IBT BANCORP, INC.
2003 ANNUAL REPORT

<PAGE>

SELECTED FINANCIAL INFORMATION

IBT BANCORP, INC & SUBSIDIARY
<TABLE>
<CAPTION>
                                                                       AT OR FOR THE YEARS ENDED
                                                     2003           2002            2001            2000          1999
                                                              (Dollars in thousands, except per share amounts)
<S>                                                <C>            <C>             <C>             <C>           <C>
SELECTED BALANCE SHEET DATA:
Assets                                             $ 629,530      $ 584,035       $ 524,044       $ 496,379     $ 445,721
Cash and cash equivalents                             15,829         15,066          25,218          21,746        19,264
Securities available for sales                       172,448        186,718         162,968         167,874       151,063
Securities held to maturity                                -               -               -             -              -
Loans receivable (net)                               416,286        359,872         315,132         291,914       260,502
Deposits                                             492,158        468,257         422,462         409,638       368,680
Repurchase agreements                                 12,611         14,526          11,207           9,022         6,457
Federal funds purchased                                7,900              -               -               -         7,000
FHLB advances                                         53,308         40,000          35,000          28,000        22,000
Shareholders' equity                                  59,606         56,151          49,725          44,615        37,905

Selected Results of Operations
Interest income                                    $  33,398      $  33,560       $  35,185       $  33,787     $  29,731
Net interest income                                   22,083         20,732          18,226          17,200        16,087
Provision for loan losses                                600          1,100             500             300           300
Net interest income after provision
      for loan losses                                 21,483         19,632          17,726          16,900        15,787
Other income                                           5,891          5,317           4,009           2,946         2,764
Other expense                                         14,300         12,831          11,284          10,181         9,233
Net income                                             9,646          8,937           7,465           6,705         6,336

PER SHARE DATA:
Net Income
      Basic                                           $ 3.24         $ 3.00          $ 2.49          $ 2.23        $ 2.10
      Diluted                                           3.19           2.99            2.49            2.23          2.10
Cash dividends declared                                 1.40           1.20            1.04            0.92          0.80

SELECTED RATIOS:
Return on average assets                                1.59%          1.61%           1.45%           1.44%         1.49%
Return on average equity                               16.54%         16.95%          15.57%          16.87%        16.54%
Ratio of average equity to average assets               9.59%          9.47%           9.31%           8.52%         8.99%
Dividend payout                                        43.21%         40.00%          41.77%          41.26%        38.10%
</TABLE>
<PAGE>

A MESSAGE TO OUR STOCKHOLDERS

2003 FINANCIAL PERFORMANCE.
Following   2002's   "record-breaking"   performance,   2003   was  a  year   of
"ground-breaking" accomplishments resulting in continued growth, strong earnings
and  impressive  stock  performance  for IBT Bancorp,  Inc. With its stock price
closing the year at $59.23, IBT Bancorp, Inc. shareholders achieved a $21.28 per
share or 56% gain on their  investment.  When dividends are included,  the total
return was 60%.  The gain was  influenced  by the  company's  decision  to begin
trading on the  American  Stock  Exchange.  Strong  performance  by IBT Bancorp,
Inc.'s  subsidiary  Irwin Bank & Trust Company also contributed to the increase.
For 2003,  the company  achieved 7.8% growth in assets,  7.9% growth in earnings
and a 16.7% increase in the dividend.

GROUND-BREAKING EVENTS.
On April 1, 2003,  IBT Bancorp,  Inc.  stock was listed and began trading on the
American  Stock  Exchange  under the symbol  "IRW".  The exposure of the listing
positively  impacted the stock's liquidity causing an immediate  increase in the
price of IBT Bancorp,  Inc. shares.  Average daily trading volume was positively
affected,  increasing  262%  from  2002 to  2003.  The  stock is now part of the
Russell 3000 index.

On  October  20,  2003,  a new  deposit  product  called  Maximum  Checking  was
introduced  and added to the Bank's  portfolio.  It was  designed to attract and
retain customers that maintain higher checking account balances. Robust deposits
indicated an enthusiastic  customer response to the new account.  Irwin Bank and
Trust Company's  deposit  products now fully address  competitive  offerings and
satisfy customer demand.

In June  2003,  Irwin  Bank and  Trust  Company  broke  ground  (literally)  for
construction of a new,  full-service branch office in Greensburg,  Pennsylvania.
The new office opened on November 10, 2003.  The facility  expands the franchise
in the market  area's  dominant  community and further  establishes  the Bank as
Westmoreland County's largest local financial  institution.  We will continue to
assess  other  opportunities  for  expansion  and take  advantage  of them  when
appropriate.

A final highlight of 2003 was the  introduction  of check imaging  technology in
November.  As part of the process,  Irwin Bank & Trust Company also improved the
quality and readability of customer  statements.  The new technology has enabled
the Bank to be fully  compliant  with the  Check  21  government  mandate  which
requires all banks to implement check imaging.

Groundbreaking  for the new  Greensburg  office  took  place on June  10,  2003,
attended by the Company's  Directors,  the Greensburg  Advisory  Committee,  and
Local,   County  and  State  Elected  Officials.   Shown  from  left  to  right,
Westmoreland   County   Commissioner   Tom  Balya,   Branch   Manager   Kathleen
Jacquette-Tosh,  Company  President  Charles  G.  Urtin,  Greensburg  Mayor Karl
Eisaman and Chairman of the Board J. Curt Gardner.


                                       1
<PAGE>
CHALLENGES, TRENDS AND STRATEGY.
As we had projected in 2002, continued margin compression throughout the banking
industry in 2003 was caused by historically low interest rates. During 2003, the
Company's  net  interest  margin  declined  from 3.94% in 2002 to 3.83% in 2003.
However,  despite the decrease, net income for the year rose 7.9%.  Contributing
to the increase in net income was a 9.4%  improvement in net interest income and
an 10.8%  increase  in  non-interest  income,  offset  by an 11.4%  increase  in
non-interest  expenses.  The  overall  increase in net  interest  income was the
result of an increase in interest  bearing  assets.  However,  the  increase was
offset by the decrease in the  net-interest  margin.  It appears  that  interest
rates  will  remain  low  through  2004 and cause  continued  pressure  on banks
nationwide.

Increasing  bank  deposits was a difficult  challenge in 2003 due to  aggressive
competition  and  improved  stock  market  performance.  The robust stock market
attracted  investors  away from insured bank deposit  instruments.  The low rate
environment  helped Company assets increase by way of  record-breaking  consumer
and real-estate  mortgage  activity.  However,  there was a seasonal  decline in
consumer  mortgage activity in the fourth quarter and there are indications that
the  refinancing  boom may have  peaked.  This  trend may be at least  partially
offset by new residential  construction in our market area which remains strong.
A projected  increase in demographic  households  locally and county-wide should
also have a positive impact on loan demand.

LOOKING AHEAD.
Our  expectation is for challenges to continue in 2004. The net interest  margin
will remain under pressure as long as interest rates remain at historic lows. To
offset  the  challenge,  we remain  focused  on  controlling  expenses,  growing
non-interest  income,  exploring prudent  expansion  opportunities and improving
customer retention.

Non-interest  income growth  potential  exists in the Company's  UVest and Trust
divisions.  Our  marketing  strategy  will  emphasize  internal  opportunity  by
improving  the sales  capability  of our staff and  improving  our knowledge and
management of customer relationships. To facilitate the process, branch managers
now have direct access to customer relationship (CRM) data.

We will  continue to design and  implement  strategies  that focus on what we do
best,  community banking.  By listening to our customers and responding to their
changing needs, we will continue to build strong customer relationships, deliver
product value, and provide  community  leadership as our core community  banking
strategy.

/S/ Charles G. Urtin                                 /s/ J. Curt Gardner

Charles G. Urtin                                     J. Curt Gardner
President & Chief Executive Officer                  Chairman of the Board
IBT Bancorp, Inc.                                    IBT Bancorp, Inc.


                                       2
<PAGE>
                                                      [GRAPHIC OMITTED]
BOARD OF DIRECTORS / MANAGEMENT
IRWIN BANK & Trust Company Management
(Back row:) Raymond G. Suchta, Senior Vice President / CFO
David A. Finui, Senior Vice President / COO
(Seated front row:) Robert A. Bowell, Executive Vice President /
                    Secretary-Treasurer / CLO
Charles G. Urtin, President / CEO



                                                      [GRAPHIC OMITTED]
IBT BANCORP, INC. / IRWIN BANK & Trust Company
Board of Directors
(Back row:) J. Curt Gardner, Chairman
Edwin A. Paulone, Director
Dr. Grant J. Shevchik, Director
Charles G. Urtin, President / CEO
Richard L. Ryan, Director
(Seated front row:) Thomas Beter, Director
Robert Rebich, Director
Richard J. Hoffman, Director,
Robert C. Whisner, Director

                                       3
<PAGE>

THE AMERICAN STOCK EXCHANGE WELCOMES IBT BANCORP, INC.
IBT Bancorp began trading on the American  Stock Exchange under the symbol "IRW"
on April 1, 2003. The AMEX listing benefits existing and future  shareholders of
IBT Bancorp, Inc. by ensuring an efficient and liquid market. Valuation based on
supply and demand is enhanced  by  exposing  fundamentals  to the  national  and
international  investing community.  The auction market and specialist system of
the AMEX  provide the  fairest,  most  efficient,  and most liquid  market.  The
increased exposure to the institutional  investment community earned the Company
a listing on the Russell 3000 index. Bottom line: IBT Bancorp, Inc. shareholders
enjoyed a 56% increase in value in 2003.

Director  Grant J.  Shevchik,  President and CEO Charles G. Urtin,  COO David A.
Finui and CFO  Raymond G. Suchta ring the  opening  bell at the  American  Stock
Exchange on the first day of Company stock trading, April 1, 2003.

A NEW FULL SERVICE BANKING FACILITY
On November 12, 2003, Irwin Bank and Trust Company opened its new branch banking
facility  in  Greensburg,  Pennsylvania.  The  Company's  design  committee  and
architect Barry Morris, developed a design concept that expresses Irwin Bank and
Trust Company's  commitment to this important  market.  Consistent with customer
survey results,  the design minimizes the use of delivery automation in favor of
a high  touch  approach  to  customer  service.  The  floor  plan  offers a warm
transaction  area while  providing a comfortable  and private waiting and office
area for new  account  openings,  lending  and  investment  appointments.  Brand
awareness is apparent  with the exterior  presentation  of a bold roof design in
the Company's signature color of blue.

                                [GRAPHIC OMITTED]

Irwin Bank & Trust  Company's  newest branch office opened on November 12, 2003.
Cutting the ribbon  (L-R) are  Directors  Thomas  Beter,  Richard J. Hoffman and
Richard  L.  Ryan,   Assistant  Vice  President  and  Branch  Manager   Kathleen
Jacquette-Tosh,  Assistant Manager Megan Schaffer,  Company President Charles G.
Urtin and Director Robert C. Whisner.

                                       4
<PAGE>

                                [GRAPHIC OMITTED]

Completion of Irwin Bank and Trust  Company's 2003 technology  initiatives  will
provide  customers  with better  statements  and  service  and the Company  with
improved capital management in 2004.

AN  INVESTMENT IN  TECHNOLOGY  IMPROVES  AUTOMATION,  PROVIDES  BETTER  CUSTOMER
SERVICE AND ACHIEVES A COMPLIANCE  MANDATE
Check Imaging went online in November of 2003.  At the same time,  new statement
rendering and printing  technology was initiated.  Multiple  images of processed
checks are  gang-printed  on  letter-sized  pages that accompany  easier to read
monthly  statements.  Research  is  dramatically  faster and can be  provided by
several  bank   resources   such  as  the  Call  Center  and  Customer   Service
Representatives. The processing, printing and mailing of customer statements are
now one  automated  process  requiring  significantly  reduced  manpower.  Check
Imaging now places Irwin Bank and Trust Company in compliance  with the recently
adopted Check 21 federal regulation, requiring all banks to process check images
by October of 2004.

