed  discount rate of 7.0% and an expected rate of increase in  compensation
of 3.50% for 2002, 2001 and 2000. For both plans,  the assumed rate of return on
the plans' investment earnings was 7% for 2002, 2001 and 2000.

In the months of December 2002,  2001 and 2000, the Bank  contributed  $264,969,
$219,868 and $199,434,  respectively,  to the plans  subsequent to the actuarial
measurement  dates of October 15, 2002,  2001 and 2000.  Because these  employer
contributions were paid after the actuarial measurement period ended, the Bank's
prepaid pension cost at December 31, 2002, 2001 and 2000 is $500,022,  $406,868,
and $301,896, respectively.

The Bank also maintains  non-qualified  deferred  compensation plans for certain
directors, which are generally funded by life insurance. Prior to 2002, premiums
on those  policies were paid for by the Bank.  In 2002,  the Bank elected to pay
those premiums with dividends  accruing on the insurance  policies.  The present
value of these  benefits to be paid under the programs is being accrued over the
estimated remaining service period of the participants.  The liability for these
future  obligations  was  $477,164  and  $461,618 at December 31, 2002 and 2001,
respectively.

In addition,  the Bank maintains a qualified 401(k) - deferred compensation plan
for eligible employees. The plan is designed to provide a predetermined matching
contribution by the Bank based on compensation  deferrals by participants in the
plan. The Bank contributions,  including administrative fees, for 2002, 2001 and
2000 amounted to $57,304, $53,404 and $49,526, respectively.

NOTE 13 -- COMMITMENTS AND CONTINGENCIES

In the normal course of business,  there are various outstanding commitments and
certain  contingent  liabilities  which are not  reflected  in the  accompanying
financial  statements.  These commitments and contingent  liabilities  represent
financial  instruments  with  off-balance-sheet  risk.  The contract or notional
amounts of those  instruments  were  comprised of  commitments  to extend credit
approximating  $75,521,000  and  $73,406,000,  as of December 31, 2002 and 2001,
respectively, and approximate fair value.

                                       26
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 13 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

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

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

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

NOTE 14 -- RELATED-PARTY TRANSACTIONS

At December 31, 2002 and 2001, certain officers and directors of the Bancorp and
the Bank, and companies in which they have beneficial  ownership,  were indebted
to the Bank in the aggregate amount of approximately $12,630,000 and $5,010,000,
respectively.  During 2002, new loans to such related parties were approximately
$8,720,000 and repayments approximated $1,100,000.

NOTE 15 -- CONCENTRATION OF CREDIT

The Bank  primarily  grants  loans to  customers  in Western  Pennsylvania,  and
maintains a diversified  loan  portfolio and the ability of its debtors to honor
their  contracts  is not  substantially  dependent  on any  particular  economic
business  sector. A substantial  portion of the Bank's  investments in municipal
securities  are  obligations of state or political  subdivisions  located within
Pennsylvania.  As a whole,  the Bank's loan and investment  portfolios  could be
affected by the general  economic  conditions of Pennsylvania.  In addition,  at
December 31, 2002 and 2001, a significant portion of the Bank's "due from banks"
and "federal  funds sold" is maintained  with two large  financial  institutions
located in  Southwestern  Pennsylvania.  The Bank  maintains a cash  balance and
federal  funds sold at financial  institutions  that exceed the $100,000  amount
that is  insured  by the FDIC.  Amounts  in excess of  insured  limits,  per the
institutions' records, were approximately  $2,656,000 and $8,993,000 at December
31, 2002 and 2001, respectively.

                                       27
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 16 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

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

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

The estimated fair value of the Bancorp's  financial  instruments as of December
31, 2002 are as follows:

                                    Carrying         Fair
                                     Amount         Value
                                 ------------   ------------
Financial Assets:
  Cash and cash equivalents      $ 15,066,278   $ 15,066,278
  Certificate of deposit         $    100,000   $    100,000
  Investment securities          $183,564,960   $183,564,960
  Federal Home Loan Bank stock   $  3,152,600   $  3,152,600
  Loans receivable               $359,871,514   $375,939,514
Financial liabilities:
  Deposits                       $468,257,327   $473,756,000
  Short-term borrowings          $ 14,525,836   $ 14,525,836
  FHLB advances                  $ 40,000,000   $ 50,395,000

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

                                       28
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 17 -- REGULATORY MATTERS

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

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain minimum amounts and ratios,  as set forth below, of
total  and Tier 1 capital  (as  defined  in the  regulations)  to  risk-weighted
assets,  and of Tier 1 capital to average  assets.  Management  believes,  as of
December  31,  2002  and  2001,  that  the  Bank  meets  all  capital   adequacy
requirements to which it is subjected.