PRODUCT DEVELOPMENT FILLS A GAP IN OUR MARKETING MIX
Irwin Bank and Trust Company  launched a new checking product in October of 2003
called  Maximum  Checking.   This  product  positions  well  in  the  family  of
competitive offerings known as "relationship"  accounts. It combines a wealth of
banking  services in one simple account for a monthly fee.  However,  the fee is
waived if the customer achieves certain deposit or loan  relationship  balances.
In addition,  Maximum  Checking pays interest on the account  balance.  Customer
response has been  enthusiastic.  The product has out-performed all previous new
product  launches and completes a family of checking  accounts that fulfills the
needs of every market segment.

"We Offer Everything in One Simple Package" and "Maximum Reward,  Maximum Value"
are the  advertising  slogans  that  say it all for  the  new  Maximum  Checking
account.

                                       5
<PAGE>


A YEAR OF SUCCESS FOR REAL ESTATE
BASED LENDING
For Irwin Bank and Trust  Company,  2003 was a very good year for  consumer  and
real estate lending. Low interest rates continued to bring a record-level volume
of new residential and commercial mortgages, refinancing and construction loans.
The  resulting  increases  in interest  bearing  assets  favorably  affected the
performance of IBT Bancorp Inc.'s  subsidiary  title company,  T/A of Irwin, and
the  generation of fee income  resulting  from the secondary  sale of conforming
mortgages.  Consumer  loans  also  posted big gains in 2003.  Installment  loans
increased from $59,321,023 in 2002 to $78,326,069,  a 32% increase.  Home equity
lines of credit grew by 38% in both available and utilized credit lines. At year
end,  available  lines  stood at  $42,747,765  while  lines in use had  grown to
$21,963,205.

                                [GRAPHIC OMITTED]

Irwin Bank and Trust  Company is committed  to  financing  both the needs of our
neighbors and the dreams of our customers.  Pictured above (L-R) Irwin Bank Vice
President  Scott D.  Porterfield,  Hot Shots  Owners  Mike Gerger and Tim Davis,
along with Irwin Bank Chief  Lending  Officer  Robert A.  Bowell  celebrate  the
completion of Hot Shots, an indoor sports arena in Mount Pleasant, PA.

                                [GRAPHIC OMITTED]

Irwin Bank Chief Lending Officer Robert A. Bowell, Doctors Mark Klingensmith and
Geoffery  Bisignani,  building owners,  and Irwin Bank Vice President Alan Lazar
visit The BK Medical Building, a new professional office building in Greensburg,
PA. The project was financed by Irwin Bank & Trust Company. (Not pictured: Dr.
Gregory Bisignani)

                                       6
<PAGE>


COMMUNITY SPIRIT IS THE SPIRIT OF COMMUNITY BANKING

Irwin  Bank and Trust  Company  takes  great  pride in the  financial  and human
support it provides to the  communities it serves.  Well over 200  organizations
benefit from the Company's sponsorships,  donations and the active participation
of its employees as volunteers and directors. Recipients range from far reaching
institutions including the United Way and the Make-A-Wish Foundation to the very
grassroots of local neighborhoods  including school boosters, fire companies and
service clubs.

Community banking is also about understanding local banking needs. The Company's
Commercial  Relationship  Managers and Branch  Retail Staff  monitor and fulfill
those  needs,  providing  customers  with the banking  solutions  demanded by an
ever-changing marketplace.

[GRAPHIC OMITTED]

Irwin Bank and Trust company  sponsored the painting of an historical  billboard
commissioned by the Lincoln Highway  Heritage  Corridor located on a building in
downtown Greensburg.

[GRAPHIC OMITTED]

President  and CEO Charles G. Urtin and  Assistant  Vice  President  Sheli Fyock
present Irwin Bank and Trust Company's donation to the Make-A-Wish Foundation at
a holiday  radio-telethon  held at Monroeville  Mall.  Accepting the donation is
local broadcast  personality  Kathy Svilar and Make-A-Wish  representative,  Ann
Fisher.

[GRAPHIC OMITTED]

Assistant Chief Mike Radakovich and Second Lieutenant Stephan Gongaware show off
Manor Borough's newest  investment in the safety of its citizens,  an Irwin Bank
and Trust  Company-financed  fire engine,  to Chief  Lending  Officer  Robert A.
Bowell and Vice President Alan Lazar.

                                       7
<PAGE>
<TABLE>
<CAPTION>
[Graphic Omitted]           [Graphic Omitted]     [Graphic Omitted]               [Graphic Omitted]          [Graphic Omitted]

<S>                         <C>                   <C>                            <C>                         <C>
Douglas P. Arndt            Louis C. Bouchat      Carolyn Sue Bozzick            Jeffrey A. Branthoover      Lisa A. Dawson
Assistant Vice President/   Vice President /      Retail Banking Officer/        Assistant Vice President/   Vice President /
Consumer Lending            Commercial Lending    Branch Mgr. - Haymaker Office  Trust                       Loan Administration
Hired October, 2003         Hired March, 2003     Promoted November, 2003        Hired January, 2003         Promoted April, 2003


[Graphic Omitted]           [Graphic Omitted]       [Graphic Omitted]            [Graphic Omitted]          [Graphic Omitted]

Mary Ann Ernette            Sheli L. Fyock          Donald D. Henderson, III     Debra S. Hopper             Deborah L. Kukic
Assistant Vice President/   Assistant Vice          Vice President /             Vice President /            Training Officer
UVEST Investment Services   President/Marketing     Operations                   Human Resources             Promoted April, 2003
Hired August, 2003          Promoted April, 2003    Promoted April, 2003         Promoted April, 2003


[Graphic Omitted]           [Graphic Omitted]       [Graphic Omitted]            [Graphic Omitted]          [Graphic Omitted]

Maurine J. Peer              Kristin S. Robertucci   Linda D. Shaner             Raymond G. Suchta           James W. Thompson
Assistant Vice President/    Vice President /        Assistant Vice President /  Sr. Vice President /        Vice President /
Branch Mgr. - Main Office    Accounting              Commercial Lending          Chief Financial Officer     Commercial Lending
Promoted April, 2003         Promoted April, 2003    Promoted November, 2003     Promoted April, 2003        Hired November, 2003


[Graphic Omitted]                      [Graphic Omitted]


Kathleen T. Jaquette-Tosh             John R. Winter
Assistant Vice President /            Vice President /
Branch Mgr. - Greensburg Branch       Commercial Lending
Hired April, 2003                     Hired April, 2003
</TABLE>

                                       8
<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").  The Company's  stock is traded on the American
Stock Exchange under the symbol IRW.

     The  Company  opened  a new  full  service  branch  office  in the  central
Greensburg  area of  Westmoreland  county in  November,  2003.  The  Company now
operates  out of a main  office,  six branch  offices,  a loan  center,  a trust
office,  and five supermarket  branches located in the Pennsylvania  counties of
Westmoreland and Allegheny.

CRITICAL ACCOUNTING POLICIES

     The most  significant  accounting  policies  followed  by the  Company  are
presented in Note 1 to the  consolidated  financial  statements.  The  Company's
accounting  and  reporting  policies  conform  with  the  accounting  principles
generally  accepted in the United States of America and general practices within
the financial  services  industry.  The preparation of the financial  statements
requires  management to make estimates and  assumptions  that affect the amounts
reported in the financial  statements and the accompanying notes. Actual results
could differ from those estimates.

     Allowance for loan losses:  The Company considers that the determination of
the  allowance  for  loan  losses  involves  a higher  degree  of  judgment  and
complexity than its other significant  accounting  policies.  The balance in the
allowance  for loan  losses  is  determined  based on  management's  review  and
evaluation of the loan portfolio in relation to past loss  experience,  the size
and composition of the portfolio,  current  economic events and conditions,  and
other pertinent factors.  All of these factors may be susceptible to significant
change  to the  extent  actual  outcomes  differ  from  management's  estimates,
additional  provisions  for loan  losses may be  required  that would  adversely
impact earnings in future periods.

     Accounting  for stock options:  As of January 1, 2003, the Company  adopted
SFAS 123 as amended by SFAS 148 in regards to the  accounting for stock options.
As required by this statement,  the Company recognized  compensation  expense in
the income  statement  based on the  estimated  fair value of the options on the
date of the grant.  Prior to this date the  Company  accounted  for  stock-based
compensation in accordance with  Accounting  Principles  Board Opinion (APB) No.
25.  Under APB No.  25, no  compensation  expense  is  recognized  in the income
statement related to any options granted under the Company's stock option plans.
The pro forma  impact to net income and  earnings  per share that would occur if
compensation  expense was  recognized,  based on the estimated fair value of the
options on the date of the grant, is disclosed in the notes to the  consolidated
financial statements.

FINANCIAL CONDITION

     At December 31, 2003,  total assets  increased  $45.5 million,  or 7.8%, to
$629.5  million from $584.0  million at December 31, 2002. The increase in total
assets  was  primarily  the  result  of a $56.4  million  increase  in net loans
receivable offset by a $15.7 million decrease in securities  available
                                       1
<PAGE>
for sale.  The  growth in the loan  portfolio  was  funded  by the  decrease  in
securities  available for sale, increases in total deposits of $23.9 million and
additional FHLB advances of $13.3 million.

     The  increase in the loan  portfolio  was  primarily  due to an increase of
$34.7 million in real estate secured  mortgage loans.  Included in this category
are multi-family  properties and commercial mortgages,  which rose $11.7 million
and $31.8  million,  respectively.  Such  increases were offset by a decrease of
$5.1 million in 1-4 family residential mortgages. This decrease is attributed to
customer  refinancings,  principal  repayments,  and  sales  into the  secondary
mortgage  market.  The 1-4 family  residential  mortgage loans originated by the
Company  are  periodically  sold  to the  Pennsylvania  Housing  Finance  Agency
("PHFA") or PHH Mortgage Services to mitigate the interest-rate  risk associated
with holding long-term,  low rate loans in the portfolio. In 2003, loans sold to
PHFA and PHH were $1.1 million and $22.1 million, respectively.

     Consumer  installment  and home equity credit lines increased $19.0 million
and $6.1  million,  respectively,  offset by a decrease of $4.9 million in loans
made to  municipalities.  Loan growth is attributed to the Company's offering of
competitive market interest rates.

     The decrease in available for sale  securities  was primarily the result of
sales, principal repayments, and maturities of mortgage-backed securities, which
had a net  decrease of $16.4  million  and  obligations  of state and  political
sub-divisions,  which  decreased $1.0 million.  Such decreases were offset by an
increase of $2.5 million in obligations  of U.S.  government  agencies.  Federal
Home  Loan  Bank  stock  had a net  increase  of  $1.4  million.  The  Company's
investment in this stock is determined by the outstanding borrowings the Company
has with the  Federal  Home Loan Bank and is  purchased  and sold at its  stated
value.

     At December 31, 2003, total liabilities  increased $42.0 million,  or 8.0%,
to $569.9  million from $527.9  million at December  31, 2002.  The increase was
primarily  related to the increase in total deposits,  additional FHLB advances,
and  overnight  borrowings  of $23.9  million,  $13.3  million and $7.9 million,
respectively.  The change in total deposits was a result of non-interest bearing
and  interest-bearing  deposit  increases  of $6.8  million  and $17.2  million,
respectively.   The   interest-bearing   deposit  increases  were  primarily  in
certificates of deposit and savings accounts,  which rose $10.8 million and $4.3
million, respectively.  Such increases were attributed to a growing deposit base
and competitive pricing.

     Non-interest  bearing  deposits  increased $6.8 million to $81.1 million at
December  31,  2003 from $74.3  million at December  31,  2002.  Such  increases
reflect  additions to non-interest  bearing deposits of $4.9 million offset by a
$1.9 million  decrease in investments  in repurchase  agreements at December 31,
2003. 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.

     The  Company  showed a net  increase  of $13.3  million  in FHLB  long-term
borrowings. These fixed-rate advances were used to fund the loan originations.

     At December 31, 2003, total stockholders'  equity increased $3.4 million to
$59.6  million  from $56.2  million at  December  31,  2002.  The  increase  was
primarily  due to net income of $9.6  million  for the  period  offset by a $1.7
million decrease in accumulated other comprehensive income (net of income taxes)
and dividends paid of $4.2 million.  In addition,  surplus  (additional  paid-in
capital)  decreased  $491,000  due to  stock  options  exercised  and  increased
$102,000 due to stock options  granted in  accordance  with the adoption of FASB
123,  as  amended  by  FASB  148.  See  Note  19 to the  consolidated  financial
statements.  Accumulated  other  comprehensive  income  decreased 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.

RESULTS OF OPERATIONS

     Net Income: Net income increased  approximately  $709,000, or 7.9%, to $9.6
million ($3.19 per diluted share) for the year ended December 31, 2003 from $8.9
million  ($2.99 per diluted  share) for the year ended  December 31,  2002.  The
increase in net
                                        2
<PAGE>

income for fiscal  2003  compared  to fiscal  2002 was  primarily  due to a $1.9
million increase in net interest income, a $574,000 increase in other income and
a $500,000  decrease in the  provision  for loan  losses.  Net  interest  income
increased  primarily  because interest expense declined $1.5 million,  or 11.8%,
while interest income remained  relatively stable,  declining only $162,000,  or
..05%.  The Company was able to maintain  its levels of interest  income due to a
$50.0 million increase in the average volume of interest-earning  assets,  which
more than offset a 58-basis point decline in average yield.

     At December 31, 2002, net income increased  approximately $1.4 million,  or
19.7%,  to $8.9 million  ($2.99 per diluted  share) from $7.5 million ($2.49 per
diluted  share) for the year ended December 31, 2001. The increase in net income
for fiscal 2002 compared to fiscal 2001 was primarily due to an $1.9 increase in
net interest income after provision for loan losses. Such increase 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.

     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 before the provision  for loan losses  increased  $1.4
million,  or 6.76% to $22.1 million for 2003 compared to $20.7 million for 2002.
The increase was primarily due to the increase in average loans of $56.1 million
and average investment securities available for sale of $4.1 million offset by a
decrease in average other interest-earning assets (primarily federal funds sold)
of $10.2 million and a 58-basis point decrease in the yield on average  interest
earning  assets to 5.80% for 2003 from 6.38% for 2002. 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  68-basis  points and
89-basis point,  respectively.  Average  interest-bearing  liabilities increased
$40.2 million in fiscal 2003 offset by a 58-basis  point decrease in the average
cost of funds.

     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 $29.5 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
3.4% from 2.9% 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.


                                       3
<PAGE>
<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                               -----------------------------------------------------------------------------------
                                                                 2003                                       2002
                                               -----------------------------------------------------------------------------------
                                                 Average                     Average        Average                     Average
                                                 Balance      Interest     Yield/Cost       Balance      Interest     Yield/Cost
                                                ---------     --------     ----------       --------     --------     ----------
                                                                                                    (Dollars in Thousands)
<S>                    <C>                      <C>            <C>            <C>           <C>           <C>            <C>
Interest-earning assets:
   Loans receivable    (1)                      $393,743       $26,097        6.63%         $337,600      $24,687        7.31%
   Investment securities available for
     sale (2)                                    177,557         7,244        4.08%          173,472        8,615        4.97%
   Other interest-earning assets (5)               4,926            57        1.16%           15,086          258        1.71%
                                                --------       -------      ------          --------      -------      ------
          Total interest earning assets         $576,226       $33,398        5.80%         $526,158      $33,560        6.38%
Non-interest earning assets (8)                   31,441                                      30,550
                                                --------                                    --------
            Total assets                        $607,667                                    $556,708
                                                ========                                    ========
Interest-bearing liabilities:
   Money market accounts                          61,138           645        1.05%           60,735        1,234        2.03%
   Certificates of Deposit                       221,186         7,303        3.30%          208,789        7,935        3.80%
   Other liabilities (7)                         185,117         3,367        1.82%          157,629        3,660        2.32%
                                                --------       -------      ------          --------      -------      ------
     Total interest-bearing liabilities         $467,441       $11,315        2.42%         $427,153      $12,829        3.00%
Non-interest-bearing liabilities (8)              81,918                                      76,818
                                                --------                                    --------
    Total liabilities                           $549,359                                    $503,971
Retained Earnings (6)                             58,308                                      52,737
                                                --------                                    --------
     Total liabilities and stockholders'
        equity                                  $607,667                                    $556,708
                                                ========                                    ========
Net interest income                                            $22,083                                    $20,731
                                                               =======                               ============
Interest rate spread (3)                                                      3.38%                                      3.38%
                                                                            ======                                     ======
Net yield on interest-earning assets (4)                                      3.83%                                      3.94%
                                                                            ======                                     ======
Ratio of average interest-earning                                           123.27%                                    123.18%
assets to average interest-bearing liabilities                              ======                                     ======
<CAPTION>

                                               -------------------------------------------
                                                                   2001
                                               -------------------------------------------
                                                  Average                       Average
                                                  Balance      Interest        Yield/Cost
                                                  -------      --------        ----------
                                                       (Dollars in Thousands)
<S>                    <C>                        <C>          <C>                <C>
Interest-earning assets:
   Loans receivable    (1)                        $304,080     $24,320            8.00%
   Investment securities available for
     sale (2)                                      177,263      10,337            5.83%
   Other interest-earning assets (5)                13,850         527            3.81%
                                                  --------     -------          ------
          Total interest earning assets           $495,193     $35,184            7.11%
Non-interest earning assets (8)                     20,404
                                                  --------
            Total assets                          $515,597
                                                  ========
Interest-bearing liabilities:
   Money market accounts                            55,020       1,751            3.18%
   Certificates of Deposit                         205,242      11,286            5.50%
   Other liabilities (7)                           137,481       3,921            2.85%
                                                  --------     -------          ------
     Total interest-bearing liabilities           $397,743     $16,958            4.26%
Non-interest-bearing liabilities (8)                69,904
                                                  --------
    Total liabilities                             $467,647
Retained Earnings (6)                               47,950
                                                  --------
     Total liabilities and stockholders'
        equity                                    $515,597
                                                  ========
Net interest income                                            $18,226
                                                               =======
Interest rate spread (3)                                                          2.85%
                                                                                ======
Net yield on interest-earning assets (4)                                          3.68%
                                                                                ======
Ratio of average interest-earning                                               124.50%
assets to average interest-bearing liabilities                                  ======

<FN>
(1)  Average  balances include  non-accrual  loans, and are net of deferred loan
     fees.
(2)  Includes interest-bearing deposits in other financial institutions and FHLB
     stock.
(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 unrealized  holding gains on SFAS 115
     AFS securities.
(7)  Includes FHLB advances and Federal funds purchased.
(8)  Includes  net  deferred  income taxes in excess of deferred tax benefits on
     AFS securities  (SFAS 115),  stock options (SFAS 123/148) and deferred fees
     (SFAS109).
</FN>
</TABLE>
                                       4
<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,
                                             2003 vs. 2002                   2002 vs. 2001
                                     -----------------------------   ------------------------------
                                          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                 $ 4,105    $(2,696)   $ 1,409    $ 2,681    $(2,314)   $   367
   Investment securities
     available  for sale                203     (1,574)    (1,371)      (221)    (1,501)    (1,722)

   Other interest earning assets       (174)       (27)      (201)        47       (316)      (269)
                                    -------    -------    -------    -------    -------    -------
  Total interest-earning assets       4,134     (4,297)      (163)     2,507     (4,131)    (1,624)
                                    -------    -------    -------    -------    -------    -------

Interest expense:
   Money market accounts                  9       (597)      (588)       182       (699)      (517)
   Certificates of deposit              471     (1,103)      (632)       195     (3,546)    (3,351)
   Other liabilities                    642       (936)      (294)       574       (836)      (262)
                                    -------    -------    -------    -------    -------    -------
         Total interest-bearing
            liabilities               1,122     (2,636)    (1,514)       951     (5,081)    (4,130)
                                    -------    -------    -------    -------    -------    -------

Net change in net interest income   $ 3,012    $(1,661)   $ 1,351    $ 1,556    $   950    $ 2,506
                                    =======    =======    =======    =======    =======    =======
</TABLE>

         PROVISION  FOR LOAN LOSSES:  The Company  recorded a provision for loan
losses  of  $600,000,  $1.1  million  and  $500,000  for 2003,  2002,  and 2001,
respectively.  The table  below  sets  forth  information  with  respect  to the
Company's allowance for loan losses for the years indicated:

                                       5
<PAGE>
<TABLE>
<CAPTION>
                                                       At December 31,
                                            -------------------------------------
                                              2003           2002          2001
                                            ---------     ---------     ---------
                                                     (Dollars in Thousands)
<S>                                         <C>           <C>           <C>
Total loans outstanding                     $ 419,571     $ 362,744     $ 317,246
                                            =========     =========     =========
Average loans outstanding                   $ 393,743     $ 337,600     $ 304,080
                                            =========     =========     =========

Allowance balances (at
 beginning of period)                       $   2,873     $   2,114     $   1,919

Provision (credit):
   Mortgage                                       430           930           200
   Installment                                     38            25           100
   Commercial                                     132           145           200
   Home equity lines of credit                   --            --            --
   PHEAA                                         --            --            --
   Municipal                                     --            --            --
   Credit cards                                  --            --            --
   Other                                         --            --            --
Net (Charge-offs) recoveries:
   Mortgage                                       (11)         (219)         (203)
   Installment                                    (64)          (59)          (90)
   Commercial                                    (113)          (63)          (14)
   Home equity lines of credit                   --            --            --
   PHEAA                                         --            --            --
   Municipal                                     --            --            --
   Credit cards                                  --            --               2
   Other                                         --            --            --
                                            ---------     ---------     ---------
Allowance balance (at end of period)        $   3,285     $   2,873     $   2,114
                                            =========     =========     =========
Allowance for loan losses as a percent of        0.78%         0.79%         0.67%
total loans outstanding

Net loans charged off as a percent of
average loans outstanding                        0.05%         0.10%         0.10%
</TABLE>

        The  provision  for loan losses is charged to  operations  to bring the
total  allowance for loan losses to a level that  represents  management's  best
estimate of the losses  inherent in the portfolio,  based on a monthly review by
management of the following factors:

o    Historical experience
o    Volume
o    Type of lending conducted by the Bank
o    Industry standards
o    The level and  status of past due and  non-performing  loans

                                       6
<PAGE>

o    The general economic conditions in the Bank's lending area; and
o    Other factors affecting the collectability of the loans in the portfolio

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

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

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

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

     Other Income: Total other income increased approximately $574,000, or 10.8%
to $5.9  million for the year ended  December 31, 2003 from $5.3 million for the
year  ended  December  31,  2002.  Such  increase  was  mainly the result of net
security gains of $466,000.  Other income increased  $316,000 primarily due to a
gain from the sale of other real estate of $351,000.

     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.

     Other Expenses:  Total other expense  increased $1.5 million,  or 11.7%, to
$14.3  million  for  2003  from  $12.8  million  for  2002.  Of  this  increase,
approximately  $355,000 is attributed to increased salaries,  which reached $5.7
million  for 2003  from $5.3  million  for 2002.  Salary  increases  were due to
additions to staff,  annual merit increases,  and commissions paid to commission
based lenders.  Pension and other employee benefits  increased  $324,000 to $1.6
million  for 2003  primarily  due to  increases  in  pension  costs  and  health
insurance  premiums of $96,000 and  $129,000,  respectively.  Occupancy  expense
increased  $221,000  to $1.5  million,  for  2003  from  $1.3  million  for 2002
primarily due to an increase of $153,000 in depreciation  expense related to the
construction  of  a  new  branch  and  equipment   purchases  for  technological
improvements.  Rental expense  increased $42,000 mainly due to the relocation of
the Company's item processing  department.  Other expenses increased $396,000 to
$3.8 million for 2003 from $3.4 million for 2002. This increase was comprised of
numerous  items related to the normal cost of doing  business,  non-material  in
nature.