The Bank's actual  capital  ratios as of December 31, 2002 and 2001, the minimum
ratios  required for capital  adequacy  purposes,  and the ratios required to be
considered  well  capitalized  under the Federal Deposit  Insurance  Corporation
Improvement Act of 1991 provisions are as follows:


                                 December 31,      Minimum            Well
                                 ------------      Capital        Capitalized
                                 2002    2001    Requirements     Requirements
                                 ----    ----    ------------     ------------

Risk-based capital ratio         15.2%   15.8%        8.0%       10.0% or higher
Leverage capital ratio            8.9%    9.0%   3.0% to 4.0%     5.0% or higher
Tier 1 risk-based capital ratio  14.4%   15.1%        4.0%        6.0% or higher


Included in cash and due from banks are required  federal reserves of $4,358,000
and $3,886,000 at December 31, 2002 and 2001, respectively, for facilitating the
implementation  of monetary policy by the Federal  Reserve System.  The required
reserves  are computed by applying  prescribed  ratios to the classes of average
deposit balances. These reserves are held in the form of due from banks.

NOTE 18 -- STOCK OPTION PLAN

The Bank's Stock Option Plan  authorizes  the granting of stock  options to Bank
directors  and employees  for up to 300,000  shares of common  stock.  The stock
option plan provides for a term of ten years, after which no awards may be made.
Under the plan, the exercise price of each option equals the market price of the
Bank's  stock on the grant  date,  and an  option's  maximum  term is ten years.
Options  constitute  both  incentive  and  non-incentive  stock  options and are
generally granted annually in the month of May. Options granted to directors are
immediately  vested  and are  exercisable  six  months  from the grant  date and
options granted to employees generally vest over three years.

As of December 31, 2002, a total of 129,500 stock options have been granted,  of
which,  66,513 are vested and  exercisable,  53,196 have not vested,  6,625 have
been exercised and 3,166 have been forfeited.

                                       29
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 18 -- STOCK OPTION PLAN (CONTINUED)

A summary of the status of the Bank's stock option plan is presented below:

<TABLE>
<CAPTION>
                                                                        December 31,
                                        --------------------------------------------------------------------
                                              2002                      2001                   2000
                                        -------------------      --------------------    -------------------

                                                   Weighted                 Weighted                Weighted
                                                   Average                  Average                 Average
                                                   Exercise                 Exercise                Exercise
                                        Shares      Price        Shares      Price        Shares      Price
                                        ------      -----        ------      -----        ------      -----
<S>                                   <C>        <C>           <C>        <C>           <C>         <C>
Outstanding at beginning of year        94,000     $ 23.97       61,000     $ 24.50            -           -
Granted                                 35,500     $ 32.88       33,000     $ 23.00       61,000     $ 24.50
Forfeitures                             (3,166)    $ 23.79            -           -            -           -
Exercised                               (6,625)    $ 25.58            -           -            -           -
                                       -------                   ------                   ------
Outstanding at December 31,            119,709     $ 26.53       94,000     $ 23.97       61,000     $ 24.50
                                       =======                   ======                   ======
Exercisable at December 31,             66,513     $ 25.70       41,333     $ 24.17       18,000     $ 24.50
                                       =======                   ======                   ======

</TABLE>

The  options   outstanding   at  December  31,   2002,   2001  and  2000  had  a
weighted-average  contractual  maturity of 9.375 years,  8.375 years,  and 7.375
years, respectively.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:

                                                     December 31,
                                        ---------------------------------------
                                        2002            2001            2000
                                        ----            ----            ----
Dividend yield                          3.79%           3.59%           4.57%
Expected life                           7 years         7 years         7 years
Expected volatility                     19%             18%             27%
Risk-free interest rate                 3.75%           4.95%           5.10%
Weighted-average fair value             $7.46           $7.69           $3.21


The Bank  accounts for stock options in accordance  with  Accounting  Principles
Board  Opinion No. 25. Had the Bank  determined  compensation  cost based on the
fair  value at the grant date for its stock  options  under  SFAS No.  123,  the
Bank's net income and  earnings  per share  would have been  adjusted to the pro
forma amounts indicated below:

                                               Years Ended December 31,
                                        ---------------------------------------
                                        2002            2001            2000
                                        ----            ----            ----
Net income:
  As reported                      $8,937,299       $7,465,334     $6,705,261
  Pro Forma                        $8,609,816       $7,351,115     $6,667,126

Net income per share:
  Basic and Diluted as reported    $3.00 and $2.99     $2.49          $2.23
  Basic and Diluted Pro Forma          $2.84           $2.45          $2.20


                                       30

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 18 -- STOCK OPTION PLAN (CONTINUED)

Weighted-average  number of shares outstanding  assuming dilution of exercisable
stock  options  using the treasury  stock method was  2,991,043,  2,994,088  and
3,003,334 for the years ended December 31, 2002, 2001 and 2000, respectively.