     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 for 2002 from $4.4
million for 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 for 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 for 2001 predominately due to increased

                                       7
<PAGE>

depreciation  and real estate tax expense of $77,000 and $17,000,  respectively.
Other expenses increased $157,000 to $3.4 million for 2002 from $3.2 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.

         Income Taxes:  Income tax expense for 2003 was $3.4 million compared to
$3.2  million  in 2002 and $3.0  million  in 2001.  The  increase  in income tax
expense was principally  attributable to increased  earnings in each period. The
Company's  effective tax rates were 26.2%,  26.2%, and 28.5% for 2003, 2002, and
2001,  respectively.  The  Company's  effective  tax  rate has  been  below  the
statutory rate of 34% primarily due to interest  earned on obligations of states
and political subdivisions, which is exempt from federal taxation.

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,  2003,  the Company had  commitments  to extend
credit of $77.0 million.

         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, 2003, cash and cash equivalents totaled $15.8 million.

         Net cash from operating  activities for 2003 totaled $10.1 million,  as
compared to net cash from  operating  activities  of $8.7 million for 2002.  The
increase in 2003 was primarily  the result of a $709,000  increase in net income
offset by a decrease of $921,000 in other assets and  $500,000 in provision  for
loan losses.  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 used by investing  activities  for 2003 totaled $47.9 million,
as compared to cash used of $69.1  million for 2002 and $14.7  million for 2001.
The decrease of $21.2  million for 2003 was primarily due to a decrease of $48.4
million in  securities  purchased.  The  increase of $54.4  million for 2002 was
primarily  due to an increase in purchases of  securities  available for sale of
$25.4 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.

         Net cash from financing activities for the year ended December 31, 2003
totaled  $38.5  million,  as compared to net cash from  financing  activities of
$50.3 million for 2002 and $18.5 million for 2001. The $11.8 million decrease in
cash from  financing  activities  in 2003 was primarily due to a decrease in the
net increase in deposits of $21.9  million.  The $31.8 million  increase in cash
from  financing  activities for 2002 was primarily the result of a $33.0 million
increase in deposits.

         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.

         The table below sets forth certain information  regarding the Company's
contractual  obligations.  See Note 4 and Note 8 to the  consolidated  financial
statements.

                                       8
<PAGE>
<TABLE>
<CAPTION>

                                                                  Payments due by period
                                          ---------------------------------------------------------------------------
                                                         Less than         1-3             3-5          More than
Contractual Obligations                   Total           1 year          years           years          5 years
---------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>            <C>              <C>              <C>
Long-Term Debt Obligations                53,308          10,776         1,618            12,914           28,000

Operating Lease Obligations                   888            213           254               115              306
</TABLE>

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.

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,  2003.
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.

                                       9
<PAGE>



Expected Maturity/Principal Repayment at December 31,
<TABLE>
<CAPTION>

                                                                                   Total         Book         Fair
                             2004     2005        2006         2007      2008    Thereafter      Value        Value
                           -------  -------     -------      -------   -------   ----------     -------      -------
                                                            (Dollars in thousands)
<S>                         <C>      <C>           <C>         <C>       <C>       <C>          <C>          <C>
Interest-earning assets
-----------------------
Mortgage loans              10,442   10,028        8,958       7,989     6,463     201,043      244,923      248,442

Home equity loans,
    second mortgage
    loans, student
    loans,
    other loans             35,011   11,594       10,524       9,555     8,033      34,446      109,163      109,597
Commercial loans,
    municipal loans         12,538    5,524        4,298       2,724     2,208      38,567       65,859       66,247
Investment securities
    available for sale       2,485    1,498          100       5,751     3,368     153,139      166,341      167,907


Interest-bearing
-----------------
liabilities
-----------------
NOW and other
    transaction accounts    19,295        -            -           -         -           -       19,295       19,295
Money market and
    other savings
    accounts               153,100        -            -           -         -           -      153,100      153,100
Certificates of
    deposits               120,642   62,326        9,219      14,427    20,453      11,168      238,235      241,804
Federal Home Loan
    Bank of Pittsburgh
    advances                10,776      798          820       2,843    10,071      28,000       53,308       61,145

</TABLE>

                                       10
<PAGE>

                     [Letterhead of Edwards Sauer & Owens]

                          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, 2003 and 2002,  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, 2003.
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,  2003 and 2002,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted in
the United States of America.

/s/ Edwards Sauer & Owens


Pittsburgh, Pennsylvania
January 26, 2004


<PAGE>
CONSOLIDATED BALANCE SHEETS

IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                                                                 December 31,
                                                            2003              2002
                                                       -------------    -------------
<S>                                                    <C>              <C>
 ASSETS
      Cash and due from banks                          $  15,391,714    $  12,677,160
      Interest-bearing deposits in banks                     436,981          760,118
      Federal funds sold                                        --          1,629,000
      Certificate of deposit                                 100,000          100,000
      Securities available for sale                      167,907,113      183,564,960
      Federal Home Loan Bank stock, at cost                4,540,500        3,152,600
      Loans, net of allowance for loan losses of
           $3,284,830 in 2003 and $2,873,067 in 2002     416,286,455      359,871,514
      Premises and equipment, net                          6,468,749        4,759,015
      Other assets                                        18,398,092       17,520,354
                                                       -------------    -------------
TOTAL ASSETS                                           $ 629,529,604    $ 584,034,721
                                                       =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
      Deposits
           Non-interest bearing                        $  81,053,392    $  74,339,035
           Interest-bearing                              411,104,137      393,918,292
                                                       -------------    -------------
           Total deposits                                492,157,529      468,257,327
      Federal funds purchased                              7,900,000             --
      Repurchase agreements                               12,610,877       14,525,836
      Accrued interest and other liabilities               3,947,390        5,100,380
      FHLB advances                                       53,307,767       40,000,000
                                                       -------------    -------------
      Total liabilities                                  569,923,563      527,883,543

STOCKHOLDERS' EQUITY
      Capital stock, par value $1.25,
           50,000,000 shares authorized,
           3,023,799 shares issued, 2,977,655
           shares outstanding at December 31,
           2003 and 2002                                   3,779,749        3,779,749
      Surplus                                              1,684,258        2,073,102
      Retained earnings                                   54,451,662       48,974,137
      Accumulated other comprehensive income               1,033,638        2,667,456
                                                       -------------    -------------
                                                          60,949,307       57,494,444
      Less:  Treasury stock, at cost                      (1,343,266)      (1,343,266)
                                                       -------------    -------------
      Total stockholders' equity                          59,606,041       56,151,178
                                                       -------------    -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $ 629,529,604    $ 584,034,721
                                                       =============    =============

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

                                        2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME

IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                              --------------------------------------------
                                                 2003             2002            2001
                                              ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
INTEREST INCOME
        Loans, including fees                 $ 26,096,559    $ 24,687,048    $ 24,320,407
        Investment securities                    7,244,174       8,614,876      10,337,309
        Federal funds sold                          57,110         258,302         527,021
                                              ------------    ------------    ------------
        Total interest income                   33,397,843      33,560,226      35,184,737

INTEREST EXPENSE
        Deposits                                 8,666,938      10,537,258      14,773,560
        Federal funds purchased                     25,933             193            --
        FHLB advances                            2,487,363       2,113,678       1,833,212
        Repurchase agreements                      134,546         177,464         351,473
                                              ------------    ------------    ------------
        Total interest expense                  11,314,780      12,828,593      16,958,245
                                              ------------    ------------    ------------
NET INTEREST INCOME                             22,083,063      20,731,633      18,226,492

PROVISION FOR LOAN LOSSES                          600,000       1,100,000         500,000
                                              ------------    ------------    ------------
NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                              21,483,063      19,631,633      17,726,492

OTHER INCOME (LOSSES)
        Service fees                             2,370,065       2,370,568       1,854,595
        Investment security gains                  533,155         158,670         452,890
        Investment security losses                 (67,636)        (24,925)        (60,792)
        Increase in cash surrender value           513,066         584,847          85,914
        of life insurance
        Debit card fees                            614,475         615,517         520,393
        Other income                             1,927,933       1,612,378       1,155,822
                                              ------------    ------------    ------------
        Total other income                       5,891,058       5,317,055       4,008,822

OTHER EXPENSES
        Salaries                                 5,653,310       5,297,750       4,359,468
        Pension and other employee benefits      1,642,651       1,318,944       1,081,027
        Occupancy expense                        1,549,532       1,329,170       1,209,779
        Data processing expense                    843,074         729,548         750,896
        Advertising expense                        412,702         406,898         340,513
        Pennsylvania shares tax                    446,041         391,557         341,823
        Other expenses                           3,752,672       3,357,211       3,200,650
                                              ------------    ------------    ------------
        Total other expenses                    14,299,982      12,831,078      11,284,156
                                              ------------    ------------    ------------
INCOME BEFORE INCOME TAXES                      13,074,139      12,117,610      10,451,158

PROVISION FOR INCOME TAXES                       3,427,893       3,180,311       2,985,824
                                              ------------    ------------    ------------
NET INCOME                                    $  9,646,246    $  8,937,299    $  7,465,334
                                              ============    ============    ============
BASIC EARNINGS PER SHARE                      $       3.24    $       3.00    $       2.49
                                              ============    ============    ============
DILUTED EARNINGS PER SHARE                    $       3.19    $       2.99    $       2.49
                                              ============    ============    ============
</TABLE>
The  accompanying  notes  an  integral  part  of  these  consolidated  financial
statements.

                                       3
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

IBT BANCORP, INC. AND SUBSIDIARY

Years Ended December 31, 2003, 2002 and 2001
<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 benefit 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
                               ==========   ==========   ===========   ==========      ===========    ===========

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

                                       4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

IBT BANCORP, INC. AND SUBSIDIARY

Years Ended December 31, 2003, 2002 and 2001
<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 benefit of ($34,532)                                          (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   $48,947,137   $2,667,456      $(1,343,266)   $56,151,178
                               ==========   ==========   ===========   ==========      ===========    ===========

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

                                       5
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

IBT BANCORP, INC. AND SUBSIDIARY

Years Ended December 31, 2003, 2002 and 2001
<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, 2002              $3,779,749   $2,073,102   $48,974,137   $2,667,456      $(1,343,266)   $56,151,178

Comprehensive Income
    Net income                                             9,646,246                                    9,646,246
    Other comprehensive
      income, net of tax:
      Change in net
        unrealized holding
        gains on securities
        available for sale,
        net of deferred
        income tax of
        ($739,040)                                                     (1,434,608)                     (1,434,608)

      Reclassification
        adjustment, net of
        deferred income
        tax benefit of ($102,624)                                        (199,210)                       (199,210)
                                                                                                      -----------
                                                                                                       (1,633,818)
                                                                                                      -----------
        Total Comprehensive
           Income                                                                                       8,012,428

Cash dividends ($1.40)                                    (4,168,721)                                  (4,168,721)
Stock options granted                          102,154                                                    102,154
Exercise of stock options                     (490,998)                                                  (490,998)
Purchase of
    Treasury Stock                                                                               -              -
                               ----------   ----------   -----------   ----------      -----------    -----------
BALANCE AT
DECEMBER 31, 2003              $3,779,749   $1,684,258   $54,451,662   $1,033,638      $(1,343,266)   $59,606,041
                               ==========   ==========   ===========   ==========      ===========    ===========

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


                                       6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                                  -----------------------------------------------
                                                                        2003            2002              2001
                                                                  -------------    -------------    -------------
<S>                                                               <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                  $   9,646,246    $   8,937,299    $   7,465,334
      Adjustments to reconcile net cash
      from operating activities:
      Depreciation                                                      832,770          684,731          607,993
      Increase in cash surrender value of insurance                    (513,066)        (584,847)         (85,914)
      Net amortization/accretion of
      premiums and discounts                                          1,129,046          429,379          102,482
      Net investment security gains                                    (465,519)        (133,745)        (392,098)
      Provision for loan losses                                         600,000        1,100,000          500,000
      Stock options granted                                             102,154             --               --
      Increase (decrease) in cash due to
      changes in assets and liabilities:
      Other assets                                                     (921,069)        (540,772)      (8,527,117)
      Accrued interest and other liabilities                           (311,325)      (1,232,409)         (48,024)
                                                                  -------------    -------------    -------------
Net Cash From (Used By) Operating Activities                         10,099,237        8,659,636         (377,344)

CASH FLOWS FROM INVESTING ACTIVITIES
      Purchase of certificates of deposit                              (100,000)            --         (2,606,400)
      Proceeds from maturity of certificates of deposit                 100,000             --          5,206,400
      Proceeds from sales of securities available for sale           34,800,655       31,725,398        8,128,240
      Proceeds from maturities of securities available for sale      54,553,305       72,493,575       98,681,479
      Purchase of securities available for sale                     (76,835,123)    (125,205,572)     (99,729,469)
      Net loans made to customers                                   (56,458,544)     (46,265,045)     (23,829,098)
      Purchases of premises and equipment                            (2,542,504)        (788,236)        (363,726)
      Proceeds from Federal Home Loan Bank stock                      1,772,400             --               --
      Purchase of Federal Home Loan Bank stock                       (3,160,300)      (1,050,800)        (137,500)
                                                                  -------------    -------------    -------------
Net Cash Used By Investing Activities                               (47,870,111)     (69,090,680)     (14,650,074)

CASH FLOWS FROM FINANCING ACTIVITIES
      Net increase in deposits                                       23,900,202       45,795,234       12,823,631
      Net (decrease) increase in securities sold
      under agreements to repurchase                                 (1,914,959)       3,318,764        2,184,882
      Net increase in federal funds purchased                         7,900,000             --               --
      Dividends                                                      (4,168,721)      (3,577,098)      (3,113,278)
      Proceeds from FHLB advances                                    16,000,000        7,000,000        9,000,000
      Repayment of FHLB advances                                     (2,692,233)      (2,000,000)      (2,000,000)
      Purchase of treasury stock                                           --           (258,513)        (395,277)
      Exercised stock options                                          (490,998)            --               --
                                                                  -------------    -------------    -------------
Net Cash From Financing Activities                                   38,533,291       50,278,387       18,499,958
                                                                  -------------    -------------    -------------
Net Change in Cash and Cash Equivalents                                 762,417      (10,152,657)       3,472,540

Cash and Cash Equivalents at Beginning of Year                       15,066,278       25,218,935       21,746,395
                                                                  -------------    -------------    -------------
Cash and Cash Equivalents at End of Year                          $  15,828,695    $  15,066,278    $  25,218,935
                                                                  =============    =============    =============
</TABLE>
The  accompanying  notes  an  integral  part  of  these  consolidated  financial
statements.

                                       7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                              ----------------------------------------
                                                  2003         2002            2001
                                               -----------   -----------   -----------
<S>                                            <C>           <C>           <C>
SUPPLEMENTAL DISCLOSURES

       Cash payments for:
           Interest                            $11,446,828   $13,225,782   $18,089,680

           Income taxes                        $ 3,671,847   $ 3,543,379   $ 3,003,600

NON CASH TRANSACTIONS

       Recorded unrealized gains on
           securities available for sale       $ 1,566,116   $ 4,041,600   $ 2,034,303
           at December 31

       Deferred income taxes on recorded
           unrealized gains on securities
           available for sale at December 31   $   532,479   $ 1,374,144   $   691,631

       Loans transferred to foreclosed real
           estate during the year              $   301,284   $   857,681   $   432,376

       Recorded nonmonetary gain on
           securities available for sale
           at December 31                      $    11,960   $     1,986   $    81,092
</TABLE>
The  accompanying  notes  an  integral  part  of  these  consolidated  financial
statements.

                                       8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


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 six 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 $412,702 for 2003, $406,898 for 2002 and $340,513 for 2001.

LOANS  AND  ALLOWANCE  FOR LOAN  LOSSES:  Loans are  stated at unpaid  principal
balances, less the allowance for loan losses and net deferred loan fees.

                                       9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


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 2,977,655,  2,980,282 and 2,993,693 for the years ended December
31, 2003, 2002 and 2001, respectively.

                                       10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


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, 2003
                                 ---------------------------------------------------------------
                                                                       GROSS           GROSS
                                     AMORTIZED     UNREALIZED        UNREALIZED        MARKET
                                       COST           GAINS            LOSSES          VALUE
                                 -------------   -------------    -------------    -------------
<S>                              <C>             <C>              <C>              <C>
Obligations of
     U.S. Government Agencies    $  82,462,153   $     824,768    $    (318,174)   $  82,968,747

Obligations of State and
     political sub-divisions        35,863,808       2,057,452             --         37,921,260
Mortgage-backed securities          37,012,318         735,791          (91,604)      37,656,505
Other securities                       710,005          29,553             --            739,558
Equity securities                   10,292,713         140,507       (1,812,177)       8,621,043
                                 -------------   -------------    -------------    -------------
                                 $ 166,340,997   $   3,788,071    $  (2,221,955)   $ 167,907,113
                                 =============   =============    =============    =============
<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>

                                       11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


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,
                                                     ------------------------------
                                                       2003       2002        2001
                                                     --------   --------   --------
<S>                                                  <C>        <C>        <C>
Gross realized gains:
  Obligations of U.S. Government Agencies            $ 75,646   $ 42,922   $358,639
  Obligations of state and political sub-divisions     26,250        760      5,348
  Mortgage-backed securities                          279,457    113,002        606
  Equity securities                                   151,802      1,986     88,297
                                                     --------   --------   --------
                                                     $533,155   $158,670   $452,890
                                                     ========   ========   ========
Gross realized losses:
  Obligations of U.S. Government Agencies            $   --     $   --     $  2,616
  Mortgage-backed securities                           67,636     24,925     58,176
                                                     --------   --------   --------
                                                     $ 67,636   $ 24,925   $ 60,792
                                                     ========   ========   ========
</TABLE>

The  amortized  cost and  estimated  market value of the  investment  securities
available  for sale at December 31, 2003,  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.
<TABLE>
<CAPTION>
                                                       Amortized        Market
                                                         Cost           Value
                                                     ------------   ------------
<S>                                                  <C>            <C>
Due in one year or less                              $  2,484,522   $  2,550,439
Due after one year through five years                  10,717,749     11,057,213
Due after five years through ten years                 85,468,227     86,358,100
Due after ten years, includes equity securities        67,670,499     67,941,361
                                                     ------------   ------------
                                                     $166,340,997   $167,907,113
                                                     ============   ============
</TABLE>
As a member of the  Federal  Home Loan Bank of  Pittsburgh  (FHLB),  the Bank is
required to  maintain a minimum  amount of FHLB  stock.  The  minimum  amount is
calculated  based  on  level  of  assets,  residential  real  estate  loans  and
outstanding FHLB advances. The Bank held $4,540,500 and $3,152,600 of FHLB stock
at December 31, 2003 and 2002, respectively.

                                       12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)

Temporarily impaired investments consist of the following:
<TABLE>
<CAPTION>
                                                   DECEMBER 31, 2003
                                ------------------------------------------------------    --------------------------
                                    LESS THAN 12 MONTHS         12 MONTHS OR LONGER                  TOTAL
                                --------------------------    ------------------------    --------------------------
                                  MARKET        UNREALIZED     MARKET       UNREALIZED       MARKET       UNREALIZED
                                  VALUE           LOSSES       VALUE         LOSSES          VALUE          LOSSES
                                -----------   ------------    ----------   -----------    -----------   ------------
<S>                             <C>           <C>            <C>           <C>            <C>           <C>
Obligations of U.S.
     Government Agencies        $21,875,290   $  (318,174)   $      --     $      --      $21,875,290   $  (318,174)
Mortgage-backed securities       13,826,675       (91,604)          --            --       13,826,675       (91,604)
Equity securities                      --            --        8,180,000    (1,812,177)     8,180,000    (1,812,177)
                                -----------   -----------    -----------   -----------    -----------   -----------
     Total temporarily
          impaired securities   $35,701,965   $  (409,778)   $ 8,180,000   $(1,812,177)   $43,881,965   $(2,221,955)
                                ===========   ===========    ===========   ===========    ===========   ===========
</TABLE>

Investments  are  reviewed for  declines in value on a quarterly  basis.  Common
stocks currently have market values that are in excess of carrying  values.  All
other  investments are interest rate sensitive.  These investments earn interest
at fixed or adjustable  rates.  The adjustable  rate  instruments  are generally
linked to an index,  such as the 3 month libor  rate,  plus or minus a variable.
The value of these  instruments  fluctuates with interest  rates,  therefore the
changes in value are deemed to be temporary.

NOTE 3 -- LOANS

Major classifications of loans are as follows:
<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                --------------------------------
                                                    2003                 2002
                                                ------------        ------------
<S>                                             <C>                 <C>
Mortgage                                        $244,923,121        $210,244,046
Home equity credit                                21,963,205          15,832,462
Installment                                       78,326,060          59,321,023
Commercial                                        59,591,433          58,633,722
PHEAA                                              7,833,861           6,899,585
Municipal                                          6,267,974          11,190,265
Credit cards                                          37,890              32,445
Other                                                965,493           1,147,661
                                                ------------        ------------
                                                 419,909,037         363,301,209
Less:
Allowance for loan losses                          3,284,830           2,873,067
Deferred loan fees                                   337,752             556,628
                                                ------------        ------------
                                                $416,286,455        $359,871,514
                                                ============        ============
</TABLE>

                                       13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 3 -- LOANS (CONTINUED)

The aggregate  amount of demand deposit  accounts with  overdrawn  balances that
were  reclassified  as loan  balances at December 31, 2003 and 2002  amounted to
$407,581 and $490,961, respectively and are included in other loans.


The total recorded investment in impaired loans amounted to $567,564 at December
31, 2003 and  $619,326 at  December  31,  2002.  The  allowance  for loan losses
related to impaired loans amounted to $283,782 and $309,663 at December 31, 2003
and 2002, respectively.

Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                      -----------------------------------------
                                          2003           2002           2001
                                      -----------    -----------    ------------
<S>                                   <C>            <C>            <C>
Balance, beginning of year            $ 2,873,067    $ 2,113,806    $ 1,919,327
Provision charged to operations           600,000      1,100,000        500,000
Loans charged off                        (242,711)      (440,728)      (344,909)
Recoveries                                 54,474         99,989         39,388
                                      -----------    -----------    ------------
Balance, end of year                  $ 3,284,830    $ 2,873,067    $ 2,113,806
                                      ===========    ===========    ============
</TABLE>

NOTE 4 -- PREMISES AND EQUIPMENT

Premises and equipment which are stated at cost are as follows:
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                   -----------------------------
                                                       2003              2002
                                                   -----------       -----------
<S>                                                <C>               <C>
Land                                               $   791,559       $   450,466
Buildings and improvements                           5,889,215         5,053,222
Furniture and equipment                              7,298,169         5,932,751
                                                   -----------       -----------
                                                    13,978,943        11,436,439
Less:  Accumulated depreciation                      7,510,194         6,677,424
                                                   -----------       -----------
                                                   $ 6,468,749       $ 4,759,015
                                                   ===========       ===========
</TABLE>
During  2003,  the Bank  purchased  land  and  built a new  branch  at a cost of
approximately $1,050,000.