NOTE 19 -- TREASURY STOCK

In 2002 and 2001, the Bancorp  repurchased  8,040 and 16,228 shares of its stock
for $258,513 and $395,277, respectively, and is being held as treasury stock.

NOTE 20 -- RECENT ACCOUNTING PRONOUNCEMENTS

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation".  This statement provides  alternative methods of transition for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee compensation. It also requires prominent disclosures in both annual and
interim  financial  statements  about the method of accounting  for  stock-based
employee compensation and the effect of the method used on reported results. The
provisions of this  statement are  effective  for fiscal years  beginning  after
December 15, 2003. Management has not yet determined the impact of SFAS No. 148,
however,  it does not believe the statement  will have a material  impact on the
Bank or its operations.

                                       31
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION

The condensed  financial  information  for IBT Bancorp,  Inc. as of December 31,
2002 and 2001 and for the years ended  December  31,  2002,  2001 and 2000 is as
follows:

BALANCE SHEETS

                                                       December 31
                                               -------------------------
                                                   2002          2001
                                               -----------   -----------
ASSETS
  Cash in bank                                 $   401,584   $   245,690
  Investment in subsidiary                      54,926,513    48,787,607
  Securities available for sale                    554,207       436,935
  Other assets                                     303,774       275,338
                                               -----------   -----------
  Total Assets                                 $56,186,078   $49,745,570
                                               ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities                                  $    34,900   $    20,864
  Stockholders' Equity                          56,151,178    49,724,706
                                               -----------   -----------
  Total Liabilities and Stockholders' Equity   $56,186,078   $49,745,570
                                               ===========   ===========


STATEMENTS OF INCOME

                                                Years Ended December 31,
                                          ------------------------------------
                                              2002         2001         2000
                                          ----------   ----------   ----------
Income
  Dividends from subsidiary                 $4,000,000   $3,650,000   $3,325,000
  Other dividends                               14,069       16,978       14,141
  Investment security gains                      1,986       88,297           --
  Income from joint ventures                   185,541      102,124           --

Expenses
  Professional fees                             72,371       87,923       76,676
  Loss on joint ventures                            --       27,471       80,085
  Miscellaneous                                 33,203       16,880       18,271
                                            ----------   ----------   ----------
Income Before Income Taxes
  and Equity in Undistributed
  Earnings of Subsidiary                     4,096,022    3,725,125    3,164,109
Equity in Undistributed
  Earnings of Subsidiary                     4,841,277    3,740,209    3,541,152
                                            ----------   ----------   ----------
Net Income                                  $8,937,299   $7,465,334   $6,705,261
                                            ==========   ==========   ==========


                                       32
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTE 21 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                                   -----------------------------------------
                                                        2002           2001           2000
                                                   -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

  Net income                                       $ 8,937,299    $ 7,465,334    $ 6,705,261
  Adjustments to reconcile net income to
    net cash provided by operating activities:
    Net undistributed earnings of joint ventures      (185,541)       (74,652)            --
    Investment security gains                           (1,986)       (88,297)            --
    Decrease in cash due to changes
      in assets and liabilities:
        Equity in undistributed earnings
          of subsidiary                             (4,841,277)    (3,740,209)    (3,541,152)
        Other assets                                        --             --        (58,146)
                                                   -----------    -----------    -----------
Net Cash From Operating Activities                   3,908,495      3,562,176      3,105,963

CASH FLOWS FROM INVESTING ACTIVITIES

  Distributions from joint ventures                    157,105         79,095             --
  Proceeds from sale of securities
    available for sale                                      --        478,554        260,631
  Purchase of securities available for sale            (74,095)      (369,062)            --
                                                   -----------    -----------    -----------
Net Cash From Investing Activities                      83,010        188,587        260,631

CASH FLOWS FROM FINANCING ACTIVITIES

  Dividends paid                                    (3,577,098)    (3,113,278)    (2,762,018)
  Purchase of Treasury Stock                          (258,513)      (395,277)      (601,864)
                                                   -----------    -----------    -----------