Depreciation  expense  was  $832,770 in 2003,  $684,731 in 2002 and  $607,993 in
2001.

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

                                       14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 4 -- PREMISES AND EQUIPMENT (CONTINUED)

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

For the year ended December 31,
                               2004                       $ 212,953
                               2005                         166,618
                               2006                          87,532
                               2007                          56,140
                               2008                          59,116
                               2009 and thereafter          305,960
                                                          ---------
                                                          $ 888,319
                                                          =========

Rental expense under these operating leases was $220,981,  $183,005 and $178,437
for the years ended December 31, 2003, 2002 and 2001, respectively.

NOTE 5 -- JOINT VENTURE

The Bancorp has an 85% limited partnership  interest in T.A. of Irwin, L.P. This
partnership 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, 2003 and 2002,  the  partnership is reflected in the other assets section of
the balance sheet at $21,309 and $82,140, 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, 2003 and 2002,  the cash
surrender value of these policies was $11,068,593 and $10,584,859, 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 income.

NOTE 7 -- DEPOSITS

Time deposits  maturing in years ending December 31, as of December 31, 2003 are
summarized as follows:

                      2004                       $ 120,642,479
                      2005                          62,325,950
                      2006                           9,219,357
                      2007                          14,426,491
                      2008                          20,452,960
                      2009 and thereafter           11,167,981
                                                 -------------
                                                 $ 238,235,218
                                                 =============

                                       15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 7 -- DEPOSITS (CONTINUED)

The Bank held related party deposits of approximately  $2,750,000 and $3,600,000
at December 31, 2003 and 2002, respectively.

The  Bank  held  time  deposits  that  exceeded   $100,000  of  $42,550,077  and
$47,748,416 at December 31, 2003 and 2002, respectively.

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  $12,610,877  and
$14,525,836 at December 31, 2003 and 2002, respectively.

NOTE 9 -- PLEDGED ASSETS

At December 31, 2003 and 2002, U.S.  Government  Agency  obligations  carried at
approximately $25,500,000 and $42,800,000 respectively,  were pledged to qualify
for fiduciary powers, to secure public monies and for other purposes required or
permitted  by law.  At  December  31,  2003 and  2002,  the  carrying  amount of
securities pledged to secure repurchase agreements was approximately  $9,300,000
and $27,900,000 respectively.

NOTE 10 -- FHLB ADVANCES

At December  31, 2003 and 2002,  the Bank had the  following  advances  from the
Federal Home Loan Bank (FHLB).
<TABLE>
<CAPTION>
                2003                 2002           Interest Rate                  Maturity Date
            ------------        ------------     ------------------------          -----------------
            <S>                 <C>              <C>                                    <C> <C>
            $ 10,000,000        $ 10,000,000     5.86% Fixed w/Strike Rate         July 22, 2004
               2,000,000           2,000,000     3.67% Fixed                       September 5, 2007
               3,307,767                   -     2.79% Amortizing-Fixed            January 28, 2008
               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           5,000,000     4.6% Fixed w/Strike Rate          January 30, 2012
               5,000,000                   -     3.51% Fixed w/Strike Rate         January 28, 2013
               5,000,000                   -     3.47% Fixed w/Strike Rate         March 18, 2013
            ------------        ------------
            $ 53,307,767        $ 40,000,000
            ============        ============
</TABLE>

Interest only is payable until maturity on all FHLB advances except for the FHLB
advance with a maturity  date of January 28, 2008.  Collateral  for all advances
includes all qualifying mortgages.

                                       16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 10 -- FHLB ADVANCES (CONTINUED)

The following is a summary of the principal  payments due on the FHLB advance of
$4,000,000.  The advance is payable in 60 monthly payments of $71,502  including
interest  at 2.79%,  maturing  Janaury  28,  2008.  The  outstanding  balance at
December 31, 2003 was $3,307,767;

      Principal payments due December 31:    2004      $   775,607
                                             2005          797,525
                                             2006          820,063
                                             2007          843,237
                                             2008           71,335
                                                       -----------
                                                       $ 3,307,767
                                                       ===========

On May 27, 2003,  the Bank  obtained a line of credit from the Federal Home Loan
Bank in the amount of  $20,000,000.  The interest rate is variable and was 1.06%
at December 31, 2003. The line of credit has an expiration date of May 25, 2004.
There was no balance outstanding on the line of credit as of December 31, 2003.

The Bank had maximum borrowing capacity with FHLB of approximately  $282,428,000
and $261,519,000 at December 31, 2003 and 2002, respectively.

NOTE 11 -- INCOME TAXES

The provision for income taxes consists of:
<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                   ---------------------------------------------
                                       2003            2002              2001
                                   -----------     -----------      -----------
<S>                                <C>             <C>              <C>
Currently payable                  $ 3,424,374     $ 3,527,269      $ 3,072,885
Deferred tax (benefit)                   3,519        (346,958)         (87,061)
                                   -----------     -----------      -----------
Total                              $ 3,427,893     $ 3,180,311      $ 2,985,824
                                   ===========     ===========      ===========
</TABLE>

The significant  components of temporary differences for 2003, 2002 and 2001 are
as follows:
<TABLE>
<CAPTION>
                                               Years Ended December 31,
                                      ------------------------------------------
                                          2003           2002             2001
                                      ---------       ---------       ---------
<S>                                   <C>             <C>             <C>
Provision for loan losses             $(201,201)      $(299,256)      $ (86,543)
Depreciation                            143,959          32,400         (30,397)
Pension                                  28,457          28,461          37,532
Deferred loan fees                       74,418         (96,222)        (32,695)
Other                                   (42,114)        (12,341)         25,042
                                      ---------       ---------       ---------
Total                                 $   3,519       $(346,958)      $ (87,061)
                                      =========       =========       =========
</TABLE>

                                       17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 11 -- 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:
<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                  -------------------------------
                                                        % of Pretax Income
                                                  -------------------------------
                                                   2003         2002         2001
                                                  ------       -----        -----
<S>                                               <C>          <C>          <C>
Provision at statutory rate                       34.0%        34.0%        34.0%
Effect of tax free income                         (5.2)        (5.4)        (4.3)
Other                                             (2.6)        (2.4)        (1.2)
                                                  ----         ----         ----
Effective tax rate                                26.2%        26.2%        28.5%
                                                  ====         ====         ====
</TABLE>

The deferred tax assets and  deferred  tax  liabilities  recorded on the balance
sheet as of December 31, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>
                                      2003                      2002
                            --------------------------------------------------
                                   Deferred Tax              Deferred Tax
                            ------------------------  ------------------------
                              Assets     Liabilities    Assets     Liabilities
                            ----------   -----------  ----------   -----------
<S>                         <C>          <C>          <C>          <C>
Provision for loan losses   $1,035,069   $       --   $  833,868   $       --
Depreciation                        --      309,018           --      165,059
Pension expense                     --      150,957           --      122,499
Other                          269,437           --      301,741           --
SFAS 115                            --      532,479           --    1,374,144
                            ----------   ----------   ----------   ----------
                            $1,304,506   $  992,454   $1,135,609   $1,661,702
                            ==========   ==========   ==========   ==========
</TABLE>

NOTE 12 -- SHAREHOLDER RIGHTS PLAN

On  November  18,  2003,  the  Board  of  Directors  of the  Bancorp  adopted  a
Shareholder Rights Plan. The Board declared a dividend distribution of one Right
for each  outstanding  share of common  stock to  stockholders  of record at the
close of  business  on  December  1, 2003.  Each Right  initially  entitled  the
registered  holder to purchase  from the Bancorp  common stock worth $410 on the
date of exercise, for a purchase price of $205, subject to adjustment.

Initially,  the  Rights  will  be  attached  to all  common  stock  certificates
representing shares then outstanding, and no separate Rights certificate will be
distributed.  The Rights will separate from the common stock and a  distribution
date will occur upon the  earlier of (i) 10  business  days  following  a public
announcement  that a person or group of  affiliated  or  associated  persons (an
"Acquiring Person"), has acquired, or obtained the Right to acquire,  beneficial
ownership  of 10% or more of the  outstanding  shares  of common  stock  ("stock
acquisition  date") or (ii) 10 business  days  following the  commencement  of a
tender  offer  or  exchange  offer  that  would  result  in a  person  or  group
beneficially owning 10% or more of such outstanding shares of common stock.

The Rights are not exercisable  until the  distribution  date and will expire at
the close of business on December 1, 2013,  unless earlier redeemed or exchanged
by the Bancorp.

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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 12 -- SHAREHOLDER RIGHTS PLAN (CONTINUED)


In the event that at any time following the Rights dividend  declaration date, a
person  becomes  the  beneficial  owner  of 10% or more of the  then-outstanding
shares of common  stock,  each holder of a Right  (other than Rights held by the
party  triggering  the Rights and certain  transferees  which are  voided)  will
thereafter  have the right to  receive,  upon  exercise,  common  stock (or,  in
certain  circumstances,  cash,  property,  or other  securities  of the  Bancorp
subject to certain  limitations)  having a value equal to two times the exercise
price of the Right. However, Rights are not exercisable following the occurrence
of the  event set  forth  above  until  such  time as the  Rights  are no longer
redeemable by the Bancorp.

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  $76,971,000  and  $75,521,000  as of December  31, 2003 and 2002,
respectively, and approximate fair value.

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

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

The exposure to loss under these  commitments  is limited by subjecting  them to
credit approval and monitoring procedures.  Substantially all of the commitments
to extend credit are  contingent  upon  customers  maintaining  specific  credit
standards at the time of the loan  funding.  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 -- 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, 2003 and 2002, 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  $1,201,000 and $2,756,000 at December
31, 2003 and 2002, respectively.

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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 15 -- EMPLOYEE BENEFIT PLANS

DEFINED 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, 2003, 2002 and
2001,  even  though  the  information  has  been  compiled  on the  basis of the
actuarial measurement period.
<TABLE>
<CAPTION>
                                                      2003           2002          2001
                                                  -----------    -----------    -----------
<S>                                               <C>            <C>            <C>
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year           $ 2,739,116    $ 2,253,576    $ 1,840,408
Service cost                                          210,043        179,307        151,433
Interest cost                                         184,275        162,431        141,430
Benefits paid                                         (35,897)      (161,570)       (68,612)
Other - net                                           233,819        305,372        188,917
                                                  -----------    -----------    -----------
      Benefit obligation at end of year           $ 3,331,356    $ 2,739,116    $ 2,253,576
                                                  ===========    ===========    ===========

Change in Fair Value of Plan Assets:
Plan assets at estimated
      fair value at beginning of year             $ 2,201,346    $ 2,350,244    $ 2,215,142
Actual return on plan assets, net of expenses         305,653       (207,196)         4,280
Benefits paid                                         (35,897)      (161,570)       (68,612)
Employer contributions                                264,969        219,868        199,434
                                                  -----------    -----------    -----------
      Fair value of plan assets at end of year    $ 2,736,071    $ 2,201,346    $ 2,350,244
                                                  ===========    ===========    ===========

Funded status                                     $  (595,285)   $  (537,770)   $    96,668
Unrecognized net loss from actuarial experience     1,115,107      1,057,676        377,432
Unrecognized prior service cost                      (183,700)      (201,962)      (220,224)
Unamortized net asset existing at date
      of adoption of SFAS No. 87                      (27,075)       (31,173)       (35,271)
                                                  -----------    -----------    -----------
      Prepaid pension cost                        $   309,047    $   286,771    $   218,605
                                                  ===========    ===========    ===========
</TABLE>

                                       20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

DEFINED BENEFIT PLANS (CONTINUED)

Net periodic pension cost included the following
 components:
<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                            -----------------------------------
                                               2003         2002         2001
                                            ---------    ---------    ---------
<S>                                         <C>          <C>          <C>
Service cost                                $ 210,043    $ 179,307    $ 151,433
Interest cost                                 184,275      162,431      141,430
Expected return on plan assets               (167,906)    (175,875)    (165,293)
Amortization of prior service cost            (18,262)     (18,262)     (18,262)
Amortization of transition asset               (4,098)      (4,098)      (4,098)
Recognized net actuarial loss                  44,196        8,199           --
                                            ---------    ---------    ---------
Net periodic pension cost                   $ 248,248    $ 151,702    $ 105,210
                                            =========    =========    =========
<CAPTION>

                                                        December 31,
Amounts recognized in the consolidated    --------------------------------------
balance sheets consist of:                  2003           2002           2001
                                          --------       --------       --------

<S>                                       <C>            <C>            <C>
Prepaid benefit cost                      $536,653       $500,022       $406,868
                                          ========       ========       ========
</TABLE>

In the months of December 2003,  2002 and 2001, the Bank  contributed  $293,275,
$264,969 and $219,868  respectively,  to the plans  subsequent  to the actuarial
measurement  dates of October 15, 2003,  2002 and 2001.  Because these  employer
contributions were paid after the actuarial measurement period ended, the Bank's
prepaid pension cost at December 31, 2003, 2002 and 2001 was $536,653,  $500,022
and $406,868, respectively.

The combined  accumulated  benefit  obligation for both plans was $2,417,536 and
$1,970,893 at December 31, 2003, and 2002, respectively.

<TABLE>
<CAPTION>
Weighted-average assumptions used to determine                            YEARS ENDED DECEMBER 31,
both the benefit obligations and net periodic pension    ------------------------------------------------------
costs were as follows:                                        2003                2002                 2001
                                                         -------------       -------------        -------------
<S>                                                           <C>                 <C>                  <C>
Plan #1
Discount rate                                                 6.50%               6.75%                7.25%
Expected long-term return on plan assets                      7.00%               7.00%                7.00%
Rate of compensation increase                            3.50% - 5.50%       3.50% - 5.50%        3.50% - 5.50%

Plan #2
Discount rate                                                 7.00%               7.00%                7.00%
Expected long-term return on plan assets                      7.00%               7.00%                7.00%
Rate of compensation increase                                 3.50%               3.50%                3.50%
</TABLE>


The interest rate assumption  utilized for the plan valuation methods is 7%. The
interest rate assumption is reasonable  considering  historical  rates of return
and the asset allocation mix of the plan.


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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

DEFINED BENEFIT PLANS (CONTINUED)
                                                          DECEMBER 31,
Pension plan weighted-average asset allocations   ------------------------------
by investment category are as follows:            2003          2002        2001
                                                  ----          ----        ----
Cash and cash equivalents                          17%           9%          15%
Stocks                                             24%          32%          37%
Bonds                                              16%          13%           9%
Mutual funds                                       30%          29%          29%
Government securities                              13%          17%          10%
                                                  ---          ---          ---
Total                                             100%         100%         100%
                                                  ===          ===          ===

The Bank's  pension plan funds are managed and held in trust by the Bank's Trust
Division.  The investment objective and strategy for investing plan assets calls
for  a  "Moderate  Growth  Income  Objective".  This  objective  provides  for a
preservation of the principal's  purchasing power and moderate income. The range
of equity  exposure is from 40 to 80 percent and fixed income  maturities  to 30
years.  The targeted  asset  allocation  percentages  for each  category of plan
assets  would  reveal a strategy  to acquire a higher  position in equities to a
level of between  50 to 55  percent  over the course of the next one to two year
period.  The  investment  policies  of the  plan  trustees  prohibit  the use of
derivatives.  In addition, the plan assets are diversified  appropriately across
different sections and the plan trustees have further diversified plan assets by
maintaining an investment in mutual funds.

OTHER EMPLOYEE BENEFIT PLANS

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  $473,567  and  $477,164 at December 31, 2003 and 2002,
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 2003, 2002 and
2001 amounted to $68,479, $57,304 and $53,404, respectively.


NOTE 16 -- RELATED-PARTY TRANSACTIONS

At December 31, 2003 and 2002, 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 $10,810,000 and $12,630,000
respectively.  During 2003, new loans to such related parties were approximately
$1,770,000 and repayments approximated $3,590,000.

                                       22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 17 -- 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 federal  funds  purchased  and
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, 2003 are as follows:

                                                    CARRYING           FAIR
                                                     AMOUNT            VALUE
Financial Assets:
      Cash and cash equivalents                   $ 15,828,695      $ 15,828,695

      Certificate of deposit                      $    100,000      $    100,000

      Investment securities                       $167,907,113      $167,907,113

      Federal Home Loan Bank stock                $  4,540,500      $  4,540,500

      Loans receivable                            $416,286,455      $420,626,455

Financial liabilities:
      Deposits                                    $492,157,529      $495,726,529

      Short-term borrowings                       $ 20,510,877      $ 20,510,877

      FHLB advances                               $ 53,307,767      $ 61,144,767

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

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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 18 -- 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,  2003  and  2002,  that  the  Bank  meets  all  capital   adequacy
requirements to which it is subjected.

The Bank's actual  capital  ratios as of December 31, 2003 and 2002, the minimum
ratios  required for capital  adequacy  purposes,  and the ratios required to be
considered  well  capitalized  under the Federal Deposit  Insurance  Corporation
Improvement Act of 1991 provisions are as follows:
<TABLE>
<CAPTION>

                                               December 31,                 Minimum                 Well
                                          -----------------------           Capital              Capitalized
                                           2003            2002           Requirements           Requirements
                                          -------         -------         ------------          ---------------
<S>                                         <C>             <C>             <C>                 <C>
Risk-based capital ratio                    15.1%           15.2%           8.0%                10.0% or higher
Leverage capital ratio                       9.1%            8.9%           3.0% to 4.0%        5.0% or higher
Tier 1 risk-based capital  ratio            14.3%           14.4%           4.0%                6.0% or higher
</TABLE>

Included in cash and due from banks are required  federal reserves of $4,740,000
and $4,358,000 at December 31, 2003 and 2002, 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 19 -- 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 can be made.
Under the plan,  the  exercise  price of each option  equals the closing  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
vested  immediately  and are  exercisable  six  months  from the grant  date and
options granted to employees generally vest over three years.

As of December 31, 2003, a total of 150,000 stock options have been granted,  of
which,  73,887 are vested and exercisable,  44,167 have not vested,  27,779 have
been exercised and 4,167 have been forfeited.

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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 19 -- STOCK OPTION PLAN (CONTINUED)

A summary of the status of the Bank's stock option plan is presented below:
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                            -------------------------------------------------------------------------
                                                  2003                        2002                       2001
                                            -------------------        -------------------         ------------------
                                                       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           119,709    $ 26.53          94,000    $ 23.97          61,000    $ 24.50
 Granted                                     20,500    $ 51.40          35,500    $ 32.88          33,000    $ 23.00
 Forfeitures                                 (1,001)   $ 29.58          (3,166)   $ 23.79               -          -
 Exercised                                  (21,154)   $ 25.85          (6,625)   $ 25.58               -          -
                                            -------                    -------                     ------
 Outstanding at December 31,                118,054    $ 30.94         119,709    $ 26.53          94,000    $ 23.97
                                            =======                    =======                     ======
 Exercisable at December 31,                 73,887    $ 25.54          66,513    $ 25.70          41,333    $ 24.17
                                            =======                    =======                     ======
</TABLE>

The  options   outstanding   at  December  31,   2003,   2002  and  2001  had  a
weighted-average  contractual maturity of 7.66 years, 8.2 years, and 8.73 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:
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                               -------------------------------------------
                                                  2003             2002             2001
                                               ---------         --------        ---------
      <S>                                       <C>               <C>             <C>
      Dividend yield                             2.72%             3.79%           3.59%
      Expected life                             7 years           7 years         7 years
      Expected volatility                         20%               19%             18%
      Risk-free interest rate                    4.00%             3.75%           4.95%
      Weighted-average fair value                $10.75            $7.46           $4.19
</TABLE>

Prior to  2003,  the Bank  accounted  for  stock-based  compensation  under  the
recognition  and  measurement  provisions of APB Opinion No. 25,  Accounting for
Stock Issued to Employees, and related interpretations.  No stock-based employee
compensation cost is reflected in either 2002 or 2001 net income, as all options
granted  during 2002 and 2001 had an exercise price equal to the market value of
the underlying common stock on the date of grant. Effective January 1, 2003, the
Bank  adopted the fair value  recognition  provisions  of Statement of Financial
Accounting  Standards  (SFAS)  123,  Accounting  for  Stock-Based  Compensation,
prospectively to all employee awards granted in 2003. Awards under the plan vest
over periods ranging from six months to three years. Therefore, the cost related
to stock-based compensation included in the determination of net income for 2003
is less than that which  would  have been  recognized  if the fair  value  based
method had been  applied  to all awards  since the  original  effective  date of
Statement 123.

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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

NOTE 19 -- STOCK OPTION PLAN (CONTINUED)

The following table  illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all  outstanding and unvested
awards in each year.
<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                 -------------------------------------------
                                                                    2003            2002             2001
                                                                 ------------   ------------    ------------
<S>                                                              <C>            <C>             <C>
Net income, as reported                                          $  9,646,246   $ 8,937,299     $  7,465,334
Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects        67,422            --               --
Deduct: Total stock-based employee compensation
    expense determined under fair value based method for
    all awards, net of related tax effects                            151,518        327,483         114,219
                                                                 ------------   ------------    ------------
Pro-forma net income                                             $  9,562,150   $  8,609,816    $  7,351,115
                                                                 ============   ============    ============
Earnings per share:
      Basic-as reported                                          $       3.24   $       3.00    $       2.49
                                                                 ============   ============    ============
      Basic-pro forma                                            $       3.21   $       2.84    $       2.45
                                                                 ============   ============    ============
      Diluted-as reported                                        $       3.19   $       2.99    $       2.49
                                                                 ============   ============    ============
      Diluted-pro forma                                          $       3.17   $       2.84    $       2.45
                                                                 ============   ============    ============
</TABLE>

Weighted-average  number of shares outstanding  assuming dilution of exercisable
stock  options  using the treasury  stock method was  3,020,075,  2,991,043  and
2,994,088 for the years ended December 31, 2003, 2002 and 2001, respectively.

NOTE 20 -- 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.
The Bancorp did not repurchase any shares of its own stock during 2003.

NOTE 21 -- RECENT ACCOUNTING PRONOUNCEMENTS

In 2003, the Bank adopted the disclosure provisions as required by SFAS No. 132,
"Employers'  Disclosures about Pensions and Other Postretirement  Benefits",  as
revised  by  the  FASB.  This  statement  retains  the  disclosure  requirements
contained  in  the  original  Statement  132,  the  revised  Statement  requires
additional  disclosures  about plan  assets,  obligations,  cash flows,  and net
periodic benefit cost of defined benefit pension plans and other  postretirement
benefit  plans.  The  revised  Statement  does not  change  the  measurement  or
recognition  of those plans as  originaly  required by SFAS No. 87,  "Employers'
Accounting for Pensions".  The provisions of the revised statement are effective
for fiscal  years ending after  December 15, 2003.  Management  has included the
additional  disclosures  in the notes to the financial  statements  and believes
that this statement has no financial impact on the Bank or its operations.

In 2003, the FASB issued SFAS No. 149,  Amendment of Statement 133 on Derivative
Instruments  and Hedging  Activities  (effective  for contracts  entered into or
modified after June 30, 2003,  with specified  exceptions).  Management does not
believe the statement will have a material impact on the Bank or its operations.

Also in 2003, the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of Both Liabilities and Equity" (effective for
financial  instruments entered into or modified after May 31, 2003, with limited
exceptions).  Management  does not  believe the  statement  will have a material
impact on the Bank or its operations.