Net Cash Used by Financing Activities               (3,835,611)    (3,508,555)    (3,363,882)
                                                   -----------    -----------    -----------
Net Change in Cash and Cash Equivalents                155,894        242,208          2,712
Cash and Cash Equivalents at Beginning
  of Year                                              245,690          3,482            770
                                                   -----------    -----------    -----------
Cash and Cash Equivalents at End of Year           $   401,584    $   245,690    $     3,482
                                                   ===========    ===========    ===========
</TABLE>

                                       33
<PAGE>
NEEDS TO BE WORKED ON

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        IBT BANCORP, INC. AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000

NOTE 22 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

                                               Quarters Ended 2002
                              -------------------------------------------------
                                March 31     June 30   September 30  December 31
                              ----------   ----------   ----------   ----------

Interest income               $8,207,972   $8,343,506   $8,523,469   $8,485,279
Interest expense               3,207,376    3,161,028    3,234,016    3,226,173
                              ----------   ----------   ----------   ----------
Net interest income            5,000,596    5,182,478    5,289,453    5,259,106
Provision for loan losses        250,000      250,000      300,000      300,000
Non-interset income            1,335,340    1,253,906    1,307,726    1,420,083
Non-interest expense           2,849,710    3,264,057    3,171,255    3,546,056
                              ----------   ----------   ----------   ----------
Income before income taxes     3,236,226    2,922,327    3,125,924    2,833,133
Income tax expense               805,240      779,597      834,259      761,215
                              ----------   ----------   ----------   ----------
Net income                    $2,430,986   $2,142,730   $2,291,665   $2,071,918
                              ==========   ==========   ==========   ==========

Net income per Share of
  Capital Stock               $     0.81   $     0.72   $     0.77   $     0.70
                              ==========   ==========   ==========   ==========


                                               Quarters Ended 2001
                              -------------------------------------------------
                                March 31     June 30   September 30  December 31
                              ----------   ----------   ----------   ----------

Interest income              $8,871,456   $8,885,862   $8,864,164   $8,563,255
Interest expense              4,470,686    4,426,058    4,237,634    3,823,867
                             ----------   ----------   ----------   ----------
Net interest income           4,400,770    4,459,804    4,626,530    4,739,388
Provision for loan losses        75,000      100,000       90,000      235,000
Non-interest income             799,414    1,026,347    1,041,765    1,141,282
Non-interest expense          2,600,794    2,776,724    2,785,829    3,120,808
                             ----------   ----------   ----------   ----------
Income before income taxes    2,524,390    2,609,427    2,792,466    2,524,862
Income tax expense              759,238      726,053      808,084      692,449
                             ----------   ----------   ----------   ----------
Net income                   $1,765,152   $1,883,374   $1,984,382   $1,832,413
                             ==========   ==========   ==========   ==========
Net income per Share of
  Capital Stock              $     0.59   $     0.63   $     0.66   $     0.61
                             ==========   ==========   ==========   ==========

                                       34
<PAGE>

                       IBT BANCORP, INC. CORPORATE PROFILE

     IBT Bancorp, Inc. (the "Company"), a Pennsylvania corporation,  is the bank
holding company for Irwin Bank & Trust Company ("Irwin Bank"). Irwin Bank is the
principal subsidiary of the Company.

     Irwin  Bank & Trust  Company  was  incorporated  in 1922  under the laws of
Pennsylvania  as  a  commercial  bank.  The  Bank  is  headquartered  in  Irwin,
Pennsylvania  and  conducts  business  through  6  full  service   branches,   5
supermarket  branches,  a loan office and a trust  office,  in the  Pennsylvania
counties of Westmoreland  and Allegheny.  Irwin Bank is a diversified  financial
services institution providing a broad range of deposits,  commercial and retail
banking  services,  as well as  trust  services  to  consumers  and  businesses.
Deposits in Irwin Bank are insured by the Federal Deposit Insurance  Corporation
to applicable limits.

Stock Market Information

     The  Company's  common stock is listed on the OTC Bulletin  Board under the
symbol "IBTB".  As of March 03, 2003, IBT Bancorp,  Inc. had  approximately  657
shareholders  of  record  and  2,977,655  shares  of  common  stock  issued  and
outstanding. The number of shareholders does not reflect persons or entities who
hold their stock in nominee or "street" name through various brokerage firms.