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

IBT BANCORP, INC. AND SUBSIDIARY

Years Ended December 31, 2003, 2002 and 2001

NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION

The condensed  financial  information  for IBT Bancorp,  Inc. as of December 31,
2003 and 2002 and for the years ended  December  31,  2003,  2002 and 2001 is as
follows:


BALANCE SHEETS
                                                              DECEMBER 31
                                                       -------------------------
                                                           2003          2002
                                                       -----------   -----------
ASSETS
     Cash in bank                                      $    60,813   $   401,584
     Investment in subsidiary                           58,771,455    54,926,513
     Securities available for sale                         578,603       554,207
     Other assets                                          242,943       303,774
                                                       -----------   -----------
     Total Assets                                      $59,653,814   $56,186,078
                                                       ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
     Liabilities                                       $    47,773   $    34,900

     Stockholders' Equity                               59,606,041    56,151,178
                                                       -----------   -----------
     Total Liabilities and Stockholders' Equity        $59,653,814   $56,186,078
                                                       ===========   ===========
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                           -----------------------------------
                                                             2003         2002          2001
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Income
     Dividends from subsidiary                             3,600,000    4,000,000    3,650,000
     Other dividends                                          14,156       14,069       16,978
     Investment security gains                               151,802        1,986       88,297
     Income from joint ventures                              218,307      185,541      102,124

Expenses
     Professional fees                                       167,658       72,371       87,923
     Loss on joint venture                                        --           --       27,471
     Miscellaneous                                            62,954       33,203       16,880
                                                          ----------   ----------   ----------
Income Before Income Taxes
     and Equity in Undistributed Earnings of Subsidiary    3,753,653    4,096,022    3,725,125

Equity in Undistributed
     Earnings of Subsidiary                                5,892,593    4,841,277    3,740,209
                                                          ----------   ----------   ----------
Net Income                                                $9,646,246   $8,937,299   $7,465,334
                                                          ==========   ==========   ==========
</TABLE>

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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 22 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                        -----------------------------------------
                                                            2003           2002           2001
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

      Net income                                        $ 9,646,246    $ 8,937,299    $ 7,465,334
      Adjustments to reconcile net income to
         net cash provided by operating activities:
         Net undistributed earnings of joint ventures      (218,307)      (185,541)       (74,652)
         Investment security gains                         (151,802)        (1,986)       (88,297)
         Decrease in cash due to changes
             in assets and liabilities:
                Equity in undistributed earnings
                  of subsidiary                          (5,892,593)    (4,841,277)    (3,740,209)
                                                        -----------    -----------    -----------
NET CASH FROM OPERATING ACTIVITIES                        3,383,544      3,908,495      3,562,176

CASH FLOWS FROM INVESTING ACTIVITIES

      Distributions from joint ventures                     279,137        157,105         79,095
      Proceeds from sale of securities
         available for sale                                 166,846             --        478,554
      Purchase of securities available for sale              (1,577)       (74,095)      (369,062)
                                                        -----------    -----------    -----------
NET CASH FROM INVESTING ACTIVITIES                          444,406         83,010        188,587


CASH FLOWS FROM FINANCING ACTIVITIES

      Dividends paid                                     (4,168,721)    (3,577,098)    (3,113,278)
      Purchase of Treasury Stock                                 --       (258,513)      (395,277)
                                                        -----------    -----------    -----------
NET CASH USED BY FINANCING ACTIVITIES                    (4,168,721)    (3,835,611)    (3,508,555)
                                                        -----------    -----------    -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                    (340,771)       155,894        242,208


CASH AND CASH EQUIVALENTS AT BEGINNING
      OF YEAR                                               401,584        245,690          3,482
                                                        -----------    -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                $    60,813    $   401,584    $   245,690
                                                        ===========    ===========    ===========
</TABLE>

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

IBT BANCORP, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


NOTE 23 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA  (Unaudited)
<TABLE>
<CAPTION>

                                               QUARTERS ENDED 2003
                               --------------------------------------------------
                                MARCH 31     JUNE 30    SEPTEMBER 30  DECEMBER 31
                               ----------   ----------  ------------  -----------
<S>                            <C>          <C>          <C>          <C>
Interest income                $8,493,556   $8,338,858   $8,381,878   $8,183,551
Interest expense                2,973,791    2,826,082    2,736,619    2,778,289
                               ----------   ----------   ----------   ----------
Net interest income             5,519,765    5,512,776    5,645,259    5,405,262
Provision for loan
losses                            150,000      150,000      150,000      150,000
Non-interest income             1,440,540    1,686,128    1,581,936    1,182,452
Non-interest expense            3,246,494    3,744,055    3,581,862    3,727,570
                               ----------   ----------   ----------   ----------
Income before income
taxes                           3,563,811    3,304,849    3,495,333    2,710,144
Income tax expense                934,406      849,268      933,405      710,813
                               ----------   ----------   ----------   ----------
Net income                     $2,629,405   $2,455,581   $2,561,928   $1,999,331
                               ==========   ==========   ==========   ==========
Net income per Share of
Capital Stock                  $     0.88   $     0.82   $     0.86   $     0.67
                               ==========   ==========   ==========   ==========

<CAPTION>
                                               QUARTERS ENDED 2002
                               --------------------------------------------------
                                MARCH 31     JUNE 30    SEPTEMBER 30  DECEMBER 31
                               ----------   ----------  ------------  -----------
<S>                            <C>          <C>          <C>          <C>
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-interest 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
                               ==========   ==========   ==========   ==========
</TABLE>

                                       29

<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  7  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 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 ("FDIC") to
applicable limits.

Stock Market Information

The Company's  common stock is listed on the American  Stock  Exchange  ("AMEX")
under the symbol "IRW". As of March 2, 2004 IBT Bancorp,  Inc. had approximately
700 shareholders of record and 2,977,655 shares of common stock outstanding. The
number of stockholders does not reflect persons or entities who hold their stock
in nominee or "street" name through various brokerage firms.

For 2003 the following  table sets forth high and low trade prices per share for
the common stock for the calendar  quarters  indicated,  based upon  information
obtained from the AMEX.

For 2002 the following  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-downs  or  commissions  and may not
necessarily represent actual transactions.



                              Price Range                   Cash Dividends
                           High ($)        Low ($)       Declared Per Share ($)
                           --------        -------       ----------------------
2003
First Quarter              41.41            37.25                .35
Second Quarter             50.05            41.00                .35
Third Quarter              52.25            44.09                .35
Fourth Quarter             62.48            49.65                .35

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

<PAGE>

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

Additionally,  Irwin Bank is 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, 20, 2004 at 2:00 PM local time, at the Irwin Masonic Hall, located at 417
Main Street, Irwin, Pennsylvania 15642.

FORM 10-K

The Annual Report for the year ended December 31, 2003 filed with the Securities
and Exchange  Commission on Form 10-K, is available  without charge upon written
request. For a copy of the Form 10-K please contact:  Raymond G. Suchta,  Senior
Vice President and Chief Financial 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 Center
10 Commerce Drive                                    Pittsburgh, PA 15222
Cranford, New Jersey 07016-3572
1-800-368-5948

SPECIAL COUNSEL
Malizia, Spidi & Fisch, PC
1100 New York Avenue, NW
Suite 340 West
Washington, D.C. 20005


<PAGE>
<TABLE>
<CAPTION>
IRWIN BANK & Trust Company Officers

<S>                                                                   <C>
J.  Curt  Gardner,  Chairman  of the  Board                          Mary Ann  Ernette,  Assistant  Vice President-Uvest
Charles G.  Urtin,  President/CEO                                    Keith Frid,  Assistant  Vice President/Auditor
Robert A. Bowell,  Executive Vice President/                         Sheli L. Fyock, Assistant Vice President-
    Secretary-Treasurer/CLO                                               Marketing/Assistant Secretary
David A. Finui, Senior Vice President/COO                             Beverly A. Hahn, Assistant Vice President/
Raymond G. Suchta, Senior Vice President/CFO                              Branch Manager - Penn Township
Leslie F. Petras, Senior Vice President-Commercial Loans              Nancy J. McCullough, Assistant Vice President/
Louis C. Bouchat, Vice President-Commercial Loans                         Branch Manager - Route 30
Lisa A. Dawson, Vice President-Loan Administration                    Robert G. Michaud, Assistant Vice President-Marketing
Scott J. Fisher, Vice President-Trust                                 Maurine J. Peer, Assistant Vice President/
Jay Gordon, Vice President-Commercial Loans                               Branch Manager - Main Office
Donald D. Henderson III, Vice President-Operations                    Darwin H. Poole, Assistant Vice President-
Debra S. Hopper, Vice President-Human Resources                           Data Processing
Alan Lazar, Vice President-Commercial Loans                           Nancy A. Smith, Assistant Vice President-
Joseph A. Mignogna, Vice President-Compliance Officer                     Mortgage Lending
John J. Minkel, Vice President-Consumer Loans                         Linda D. Shaner, Assistant Vice President-
Scott D. Porterfield, Vice President-                                     Commercial Loans
    Branch Administration / Business Development                      Thomas R. Stephenson, Assistant Vice President-
Kristin S. Robertucci, Vice President-Accounting                          Loan Review
James W. Thompson, Vice President-Commercial Loans                    Kathleen T. Jaquette-Tosh, Assistant Vice President/
Stacey G. Winfield, Vice President-Commercial Loans                        Branch Manager - Greensburg
John R. Winter, Vice President-Commercial Loans                       Gene Bender, Assistant Trust Officer
Douglas P. Arndt, Assistant Vice President-Consumer Loans             Carolyn Sue Bozzick, Retail Banking Officer/Manager -
Jeffrey A. Branthoover, Assistant Vice President-                         Haymaker Village
    Trust Administration                                              Deborah L. Kukic, Training Officer
Barbara A. Burzio, Assistant Vice President-Commercial Loans          Denise Y. Poole, Operations Officer
Barbara DelBene, Assistant Vice President/                            Sandra L. Schwaderer, Retail Banking Officer/
    Branch Manager - White Oak                                            Manager - Pitcairn
</TABLE>
<TABLE>
<CAPTION>
IRWIN BANK & Trust Company Locations

<S>                                   <C>                                <C>
Main Office                           Branch Offices                     Irwin Bank Extra Locations
309 Main Street                       Greensburg                         Ft. Allen
Irwin, PA 15642                       4 Triangle Drive                   Inside Hempfield Shop N' Save
724-863-3100                          Greensburg, PA 15601               Greensburg, PA 15601
                                      724-837-5000                       724-853-8540

Loan Center                           Monroeville                        Irwin-North Huntingdon
319 Main Street                       Haymaker Village                   Inside Scozio's Shop N' Save
Irwin, PA 15642                       4580 Broadway Blvd.                Norwin Hills Shopping Center
724-863-3100                          Monroeville, PA 15146              8775 Norwin Avenue
                                      412-858-4450                       North Huntingdon, PA 15642
                                                                         724-861-8701
Trust Division
Suite 204                             Penn Township                      Monroeville
20 N. Pennsylvania Avenue             4021 Route 130                     Inside Haymaker Village Giant Eagle
Greensburg, PA 15601                  Irwin, PA 15642                    4548 Broadway Blvd.
724-836-2010                          724-744-2176                       Monroeville, PA 15146
                                                                         412-856-5330
UVest Investments                     Pitcairn
319 Main Street                       512 Broadway Blvd.                 Penn Crossing
Irwin, PA 15642                       Pitcairn, PA 15140                 Inside Scozio's Festival Foods
724-978-2751                          412-372-3838                       2000 Penny Lane
                                                                         Jeannette, PA 15644
                                      Route 30                           724-744-6111
                                      9570 Route 30
                                      Irwin, PA 15642                    White Oak
                                      724-863-2510                       Inside Scozio's Shop N' Save
                                                                         Oak Park Mall
                                      White Oak                          2001 Lincoln Way
                                      Oak Park Mall                      White Oak, PA 15131
                                      2003 Lincoln Way                   412-664-0984
                                      White Oak, PA 15131
                                      412-678-3000
</TABLE>