     The  following  table  sets forth high and low bid prices per share for the
common  stock  for the  calendar  quarters  indicated,  based  upon  information
obtained from the OTC Bulletin Board.  All such bid prices reflect  inter-dealer
prices,  without  retail  mark-down  or  commissions  and  may  not  necessarily
represent actual transactions.


                                    Price Range             Cash Dividends
                                High ($)       Low ($)   Declared Per Share ($)
                                --------       -------   ----------------------

2001
First Quarter                  22.25           20.13             .26
Second Quarter                 25.00           21.37             .26
Third Quarter                  26.50           24.35             .26
Fourth Quarter                 29.00           25.10             .26

                                    Price Range             Cash Dividends
                                High ($)       Low ($)   Declared Per Share ($)
                                --------       -------   ----------------------

2002
First Quarter                  33.00           27.30             .30
Second Quarter                 33.00           30.50             .30
Third Quarter                  35.00           31.90             .30
Fourth Quarter                 39.95           34.15             .30

     The ability of the Company to pay  dividends is dependent  upon the ability
of  Irwin  Bank  to pay  dividends  to the  Company.  Because  Irwin  Bank  is a
depository  institution  insured  by  the  FDIC  it may  not  pay  dividends  or
distribute capital assets if it is in default on any assessment due the FDIC.

                                       35
<PAGE>

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

Annual Shareholders Meeting

     The Annual  Meeting of  shareholders  of IBT Bancorp,  Inc. will be held on
Tuesday,  April 15, 2003 at 2:00 p.m. at the Irwin Masonic Hall,  located at 417
Main Street, Irwin, Pennsylvania.

Form 10-K

     The  Annual  Report  for the year ended  December  31,  2002 filed with the
Securities & Exchange  Commission on Form 10-K, is available without charge upon
written request. For a copy of the Form 10-K, please contact:  Charles G. Urtin,
President  and Chief  Executive  Officer,  IBT Bancorp,  Inc.,  309 Main Street,
Irwin, Pa 15642


Transfer Agent                                  Independent Auditors
Registrar and Transfer Company                  Edwards Sauer & Owens
Investor Relations                              500 Warner Centre
10 Commerce Drive                               Pittsburgh, Pa  15222
Cranford, New Jersey 07016-3572
1-800-368-5948

Market Makers
E. E. Powell & Company                          Ryan Beck & Co.
Mark Ingold                                     Brian Jacobelli
1100 Gulf Tower                                 Liberty Center
Pittsburgh, Pa 15219                            Suite 900
1-800-282-1940                                  1001 Liberty Avenue
                                                Pittsburgh, Pa 15222
                                                1-800-223-8162

Special Counsel                                 Stock Listing
Malizia Spidi & Fisch, PC                       OTC Bulletin Board
1100 New York Avenue, NW                        Under the Symbol "IBTB"
Suite 340 West
Washington, D.C. 20005

                                     36
<PAGE>
Irwin Bank & Trust Company Locations

Main Office
309 Main Street
Irwin, PA 15642
724-863-3100

Loan Center
319 Main Street
Irwin, PA 15642
724-863-3100

Trust Division
Suite 204
20 N. Pennsylvania Avenue
Greensburg, PA 15601
724-836-2010

UVest Investments
319 Main Street
Irwin, PA 15642
724-978-2751

Branch Offices
Route 30
9570 Route 30
Irwin, PA 15642
724-863-2510

Monroeville
Haymaker Village
4580 Broadway Blvd.
Monroeville, PA 15146
412-858-4450

Pitcairn
512 Broadway Blvd.
Pitcairn, PA 15140
412-372-3838

Irwin-North Huntingdon
Irwin Bank Extra - Scozio's Shop N' Save
Norwin Hills Shopping Center
8775 Norwin Avenue
North Huntingdon, PA 15642
724-861-8701

White Oak
Irwin Bank Extra - Scozio's Shop N' Save
Oak Park Mall
2001 Lincoln Way
White Oak, PA 15131
412-664-0984

Penn Township
4021 Route 130
Irwin, PA 15642
724-744-2176

White Oak
Oak Park Mall
2003 Lincoln Way
White Oak, PA 15131
412-678-3000

Ft. Allen
Irwin Bank Extra - Hempfield Shop N' Save
Route 136 & Janyce Drive
Greensburg, PA 15601
724-853-8540

Monroeville
Haymaker Village
Irwin Bank Extra - Giant Eagle
4548 Broadway Blvd.
Monroeville, PA 15146
412-856-5330

Penn Crossing
Irwin Bank Extra - Scozio's Festival Foods
2000 Penny Lane
Jeannette, PA 15644
724-744-6111